2014 Q4 Earnings Report and Conference Call

[TSLAopt]

My hunch is that right now Tesla could add about 5% spec cars to every overseas shipment, and sell (contract with buyer) all of them befor the ship makes port. This would enhance sales by a few percent, tapping into less patient buyers, and require very little incremental working capital. Tesla could start experimenting with this now and figure out the optimal spec rate and mix of spec cars for each market. It may be that 10% or 20% are welcomed by a particular market, but if Tesla does not experiment with it, they may never know how receptive consumers may be.

Additionally, the spec cars could also be well optioned so that Tesla gets a solid gross margin. They can also be configured to optimize batching in the factory basically round out batches where it is efficient to do so. In all, I think Tesla could do this in a way that not only increases the total number sold but the profit per car as well. The basic criticism that Tesla shouldn't do this now because they are supply constrained may not hold. Particularly better control over batching could enhance the productivity of the factory. The complexity of mass customization actually works against maximizing output. The reason why Ford famously said, "You can have any color so long as it is black," was because black paint dried fastest, and he could produce more cars per day if they were all black. Now I am not suggesting that Tesla scrap the mass customization model. I just think adding some small fraction of spec cars to it could make it even more efficient and profitable. So that being currently supply constrained is actually a very good reason to experiement with it.

I guess this is getting kinda off topic from Q4 ER. I'm happy if a moderator wants to put it in a more suitable thread. But I do think that this issue is important to the kind issues we face repeatedly going into each ER. Strained logistics makes every quarter a nailbiter.

This makes a lot of sense as there are different types of buyers. Some who prefer to order a personalized car and others who value immediate gratification more and don't care as much about personalizing the car to every detail but would be happy with a lack or grey car for example.

I hope hope the decision makers at Tesla corporate are considering this or if they haven't yet that someone gives them this idea.

 

[Zaxxon]

During the P85D event in Denver today, the rep told me that Denver delivered 77 Ds in the last two weeks of Dec. Probably too small a sample to be useful to those of you modeling Q4 numbers, but I wanted to share anyway.

 

[techmaven]

During the P85D event in Denver today, the rep told me that Denver delivered 77 Ds in the last two weeks of Dec. Probably too small a sample to be useful to those of you modeling Q4 numbers, but I wanted to share anyway.

Thanks.

It is also interesting that Tesla chose to ship cars at the end, direct to owners where shipping to a service center for normal delivery would not have made it in time. I have to believe they were closer than 1,000 cars under 33,000 in order to do things like that.

 

[macpacheco]

And even if that's true, just goes to show how right Elon was when he said they have aces up their sleeves to stimulate sales if they want to. If a large enough part of that 3500 December number is P85Ds that's going to drive margins/profits through the roof. Q1 should look similar due to P85D deliveries to the rest of the world.

Coming up next? Signature deilveries of the X, again with a high margin. And I am still optimisitc the X will introduce a bigger battery option, probably making the 85 the base model, resulting in a similar rush for Model S P110Ds or whatever they'll be in, say, Q4 2015.

Larger battery ? Last I heard Tesla deliveries were Li Ion cell constrained. Offering a larger battery cell would further reduce the number of cars Tesla can deliver, why do that before the Giga Factory is operational ?
Can you share with us anything that says this Li Ion constraint is solved ?

 

[FredTMC]

Thanks.

It is also interesting that Tesla chose to ship cars at the end, direct to owners where shipping to a service center for normal delivery would not have made it in time. I have to believe they were closer than 1,000 cars under 33,000 in order to do things like that.

Yep. It's no different than Amazon shipping you a package to your home. As soon as it ships, Amazon recognizes the revenue and the package belongs to the customer while the carrier is transporting it to you.

 

[mrdoubleb]

Larger battery ? Last I heard Tesla deliveries were Li Ion cell constrained. Offering a larger battery cell would further reduce the number of cars Tesla can deliver, why do that before the Giga Factory is operational ?
Can you share with us anything that says this Li Ion constraint is solved ?

