Short-Term TSLA Price Movements - 2016

[Johan]

I'm really surprised at the reintroduction of the 60. With the Model 3 on the horizon why blur the lines between the two models by pulling the S back down market?

They have possibly untapped production capacity in the near future (that is soft d***nd) and in order maximize profits, revenue and please mr. Market (who cares more about number of cars sold, as opposed to value of cars sold) they need to pull this demand lever. I think of it as widening the adresseable market of the S/X. I'm sure they'll stop with this once the 3 is imminent.

 

[techmaven]

I'm really surprised at the reintroduction of the 60. With the Model 3 on the horizon why blur the lines between the two models by pulling the S back down market?

Easy... move some of those in line for a Model 3 into an S much, much earlier.

 

[NOLA_Mike]

And the ~3k USD battery cells they include for free with each car probably isn't a huge hit to the margins.

Not to mention I feel fairly certain they are counting on some of those upgrading it to the 75 kWh at some point. This allows buyers to get the 60, determine whether it meets their needs or not and if not, upgrade it to 75 for $9,000 at a later date.

Mike

 

[MartinAustin]

I am also really surprised. And don't fully understand it yet.

Tesla is bringing back the lower-priced Model S — here's why

Shorts will of course point to lack of demand... since that is their SOP.

Perhaps they pulled this lever to ensure 80-90K vehicles this year? They would only do that if they were sure the factory can do it - so I suppose we read this as a sign that they are internally confident of that production quantity... a good thing.

 

[Curt Renz]

Easy... move some of those in line for a Model 3 into an S much, much earlier.

Including police departments, taxi (uber) companies, etc.

 

[Dwdnjck]

Easy... move some of those in line for a Model 3 into an S much, much earlier.

Good Idea.

 

[techmaven]

I'm wondering if margins are much, much better on the battery now.

 

[vgrinshpun]

Fits with my longer standing argument that Tesla has spare production capacity for the S. Otherwise why fill a production slot with a low margin 60kWh that might lead to a 75kWh upgrade later when it could have been filled right away with a 75kWh model? But since they have spare slots anyway, it's a net win to get customers in the door that had been discouraged on price before. We know from model 3 reservations that demand exponentially increases as the price dips.

How does it fit? If they had this extra capacity, why didn't they introduce 75kWh/60kWh software limited variant before?

My thinking is that they did not have spare capacity up to this moment as BIW Line #1 (old) is maxed at nominal 1200cars/week. BIW #2 was dedicated to MX only, and could not accommodate additional blended MS until the MX ramp-up is complete. Now, as they are completing the MX ramp-up, they are ready to start blending additional MS on BIW #2. Since overall assembly line can be ramped up to 2500 cars/week, this gives them flexibility to take production above 2000 MX/MS per week - up to 2500 cars/week.

As far as 100kWh battery variant concerned, I do not think we'll see it before they switch to 20700 cells manufactured at the GF by the end of the year. This will make perfect sense as it will allow to de-risk M3 by real life testing new format of battery/battery pack in MS/MX for a year before incorporating 20700 into M3

 

[JRP3]

Easy... move some of those in line for a Model 3 into an S much, much earlier.

Sure, but enough of those to reintroduce the lowest margin car, and carry another battery SKU? Unless it's a software limited 75, which means they are giving away unused capacity. But I guess if they think there is enough demand from the Model 3 crowd it must make sense to get extra sales on the books sooner, and maybe take some of the load off Model 3 production.

 

[MitchJi]

Yes. This is what I have been hoping for as it would cut down on the 'I just missed the newest upgrade'. Yes, it would be more expensive to use 100s and sell them as 90s but I bet lots of people would pay for the software upgrade to turn on the extra '10'

When they are introduced larger packs probably don't cost Tesla substantially more than the packs they replace.

Packs produced using larger capacity cells using new chemistries usually cost about the same amount to produce per cell as the packs they replace (less per kWh).

 

[NOLA_Mike]

I honestly don't think this will reduce demand for Model 3 at all. In fact, the more Teslas that get on the road between now and Model 3 release I think the more interest from the car buying public who currently know very little if anything about Tesla...

 

[JRP3]

This will make perfect sense as it will allow to de-risk M3 by real life testing new format of battery/battery pack in MS/MX for a year before incorporating 20700 into M3

I have a problem with this concept of testing a product in the "real world", i.e. customers vehicles. That cell needs to be fully tested before it ever gets sold to anyone in any vehicle.

 

[schonelucht]

And the ~3k USD battery cells they include for free with each car probably isn't a huge hit to the margins.

