2017 Investor Roundtable:General Discussion

[Reciprocity]

Likely way too soon to speculate, but feel free to be as pessimistic as possible. Could be that with their view of the arc of battery technology, cost, recyclability, etc., that they felt a 10yr warranty more than sufficient for a realistic real-world use. With 500,000 reservations, they don't have to give lifetime warranties or trade-in guarantees anymore, why open up to the liability?

I think everyone is over analyzing the Warrenty. To me, it's a $35k car so you don't want an unlimited Warrenty on the battery as you would need a larger cash reserve setup for each car sold. They can change this as soon as they can show the required Warrenty reserve would be small enough to have it make sense. My guess is that is you use your car properly and have an issue with the battery they will replace it at or near free regardless of how many miles. They could also sell extended warranties for fleet owners who will want higher milage protection and who will stress the battery with high cycles. It's basically the same Warrenty as the longest Warrenty you get with a completive car.

As far as EAP and FSD uptake. I expect 100% over the life of the vehicle. First owner, second owner or some autonomous cab company. You can't count that in today's margins but if you project out 5-10 years, it could really contribute to the margins and help offset the r&d cost associated with development by spreading the costs over nearly 100% of the cars sold.

 

[bdy0627]

If Elon confirmed that they had over 500k reservations, and that if you order a 3 now, you will get it around the end of next year. Doesn't that imply that they are planning on hitting 10k a week much earlier in 2018 than is generally assumed? I haven't modeled it out or anything, but my wild guess is they would have to hit 10k/week around the end of Q1 to be able to hit over 500k cumulative by the end of 2018. Am I missing something?

He said they are hoping to hit 10,000 per week production by the END of 2018.

 

[ValueAnalyst]

True... but in terms of margin looking at the $9k for the long range version, one has to assign COGS to these items.

I agree; incremental cost shouldn't be excluded from the calc.

The incremental $9,000 for larger battery, however, at ~$130/kWh cost, is very significant contribution margin.

Also - EAP/FSD will likely have very high software margins. This is very important as well.

He said they are hoping to hit 10,000 per week production by the END of 2018.

I was surprised at that comment. The two predictions (i.e. new reservations will get the cars by end-18 and 10,000/w by end-18) don't line up, unless if 2017 production will be higher than estimated ~35k.

Wouldn't the logic be that starting with the standard battery and car would make for an easier ramp up? Why are they starting with the $44,000 version? Don't tell me the ASP.....i can't believe I have to wait until Jan-Mar to get a base model.

Contribution margin on larger battery will be high, and that's what needed to finance the base model production.

It's not a choice between "who do we want to please first." It's a question of "what's possible."

 

[myusername]

Higher ASP is better, as long as people are willing to pay.

I thought the pricing would be lower, and that there then would be less profit to be had, but the pricing seems pretty spot on, for maximizing ASP without putting people off. If they start to struggle with sufficient demand at the end of 2018 or sometime in 2019, they can consider reducing the pricing.

how much profit was there going to be at $35k?... you do not know that. what you do know is that the ASP is higher than everyone expected... well, not everyone... shorts expected this... and your takeaway from this is more profits instead of they needed a higher ASP to get profits?

in theory... ~375k people put down $1000 refundable deposits for a $35k car... and when they did, I assume most did not know that there was a company hard limit on $7500 tax credits... it is certain that many of the reservation holders thought they were going to get an M3 for $27.5k!... and for the last whatever years now, people in places like this board have been talking about ridiculous profit margins on a $35k car... not ridiculous profit margins on a $45k car.

how is any of this good guys? FSD upsell for something that does not exist... why pay $9k for extra range when your arguments for years has been "typical driving doesn't require Superchargers"... rear wheel drive...

people "standing in line" for this car will not get what they wanted for years... and when they do, it'll be available to them for $10k to $20k more than they expected to pay... and please don't get started on how the Tesla Network is going to pay them back.

