Short-Term TSLA Price Movements - 2015

[Crowded Mind]

Cheaper does not mean lower margin. The margins on options are probably higher than the drivetrain. So right-sizing the battery et al leaves the customer less financially constrained to spend more on high margin option. Thus, the well optioned 70D could have a higher GM than a modestly optioned 85D.

Regarding supply constraints, if the supply constant is battery cells, then making more cars with fewer cells per car is one way to optimize revenue. Ignoring option, for the same amount of kWh, you could sell 70 85Ds for $85k each and get $5.95M in revenue. Or you could sell 85 70Ds for $75k each and get $6.375M in revenue. Thus for the same supply of batteries 70D generate 7% more non-option revenue than 85D. So if the GM on non-option revenue is identical, then selling 70D can generate more gross profit per kWh. Likewise, Tesla can sell more leather seats and panoramic roofs on 85 70Ds then on 79 85Ds. The same argument applies to most options.

So the 70D has the potential to generate more gross profit per kWh on both non-option and option revenue. The revenue and GM problem with the S60 could simply have been too few sales limiting the revenue per kWh supply. So the 70D could be just the ticket to drive up revenue per kWh and GM.

Great perspective, I hadn't thought of it that way though it makes complete sense. Thanks.

 

[mdemetri]

Cheaper does not mean lower margin. The margins on options are probably higher than the drivetrain. So right-sizing the battery et al leaves the customer less financially constrained to spend more on high margin option. Thus, the well optioned 70D could have a higher GM than a modestly optioned 85D.

Regarding supply constraints, if the supply constant is battery cells, then making more cars with fewer cells per car is one way to optimize revenue. Ignoring option, for the same amount of kWh, you could sell 70 85Ds for $85k each and get $5.95M in revenue. Or you could sell 85 70Ds for $75k each and get $6.375M in revenue. Thus for the same supply of batteries 70D generate 7% more non-option revenue than 85D. So if the GM on non-option revenue is identical, then selling 70D can generate more gross profit per kWh. Likewise, Tesla can sell more leather seats and panoramic roofs on 85 70Ds then on 79 85Ds. The same argument applies to most options.

So the 70D has the potential to generate more gross profit per kWh on both non-option and option revenue. The revenue and GM problem with the S60 could simply have been too few sales limiting the revenue per kWh supply. So the 70D could be just the ticket to drive up revenue per kWh and GM.

This is an excellent point, but there are some potential caveats. The key is whether the "the GM on non-option revenue is identical". There is a cost to building more cars per kWh of batteries. Every non-option non-battery component of the car has a cost and GM. If GM is significantly lower on the non-battery components of the non-optioned car, this could offset any gain in GM from fewer batteries per car. If GM on non-option non-battery components is higher than the batteries, this would amplify the GM per car. So does anyone know the difference in GM between the battery and everything that is not an option? My suspicion is that Tesla would not have done this unless GM is at least similar, if not better, for the 70D.

 

[everman]

I'm sure there will be a performance Model 3 which targets the BMW M3 in price and performance. But why make room for it now? The car isn't coming out for 2-3 years.

To me this is all part of Tesla's plan. They use the revenue of Roadster to finance Model S. They use revenue from Model S to finance the (really expensive part...) Model 3 and related infrastructure.

Maximising revenue and profit at this point is all part of the plan. It enables the Model 3. This is what the Bears don't get when they whine on about an imminent cap raise. This is the kind of balance that maximizes demand vs. revenue vs. mfg capacity.

 

[doggusfluffy]

This is an excellent point, but there are some potential caveats. The key is whether the "the GM on non-option revenue is identical". There is a cost to building more cars per kWh of batteries. Every non-option non-battery component of the car has a cost and GM. If GM is significantly lower on the non-battery components of the non-optioned car, this could offset any gain in GM from fewer batteries per car. If GM on non-option non-battery components is higher than the batteries, this would amplify the GM per car. So does anyone know the difference in GM between the battery and everything that is not an option? My suspicion is that Tesla would not have done this unless GM is at least similar, if not better, for the 70D.

I feel like this is a strong indication of two basic and fundamental facts. Tesla is aggressively reducing their costs, especially in batteries. Tesla is passing the added value along to their customers which creates unmeasurable goodwill and loyalty now and in the future.

 

[jhm]

This is an excellent point, but there are some potential caveats. The key is whether the "the GM on non-option revenue is identical". There is a cost to building more cars per kWh of batteries. Every non-option non-battery component of the car has a cost and GM. If GM is significantly lower on the non-battery components of the non-optioned car, this could offset any gain in GM from fewer batteries per car. If GM on non-option non-battery components is higher than the batteries, this would amplify the GM per car. So does anyone know the difference in GM between the battery and everything that is not an option? My suspicion is that Tesla would not have done this unless GM is at least similar, if not better, for the 70D.

I think you are making this more complex than it really is. The assumption that I am trying to make is that before options the 70D and 85D are priced so that they have the same GM. So this condition is entirely within Tesla's control as they set the price. This condition alone is sufficient for the 70D to deliver more gross profit per kWh than the 85D. Next, if options are priced the same for both versions, then it is easy to expect that more options will be sold on 85 70D than on just 70 85D. So again 70D delivers more option revenue and grow profit per kWh.

