Short-Term TSLA Price Movements - 2015

[mmd]

Antz, great article. My favorite three sentences are as follows:

Dan Dolev, an analyst with Jefferies, recently predicted that the Gigafactory’s huge volumes will help cut the cost of Tesla’s batteries in half, essentially making the Model 3 possible. That’s why Musk is pitching home battery packs. "If we can create huge demand for batteries," Straubel continues, it will create "this virtuous cycle of reducing prices further."

Giga factories also mean Giga expenses and Giga risks. Still a lot of expenses to come just for the Nevada factory. $261M spent so far. From latest 10-Q:
"We have acquired land for the site of our Gigafactory and have incurred $261.0 million of construction costs as of September 30, 2015."
SEC Filings | Tesla Motors

The battery cost of Model S is 30% of the total. Cutting that in half only cuts the price by 15%. Need to halve the other $50K cost also, to bring the total cost down to $35K. But then, it might start looking like a Leaf with under powered, whiny motors and 0-60 in 14 secs, not 3.2 secs.

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And in case anyone is really questioning Elon's ability to get it done, it looks like SpaceX will win the military launch contracts as ULA was unable to submit a compliant bid.

I'm pretty sure any issues on the X will be resolved in the next few weeks / month or two

Hmm! If making the Model X is so much simpler, it should've been ready 6 months ago, and the X productions lines should've been humming by now I will believe it when I see the steaks

 

[drinkerofkoolaid]

Giga factories also mean Giga expenses and Giga risks. Still a lot of expenses to come just for the Nevada factory. $261M spent so far. From latest 10-Q:
"We have acquired land for the site of our Gigafactory and have incurred $261.0 million of construction costs as of September 30, 2015."
SEC Filings | Tesla Motors

The battery cost of Model S is 30% of the total. Cutting that in half only cuts the price by 15%. Need to halve the other $50K cost also, to bring the total cost down to $35K. But then, it might start looking like a Leaf with under powered, whiny motors and 0-60 in 14 secs, not 3.2 secs.

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Hmm! If making the Model X is so much simpler, it should've been ready 6 months ago, and the X productions lines should've been humming by now I will believe it when I see the steaks

Wow. I can't tell if you're joking. Why would they need to halve the rest of the cost? The vehicle simply won't be as feature intensive and won't have an aluminum body. As long as the safety, and performance are as close to perfect as possible, the Model 3 will be WORTH at least 10x what a Nissan Leaf costs, even after Nissan is forced to cut the price to move inventory.

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The media told us what a sweet deal Tesla got from Nevada to build Gigafactory I. Wait until they find out the deal that Germany will be offering Tesla to build Gigafactory II. It will be no surprise if land, taxes, and construction costs/financing are offered, much like what New York State offered Solar City to build the solar panel gigafactory in Buffalo. Interesting times.

+1 Couldn't agree more.

 

[mmd]

Wow. I can't tell if you're joking. Why would they need to halve the rest of the cost? The vehicle simply won't be as feature intensive and won't have an aluminum body. As long as the safety, and performance are as close to perfect as possible, the Model 3 will be WORTH at least 10x what a Nissan Leaf costs, even after Nissan is forced to cut the price to move inventory.

So, just changing the body from Aluminium will reduce the price by another $25K? What features do you think will be cut? And wouldn't changing the body to steel require more battery for same range? Of course, it's possible the target is $35K after tax credits and state rebates. Then, the total should be $45K, which seems more reasonable, IMHO.

 

[glenhurst]

So, just changing the body from Aluminium will reduce the price by another $25K? What features do you think will be cut? And wouldn't changing the body to steel require more battery for same range? Of course, it's possible the target is $35K after tax credits and state rebates. Then, the total should be $45K, which seems more reasonable, IMHO.

Musk has said on multiple occasions that the $35k pricetag on the model 3 is before any tax credits or rebates.

 

[Papafox]

So, just changing the body from Aluminium will reduce the price by another $25K? What features do you think will be cut? And wouldn't changing the body to steel require more battery for same range? Of course, it's possible the target is $35K after tax credits and state rebates. Then, the total should be $45K, which seems more reasonable, IMHO.