 

[Reciprocity]

As a consumer I hate the higher then some anticipated for prices, but as a stock holder, I'm happy that Tesla is going to capitalize on the demand they have rightly created. This will allow them to build better and cheaper vehicles in the future. I think the Y will actually be more economical. If your look at what Nissan had done with the rogue, the most popular car in America passing Camry, I think you have a roadmap for a their mass market vehicle to end all competition. Any price under $30k for the base model Y would do it.

I think the floor for the ASP in the model 3 is now $45k. Wouldn't be shocked if it was higher. Makes sense when you compares to roughly half what the ASP for the model S is today.

 

[Reciprocity]

how much profit was there going to be at $35k?... you do not know that. what you do know is that the ASP is higher than everyone expected... well, not everyone... shorts expected this... and your takeaway from this is more profits instead of they needed a higher ASP to get profits?

in theory... ~375k people put down $1000 refundable deposits for a $35k car... and when they did, I assume most did not know that there was a company hard limit on $7500 tax credits... it is certain that many of the reservation holders thought they were going to get an M3 for $27.5k!... and for the last whatever years now, people in places like this board have been talking about ridiculous profit margins on a $35k car... not ridiculous profit margins on a $45k car.

how is any of this good guys? FSD upsell for something that does not exist... why pay $9k for extra range when your arguments for years has been "typical driving doesn't require Superchargers"... rear wheel drive...

people "standing in line" for this car will not get what they wanted for years... and when they do, it'll be available to them for $10k to $20k more than they expected to pay... and please don't get started on how the Tesla Network is going to pay them back.

I think you will see that the $35k car is not what people want. Same thing happened with the S40. No one wanted it, they wanted bigger, better, farther and faster. We should know more soon but I would guess that less then 10% in the US want the base bare bones car. Maybe more world wide, but here in the US I would expect $45-50 ASP on the very low end.

Also as usual your assumption is wrong, model 3 info. Com has accumulated data on what people expect to pay and it was north of $49k almost everyone in the world and over $50k in the US.

 

[ggies07]

Thanks, had not read them yet.

Will there still be a $35,000 Model 3 option?
Yes. Our first production Model 3 vehicles are preconfigured to ensure a smooth production ramp so that we can deliver more cars to more customers at a faster pace. The beginning configuration is a Long Range Battery with rear-wheel drive and premium upgrades, starting at $49,000. These vehicles come with three options for customization: wheel size, exterior color and Autopilot features.

Wouldn't the logic be that starting with the standard battery and car would make for an easier ramp up? Why are they starting with the $44,000 version? Don't tell me the ASP.....i can't believe I have to wait until Jan-Mar to get a base model....and I'm an early res holder.....

 

[bdy0627]

I am amazed by the actual Model 3 specs, excited by Motor Trend's first drive impressions and tempered by the notable low-ish base range and the strange livestream event. 500k+ reservations is a good number and Musk acknowledging that he is sandbagging production is also great.

The Model 3 has more interior room than the Bolt and matches up well against the BMW 3/4/5 in terms of interior room. It only gives up 1" of shoulder room to the S in the rear seats and 1.4" up front. But the rear head room is 2.4" taller! The base model matches up well against a BMW 330i for less money. And the curb weight of the base model is merely 3,549 lbs compared to the curb weight of the 330i at 3,541. There's only 8 lbs difference. Of course, the Model 3 will have 4 times the MPGe.

I do wonder if the Model 3 has power adjustable seats in the base config? Same thing about heated front seats... is that in the base config?

Definitely there are people reacting badly to the pricing of the options. And those that for some reason though they could get a fully optioned vehicle near $40-45k, which is absurd. The long range battery + premium upgrade package + EAP + non-black paint is $20k. That's much more than people expected. But I think as they sit back and really compare against the competition, they'll find that the Model 3 pricing is actually quite good. It isn't too good, which is great from an investor's point of view.

I do think that Tesla should lower EAP pricing by $1k and offer white as a base "free" color instead of just black. No one really needs the premium upgrade package, but I do hope that as the production ramp is well underway, they can unbundle.

