2017 Investor Roundtable:General Discussion

[3Victoria]

Yes, S/X demand will plateau ... the question is when. Many are arguing that there are untapped markets, including people not aware that EVs exist. I find the arguments as to whether S/X should move up or down market interesting. I think they should move up market as the 3 arrives, to keep their exclusivity and to differentiate themselves from the 3.

 

[RobStark]

By the time you pay all applicable taxes and licensing fees, and put even just a couple of options (like say, AP and FSD, which have very high take rates) its a $100k car.

Never mind that I'm Canadian, and as such generally think in terms of Canadian Dollars, and the very cheapest Tesla you can buy is presently $90,400 CAD.

Prices for cars are not generally quoted including all applicable taxes, licensing fees and industry leading options.

I don't see people say the Toyota Camry is a $30k car.

$100k is different from C$100k.

There is always someone wanting to imply that the Average Selling Price is the Minimum Selling Price.

There is a limit to this market. There is a limit to how many Model S can be sold.

We don't know what that limit is right now.

Mercedes sells ~200k units per year of the Mercedes S Class( almost half in China) with an ASP approaching $120k.

 

[racer26]

Yes, S/X demand will plateau ... the question is when. Many are arguing that there are untapped markets, including people not aware that EVs exist. I find the arguments as to whether S/X should move up or down market interesting. I think they should move up market as the 3 arrives, to keep their exclusivity and to differentiate themselves from the 3.

As 3/Y come in to slot into the more entry-level market, S/X ought to move up market and gain some nicer qualities to maintain their status as halo cars. Likely - they can gain some pricetag as they do this too, and it likely won't matter all that much to Tesla's bottom line.

Otherwise, if you can buy a Model 3 for $35,000 in its ~55kWh single-motor trim that does 0-60 in 5.x seconds and has 2xx (likely 240) mi of range, or buy a Model S for $68,000 in its 60kWh single-motor trim that does 0-60 in 5.8 and has 210 mi of range, which would you choose? The Model S is somewhat larger, but otherwise, both are similar range, similar style (4 door sedan), and similar performance cars, but one has a pricetag of nearly double.

 

[racer26]

Prices for cars are not generally quoted including all applicable taxes, licensing fees and industry leading options.

I don't see people say the Toyota Camry is a $30k car.

You might not see people say that, but that's the reality - a Camry, by the time its on the road, usually cost its owner in the neighborhood of $30k.

$100k is different from C$100k.

Indeed it is. About 32% different at the moment.

There is always someone wanting to imply that the Average Selling Price is the Minimum Selling Price.

Well. You tried to imply that the MSP is what defines the market a Tesla sells into. I argue that ASP is a much better metric for this purpose. Most people don't buy a car with no options, but most people DO buy a car with a maximum budget in mind.

There is a limit to this market. There is a limit to how many Model S can be sold.

I'm glad we agree on something.

We don't know what that limit is right now.

Well, no, I suppose we don't, but we can make educated guesses based on many factors.

Mercedes sells ~200k units per year of the Mercedes S Class( almost half in China) with an ASP approaching $120k.

So maybe there is still room to grow. This would be one of the factors we could make educated guesses based upon.

 

[RobStark]

Otherwise, if you can buy a Model 3 for $35,000 in its ~55kWh single-motor trim that does 0-60 in 5.x seconds and has 2xx (likely 240) mi of range, or buy a Model S for $68,000 in its 60kWh single-motor trim that does 0-60 in 5.8 and has 210 mi of range, which would you choose?

I would choose the 3.

I would move the S upmarket too.

But there are people that would choose the S.

Liftback/ Fits more stuff than 3 trunk.
Aluminum / 3 will likely have some rust issues in areas that salt roads during winter.
Looks like a P100D/ Status.

There might be more stuff when we actually compare the two production vehicles in 2nd half of this year.

 

[MartinAustin]

Actually, a Honda Civic is exactly what I was driving up until I bought my Model S back in 2013 at $92,000.

A Honda Civic is exactly what I was driving up until I bought my Model S back in 2013 at $102,000.

 

[RobStark]

You might not see people say that, but that's the reality - a Camry, by the time its on the road, usually cost its owner in the neighborhood of $30k.

Again, that is not common practice. Common language usage is how we communicate with others.

Well. You tried to imply that the MSP is what defines the market a Tesla sells into. I argue that ASP is a much better metric for this purpose. Most people don't buy a car with no options, but most people DO buy a car with a maximum budget in mind.

