2017 Investor Roundtable:General Discussion

[racer26]

In my eyes that's more realistic - however I think the savings might be in the $500 to $1k range for the dual motor, which would still place a 70D with AP+FSD at ~$54k. I hold firmly on AP and FSD costing the same across all cars - the capabilities are exactly the same between trims and thus the value from the suite is the same, so a cheaper acquisition cost in Model 3 makes no sense.

In theory Tesla is already getting AP and FSD into everyone's hands already by simply having the Hardware available and offering an upgrade if someone doesn't choose to take the option right away. What I foresee with Model 3 is the ability to temporarily enable AP+FSD on a per-hour basis without having to purchase the suite from the get go (i.e. turn on AP+FSD for $100/hr). This would be beneficial for people who seldom drive on highways, take long trips very few times a year, or simply enjoy driving their car and see no value in FSD.

It would be foolish for any company to cut any of their products gross margin by half without any competitors in sight and a full year or more of backlog to fill in.

I never said AP + FSD wouldn't cost the same across all cars, or that its GM would have to drop.

I said that when Model 3 launches, it will be cheaper. No reason they couldn't drop the option's price on S/X at the same time.

The cost of AP+FSD is 100% software development cost, if you assume that the sensor suite hardware cost is embedded in the base price of the car (and it has to be in order to enable the active safety features).

That means its a fixed cost across the entire fleet.

When the rate of cars falling out of Fremont is 5x what it is today (which is expected to be the case by the end of next year), that means the cost-per-car to the company of AP+FSD is 20% of what it is today.

I think we can all agree that there is a large gross margin on the autopilot option already. It probably has a COGS of something like $1000 per car, and we're selling it for $8000 per car, for a $7000 profit, or an 87.5% GM.

If amortized over 5x as many cars, its now a $200 cost per car. 87.5% GM on a $200 cost item is a retail price of just $1600. You'll note that above, I only suggested that AP+FSD's price would drop to ~$2500 - representing a 92% GM. I'm not suggesting that Tesla won't try to make more profit off this, but rather, that they won't be excessively greedy. Being excessively greedy will reduce the take rate, and thus the bottom line - remember, Model 3 buyers are MUCH more price-sensitive than Model S buyers.

New products in their infancy are expensive - as they become mass produced, they get cheaper - this is like Economics 101, guys.

 

[Fallenone]

I never said AP + FSD wouldn't cost the same across all cars, or that its GM would have to drop.

I said that when Model 3 launches, it will be cheaper. No reason they couldn't drop the option's price on S/X at the same time.

The cost of AP+FSD is 100% software development cost, if you assume that the sensor suite hardware cost is embedded in the base price of the car (and it has to be in order to enable the active safety features).

That means its a fixed cost across the entire fleet.

When the rate of cars falling out of Fremont is 5x what it is today (which is expected to be the case by the end of next year), that means the cost-per-car to the company of AP+FSD is 20% of what it is today.

I think we can all agree that there is a large gross margin on the autopilot option already. It probably has a COGS of something like $1000 per car, and we're selling it for $8000 per car, for a $7000 profit, or an 87.5% GM.

If amortized over 5x as many cars, its now a $200 cost per car. 87.5% GM on a $200 cost item is a retail price of just $1600. You'll note that above, I only suggested that AP+FSD's price would drop to ~$2500 - representing a 92% GM. I'm not suggesting that Tesla won't try to make more profit off this, but rather, that they won't be excessively greedy. Being excessively greedy will reduce the take rate, and thus the bottom line - remember, Model 3 buyers are MUCH more price-sensitive than Model S buyers.

New products in their infancy are expensive - as they become mass produced, they get cheaper - this is like Economics 101, guys.

The point is, if they have enough demand, Tesla doesn't need to drop the price 1 cent to sell the product, no matter how their cost drops. Why not make the money when you can? As you said, FSD probably has 80% take rate now. To justify the price drop to 2500, and achieving this 80% take rate, you would need the take rate to be no more than 25% when priced at $8000 (21% if we assume a $500 cost for it). You really think the FSD take rate for early (1st year or so) M3 would be that low?

Plus, I agree the cost for AP/FSD is low. But early M3 will bear low production efficiency just like any product during their early production phase. A high FSD price is very helpful to kinda "subsidize" the other parts and reach a good overall gross margin.