The base battery pack is likely nominally 55 kWh with 53 kWh usable which makes the base battery pack cost somewhere around $8k, or roughly $3.5k less than what GM pays for the Bolt's pack. ASP is likely something like $45-48k, which will help on revenue and margins.

Curious about what you mean regarding Musk sandbagging production. He stressed their target production of 5,000 per week by the end of this year, which he seems relatively confident about. For next year, he said they hope to hit 10,000 by the end of 2018. These come across as legitimate targets as opposed to low numbers.

 

[Yggdrasill]

how much profit was there going to be at $35k?... you do not know that. what you do know is that the ASP is higher than everyone expected... well, not everyone... shorts expected this... and your takeaway from this is more profits instead of they needed a higher ASP to get profits?

in theory... ~375k people put down $1000 refundable deposits for a $35k car... and when they did, I assume most did not know that there was a company hard limit on $7500 tax credits... it is certain that many of the reservation holders thought they were going to get an M3 for $27.5k!... and for the last whatever years now, people in places like this board have been talking about ridiculous profit margins on a $35k car... not ridiculous profit margins on a $45k car.

how is any of this good guys? FSD upsell for something that does not exist... why pay $9k for extra range when your arguments for years has been "typical driving doesn't require Superchargers"... rear wheel drive...

people "standing in line" for this car will not get what they wanted for years... and when they do, it'll be available to them for $10k to $20k more than they expected to pay... and please don't get started on how the Tesla Network is going to pay them back.

Look at the range upgrade, as an example. The cost to Tesla is likely around 100 USD/kWh. Most of the pack is already paid for in the base version, and you just need to add some more modules/cells. I expected the upgrade to cost 6000 USD for an additional 20 kWh. That would mean the gross margin on the option would be 66%/4000 USD.

Instead, you'll be paying 9000 USD for an additional 25 kWh. That means the gross margin for the option is in the area of 72.2%/6500 USD. How is an additional 2500 USD in gross margin a bad thing?

 

[bdy0627]

This is actually the one disappointing thing I got from tonight's presentation. In no uncertain terms Elon mentioned that his goal was to reach 10k week by the end of 2018. So that means there is no way 500k model 3s next year. More like 300-400k which would be incredible, but we need to realize that is still best case scenario.

I saw mention of 500k plus reservations but I just don't believe it. I also think it's irrelevant. However Just the fact they had anyone who wanted to watch the model 3 reveal sign up to reserve a model 3, with no option to sign in via my Tesla, makes me think they are still hoping to add hype by announcing something like 500k + reservations. Maybe all this good press will do it. I don't really understand the point though. It's a pretty inefficient way to raise cash.

Edit: Can someone please provide a link to where 500k + reservations was mentioned. And where the production ramp expectations are being sandbagged.

The production goals you listed seem very clear from what Musk has stated. I have the same question. What production sandbagging?

 

[myusername]

I think you will see that the $35k car is not what people want. Same thing happened with the S40. No one wanted it, they wanted bigger, better, farther and faster. We should know more soon but I would guess that less then 10% in the US want the base bare bones car. Maybe more world wide, but here in the US I would expect $45-50 ASP on the very low end.

EXACTLY... this is just fine for the luxury market where people have disposable cash... but it is NOT fine in the mass market Tesla was targeting...

how many of you had 10m/year expectations for 2024 or whatever?... how about 1m/year expectations for 2020?

$45k to $50k ASP was not what this stock has been priced for... and you know it.

 

[ggies07]

$45k to $50k ASP was not what this stock has been priced for... and you know it.

Actually agree with you on this one.

 

[bdy0627]

Absolutely not true. Elon repeatedly said exit 2017 at 5k units per week or rate of 20k per month.

Then reach 10k per week at some point in 2018.

Ars is confused.