The thing we should be discussing right now is whether cells have become the dominant constraint again or is the bottleneck somewhere else, even demand. With improvements to the production line, there may be excess unit capacity relative to other constraints. If Tesla is in fact introducing a new higher density cell right now, then those cells may be in short supply for a while. And this would explain why Tesla is not offering a 100 kWh battery at this time. It can make lots of cars, but it cannot make lots of 100 kWh battery packs. So how does Tesla make the most of its limited high density battery supply, unit capacity and surplus low density battery supply? Answer: make lots of 70D units with high density batteries, make lots of P85D and 85D units with low density cells, and pack surplus low density cells into stationary storage products. As the stationary products advance, they will eventually off take all the low density cells. Meanwhile, production of high density cells ramps up. As soon as there is sufficient high density cell production, Tesla will announce a high density 85hd pack or a 100 pack. I would expect a 100 kWh pack for the Model X before it will be made available for the Model S. That is why a highhigher capacity battery is not coming for the Model.S this year. It's going to take that long to ramp up the HD cell supply. In the meantime, Tesla needs to optimize gross profit subject to a limited supply of HD cells; hence, 70D is the product to push at this moment.

And if demand were a concern, upgrading the entry version of the Model S is a great way to tap a value segment that has so far been quite overlooked. I expect solid unit sales from this segment.

I'd also point out that Tesla is also wanting to deploy charging infrastructure rapidly. This is one reason why giving a little more emphasis to unit sales at this point makes sense and why it makes sense to include Supercharger access standard on the 70D. It is important that this infrastructure is well used. Underutilized charging infrastructure looks bad on Tesla and does not encourage others EV makers to participate in this network. Additionally, I believe that the 70D will help with word of mouth and viral growth. You need lots of enthusiastic owners touting how advanced and affordable the car is becoming. This is a much better message to the next wave of customers than the standard line about how in 3 years Tesla should make an affordable car. For many fence-sitters, the Model S just became a much better value for the entry price. Unit sales matter.

 

[mdemetri]

I think you are making this more complex than it really is. The assumption that I am trying to make is that before options the 70D and 85D are priced so that they have the same GM. So this condition is entirely within Tesla's control as they set the price. This condition alone is sufficient for the 70D to deliver more gross profit per kWh than the 85D. Next, if options are priced the same for both versions, then it is easy to expect that more options will be sold on 85 70D than on just 70 85D. So again 70D delivers more option revenue and grow profit per kWh.

The thing we should be discussing right now is whether cells have become the dominant constraint again or is the bottleneck somewhere else, even demand. With improvements to the production line, there may be excess unit capacity relative to other constraints. If Tesla is in fact introducing a new higher density cell right now, then those cells may be in short supply for a while. And this would explain why Tesla is not offering a 100 kWh battery at this time. It can make lots of cars, but it cannot make lots of 100 kWh battery packs. So how does Tesla make the most of its limited high density battery supply, unit capacity and surplus low density battery supply? Answer: make lots of 70D units with high density batteries, make lots of P85D and 85D units with low density cells, and pack surplus low density cells into stationary storage products. As the stationary products advance, they will eventually off take all the low density cells. Meanwhile, production of high density cells ramps up. As soon as there is sufficient high density cell production, Tesla will announce a high density 85hd pack or a 100 pack. I would expect a 100 kWh pack for the Model X before it will be made available for the Model S. That is why a highhigher capacity battery is not coming for the Model.S this year. It's going to take that long to ramp up the HD cell supply. In the meantime, Tesla needs to optimize gross profit subject to a limited supply of HD cells; hence, 70D is the product to push at this moment.

And if demand were a concern, upgrading the entry version of the Model S is a great way to tap a value segment that has so far been quite overlooked. I expect solid unit sales from this segment.

I'd also point out that Tesla is also wanting to deploy charging infrastructure rapidly. This is one reason why giving a little more emphasis to unit sales at this point makes sense and why it makes sense to include Supercharger access standard on the 70D. It is important that this infrastructure is well used. Underutilized charging infrastructure looks bad on Tesla and does not encourage others EV makers to participate in this network. Additionally, I believe that the 70D will help with word of mouth and viral growth. You need lots of enthusiastic owners touting how advanced and affordable the car is becoming. This is a much better message to the next wave of customers than the standard line about how in 3 years Tesla should make an affordable car. For many fence-sitters, the Model S just became a much better value for the entry price. Unit sales matter.

Nicely put. I agree:tongue:

 

[daniel Ox9EFD]

Quartz has an interesting take at the latest developments with Tesla...
What Quartz
They are saying the twitter+feature offensive is directed somewhat at wallstreet (despite denials by Elon), because at the rate of spending they might need to raise more money soon.

Seems plausible.

 

[maoing]

70D order thread http://my.teslamotors.com/en_CA/forum/forums/s70d-official-order-and-delivery-thread

There are 4 orders, 3 people downgraded from 85D and 1 looks new order. It's a small sample though. One thing I worry about the 70D is if it'll cannablize 85D and bring down the GM?

also some other folks mentioned that 240mile EPA is not correct. If I do back on napkin calculation based on 85D/270mile EPA range, for 70D, the EPA should be 70/85*270=222 miles.

