Long-Term Fundamentals of Tesla Motors (TSLA)

[ItsNotAboutTheMoney]

Looking at Model X pricing, I detect a subtle, or not so subtle, change in Tesla's strategy. I think they're adjusting for the realization of growing inequality out there. The rich are getting v rich indeed. Even as America (and much of the rest of the world) stagnate in overall economic growth, the number of millionaires is exploding. Therefore, if the long-term strategic purpose of Model X is to generate cash-flow to help pay for the eventual mass-market roll-out, why not optimize it for that. In that scenario, the right pricing strategy is contingent on just how price elastic things are at the top end. They may have calculated that boosting the price 40% may not drop sales by 40%... perhaps only by 10% (or even zero if they can sell all they can make.) 25% gross margin on a $140k car is obviously better than 25% on a $100k car. If they achieve $35k margin per car, vs $25k and achieve 10% fewer sales than they would have, they're still generating 26% more cash to operations than they otherwise would have.

So if they've successfully created the vehicle every rich family will lust after, they may end up achieving two things:
- larger than expected cash-flow over the next two-three years
- enhanced brand 'desire'.

So long as they remain committed to massive cost-reductions for Model 3, I can live with this. You can call it the Robin Hood strategy. Extract extra margin from the rich to build a runway for the poor.

There has been no change in strategy.

 

[RationalOptimist]

There has been no change in strategy.

You're missing that they are only launching the expensive versions of the X. A typical X bought now will be at $140k or thereabouts. A typical S is about $100k. de facto, that's a huge shift.... and the only logic to do it is for cashflow... and that only works if pricing is somewhat inelastic up at that top end... which I think is the case.

 

[adiggs]

You're missing that they are only launching the expensive versions of the X. A typical X bought now will be at $140k or thereabouts. A typical S is about $100k. de facto, that's a huge shift.... and the only logic to do it is for cashflow... and that only works if pricing is somewhat inelastic up at that top end... which I think is the case.

You're missing that a "typical" Model X sold this quarter, right at the very beginning of production, is atypical. You're making a comparison between a car with its full range of options in production and purchasable, with a car that has barely started production and is using scarcity to force purchases to be of maxed out cars.

So in the sense that ASP of X in Q4 is going to be in the 132-142K range, what you say is true. And in the sense that Model S does indeed carry a ~$100k ASP, that is also true. If Tesla were only selling performance Model S's (or P's with Ludicrous) and all options, then Model S would also carry an ASP of 132-142k.


Your conclusion is that Model X is ~40% more expensive than Model S. That is an apples and apple pie comparison - not really comparable even if there is a superficial relationship.

In comparable terms, Model X is on the same price scale as Model S. Elon has said X is about $5k more expensive than S when similarly configured. We're unable to make that assessment for ourselves as production pricing for Model X hasn't been released. But we do know that a maxed out S and X are awfully close together in price - the one meaningful point of comparison we have available today.

 

[ItsNotAboutTheMoney]

You're missing that they are only launching the expensive versions of the X. A typical X bought now will be at $140k or thereabouts. A typical S is about $100k. de facto, that's a huge shift.... and the only logic to do it is for cashflow... and that only works if pricing is somewhat inelastic up at that top end... which I think is the case.

Tesla did the same thing with the S: 85, 60, 40-whoops.
Tesla did the same things with the D: P85D, 85D, 70D.

Tesla has a large number of backorders so they will be able to fulfill the high-end specs first.

 

[ecarfan]

In comparable terms, Model X is on the same price scale as Model S. Elon has said X is about $5k more expensive than S when similarly configured. We're unable to make that assessment for ourselves as production pricing for Model X hasn't been released. But we do know that a maxed out S and X are awfully close together in price - the one meaningful point of comparison we have available today.

very accurate analysis.
What is amazing is that a comparable X is only $5K more than an S but the X is significantly larger, has more expensive Falcon Wing doors, fancy pedestal-style second row seats, powered front doors, far superior air filtration system, some tow capability is standard, and a much larger and more costly windshield. I'm surprised the comparable price difference isn't greater.

 

[WarpedOne]

It means that they have learned some lessons how to build a car.
There are things in X that are simpler and cheaper than their analogues in S.