During the reveal he said 10k per week by the END of 2018

 

[myusername]

Look at the range upgrade, as an example. The cost to Tesla is likely around 100 USD/kWh. Most of the pack is already paid for in the base version, and you just need to add some more modules/cells. I expected the upgrade to cost 6000 USD for an additional 20 kWh. That would mean the gross margin on the option would be 66%/4000 USD.

Instead, you'll be paying 9000 USD for an additional 25 kWh. That means the gross margin for the option is in the area of 72.2%/6500 USD. How is an additional 2500 USD in gross margin a bad thing?

nobody but those that were already in the luxury market are going to buy this.... $9k?... that's 25% of what they were expecting to spend in the first place... of the 375k reservation holders... this car as priced probably targets 30% of them... and then much less in the general mass market auto industry.

 

[myusername]

During the reveal he said 10k per week by the END of 2018

and he also used the word "hope".

 

[Reciprocity]

nobody but those that were already in the luxury market are going to buy this.... $9k?... that's 25% of what they were expecting to spend in the first place... of the 375k reservation holders... this car as priced probably targets 30% of them... and then much less in the general mass market auto industry.

Yeah, only 2 million of those cars sold in the US in that category, who wants 30-40% of that market share. Looking at what Model S has done, that would be a modest amount. Model 3 can help Tesla access Corolla/Camry level markets all the way up to base E-Class/5-Series. This is why you have 500,000+ reservations which is only going to go up once these cars hit show rooms and the roads.

 

[ValueAnalyst]

Yes, Tesla is releasing material lies. Opening themselves up to lawsuits and criminal prosecution. For no real material gain, as you stated yourself.

I'd be very very surprised if reservation count isn't ~550k+ already. The unofficial Model 3 reservation counter is also showing nearly 550k. I suspect Elon is sandbagging with 500k. Frankly, we want people to continue to buy Model S and Model X, anyway, until Model 3 production rate reaches 10k/week.

Search data for "Order Model 3," although not conclusive, shows consistency throughout 2017, corroborating Elon's "rising week by week" comment, and a surge around when P1 pics were relesed. I'm sure last night's event also caused another surge (we'll see the search data for that by tomorrow).

 

[bdy0627]

Wouldn't the logic be that starting with the standard battery and car would make for an easier ramp up? Why are they starting with the $44,000 version? Don't tell me the ASP.....i can't believe I have to wait until Jan-Mar to get a base model....and I'm an early res holder.....

Margins

 

[Reciprocity]

Actually agree with you on this one.

I agree to, the stock price should go up from that ASP being 50k. This shouldnt even be hard for @myusername to add up. If you have a billion people who want something, but you can only make 30K of them this year and 380K of them next year, you can charge what ever the funk you want to. Supply and Demand. Its basic economics 101. Stock price should double on this fact alone.

 

[jhm]

What about Bolt?

Bolt has 238mile range starting at $36,620. That is $154/mile. So on a per range basis the Bolt is right between the Standard Model 3 at $159/mile for 220 miles and Long Range Model 3 at $142/mile for 310 mile.

I think for the heavy commuter who intends to put a lot of miles on the car, the LR Model 3 is the clear winner. The Bolt and Standard Model 3 are pretty close on price, but I think Supercharger access really tips the scale for anyone who might want to use it at least occasionally for long trips.

Warranties matter too. Both Bolt and Standard have 100k mile warranties on the batteries, LR Model 3 has 120k. So on a per battery warranty mile basis we've got Bolt at $0.366/mile, Standard at $0.35/mile and Long Range at $0.367/mile. So this is all very close. Honestly, I think Tesla would do well to increase the warranties, say to 120k for Standard and 160k for LR. This would imply $0.30/mile and $0.275/mile, which would give the Model 3 a decisive edge for any buyer who needs substantial warranted miles. Think fleet operators. Of course, Tesla can step this up any time the competitive need arises.

Of course there are many other points of comparison, but here I'm focused on the value proposition for someone who wants to minimize cost for heavy driving.

Here's how the Tesla Model 3 stacks up against the Chevrolet Bolt EV