A while back (too lazy to google this on a Sunday morning) Elon said that Panasonic is bringing back online additional lines to increase battery production for them. He also said about a year ago (i think at an Oslo event) that larger capacity packs will be offerfed in the future "maybe later next year or after that". Nothing concrete, but given the latest talk of the X battery packs being 20% lighter suggest, that:
1, a new pack revision will be introduced with the X
2, this new revision will have fewer cells as the power density has been increased, so it will be about 20% lighter
3, the pack enclosure could now hold more cells if they wanted it to

After the latest leaks by the guy who had to take down the new X CAD drawing, I am leaning a bit more towards Tesla going with 60/80 options for the X, intitally, but I still don't think many people would order an SUV with a small pack. It may end up being axed like the 40 was if it does not represent a large enough percent of orders.

 

[macpacheco]

A while back (too lazy to google this on a Sunday morning) Elon said that Panasonic is bringing back online additional lines to increase battery production for them. He also said about a year ago (i think at an Oslo event) that larger capacity packs will be offerfed in the future "maybe later next year or after that". Nothing concrete, but given the latest talk of the X battery packs being 20% lighter suggest, that:
1, a new pack revision will be introduced with the X
2, this new revision will have fewer cells as the power density has been increased, so it will be about 20% lighter
3, the pack enclosure could now hold more cells if they wanted it to

After the latest leaks by the guy who had to take down the new X CAD drawing, I am leaning a bit more towards Tesla going with 60/80 options for the X, intitally, but I still don't think many people would order an SUV with a small pack. It may end up being axed like the 40 was if it does not represent a large enough percent of orders.

Hopefully Tesla production will close to double for 2015. If it does, this means double Li Ion supply (without any change in pack sizes). In my view as long as there is enough pent up demand, Tesla shouldn't bring larger packs, it should increase production instead. I think first Tesla will offer an updated MS/MX pack (lighter, same power sizes) and if it means lighter packs that will translate to longer range @ the same power. The 85D is already promising 295 miles, so with another 25% increase in max range people will be able to plan real 300 mile segments @ 65mph with some AC or heating.

So in essence, I hope Tesla won't be able to offer larger packs, as this will imply Tesla is no longer production constrained which puts MS/MX production growth in check !

 

[mrdoubleb]

Hopefully Tesla production will close to double for 2015. If it does, this means double Li Ion supply (without any change in pack sizes). In my view as long as there is enough pent up demand, Tesla shouldn't bring larger packs, it should increase production instead. I think first Tesla will offer an updated MS/MX pack (lighter, same power sizes) and if it means lighter packs that will translate to longer range @ the same power. The 85D is already promising 295 miles, so with another 25% increase in max range people will be able to plan real 300 mile segments @ 65mph with some AC or heating.

So in essence, I hope Tesla won't be able to offer larger packs, as this will imply Tesla is no longer production constrained which puts MS/MX production growth in check !

And that's probably what Tesla is going to do. Having said that, don't expect much range increase from the lighter pack. Weight is much more relevant when accelerating from zero to a certain speed often, ie short distances, city commutes. Once in motion, it's much more an aero thing. So during highway cruising, when range really matters, losing 100kg will not make much of a difference as the car is travelling at a constant speed.

 

[jhm]

So in essence, I hope Tesla won't be able to offer larger packs, as this will imply Tesla is no longer production constrained which puts MS/MX production growth in check !

I'm not sure I follow the logic here. I think it would be wonderful for Tesla not to be constrained by its battery supply or any other supply issue. Having to work a little to cultivate demand is not a bad thing. It means that things like the Supercharger network will be built up quickly, wait times to get a new car will go down, and new products will be more quickly brought to market. This would be really good for customers and will make Tesla a better company for years to come. Tesla has huge opportunities for building demand. As Musk has said, "Building demand is not a problem." Holding off from building demand because you're supply constrained is a problem. Not being supply constrained means that Tesla can grow just as fast as consumers are ready to embrace Tesla's technology, which as far as I can tell, is pretty d*** fast. So I for one would prefer to see Tesla not to be supply constrained.

