Barrons piece cites signs of Model S demand slowing - Feb 2

calisnow · Feb 2, 2016

"We are incrementally more cautious on overall Tesla demand. Consistent with our October checks, our latest checks with U.S. sales centers indicate that Model X orders are still lagging expectations. While getting the X to showrooms would help, we don’t expect that to happen until later this spring due to production challenges. Additionally, Tesla’s March-ending Model S promotional offer of 20% off the old lease cost continues, but we do not believe it has driven a noteworthy increase to sales. That the Model S should be benefiting from the lagging Model X underscores our incremental skepticism on overall demand.
Model S may be approaching its run-rate ceiling. Based on historical delivery trends for luxury sedans and SUVs, we think the addressable market for the Model S may already be hitting its run-rate ceiling, underpinning our skepticism around general Model S demand..."

Does Tesla Have a Demand Problem? - Stocks to Watch - Barrons.com

And the bio of the analyst mentioned:

Pacific Crest Securities Brad Erickson

Super_Popular · Feb 2, 2016

Articles like this come out every couple of months.....nothing new here.

Mike K · Feb 3, 2016

It does seem like pretty sound logic though. When you look at the average sales volume of the S class or 7 series and then the sales volume of the Model S, it's had an incredible run so far and it is a luxury car catering to a high end market. I'm sure there are some people that never would have bought a 5 or 7 series that bought an S but I suspect that is a statistical minority.

This level of demand isn't sustainable without a price drop and even with a price drop it's not sustainable because people already have their price drop in the form of used and CPO cars.

Tesla is a company I want so desperately to succeed but how they respond in the next couple years is critical. The 3 needs to be a thing. It can't be vaporware and it can't come out in 2022. The Model S is also in need of a Facelift. As an investor I'd want to see that the 3 is on track for on-time delivery and that Tesla shows they can update the S properly in a timely manner.

The stock market is very "what have you done for me lately". The stock can't ride on the success of the past any longer. I think investors really need to see that Tesla can be a car company like other car companies, at least in the ways that the market demands.

omarsultan · Feb 3, 2016

Disagree on the need to drop prices--that is fine for a commodity brand, but not for a premium brand, where holding price points is key to brand management. Look at iPhone pricing: year over year the price points stay the same, but Apple adds memory, touchID, faster processors, etc. You will see Tesla do the same thing, for example with the move form the S60 to the S70D at equivalent price points.

Navyguy · Feb 3, 2016

omarsultan said:
Disagree on the need to drop prices--that is fine for a commodity brand, but not for a premium brand, where holding price points is key to brand management. Look at iPhone pricing: year over year the price points stay the same, but Apple adds memory, touchID, faster processors, etc. You will see Tesla do the same thing, for example with the move form the S60 to the S70D at equivalent price points.

Ummm Yes but new features are hardware so that can "somewhat" justify the price, here all the new features are entirely over the air downloads, so that doesnt really justify a continued premium. PLUS the ONLY people saying that are ones who have the car and or paid the premium, obv not wanting their "stock" to be diluted. However someone who has been waiting I would SURE love to see the price go down. which as newer and more advanced tech comes out it will, that is how it works, a cd player 30 years ago was much more expensive lol

WMAC · Feb 3, 2016

Navyguy said:
Ummm Yes but new features are hardware so that can "somewhat" justify the price, here all the new features are entirely over the air downloads, so that doesnt really justify a continued premium. PLUS the ONLY people saying that are ones who have the car and or paid the premium, obv not wanting their "stock" to be diluted. However someone who has been waiting I would SURE love to see the price go down. which as newer and more advanced tech comes out it will, that is how it works, a cd player 30 years ago was much more expensive lol

Average automobile price has increased over the past 30 years. Software development has high value. A sunroof in most cars costs $2,500 where in the Tesla, Auto Pilot costs $2,500 - and it keeps getting better. Porsche has not lowered its price on the 911 - it released the Cayman. Tesla could chug along doing 100k cars in 2016 and the profitability would go up for the stock-mongers.

MsElectric · Feb 3, 2016

calisnow said:
"Additionally, Tesla’s March-ending Model S promotional offer of 20% off the old lease cost continues, but we do not believe it has driven a noteworthy increase to sales. "

Okay what is this 20% off lease they are talking about. We are in the market for possibly leasing an inventory P85D and I have been keeping an eye on new and inventory lease rates for quite a while. The Tesla lease terms continue to be pretty awful when compared to other cars in this price range both from the perspective of requiring about $10K or more down and the monthly lease payment also being quite high. The monthly lease payment has been around $1500/$1600 based on options for a P85D and I really see no change in that so not sure what discount 20% they are talking about.

mikeash · Feb 3, 2016

My question would be, slowing relative to what?

Tesla opened a new production line in anticipation of a second model roughly doubling orders. But the X is taking a while to ramp up production, so they're dedicating that excess capacity to more S production instead, as we saw from the massive jump in deliveries in Q4.

Is S demand slowing relative to Tesla's now doubled production capacity, half of which should be for the X? No surprise if so. Or is it slowing relative to their earlier pace of ~11,000 cars per quarter? That would be big news.

MsElectric · Feb 3, 2016

omarsultan said:
Disagree on the need to drop prices--that is fine for a commodity brand, but not for a premium brand, where holding price points is key to brand management. Look at iPhone pricing: year over year the price points stay the same, but Apple adds memory, touchID, faster processors, etc. You will see Tesla do the same thing, for example with the move form the S60 to the S70D at equivalent price points.