Elon Musk recently pointed out that Model 3 will have the driving feel of a Model S or X, so forget the static about small whiny engine. It's not going to happen. Model 3 will be only 80% the size of a Model S and will be a much simpler design. The battery may well end up costing LESS THAN HALF the cost of a Model S battery because the smaller vehicle size will lead to a smaller battery. There will be no need to spend R&D money on innovative features such as falcon wing doors and incredibly long windshields or even a 17" touchscreen to control the features. It's already done or they're not included.

Take a look at the 2016 BMW 3 series, with prices beginning at $33,000. Get rid of that complex engine, get rid of the transmission, get rid of the complex drive train, and substitute a smaller battery that costs half the KWH price of current batteries. Drop in a simple electric motor that's about the size of a watermellon. Done deal. If BMW can build an attractive $33,000 car, Tesla can build an attractive $35,000 car.

You bring up an interesting point, though. How do you think Tesla arrives at a projected selling price for a car? Do you think the sales team just sits around a table discussing what number sounds best, or do you think that Tesla actually looks at the projected cost of building the various components? You seem to be in camp 1 and the majority of people on this thread are in camp 2. That's the real problem.

 

[eloder]

So, just changing the body from Aluminium will reduce the price by another $25K? What features do you think will be cut? And wouldn't changing the body to steel require more battery for same range? Of course, it's possible the target is $35K after tax credits and state rebates. Then, the total should be $45K, which seems more reasonable, IMHO.

I can think of a list:
-Anything fancy regarding door handles.
-Much more simple seats.
-The steel body (this in itself will be pretty big, in my opinion).
-Included features like 7 years of GPS updates and free cell data.
-Warranty length for drivetrain and battery most likely.
-Touch screen size.
-Single motor standard.
-Supercharger network costs (possibly separated out or limited without options included).
-Gross margins--this'll be one of the biggest contributions if Tesla is initially operating ~10% margins instead of ~25%+.

Options could be used for most of the above so that someone can still have, as you say it, a $45k car that's going to be much more similar to a small Model S. I imagine the Model 3 is going to be relatively bare-bones car that will drive like a slower Model S with one motor, but still superior to something like a Honda CR-Z., Even something like a Leaf has a decent number of standard features for its pricing. My leaf came with heated steering wheels, heated mirrors, heated rear seats, backup camera, and a few other goodies that aren't standard on cars $6000 less (cost of Leaf battery).

 

[mmd]

Take a look at the 2016 BMW 3 series, with prices beginning at $33,000. Get rid of that complex engine, get rid of the transmission, get rid of the complex drive train, and substitute a smaller battery that costs half the KWH price of current batteries. Drop in a simple electric motor that's about the size of a watermellon. Done deal. If BMW can build an attractive $33,000 car, Tesla can build an attractive $35,000 car.

Fair enough attempts to explain the cost reduction in above two posts! I don't know where you get the $33K for BMW i3 though. The MSRP for the non-REX version is more than $41K, and listed for ~$43k. Unless you are implying $33K post credits & rebates. (Estimated dealer price $45,295).
2015 BMW i3 Hatchback Pricing Features | Edmunds

If the majority of the cost (70%) is elsewhere, then shouldn't that be the focus? It's worth taking a look at Amdahl's law (https://en.wikipedia.org/wiki/Amdahl's_law ) in this regard. Even if the battery cost for Model 3 is $0, it would be super expensive at $49K, unless that 70% of the price is also cut significantly. But I haven't seen much talk about plans to cut that 70%. Or a breakdown of that other 70% of the cost.

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I can think of a list:
-Anything fancy regarding door handles.
-Much more simple seats.
-The steel body (this in itself will be pretty big, in my opinion).
-Included features like 7 years of GPS updates and free cell data.
-Warranty length for drivetrain and battery most likely.
-Touch screen size.
-Single motor standard.
-Supercharger network costs (possibly separated out or limited without options included).
-Gross margins--this'll be one of the biggest contributions if Tesla is initially operating ~10% margins instead of ~25%+.

Options could be used for most of the above so that someone can still have, as you say it, a $45k car that's going to be much more similar to a small Model S. I imagine the Model 3 is going to be relatively bare-bones car that will drive like a slower Model S with one motor, but still superior to something like a Honda CR-Z., Even something like a Leaf has a decent number of standard features for its pricing. My leaf came with heated steering wheels, heated mirrors, heated rear seats, backup camera, and a few other goodies that aren't standard on cars $6000 less (cost of Leaf battery).