 

[macpacheco]

I'm not sure I follow the logic here. I think it would be wonderful for Tesla not to be constrained by its battery supply or any other supply issue. Having to work a little to cultivate demand is not a bad thing. It means that things like the Supercharger network will be built up quickly, wait times to get a new car will go down, and new products will be more quickly brought to market. This would be really good for customers and will make Tesla a better company for years to come. Tesla has huge opportunities for building demand. As Musk has said, "Building demand is not a problem." Holding off from building demand because you're supply constrained is a problem. Not being supply constrained means that Tesla can grow just as fast as consumers are ready to embrace Tesla's technology, which as far as I can tell, is pretty d*** fast. So I for one would prefer to see Tesla not to be supply constrained.

What I mean is that since Li Ion cell supply is the scarce resource, Tesla shouldn't offer larger packs as it would reduce the number of cars that can be built at a given Li Ion supply levels ! The more Model S / Model X Tesla delivers, the more $$$ they have to build more SuperChargers, finish the Giga Factory, do more R&D on Model S/X/III. More money in the bank is also important, as it gives Tesla a stronger war chest against any future problems (for instance oil @ USD 30 / bbl, end of EV incentives, ...). Tesla should reach US$ 10 billion / yr total sales ASAP (around 100k cars / yr), at that point Tesla won't be a small auto maker anymore, and the silly Tesla naysayers will likely go away or have to invent even more absurd factoids to try to attack Tesla.

The only viable option is to offer a very limited number of larger packs, only for customers buying the top models (P85D with all the bells and whistles). But even that choice doesn't seem optimal for me.

 

[jhm]

What I mean is that since Li Ion cell supply is the scarce resource, Tesla shouldn't offer larger packs as it would reduce the number of cars that can be built at a given Li Ion supply levels ! The more Model S / Model X Tesla delivers, the more $$$ they have to build more SuperChargers, finish the Giga Factory, do more R&D on Model S/X/III. More money in the bank is also important, as it gives Tesla a stronger war chest against any future problems (for instance oil @ USD 30 / bbl, end of EV incentives, ...). Tesla should reach US$ 10 billion / yr total sales ASAP (around 100k cars / yr), at that point Tesla won't be a small auto maker anymore, and the silly Tesla naysayers will likely go away or have to invent even more absurd factoids to try to attack Tesla.

The only viable option is to offer a very limited number of larger packs, only for customers buying the top models (P85D with all the bells and whistles). But even that choice doesn't seem optimal for me.

So are you concerned that the world supply of lithium can only support 100,000 cars per year at 85 kWh per car? The Gigafactory is scaled to 50 GWh per year and 500,000 per year. Incidentally, that's 100 kWh per car, unless output for stationary storage complicates the nameplate capacity.

As far as profitability is concerned, that's just a matter of pricing the larger batteries for a desirable gross margin. Indeed, I would think that the motivation for a larger battery is simply to extract more profit per car, not less.

Rereading your post, I'm wondering if you're just assuming that Panasonic cannot increase its cell production. In my previous post, my premise was that the battery supply constraint would be relaxed. It would be preferable not to be constrained by the battery supply, right?

 

[RobStark]

Right now battery cells are not the bottleneck.

It seems there will be other 200 mile BEVs on the market by 2017 model year maybe middle of 2016.

At this point Tesla will not have the luxury of holding back particularly if they will be charging premium prices relative to other long range BEVs.

Yes, the Supercharger Network is Tesla's ace in the hole but I would not like to see that as the only Tesla selling point relative to other long range BEVs.

It would look like Tesla is purposely "iceing" other BEV makers out of participating in the Network for the purpose of competitive advantage at the cost of rapid electrification of the automobile.

 

[jhm]

Rob, what do you mean by "iceing"? I am not familiar with the term.

Do any other automakers want in on the Supercharger network?

 

[Krugerrand]

It seems there will be other 200 mile BEVs on the market by 2017 model year maybe middle of 2016.

Let's not get ahead of ourselves. This could all just be 'talk' by GM. Tesla has forced their hand telling the whole world what and when. GM (and others) have no choice but to 'announce' 200 mile EV range at the 30-40K price point by 2017 regardless of their real or final intent. We can hope they follow through, but to this point they haven't shown the willingness.