 

[RobStark]

Fiat :
The diesel fallout also challenges Fiat Chrysler, which has no plans for mass-market hybrids. CEO Sergio Marchionne regularly jokes about selling battery-powered Fiat 500s at a loss to satisfy California regulators.
Along with Renault and GM's Opel, Fiat relies heavily on Lean NOx Trap (LNT) technology whose real-world emissions are a larger multiple of legal limits, and harder to fix, than the Selective Catalytic Reduction (SCR) exhausts prevalent in Peugeots. VW models are more evenly split between the two.

FCA has a Chrysler Town and Country PHEV minivan coming in late 2016 and a CUV version badged as a Jeep coming in late 2017.

FCA US is preparing its Windsor plant to make an electric minivan

 

[ggies07]

FCA has a Chrysler Town and Country PHEV minivan coming in late 2016 and a CUV version badged as a Jeep coming in late 2017.

FCA US is preparing its Windsor plant to make an electric minivan

I'm still so confused....it's a hybrid....which means there's still an engine....I would have thought with the advances Tesla has shown the world, that automakers would work extremely hard to catch up and skip this whole hybrid level, but I guess not.....so what? in 20 years they will make an all electric van?

 

[replicant]

I'm still so confused....it's a hybrid....which means there's still an engine....I would have thought with the advances Tesla has shown the world, that automakers would work extremely hard to catch up and skip this whole hybrid level, but I guess not.....so what? in 20 years they will make an all electric van?

I keep asking my friends "would you by an electric car, next time?". Those who don't know %#* about EVs say "hell no, the tech isn't ready". Those who are familiar some EVs like the Renault ZOE say "they would if the driving range exceed 500 km if the country has as many superchargers as fuel stations". Those know about the S, the 3 and the X say "they will, as soon as superchargers can be found all along the highways". Even though the supercharger network keep expanding, the charging tech improves, and every parking can be turned into a charging station, the lack of superchargers in every service area is a huge concern for them. So they expect to buy hybrids until 2020.

Here in France, Bolloré will install 16,000 super-slow chargers by 2019. And a European auto manufacturer is said to discuss with Tesla about a supercharger partnership - probably Renault. That's all we know.

So when the 3 is revealed and Tesla succeed in ramping up production, I think they should figure out a plan to have a fast-charge standard accepted by most countries (US, Europe, China) and work with partners to implement it and communicate.

- - - Updated - - -

I'm a happy user of Autolib (official electric car sharing service in Paris). I can rent a car anywhere in the capital and its bordering cities, and pay for the time spent in the car. It's great because I don't need to buy a car and I can check-in and out anywhere, at any time. A EV owner can also participate in this program by purchasing a Car Charge subscription (1€ per charging hour).

I'd love Autolib to make the charging network independent from the car sharing service, so that Paris (and other big cities) would build a huge urban supercharging network available to anyone and compatible with any EV. On-demand services like Autolib, Uber and the Google Self-Driving Car Project could just plug-in the network. The same could be done for all service areas in Europe. A "plug-and-pay" system (similar to Android tap-and-pay and Apple Pay) could be implemented in all EVs and charging stations so the car can park itself, let the snake charger fill the battery and the car pay for the kwh.

 

[RobStark]

I'm still so confused....it's a hybrid....which means there's still an engine....I would have thought with the advances Tesla has shown the world, that automakers would work extremely hard to catch up and skip this whole hybrid level, but I guess not.....so what? in 20 years they will make an all electric van?

It will be the first minivan with a plug. It is a large step in the right direction. We don't need another sub 150 EPA mile AER compact/subcompact PHEV/BEV.

PHEVs are a gateway drug to BEV.

All cars with plugs are a good thing.

Even ones we don't "need" like the Fiat 500e BEV.

 

[ggies07]

It will be the first minivan with a plug. It is a large step in the right direction. We don't need another sub 150 EPA mile AER compact/subcompact PHEV/BEV.

PHEVs are a gateway drug to BEV.

All cars with plugs are a good thing.

Even ones we don't "need" like the Fiat 500e BEV.

I guess so, if that's the way it has to go....but the industry moves so slow that I'm afraid with what's going in with our environment, it will be too late.

 

[MitchJi]

In the short term PHEV's can be a good thing. But IMO investing in the technology is a strategic mistake. Long term it is based on the belief that battery costs will remain high. Tesla is working towards producing BEV's for less than ICE's. They are closer than most people think. When they get to the point where a 90kWh BEV is cheaper than an emissions legal ICE how is something like an BMW i3 PHEV going to make sense?