Plus plus, Tesla can push its "Tesla Network" thing, to justify a high price FSD (like, you can make all the $8000 back in a year with TN). They can also implement a monthly subscription business model or something similar to lower the entry bar of FSD.

There're just so many ways to sell FSD at $8000. Of course they can drop the price in the future, but no sense in dropping it to $2500 this early.

 

[bonaire]

Originally, DWD (the front motor) was a $4000 option for the Model S when "Reveal the D" orders commenced. Bumped to $5k when demand was high enough to make it a smarter decision to bump it up.

I see Model 3 FWD non-P model being about $3000 add-on. The FSD options maybe $6500 combined.
P options for Model 3 would be 70kWh + bigger motors + other requirements or basically a $15,000 package with $5000 more for Ludicrous. They like to use roundy numbers like 2500, 3000, 5000 for some options. I suspect high fidelity radio and other things also having about a 20% pared off value versus Model S prices. Fully maxed out Model 3 would be roughly $70,000 max. But I have to wonder if 35,000 is in play and perhaps 36900 is more likely the base number. Model S 60 will be discontinued (IMO) once Model 3 is selling. Probably end of 2017.

 

[jhm]

Guess it might be time for your local friendly mild-mannered Moderator to be the token bear.

It looks to me as though TSLA isn't going to hit $1000 any time soon.

Gangit, I was just getting ready to replace my bathroom with gold fixtures so I could dump like the Trump. Back to porcelain I suppose.

 

[racer26]

The point is, if they have enough demand, Tesla doesn't need to drop the price 1 cent to sell the product, no matter how their cost drops. Why not make the money when you can? As you said, FSD probably has 80% take rate now. To justify the price drop to 2500, and achieving this 80% take rate, you would need the take rate to be no more than 25% when priced at $8000 (21% if we assume a $500 cost for it). You really think the FSD take rate for early (1st year or so) M3 would be that low?

Plus, I agree the cost for AP/FSD is low. But early M3 will bear low production efficiency just like any product during their early production phase. A high FSD price is very helpful to kinda "subsidize" the other parts and reach a good overall gross margin.

Plus plus, Tesla can push its "Tesla Network" thing, to justify a high price FSD (like, you can make all the $8000 back in a year with TN). They can also implement a monthly subscription business model or something similar to lower the entry bar of FSD.

There're just so many ways to sell FSD at $8000. Of course they can drop the price in the future, but no sense in dropping it to $2500 this early.

Sure, there's ways to justify its price at $8k once TN is in full-swing and it can earn its keep - so maybe FSD doesn't drop in price, only AP does. But yes. $8k would nuke its take rate on a $35k car.

Speaking personally - the most expensive car I've ever bought to date is a CAD$6500 2001 Honda Insight, when I bought it in 2011 - my Model 3 (estimated price of USD$42k ASP = ~CAD$55k - 14k incentive = $41k CAD) will be the most expensive car I've bought by a factor of approximately 7. If AP+FSD is USD$8k? I won't be getting it. I've been driving for over a decade, and I like driving. Since I moved closer to work, I rarely travel long distances on controlled access freeways where AP is most useful. Its not worth $8k to me - and I'm quite certain that I am representative of a very large portion of Model 3 buyers. I can easily justify the high cost of the car itself with fuel savings over its lifespan and the future ability to go completely off-grid, but I can't justify that high of a price tag for AP.

There is lots of demand for Model 3 as a whole - they will sell every one they produce for at least the next 5 years without a sweat. Demand for AP is much, MUCH more price elastic. On Model S, its easy to justify getting AP as "the car is $70k, what's another $8k to get the most well known feature?" - that's much more difficult for most buyers in the Model 3 price range. Tesla doesn't really get to choose which options buyers select (unless they make it standard and raise the base price accordingly), and so they must price them such that the optimal portion of buyers elect to have the option.

 

[austinEV]

Gangit, I was just getting ready to replace my bathroom with gold fixtures so I could dump like the Trump. Back to porcelain I suppose.

Don't you dare give up on your dream:
Maurizio Cattelan: “America”

 

[Fallenone]

Sure, there's ways to justify its price at $8k once TN is in full-swing and it can earn its keep - so maybe FSD doesn't drop in price, only AP does. But yes. $8k would nuke its take rate on a $35k car.