You bring up good points. I doubt, cutting warranty length will be wise though. The middle class people who will buy Model 3 will be more concerned about out of pocket expenses (once warranty expires) than the richer folks who have been buying Model S.

So, if the gross margin is really 25%, then cost of Model S 70 (single motor already) is 75% of $70k = $52.5K.
Battery cost at 30% of this cost is $15,750. (30% was quoted by Elon in one of the earnings call). Halving this with Giga factory will reduce total cost by $7875. This is hardly a big reduction, IMO, to build out a $5B factory. Tesla should have just outsourced the battery production like GM, especially now when they should rather conserve cash than spend it.

 

[Papafox]

...
I don't know where you get the $33K for BMW i3 though. ...\

http://www.thecarconnection.com/overview/bmw_3-series_2016 , about 3/4 of the way to the bottom

Note: I said 3 series, not i3. My point is to take a typical ICE vehicle of excellent quality so that we could compare the costs of adding battery and electric motor vs. all the internal combustion components. Although the battery and and motor combo could cost more than typical ICE components, keep in mind that Model 3 will be built on a brand new, robot-intensive line. All the cost savings that Tesla has figured out for S and X will be used (and then some) on Model 3.

 

[MikeC]

So, if the gross margins is really 25%, then cost of Model S 70 (single motor already) is 75% fo $70k = $52.5K.
Battery cost at 30% of this cost is $15,750. (30% was quoted by Elon in one of the earnings call). Halving this with Giga factory will reduce total cost by $7875. This is hardly a big reduction, IMO, to build out a $5B factory. Tesla should have just outsourced the battery production like GM, especially now when they should rather conserve cash than spend it.

Don't forget a big part of the impetus for the GF was that there is no one to outsource from in the quantity that they need. This is what the SeekingAlpha bears argue but they don't understand that you can't just call up a company and request that they whip you up a fresh batch of cells that is equal to all the cells being produced by all manufacturers today. Companies won't take the chance that they can't use as many as they think they can. Other automakers can outsource because they're only asking for enough for ~20,000 smaller battery cars. Tesla already uses Panasonic, Samsung, and now LG for the Roadster upgrade, where else can they go?

 

[mmd]

http://www.thecarconnection.com/overview/bmw_3-series_2016 , about 3/4 of the way to the bottom

OK, I see. You were comparing to the gas BMW 3 series sedan. I mistakenly thought, you were comparing to BMW i3.

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Don't forget a big part of the impetus for the GF was that there is no one to outsource from in the quantity that they need. This is what the SeekingAlpha bears argue but they don't understand that you can't just call up a company and request that they whip you up a fresh batch of cells that is equal to all the cells being produced by all manufacturers today. Companies won't take the chance that they can't use as many as they think they can. Other automakers can outsource because they're only asking for enough for ~20,000 smaller battery cars. Tesla already uses Panasonic, Samsung, and now LG for the Roadster upgrade, where else can they go?

OK, you make a point. But that's what is called supply chain management, isn't it? The Model X is not held up today due to battery cells. Instead, it's held up by the windshield and the 2nd row seats/posts. One good business practice is to develop the complementors.
Complementors (Sixth Force of Porters Five Forces) • The Strategic CFO

But I agree, once volume picks up, GF will be worth the money spent.

(I'm not going to answer any more posts, since it's taking up valuable space on this thread. Good luck to all.)
Best regards,

 

[chickensevil]

Fair enough attempts to explain the cost reduction in above two posts! I don't know where you get the $33K for BMW i3 though. The MSRP for the non-REX version is more than $41K, and listed for ~$43k. Unless you are implying $33K post credits & rebates. (Estimated dealer price $45,295).
2015 BMW i3 Hatchback Pricing Features | Edmunds

If the majority of the cost (70%) is elsewhere, then shouldn't that be the focus? It's worth taking a look at Amdahl's law (https://en.wikipedia.org/wiki/Amdahl's_law ) in this regard. Even if the battery cost for Model 3 is $0, it would be super expensive at $49K, unless that 70% of the price is also cut significantly. But I haven't seen much talk about plans to cut that 70%. Or a breakdown of that other 70% of the cost.

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You bring up good points. I doubt, cutting warranty length will be wise though. The middle class people who will buy Model 3 will be more concerned about out of pocket expenses (once warranty expires) than the richer folks who have been buying Model S.