 

[daniel Ox9EFD]

70D order thread http://my.teslamotors.com/en_CA/forum/forums/s70d-official-order-and-delivery-thread

There are 4 orders, 3 people downgraded from 85D and 1 looks new order. It's a small sample though. One thing I worry about the 70D is if it'll cannablize 85D and bring down the GM?

also some other folks mentioned that 240mile EPA is not correct. If I do back on napkin calculation based on 85D/270mile EPA range, for 70D, the EPA should be 70/85*270=222 miles.

Tesla put on it's website 240 mi
It makes more sense if you don't assume the same battery chemistry as the 85.

 

[mejojo]

70D order thread http://my.teslamotors.com/en_CA/forum/forums/s70d-official-order-and-delivery-thread

There are 4 orders, 3 people downgraded from 85D and 1 looks new order. It's a small sample though. One thing I worry about the 70D is if it'll cannablize 85D and bring down the GM?

also some other folks mentioned that 240mile EPA is not correct. If I do back on napkin calculation based on 85D/270mile EPA range, for 70D, the EPA should be 70/85*270=222 miles.

You seem to be ignoring that 70D is lower power motors...same way 85D is not the same range as P85D, 70D will have more range per kWh.

 

[maoing]

TM provided contradicting information. In blog page, it states 240 miles at 65 mph, and in order pages it states 240 miles EPA. At this point, the chance of improving battery chemistry in a production cell is almost ZERO.

 

[daniel Ox9EFD]

TM provided contradicting information. In blog page, it states 240 miles at 65 mph, and in order pages it states 240 miles EPA. At this point, the chance of improving battery chemistry in a production cell is almost ZERO.

If Tesla states 240 mi EPA, and it is not the correct number they can be accused of false claims. It's not not some schmuck with his own html page, this is a publicly traded company with lawyers and all.

And they said a few times that we should expect battery improvements. So it's not definitive but I'd put the chance at above zero.

 

[Papafox]

Today I test-drove a 70D in Honolulu! Handling and acceleration were both delightful.

Implication: In Q1, Tesla was so sure they'd make delivery guidance that they had time to start producing 70Ds and ship them to sales and service centers. I am more confident in Q1 production numbers because I see evidence of filling up the pipeline.

 

[Derek Vinyard]

guys, I think the introdcution of the 70D is a very smooth move and I don't think this model will canibalize the P85D but if I look now at the Swiss homepage of TM, it seems that the P85D is experiencing an improvement in terms of engine power:wink:. I guess this is a typo.

 

[RobStark]

At this point, the chance of improving battery chemistry in a production cell is almost ZERO.

The chance of you being correct approaches ZERO.

 

[TD1]

So I guess its save the announcement of a new 100kw Battery option for the Model X release.
Since it wouldn't make much sense to have the two battery options so close.
70kw to 85kw is just a 20% increase.
60kw to 85kw was a 41% increase
70kw + 41% = 99kw.

I think Tesla will keep this gap to differentiate their models.

 

[ev-enthusiast]

guys, I think the introdcution of the 70D is a very smooth move and I don't think this model will canibalize the P85D but if I look now at the Swiss homepage of TM, it seems that the P85D is experiencing an improvement in terms of engine power:wink:. I guess this is a typo.

View attachment 77412

On the german hompage you can find this lineup with a 700bhp Model S P85D:

 

[uselesslogin]

for 70D, the EPA should be 70/85*270=222 miles.

So you think for 60 the EPA range should have been (60/85)*265=187 miles?

 

[Hogfighter]

The reason for the 70D has nothing to do with demand. It's commonality with the Model X. There's no way Tesla would offer a vehicle with less than 200 mile range, and the 60kw battery pack would approach that in the X. Same with the front end...why not make every vehicle offered a 4WD?

 

[jhm]

70D order thread http://my.teslamotors.com/en_CA/forum/forums/s70d-official-order-and-delivery-thread

There are 4 orders, 3 people downgraded from 85D and 1 looks new order. It's a small sample though. One thing I worry about the 70D is if it'll cannablize 85D and bring down the GM?

also some other folks mentioned that 240mile EPA is not correct. If I do back on napkin calculation based on 85D/270mile EPA range, for 70D, the EPA should be 70/85*270=222 miles.

I would caution all of us to avoid use of the word "cannabalize." It has an ugly connation to it that may be unintended and in this case unwarranted. The 70D may well have higher GM and gross profit per kWh than the 85D. If so, then shareholders are better rewarded when customers chose the 70D over the 85D. This is an upgrade.

Would any of us say that switching an order from 85D to P85D is cannabalization? No it is an upgrade. Likewise switching from 85D to 70D is an upgrade.

Finally, the 60 had higher efficiency than the 85, so it is not appropriate to scale from the 85. Rather, 242.67 = 208 × 70 ÷ 60. So you get this kind of range simply by swapping out higher density cell for lower keeping mass the same while increasing kWh by 10.