At this point Tesla will not have the luxury of holding back particularly if they will be charging premium prices relative to other long range BEVs.

Holding back what? When has Tesla ever held back?

Yes, the Supercharger Network is Tesla's ace in the hole but I would not like to see that as the only Tesla selling point relative to other long range BEVs.

Tesla has several other selling points: 17" brain, regular over-the-air updates improving the car with age, unique buying experience, 0% profit service centers and so on.

It would look like Tesla is purposely "iceing" other BEV makers out of participating in the Network for the purpose of competitive advantage at the cost of rapid electrification of the automobile.

Pfft! We are talking about the same company, right? Tesla has never done anything to stop others from joining them, and have explicitly said they'd welcome others even where the SuperCharger Network is concerned.

 

[RobStark]

Rob, what do you mean by "iceing"? I am not familiar with the term.

Do any other automakers want in on the Supercharger network?

1) I am using it in the slang sense. Keeping someone out... of an inside joke, a lunch group, some kind of social activity. Maybe California or LA or West LA slang? IDK LOL.

2) I am talking now and in the future. Perception as well as reality.

What will happen if their is no deal? People will speculate. Are others too proud to join Tesla and make it the de facto standard? Or is Tesla not negotiating in good faith? Demanding too high a price . Using the Supercharger Network as leverage to sell more cars because the cars themselves are not better than the competition in 2017 and beyond? Is Tesla slowing down the electrification of the automobile to increase market share?

If there is no deal we would never know why for certain. And knowing that Tesla is doing everything they can to speed up the electrification of the automobile is a large part of Tesla's appeal for many.

- - - Updated - - -

Let's not get ahead of ourselves. This could all just be 'talk' by GM. Tesla has forced their hand telling the whole world what and when. GM (and others) have no choice but to 'announce' 200 mile EV range at the 30-40K price point by 2017 regardless of their real or final intent. We can hope they follow through, but to this point they haven't shown the willingness.

No more than Model 3 is all talk. GM is displaying an actual concept tomorrow, has the capability to produce the batteries in Holland Michigan, and is committing to date unlike Audi, Mercedes and BMW.

They are showing their willingness tomorrow according to several sources.

Holding back what? When has Tesla ever held back?

How long have they had the opportunity to hold back?

Tesla has several other selling points: 17" brain, regular over-the-air updates improving the car with age, unique buying experience, 0% profit service centers and so on.

Today. We don't know about 2017 and beyond. I am speculating.

BTW People in the general public laugh when you say Tesla has a 0% profit on service but charges $600 for their annual service that does not include any hard parts.

It is probably true given the overhead but $600 is still $600 when BMW for example has four years maintenance included in the price of the car.

Pfft! We are talking about the same company, right? Tesla has never done anything to stop others from joining them, and have explicitly said they'd welcome others even where the SuperCharger Network is concerned.

We are not privy to talks between Tesla and other automakers. I always give the Tesla the benefit of doubt. But I am talking about the general public and Tesla's goodwill in general.

 

[Krugerrand]

1COLOR="silver"]No more than Model 3 is all talk. GM is displaying an actual concept tomorrow, has the capability to produce the batteries in Holland Michigan, and is committing to date unlike Audi, Mercedes and BMW.

Model 3 is a lot more than talk, and I can't believe you'd think or say otherwise. Tesla has actually already produced two 200 mile EVs, with a third one just months away. Unless something catastrophic happens, the Model 3 is a done deal. I think Tesla has done more than enough to prove themselves. GM, not so much. What percentage of concept cars actually make it to production? Yes, they supposedly have 200 mile batteries (we know what happened with the last set of 200 mile batteries GM was suppose to have sown up, don't we?) and can make either 60,000 Volts or 20,000 Bolts per year. That's not nearly enough batteries for the electrification of transportation or what I'd consider truly being serious. Perhaps GM and LG have plans to increase battery production and perhaps we'll also hear of those plans in the near future. Until then, and until GM actually produces a 200 mile EV that isn't a compliance car, GM is just talking. Stop talking and simply do.

They are showing their willingness tomorrow according to several sources.