Since Tesla does not currently have a less expensive car the entry level price defines the market for stretchers. Not only literally people that can afford $68k and no more but people that can afford $150k but would never walk into a dealership with the intention of buying anything over $70k. They walk into a Tesla store fully intending to spend $68k plus maybe an option or two but walk out with $100k plus car. But they never would have walked into a Tesla store if the minimum prices was "$100k" Unlike other premium brands the lower range of the S is very important. There is no 5 Series,E Class, or A6 to offer instead.

 

[racer26]

I would choose the 3.

I would move the S upmarket too.

But there are people that would choose the S.

Liftback/ Fits more stuff than 3 trunk.
Aluminum / 3 will likely have some rust issues in areas that salt roads during winter.
Looks like a P100D/ Status.

There might be more stuff when we actually compare the two production vehicles in 2nd half of this year.

Of course. There are people who will choose an Acura TLX instead of a Honda Accord too, despite them being very similar cars with very different price tags.

I expect that most of the Model 3 body will end up being Aluminum. It is a superior material to build automotive chassis with once you have the skillset, and its not really that much more expensive in volume, and is thus perfect for a premium product. Tesla may use steel for the 3 in some places where the S is almost entirely aluminum, but I don't think we're going to see very much steel in the 3 either, especially so where corrosion is a concern. Honda sold Insights built with an aluminum chassis for $18k almost 2 decades ago.

 

[austinEV]

As 3/Y come in to slot into the more entry-level market, S/X ought to move up market and gain some nicer qualities to maintain their status as halo cars. Likely - they can gain some pricetag as they do this too, and it likely won't matter all that much to Tesla's bottom line.

Otherwise, if you can buy a Model 3 for $35,000 in its ~55kWh single-motor trim that does 0-60 in 5.x seconds and has 2xx (likely 240) mi of range, or buy a Model S for $68,000 in its 60kWh single-motor trim that does 0-60 in 5.8 and has 210 mi of range, which would you choose? The Model S is somewhat larger, but otherwise, both are similar range, similar style (4 door sedan), and similar performance cars, but one has a pricetag of nearly double.

This is why I, among others, expect an interior refresh-- probably integrating the HUD. They will have to move the S upmarket or quite a few people will figure out it's not worth it.

 

[MitchJi]

This is why I, among others, expect an interior refresh-- probably integrating the HUD. They will have to move the S upmarket or quite a few people will figure out it's not worth it.

That and some price reductions.

 

[techmaven]

The Model S is a single model that actually competes against a slew of other models in multiple segments. As such, comparisons are fraught with difficulties. Size-wise, the Model S most resembles the BMW 6 series or Audi A7's. But the actually competes against the typical eco-cars (Prius, Volt, Leaf), mid-sized sized luxury, sport, and large sized sedans (BMW 5, 6, and 7 series, Audi A6, A7, and A8) and so forth. You can go look at the market data (a bit old now) with the list of conquest cars. It is notable to compare it to the large luxury sedan segment mainly based on price, but it really doesn't compete against Audi A8, Mercedes S class, and so forth. That's not its true conquest vehicles. It tends to draw a very wide mix of buyers, many buying the priciest car they've ever bought. In terms of overall volume it truly competes against, I'd take the upper end of the BMW 5 series, the 6 series, and a sliver of the 7 series in terms of sedans, but really Porsche is often a conquest brand almost as much as Toyota. Throw in a mix of Volt/Prius/other eco/hybrid vehicles.

As a result, it is really segment leading in terms of ASP, but that's a bit misleading due to the lower TCO, people likely actually compare it at $10k to $15k lower. The total addressable market should be much larger than the current amount... Service Centers, Superchargers, and Galleries are still missing in a number of regions even in the U.S. and therefore even Tesla's most well developed markets, there's a lot of room for growth.

Achieving that growth in 2017 is a different matter. It could be that the remaining addressable market will take a lot of convincing... in terms of crossing the chasm, we likely still haven't crossed the chasm for all markets except Norway and California. And even those, we are likely at the earliest of the early majority.

It might also be that Tesla will need many variants in order to really address the market. The back seat of the Model S is a bit cramped like the BMW 6 series or the Audi A7. These are sporty versions of their sedans and have correspondingly much smaller sales volume than the BMW 5 series or the Audi A6. A redesign of the Model S after the Model 3 might be necessary to truly capture the mid-size luxury sedan market.