So, if the gross margin is really 25%, then cost of Model S 70 (single motor already) is 75% of $70k = $52.5K.
Battery cost at 30% of this cost is $15,750. (30% was quoted by Elon in one of the earnings call). Halving this with Giga factory will reduce total cost by $7875. This is hardly a big reduction, IMO, to build out a $5B factory. Tesla should have just outsourced the battery production like GM, especially now when they should rather conserve cash than spend it.

First off it is the 3 series, not the i3 he was talking about. Elon has never said their target was the crappy electric car BMW made... Oh no, much more ambitious goal of the best selling mid sized luxury car the BMW 3 series which includes the M3 in that same conversation.

Second when they talked about cost savings they said if I recall correctly, that the savings would come from a 20% size reduction (which was clarified in the same breath that 20% size drop also cuts costs by around 20% another 20% from the battery, and 10% from other savings (like less expensive standard features and larger volumes aka economies of scale).

Could be remembering the percentages wrong but I know when they talked about it it was an additive value that came to 50% price drop.

If you don't like their numbers that is fine, but to demand more clarity on how to make a cheaper car would be giving away more information than necessary. When BMW releases a car do you ask them how they made it? When a chef delivers the main course do you demand to go into the kitchen and see how it was done? They have given more than enough information on how they plan to cut costs. It has also been broken down by plenty of people on the forums so feel free to look around there as well.

 

[dc_h]

Since when is reducing the single biggest component of a complex system not a big deal? That is huge. Add to that reduction in cost for a smaller car, use of steel, leveraging tech developed for your flagship products (like Toyota does with Lexus) and you can cut your overall costs by 50%, which is exactly what they need to do. Challenging, but cutting battery cost is the most challenging obstacle.

MMD
"Battery cost at 30% of this cost is $15,750. (30% was quoted by Elon in one of the earnings call). Halving this with Giga factory will reduce total cost by $7875. This is hardly a big reduction, IMO, to build out a $5B factory. Tesla should have just outsourced the battery production like GM, especially now when they should rather conserve cash than spend it."

 

[MonroeSS]

So, if the gross margin is really 25%, then cost of Model S 70 (single motor already) is 75% of $70k = $52.5K.
Battery cost at 30% of this cost is $15,750. (30% was quoted by Elon in one of the earnings call). Halving this with Giga factory will reduce total cost by $7875. This is hardly a big reduction, IMO, to build out a $5B factory. Tesla should have just outsourced the battery production like GM, especially now when they should rather conserve cash than spend it.

The 25% gross margin is for cars sold at an ASP of $100k. Added options have much higher margins than the bare bones car. A S70 sold at $70K will most likely not carry 25% gross margins. Cars sold with fewer to no options may only have a GM of 10% while fully loaded P85Ds may have a GM of 35%, averaging 25% GM across the board.

We also don't know if the 30% battery cost of a Model S mentioned by Elon is at the cell level or pack level. IIRC the cell cost is only 50% of pack cost and trending even lower. If the GF only reduces cell cost by 30% then the pack level cost may only go down 15%.

At this point everyone is speculating. I doubt even Tesla knows 100% about what the Model 3 will cost. What are the assumptions made to lower cell costs by 30%? How many stars have to align for the cost reductions to materialize? (Optimist vs realist). What % of total cost are raw aterials vs packaging costs. How have raw materials increased or decreased in price since GF site prep to dell manufacture? This is why i don't like Tesla or anyone else be obsessed with the $35K base price and be set for disappointment. BMW isn't worried nor is affected by a $17K corolla and similarly Tesla shouldn't try to compete with the 200 mile Leaf or Bolt in price. GM and Nissan have purchasing power, about $30B in cash, willing suppliers and about 2 million in yearly sales for the cars/cuvs that share the platform. Almost all components that go in a car (glass, cables, sheet metal, seals, wheels, tires, paint, glue, door handles, seats, air bags... you get the idea) are much cheaper when you bulk buy for 5 million cars a year vs 50,000 a year.

At 8% annual battery density improvements wouldn't batteries by ~30% cheaper anyway after 5 years (GF announcement to cell production). How certain are we that Tesla will not pull a fast one. 1. M3 will debut as a higher priced larger battery version with the $35K version years away. 2. The $35K M3 is cancelled even before deliveries begin due to "lack of demand". 3. "GF is only through phase 2 in 2017. We need it to be 100% done (2020) to sell the $35K M3".