That's not the right way to look at it. Assume 25% overall gross margin estimated to be 3% margin from the options, 22% gross margin from the bare car. A bare 75 is $75 000, therefore costs of goods is approximately $58 000. This new 60 has the same cost of goods with a sales price of $66 500 or 13% gross margin only (plus 3% from the options). If the new 60 makes up 30% of sales the next quarter, average gross margin across the S ranges lowers from 25% to 22.3%. That's quite significant and I think will only be accepted by the street as a positive thing if it is combined with a significant increase of deliveries beyond what was already guided.

 

[vgrinshpun]

I have a problem with this concept of testing a product in the "real world", i.e. customers vehicles. That cell needs to be fully tested before it ever gets sold to anyone in any vehicle.

Well, it is semantics - I did not mean it in the way that you are objecting to. Perhaps I should've used different language.

They've already used this approach by introducing dual motor drive in MS, before launching MX. It did not mean that dual motor drive was "tested" per se in MS. It was fully designed and tested before introducing it in MS, but the point was in introducing new technologies in steps, rather than at once.

 

[MitchJi]

As far as 100kWh battery variant concerned, I do not think we'll see it before they switch to 20700 cells manufactured at the GF by the end of the year. This will make perfect sense as it will allow to de-risk M3 by real life testing new format of battery/battery pack in MS/MX for a year before incorporating 20700 into M3.

That doesn't make any sense at all.

1. They need to be absolutely sure that any new cells they introduce are thoroughly tested before they put them into production.

2. A new form factor should require less testing than a new cell chemistry.

 

[Dennadyne]

That's not the right way to look at it. Assume 25% overall gross margin estimated to be 3% margin from the options, 22% gross margin from the bare car. A bare 75 is $75 000, therefore costs of goods is approximately $58 000. This new 60 has the same cost of goods with a sales price of $66 500 or 13% gross margin only (plus 3% from the options). If the new 60 makes up 30% of sales the next quarter, average gross margin across the S ranges lowers from 25% to 22.3%. That's quite significant and I think will only be accepted by the street as a positive thing if it is combined with a significant increase of deliveries beyond what was already guided.

I think this just moves the margin needle a little earlier than it otherwise would have. My guess is there is more margin on a barebones S 60 than the initial wave of Model 3s will have. If this converts some of those surplus model 3s and keeps the demand pipeline full then I can't see there being a huge reaction to a 1-2% dip in margin. Do you really think 30% of new sales will be the 60?

 

[vgrinshpun]

That's not the right way to look at it. Assume 25% overall gross margin estimated to be 3% margin from the options, 22% gross margin from the bare car. A bare 75 is $75 000, therefore costs of goods is approximately $58 000. This new 60 has the same cost of goods with a sales price of $66 500 or 13% gross margin only (plus 3% from the options). If the new 60 makes up 30% of sales the next quarter, average gross margin across the S ranges lowers from 25% to 22.3%. That's quite significant and I think will only be accepted by the street as a positive thing if it is combined with a significant increase of deliveries beyond what was already guided.

Well, I have no reason to believe that the margin guidance they gave during the Q1 ER - 25% on MX, approaching 30% for MS by the end of 2016 - did not already include the introduction of 75kWh/60kWh software limited option.

 

[schonelucht]

How does it fit? If they had this extra capacity, why didn't they introduce 75kWh/60kWh software limited variant before?

So many possible reasons. Because they thought their incentives program would have been better at bringing out demand. Because they thought the model X would ramp sooner, generating more buzz. Because they hoped the refresh would have been more effective in bringing out demand. Because they had hoped to enter more new markets sooner. Because they had hoped to roll out sales supporting infrastructure in countries sooner but red tape prevented it. Etc...

My thinking is that they did not have spare capacity up to this moment as BIW Line #1 (old) is maxed at nominal 1200cars/week. BIW #2 was dedicated to MX only, and could not accommodate additional blended MS until the MX ramp-up is complete. Now, as they are completing the MX ramp-up, they are ready to start blending additional MS on BIW #2. Since overall assembly line can be ramped up to 2500 cars/week, this gives them flexibility to take production above 2000 MX/MS per week - up to 2500 cars/week.

I am a bit confused? Are you not basically saying the same thing : that they currently have spare production capacity? Just you are not sure about if this was already the case earlier on. Fair enough, it's not so important going forward.

20700 cells manufactured at the GF by the end of the year.

Panasonic just communicated in an investor event that cell production in the Nevada factory will only start in 2017.

 

[vgrinshpun]

That doesn't make any sense at all.

1. They need to be absolutely sure that any new cells they introduce are thoroughly tested before they put them into production.

2. A new form factor should require less testing than a new cell chemistry.

As I explained above, this is just semantics. When I say "real life testing" I meant testing in the wild on customer cars. This does not mean that a complete full blown design/production/product validation/testing is not complete before the introduction of the new cells in the customer cars.

 

[krla]

I hate to say it but Tesla is now officially demand constrained

Why otherwise sell a 75 with a $9000 discount as a 60.