 

[EnzoXYZ]

Regarding Model S & X demand this year...

I don't think we will see much growth in demand (or deliveries) for MS/MX in 2017. Demand for these seems pretty saturated to me.

And, for Q4'16 deliveries that just got reported... I'm not convinced that the shortfall was AP2 "late production" related. I think there was substantial demand evaporation "hangover" from Q3 where tesla really pushed demand generation hard with inventory cars and discounts...

Hopefully all this is moot, because Model 3 demand is huge. Remains to be seen when Tesla will start producing it. I'm dismayed by Elon's comments about stamping dies as critical path. I can't imagine why. The sheet metal design and form has been locked for a long time.

I often think this or am afraid of this until I do a little math... how many large cities are in each state and how states are in the country and how many countries are in the world. Wow the annual allocation is peanuts at 100K or even 200K. Not hard to see Tesla production constraint for 5 +years out. There will be no deman problems when you are building the best car on the market.

 

[dennis]

This could be due to Tesla being the only 200+ mile EV till now. Now with Bolt in picture, the Prius owners may choose that instead.

Not if they want it for more than a city/suburban car. There is insufficient CCS DCFC charging available, even in California, to take the Bolt on a road trip.

 

[EnzoXYZ]

I really think a buyer of a 100K car is nuts not to buy the X. IMO the product mix will pan out to be 40/60 S/X split.

 

[geneclean55]

I often think this or am afraid of this until I do a little math... how many large cities are in each state and how states are in the country and how many countries are in the world. Wow the annual allocation is peanuts at 100K or even 200K. Not hard to see Tesla production constraint for 5 +years out. There will be no deman problems when you are building the best car on the market.

Right.
For example, the UK is the largest EU market for MS vehicles. Yet they have only received a handful of RHD MX so far.

 

[KLC13]

Tesla is also growing the total addressable market. Many S/X buyers would never, ever have considered a car in that cost bracket if it wasn't for S/X features.

I think the competition will also help Tesla in this. In the next 12-18 months trditional auto will launch their EV's and in turn educate a lot of customers about the feasibility of BEVs.
It is then natural for these customers to look into Tesla as it is a well respected EV brand... I think the Tesla brand is something a lot of peope underestimate.

Also, the launch of high price EVs by big auto is perfect timing for Model 3 for the same reason...

 

[dennis]

I don't think S and X deliveries in 2017 would be 50% higher than 2016. I'd be happy with a 20%. Rather than demand, I think the cause is still production. The possibility to increase production of the S and X this year is severely limited. Resources - space, machinery, money, and labor - would be drained by early phase Model 3. TE needs to step up and fill in the growth story until Model 3 volume production.

Just holding S/X production steady at the Q3 and Q4 rate of 25K vehicles would result in a 30%+ increase in deliveries (76K->100K).

 

[Fallenone]

Just holding S/X production steady at the Q3 and Q4 rate of 25K vehicles would result in a 30%+ increase in deliveries (76K->100K).

Yeh, IF S/X production can be held steady. There might be some challenges when they are installing new machines and equipment for Model 3, testing out new features, etc. Holding steady at 25k/Q might not be that easy.

 

[3Victoria]

Yeh, IF S/X production can be held steady. There might be some challenges when they are installing new machines and equipment for Model 3, testing out new features, etc. Holding steady at 25k/Q might not be that easy.

Why? They already have the 3-line mapped out at Fremont, and are likely building it now.

 

[dakh]

I can see growth for S/X tapering off.

After all, how long can you sustain a 50% YoY growth rate on $100,000 products which you presently own ~35% of the market for?

I do believe though, that S/X have room for growing to 110-120k annually (which yes is 50% YoY again, but not that much of an increase from 4Q16's production rates.

We've not had any evidence of Tesla lying to us before, and no reason for them to start now. If they say deliveries were delayed by AP2 teething problems on the line, I believe them.

Demand is simply not a problem. Suggesting that it is belies the evidence to the contrary.

If you think of the situation as fairly stable then that'd be a logical conclusion. But they don't stop innovating, and what's more important they're innovating at a higher pace than competition.

There will be the HUD, AP and other improvements.

Even more importantly so, batteries will continue to go down in price and manufacturing will continue to be optimized. So far we've seen very healthy gross margins. Over time, compared to traditional ICE luxury cars, the price/margin gap will allow Tesla to gain even more market share based on the value they will be able to offer vs. competition.