I'm not convinced it's willingness at this point. As I've noted above.

How long have they had the opportunity to hold back?

I don't understand what you're referencing.

Today. We don't know about 2017 and beyond. I am speculating.

Has Tesla given the impression that the Model 3 won't have a large central control screen? That there will be no over-the-air updates for the Model 3? That Elon is going to change his philosophy about making profit from his products breaking? We've heard him say Tesla may consider some form of a dealership Model, 'if it's practical'. If they go that way, I suspect they'll have a unique Tesla twist to it. We've heard him say the Model 3 will have less options to control the cost of it. No, we don't know exactly what those will be, but logically I'd suspect we're talking about suspension choices, perhaps those higher end details like brushed sills, alcantara headliners, bolstered seating etc... I believe Elon has said that the Model 3 will have supercharging capabilities. So, yeah, not really sure what you think is going to change so much in two-three years that only gives Tesla the advantage of the SuperCharger Network, considering at the pace that Tesla innovates.

We are not privy to talks between Tesla and other automakers. I always give the Tesla the benefit of doubt. But I am talking about the general public and Tesla's goodwill in general.

Nope, we aren't privy to business talks, but I fail to see how that has anything to do with the public's perspective on the SuperCharger Network. Most of the public doesn't even know about it at this stage. I think I'm confused about what you're trying to say.

 

[jhm]

My impression is that Tesla is offering pretty easy terms. First, they give away all the patents, so anyone can use compatible technology or simply copy the technology. Second, other participance agree to share the cost by setting up and maintaining superchargers or paying Tesla to do so.

Granted none of us are privy to secret negotiations, but I have never gotten the impression from Tesla that they were trying to make any profit from participants, and they have clearly walked away from asking for any royalties on their patents. I suspect that participants are free to brand any charger they might install, i.e. BMW could have had a BMW branded Supercharger station. They only thing I suspect that Tesla was unwilling to do was to water down the technology. Apparently BMW is not interested in 130 kW charging since their own fast chargers only run on 24 amps. So perhaps Tesla was not willing to accomodate really slow charging cars. Or perhaps BMW was unwilling to support 130 kW charging for Teslas at their own BMW stations. Offering 6 kW charging to Teslas in exchange for access to 130 kW chargers is not really an equitable trade. So I can see negotiations breaking down if a potential partner is not willing to support truly high power charging, but such a potential partner is not really serious about making a fully capable EV.

 

[chickensevil]

The other key on supercharging was that they had to agree to a prepaid model. None of this pay as you go blink/chargepoint crap.

 

[jhm]

The other key on supercharging was that they had to agree to a prepaid model. None of this pay as you go blink/chargepoint crap.

Yeah, I have long thought the one time unlimited access pricing plan is hands down the smartest way to go. Any discounted cash flow I've considered has $2000 upfront cash beating any sort of pay as you go. Even if you have someone using over $2000 worth of electricity, say 20,000 kWh @ 10c/kWh, that's got to take a fair number of years and works out like a loan to pay for the installation. Another way to look at it is that the Supercharger benefit is simply a feature that motivates a big purchase. So if someone was bent on using over $3000 in electricity, all they are looking for is a $1000 discount on a $80,000+ car. Tesla does not negotiate prices, but if it did this is not much of a concession. This is the way I look at urban Superchargers where customers have no other access to at home charging. If this is what it takes to sell a Model S in London, no big deal. Put up the Superchargers and sell cars.

Where a participant like BMW might have a problem with this model would be where they are looking for some sort of exit strategy. They don't want to be locked into a perpetual obligation years after they have switched their compliance strategy. This kind of fear of commitment is something that gives Tesla a strategic advantage. Only players that are truly committed to making electric vehicles will make the long term investment choices that will make EVs succeed.

 

[chickensevil]

That's a fantastic point and I think applies to the Toyota FCV idea as well. Toyota is partnering with a 3rd party to build the fueling stations and giving them some money to float them for a good 5 years or so. If the business takes off, great... They keep making FCVs and that is their revenue return... If it fails well then whatever they wrote off that purchase years previous... It is the safest way to gamble on a technology without fully committing.