Regarding why Tesla couldn't outsource battery production: I doubt any supplier including Panasonic would take Tesla seriously unless they met in the middle and paid for 50% to quadruple existing capacity. In addition, unlike LG Chem, Panasonic is not in a strong financial situation ($15B lost in the last 4 years?) to build the GF themselves. If GM tells LG to supply them with batteries for 500,000 cars dressed as elves and sing a Xmas carol, LG would oblige.

 

[MonroeSS]

The goal of sustainable transportation can still be alive without Tesla's participation in the bottom price range. Let Chevy and Nissan worry about sub $40K long range EVs. They have scale and profits from other SUV/Pickup sales to carry them over till lower price EVs are are really profitable on their own.

Cadillac, BMW and Infiniti EVs can cover the $40K to $60K range and Tesla the $50K to $140K range.

 

[Papafox]

Mmd, you seem civil and a nice enough person, but I'm tired feeding the bears. I'm waiting for another topic where we can actually push forward with our understanding of this company and its potential.

 

[dc_h]

Mmd, you seem civil and a nice enough person, but I'm tired feeding the bears. I'm waiting for another topic where we can actually push forward with our understanding of this company and its potential.

With the stated intent to grow deliveries from 50-52k to 80-90k or a 60% growth in the car business and Tesla Energy coming on track, is it unreasonable to assume 80% growth in 2016 and is that what the market is assuming.
Also, with the Gigafactory phase one being mostly completed at the end of 2015 and generating revenue and the new car assembly line in Freemont, is it possible Tesla is being very conservative about margin growth in 2016? They had to labor up for Model X production in Q2 and Q3 and have no revenue to show for it, as well as the plant outlays for the GF and Freemont assembly line. In Q1, 2016 GF phase one will be generating revenue and Model X revenues being in earnest.

 

[sub]

Mmd, you seem civil and a nice enough person, but I'm tired feeding the bears. I'm waiting for another topic where we can actually push forward with our understanding of this company and its potential.

Dont forgrt that Elon is a liar and everyone in charge at Tesla are idiots. Why bother crunching the numbers before building a 5 billion dollar gigafactory, just build it and hope. I better sell out of my tsla positions stat, these Anonymous internet done nothing geniuses have it all figured out.

 

[RobStark]

Another point is Tesla does not share profits with dealers and advertisers.

And Tesla does not discount on retail price. Well, not more than an average 1% to buyer and 1% to referrer in goods or services.

The 2018 Model S will have more standard features and more kWh in the base battery than the 2015 Model S .

Allowing more room to differentiate a base Model 3 from Model S.

 

[Scott Ales]

Things I would buy if Tesla produced them or at least supplied the battery:

* Riding lawn mower
* Lawn tools (I already have a Stihl battery powered blower and hedger)
* Chainsaw
* Ski or fishing boat ( We're never away from our dock more than an hour. Could easily recharge for 30 minutes to an hour when needed)
* Pickup
* Scooter or small Motorcycle
* Floor Polisher ( we rent a gas powered one for our warehouse floors)
* Dyson vacuum with a Tesla battery
* Small airplane

Has anyone heard specific data on the number of reservations that were taken for the Powerwall? I don't recall anyone within the company stating the number. I know, no deposit, many will back out when the time comes to actually buy it. But I think the entire world is underestimating the potential with just this product, let alone others to come. I can't wait for the day I never buy a drop of gas for anything ever again. I don't think I am alone either.

 

[Hogfighter]

Has anyone heard specific data on the number of reservations that were taken for the Powerwall? I don't recall anyone within the company stating the number. I know, no deposit, many will back out when the time comes to actually buy it. But I think the entire world is underestimating the potential with just this product, let alone others to come. I can't wait for the day I never buy a drop of gas for anything ever again. I don't think I am alone either.

I, for one, am tired of waiting. I'm tired of seeing the Elon show, aka Powerwall, Powerpacks and Model X, then not seeing any actual products that a consumer can purchase. $800 million in orders in the first 6 days doesn't mean squat unless you can produce.

Elon was correct....demand is not a fair criticism of TSLA, production is.

Rant over.