You bring up a great point with iPhone pricing in that fewer people are buying iPhones and Apple will have to revise pricing to better compete with Android Nexus and other unlocked phones that deliver just as much capability as an iPhone. When you are playing in the upper 95% percentile of the cost of a new car pricing does matter and adjustments can and will increase demand.

BertL · Feb 3, 2016

MsElectric said:
You bring up a great point with iPhone pricing in that fewer people are buying iPhones and Apple will have to revise pricing to better compete with Android Nexus and other unlocked phones that deliver just as much capability as an iPhone. When you are playing in the upper 95% percentile of the cost of a new car pricing does matter and adjustments can and will increase demand.

...or Apple will have to introduce sufficient new features to continue differentiating themselves and keep those that want those new features or are just loyal to the brand, buying. In maturing premium brand markets, companies will always try to hold on as long as they can before reducing price, unless they truly see a price reduction as a way to increasing sales volume to generate equivalent or better bottom line profit to the shareholder. You can tweak the business model either way, and it's the balancing act Senior Execs must play. Elon is working hard to get more AutoPilot functionality introduced with associated Press to keep Tesla and MS differentiated and in the headlines -- what he's not doing is spending a lot of time to make existing customers happier with software fixes and basic audio/nav enhancements that catch features up with what other competitive players have provided for years, but wouldn't gain a lot of immediate positive Press. My personal opinion is the latter will eventually have an effect on new sales, in addition to the whole point of pricing...

sorka · Feb 3, 2016

I don't think lowering the price will help sales. If I were just in the market research phase and saw the price lowered, I'd probably hold out figuring it would drop again. If I was rich, I wouldn't care one way or another.

They should focus on getting the Model X out. At this point it's not really out when only a few hundred have been delivered.

ecarfan · Feb 3, 2016

"Our latest checks with U.S. sales centers..."?

Analysts just make stuff up so they can write something and meet their mindless verbiage quotas.

GHammer · Feb 3, 2016

ecarfan said:
"Our latest checks with U.S. sales centers..."?

Analysts just make stuff up so they can write something and meet their mindless verbiage quotas.

That line caught my eye as well. Given how Tesla sells cars it makes no sense.

RiverBrick · Feb 3, 2016

Mike K said:
... I'm sure there are some people that never would have bought a 5 or 7 series that bought an S but I suspect that is a statistical minority...

I suspect that is not a statistical minority. Aren't there many ex Prius drivers in Teslas?

GHammer · Feb 3, 2016

RiverBrick said:
I suspect that is not a statistical minority. Aren't there many ex Prius drivers in Teslas?

I am a statistical minority. (but not an ex-Prius driver:smile

artsci · Feb 3, 2016

ecarfan said:
"Our latest checks with U.S. sales centers..."?

Analysts just make stuff up so they can write something and meet their mindless verbiage quotas.

Couldn't agree more. And what are the checks? I doubt that any Tesla store would reveal sales numbers if they even have them. Total B.S.

Mike K · Feb 3, 2016

RiverBrick said:
I suspect that is not a statistical minority. Aren't there many ex Prius drivers in Teslas?

Many? Yes, I'm sure but relative to the amount of overall owners? I'd suggest that people going from a $25,000 car to a $75,000 would be a statistical minority, hardly enough to carry the company. But still special nonetheless.

- - - Updated - - -

omarsultan said:
Disagree on the need to drop prices--that is fine for a commodity brand, but not for a premium brand, where holding price points is key to brand management. Look at iPhone pricing: year over year the price points stay the same, but Apple adds memory, touchID, faster processors, etc. You will see Tesla do the same thing, for example with the move form the S60 to the S70D at equivalent price points.

I should have qualified my statement by saying this level of demand isn't sustainable without a price drop... assuming nothing changes. I think they are approaching market saturation with the luxury demographic. They need to demonstrate that they can follow up on the success of the S with a a visually updated S.

mikeash · Feb 3, 2016

Mike K said:
Many? Yes, I'm sure but relative to the amount of overall owners? I'd suggest that people going from a $25,000 car to a $75,000 would be a statistical minority, hardly enough to carry the company. But still special nonetheless.

I think it's a pretty substantial portion. Tesla really appeals to techies, who often have a lot of money and don't particularly care about cars. A lot of techies I know would never have dreamed of spending anywhere close to $75,000+ on a car before Tesla came along, but started to seriously contemplate it with the Model S. This is the path I took. I hear that Teslas are ridiculously common in Silicon Valley, and I bet they're largely replacing Priuses and Honda Civics and the like, not BMWs and Mercedeses.

omarsultan · Feb 3, 2016

[email protected] said:
That line caught my eye as well. Given how Tesla sells cars it makes no sense.

Translation: I went to the nearest Tesla store/gallery, lurked for 10 min, and did not see much traffic.

MsElectric · Feb 3, 2016

sorka said:
I don't think lowering the price will help sales. If I were just in the market research phase and saw the price lowered, I'd probably hold out figuring it would drop again. If I was rich, I wouldn't care one way or another.

They should focus on getting the Model X out. At this point it's not really out when only a few hundred have been delivered.

The prices does make a difference. We've been close to pulling the trigger a few times and for business tax purposes it makes sense for us to lease so we can write off pretty much most of the depreciation. What is stopping us at the moment are what we consider to be unfavorable terms of the Tesla lease so if that price were to be revised down, it would certainly help.

Barrons piece cites signs of Model S demand slowing - Feb 2

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