Speaking personally - the most expensive car I've ever bought to date is a CAD$6500 2001 Honda Insight, when I bought it in 2011 - my Model 3 (estimated price of USD$42k ASP = ~CAD$55k - 14k incentive = $41k CAD) will be the most expensive car I've bought by a factor of approximately 7. If AP+FSD is USD$8k? I won't be getting it. I've been driving for over a decade, and I like driving. Since I moved closer to work, I rarely travel long distances on controlled access freeways where AP is most useful. Its not worth $8k to me - and I'm quite certain that I am representative of a very large portion of Model 3 buyers. I can easily justify the high cost of the car itself with fuel savings over its lifespan and the future ability to go completely off-grid, but I can't justify that high of a price tag for AP.

There is lots of demand for Model 3 as a whole - they will sell every one they produce for at least the next 5 years without a sweat. Demand for AP is much, MUCH more price elastic. On Model S, its easy to justify getting AP as "the car is $70k, what's another $8k to get the most well known feature?" - that's much more difficult for most buyers in the Model 3 price range. Tesla doesn't really get to choose which options buyers select (unless they make it standard and raise the base price accordingly), and so they must price them such that the optimal portion of buyers elect to have the option.

If you believe Elon and team then you shouldn't be so pessimistic of the take rate based on your own point of view. They said they thought they might get the reservation number they did in April after revealing FSD feature but was shocked as it turned out. This is evidence of them confident in the take rate of FSD. Also if FSD is really good, there will be people buying 40k+ cars in the past coming over just because this feature.

 

[AudubonB]

He who sits in sole control
Of that fabled Golden Bowl

Need not confront the awful dread,
The fearful tread,

Of those who squat on Porcelain
and spy therein a Dorsal Fin

 

[racer26]

If you believe Elon and team then you shouldn't be so pessimistic of the take rate based on your own point of view. They said they thought they might get the reservation number they did in April after revealing FSD feature but was shocked as it turned out. This is evidence of them confident in the take rate of FSD. Also if FSD is really good, there will be people buying 40k+ cars in the past coming over just because this feature.

Disagree. That's them being confident in FSD getting a lot of people interested in the car enough to make a reservation. I don't have to choose whether or not to take FSD to make a reservation, but it sure might get my attention. If the price is too high when the time comes, take rate will suffer, that you can be sure of.

 

[racer26]

He who sits in sole control
Of that fabled Golden Bowl

Need not confront the awful dread,
The fearful tread,

Of those who squat on Porcelain
and espy therein a Dorsal Fin

Don't we have rules against poetry?

 

[erthquake]

Confirmed.

Tesla confirms retooling of factory for Model 3 this month, will ‘pause’ Model S/X production for a week

 

[DragonWatch]

Back in 1976 I bought my first Toyota Celica, and for years before that I had been told how Toyota would not be able to really compete with the likes of our big auto manufacturers. Ford for decades had been referred to as Fix Or Repair Daily. Today Toyota is at the top and Ford is thought to be Ford Tough After nine Toyota's, three Volvos (now owned by Ford), two VWs and a couple of others tossed in the validate my belief that american automaker management sucked and not the people on the line, I am trading in my two remaining Toyota's for what I hope to be an MX. My fall back plan is the M3. I am scraping together every nickle and dime I can find, to include watching where I walk for that freebee.

Bottom Line: I am buying a Tesla vehicle.

What you money debaters are missing here is that anyone with $0.03 cents for a brain knows the price will not be $35,000. First there is state/local taxes and destination/delivery charges. Then there is leather seats, heated seats, AP, Sound and so on. . . What is the cost with the 95D battery? I already have in my head is something close to $70,000. That of course is why I am trying desperately to convince my wife that if we are going that high, why not make it an X What about the falcon wing ~ right

The first VW my wife and I bought was a brand new yellow (lemon) Beetle for $3,000. Paint sucked and got them to repaint it. Our first Toyota was $5,000. I would not touch a VW with a ten foot pole these days.

As an investor and very soon to be owner of a Tesla I am looking at the whole system and not one car, not just solar panels ~ it is the kind of life changes my wife and I started when she challenged me with "how tall are you." Even though I am or was forty-three years ago only 1/2" shorter (5'-5 1/2"), I proved otherwise. When taller Officers figured I was no threat, I gave my warning "try to kill me and You will never enjoy sex again as a human." The Russians knew better Oh, and we have been on the Organic kick and have battled my brother-in-law farmer in central California (Sacramento Delta) forever.