 

[ggies07]

In the short term PHEV's can be a good thing. But IMO investing in the technology is a strategic mistake. Long term it is based on the belief that battery costs will remain high. Tesla is working towards producing BEV's for less than ICE's. They are closer than most people think. When they get to the point where a 90kWh BEV is cheaper than an emissions legal ICE how is something like an BMW i3 PHEV going to make sense?

I guess my thought was too general, because this is what I'm talking about. Thanks to Tesla, we can skip the whole PHEV level.

 

[SBenson]

CNBC-TV18 Exclusive Sources Say: Tesla Plans To Build Assembly Unit In India For Tesla Model 3 @CNBCTV18Live

From CNBC-TV18 on Twitter:

Why India? China was the easy guess.

 

[ggr]

From CNBC-TV18 on Twitter:

Why India? China was the easy guess.

Because he's met with the bosses of both countries, and Modi is more cooperative?

 

[Lessmog]

Maybe also because China already has a huge solar industry while India's is still much smaller. Both gigacountries need colossal amounts of renewable energy right now. Therefore, India may present a somewhat more tempting opportunity for Musk Enterprises on a larger scale, with synergy effects of power generation as well as storage and electric transportation.

My 0.02 rupees.

 

[RobStark]

From CNBC-TV18 on Twitter:

Why India? China was the easy guess.

Does India require a local partner to open up an assembly plant like China does?

 

[pGo]

Does India require a local partner to open up an assembly plant like China does?

No. Modi has shown that he is willing to cut all red tapes as long as business wants to invest money for long term. Maruti-suzuki, Tata, Ford are opening new plants in Gujarat because of his lucrative package. Going head to head, he gives offers most companies cannot resist as long as the commitment is long term.

 

[MitchJi]

I agree that the M3 is dependent on the GF.

I also emphatically agree that it won't have the delays associated with the MX for this reason:

...but be willing to understand that Telsa the company [, Elon Musk] and Tesla investors are all learning as we go forward.

But if you believe that the GF is dependent on the M3 you are (IMO) grossly underestimating the potential of stationary storage:

Remember that Model 3 depends upon gigafactory ramp up and gigafactory ramp up depends upon Model 3 ramp up to a large extent. Guess what? the gigafactory is on track and Model 3 needs to be too.

I think the timing with Gen 3 will be driven by the Gigafactory. It can't come before the Gigafactory because battery pack capacity and cost efficiencies are required. It also should not lag too much because that would not be capital efficient to let the Gigafactory sit underutilized.

There are studies, commissioned by utilities showing that prices of $350kWh are below deeply disruptive and this market is huge:

hat at a slightly lower price of storage than the $350 / kwh assumed here.... imply an economic case fairly soon for energy storage capacity of 22% of US electric draw for 3 hours, meaning roughly 88,000 MW or 264,000 MWh.

That represents a huge number (264 million) of Tesla 100kWh Powerpacks.

And that doesn't even include Peakers, for which a California study found that batteries:

The breakeven price their analysis found was $842 / kwh, over three times as high as Tesla’s announced utility scale price of $250/kwh.

 

[Papafox]

But if you believe that the GF is dependent on the M3 you are (IMO) grossly underestimating the potential of stationary storage:



There are studies, commissioned by utilities showing that prices of $350kWh are below deeply disruptive and this market is huge:

That represents a huge number (264 million) of Tesla 100kWh Powerpacks.

And that doesn't even include Peakers, for which a California study found that batteries:

Yep, Tesla Energy is a huge part of making sure that the gigafactory stays busy once various portions of it are completed. I think the timing of Tesla Energy is brilliant in that it provides a reason for the gigafactory until sufficient demand is made by Tesla vehicles as the gigafactory expands. After all, if the gigafactory starts producing in April, 2016, at least a year will pass before Model 3 comes online. Looking at the profit margins associated with Tesla Energy vs. Tesla vehicles, however, I think we will see Tesla Energy on the low side until the gigafactory is running at top form and significant economies of scale are present. This is one of the reasons why Tesla vehicle production must increase as the gigafactory production capabilities increase. In other words, it's a matter of not only demand for the gigafactory cells but also for creating demand for cells that can yield suitable profit early on.