It is fun to watch you split hairs over the pricing of the M3, but people that give a damn about new technology, alternative technology and have not been financially screwed too bad by the republicon's over the years will purchase the M3 because they want to make the US a better place to live. Only one senior officer ever referred to the US Army tag on our uniform as the us Army ~ very profound.

 

[Fallenone]

Disagree. That's them being confident in FSD getting a lot of people interested in the car enough to make a reservation. I don't have to choose whether or not to take FSD to make a reservation, but it sure might get my attention. If the price is too high when the time comes, take rate will suffer, that you can be sure of.

If one is not that interested in getting FSD, why would they reserve a M3 after seeing FSD feature, after more than half a year of reveal? I'm not arguing the lower the price, the higher the take rate. But your $8000 to $2500 is just too much.

 

[myusername]

since my absence was noted... i figured i'd post my chart... i'm pretty sure I haven't touched this since the last time I posted it... isn't it weird that a totally "free-market" driven stock just happens to follow a line for nearly 2.5 months? 50 day avg daily volume is ~4.5m... so this magically consistent rise includes ~207m traded shares... or nearly 50 billion dollars in trades... rising 44% off 180 while short interest *increased*... anxiously awaiting the 13Fs.

 

[racer26]

If one is not that interested in getting FSD, why would they reserve a M3 after seeing FSD feature, after more than half a year of reveal? I'm not arguing the lower the price, the higher the take rate. But your $8000 to $2500 is just too much.

Because people are dense? Just look at how many people out there still don't even know Tesla exists, much less that it makes a fantastic electric car you can buy today. FSD reveal would have caught some media attention that likely alerted at least some new people to the Model 3's impending release, and the fact that if they don't get in line NOW their chances of getting the tax credit in the US are small.

I guess we'll agree to disagree. My prediction is that at launch, Model 3's AP+FSD price ($8k on MS today) will be $4k MAX, and more likely $2500-3000.

The $8000 price of AP+FSD today is like the first CD Burners in 1990-1992 that were $10-35k, and the price I'm suggesting at launch of Model 3 is like the $995 price in 1995 when they started showing up in home PCs. By 1998 they were down in the $100ish price point, and by the early 2000s, a CD burner could be had for ~$20. Its not a perfect analogy, but its not bad.

 

[jhm]

Don't you dare give up on your dream:
Maurizio Cattelan: “America”

Ah, that's a thing of beauty. It only we all could have an unpresidented intimate experience with a work of art.

 

[myusername]

Because people are dense? Just look at how many people out there still don't even know Tesla exists, much less that it makes a fantastic electric car you can buy today. FSD reveal would have caught some media attention that likely alerted at least some new people to the Model 3's impending release, and the fact that if they don't get in line NOW their chances of getting the tax credit in the US are small.

I guess we'll agree to disagree. My prediction is that at launch, Model 3's AP+FSD price ($8k on MS today) will be $4k MAX, and more likely $2500-3000.

The $8000 price of AP+FSD today is like the first CD Burners in 1990-1992 that were $10-35k, and the price I'm suggesting at launch of Model 3 is like the $995 price in 1995 when they started showing up in home PCs. By 1998 they were down in the $100ish price point, and by the early 2000s, a CD burner could be had for ~$20. Its not a perfect analogy, but its not bad.

"much less that it makes a fantastic electric car you can buy today"

what percentage of the people on the planet do you think can buy a Tesla "today"?

 

[RobStark]

Volvos (now owned by Ford)

Ford sold Volvo to Geely of China in 2010.

 

[madodel]

Guess it might be time for your local friendly mild-mannered Moderator to be the token bear.

It looks to me as though TSLA isn't going to hit $1000 any time soon.

So you are saying we should all Sell, Sell, Sell?

 

[DragonWatch]

Can someone get the point across to Tesla that I want a brilliant GREEN color! Since I am waffling between the X and 3; those two cars need GREEN added to the options. I was not born and raised in a box ~ our children claim that both my wife and I were dropped of from outer space

How many cars do we need to pass on the road that are White, Gray (already own), Silver, Black, Blue (already own), and red (been there/done that). I just want another choice

I hope this does not alter your trying to quarterback the M3 price