The coming Tesla cash cow and the short burn of the century

[brian45011]

ca 40+% for the high option mix high ASP Model 3.

What do you think the GM% is on a fully optioned P100D X the prices out for about $155,000 (delivered)?

 

[bdy0627]

Can we all agree there’s no more short squeezes? Elon predicting another short squeeze is about as believable as FSD capability.

Huh? It sounds like you haven't followed TSLA stock movement for long. Are you aware that this current dip of 12.5% from a local high of $317 back on 5/10 hasn't even hit the level of an average dip yet? This is very typical TSLA stock movement. Check back in a couple of weeks and it will likely have climbed 10%+. If a short squeeze is coming, it's going to take some extremely positive news that catches some by surprise. IMO, that doesn't appear likely for a while, but this particular dip has nothing to do with whether or not a short squeeze may happen.

 

[scaesare]

i don't think the overall asp will ever be low 40s.

What's your estimate?

I believe Elon has stated they expect something like $42K ASP overall.

 

[scaesare]

I dont feel like its reasonable to assume

1) ASP of over 45k

AND

2) Demand of over 100k a year, let alone 200k


You have to pick one or the other. 50k+ is basically mid size luxury sedan, which the TOP selling car in 2017 sold just over 55k in the US

Mid-size luxury cars - U.S. sales by model 2017 | Statistic


Obviously that is just the US, and you can average in some lower spec'd M3's that will capture some of the entry level luxury car demographic, and maybe somehow the market reverses trend and starts growing (doubtful), but from just an eye test, it seems like to get to 200k/yr demand you have to have an ASP in the low 40s, and my personal opinion is the M3 won't even have that much demand @ 40k without the FIT credit. I don't feel like many bull cases really capture what the total market is for 50k cars. The whole "best selling mid size luxury car already" or whatever was in the update letter is incredibly misleading since the M3 has 2 years of backlog to work through.

So it appears that last year the following competitive cars sold in the US were:

BMW 3 Series: 99K
Audi A4/A5: 43K
Mercedes C-class: 77.5K

That's in the ballpark of 225K cars in the same MSRP range.

Tesla Model S dominated it's market segment, directly taking sales from those manufacturers. Why can't Model 3 sell 100K+?

 

[scaesare]

What's your estimate?

I believe Elon has stated they expect something like $42K ASP overall.

And now we have the loaded/P/AWD price at $78K

$42K on a $35K-78K price range vehicle doesn't seem out of whack...

 

[Mario Kadastik]

What do you think the GM% is on a fully optioned P100D X the prices out for about $155,000 (delivered)?

I think the P100D probably has at least a 50% GM, best guesstimate would be ~55% or even more.

Going another way, the difference is in large pack, improved materials, bigger wheels, autopilot etc. So compared to the base 75D with probably 15% GM at ca 80k$ most of the added options to get to the almost double price are options that have 50-100% GM. So averaging at 75% on those we get cost at 80*0.85+75*0.25=86.75k so let's round to 85k. So that would bring the GM to 45%. So yeah, ballpark estimate would be 50%

 

[Mario Kadastik]

And now we have the loaded/P/AWD price at $78K

$42K on a $35K-78K price range vehicle doesn't seem out of whack...

That 78k$ is without autopilot! I think the take rate for AP is going to be >70% for the fully loaded car, may even be almost 100%. So I think the average ASP might well come in at 45-50k.

 

[ShortSeller]

My take on the $78K - $82K M3 is someone (probably Deepak) told Elon the Company is in big trouble unless they can get the ASP to move higher. On that point, good for them. If there is a huge demand for those versions of the car, I may need to rethink my short thesis.

On the other hand, how many people have $1,000 deposits locked up in the hopes of a $35K version? One of two things have to happen there, either the $35K model gets built or they come clean and offer refunds.

 

[Reciprocity]

My take on the $78K - $82K M3 is someone (probably Deepak) told Elon the Company is in big trouble unless they can get the ASP to move higher. On that point, good for them. If there is a huge demand for those versions of the car, I may need to rethink my short thesis.

On the other hand, how many people have $1,000 deposits locked up in the hopes of a $35K version? One of two things have to happen there, either the $35K model gets built or they come clean and offer refunds.

Or that is does much performance cars cost and Tesla is just wreaping the rewards of great tech like they did with model S P100D at $150k.

The $35k is well known to be the least demand, which is comparable to a bare bones model S60 that no one wanted and was discontinued, only to have Teslas sales increase.

 

[Zaxxon]

That 78k$ is without autopilot! I think the take rate for AP is going to be >70% for the fully loaded car, may even be almost 100%. So I think the average ASP might well come in at 45-50k.

Absolutely. Take the base, at $35k. Add a color which the vast majority of buyers will do, taking it to $36k. To get to an ASP of $45k, we must assume the average buyer will add $9k of options. For $50k, they must add $14k of options.

Now look at the option list:
LR $9k

PUP $5k
AWD $5k
EAP $5k

FSD $3k (plus mandatory EAP @$5k)
Wheels $1.5k to $3k

Perf $42k from base

If the average buyer grabs any combo of LR or PUP+EAP or AWD+EAP, we're at $45k ASP. I think it's a very conservative assumption that the average buyer will grab at least $9k in optons as those optons are extremely compelling.

Now look at getting to $14k in options. That could be LR plus any one of AWD, PUP, or EAP or SR plus AWD, PUP, and EAP. I think a large percentage of buyers will go for one of those setups.

To either of these scenarios, we must also consider that some non-trivial percentage are going to pick performance @ $78k. A big portion of *those* folks (well over 50%, I believe) will add EAP (I've seen Tesla mention it's around 80% on the S/X although I don't have a link for that). And some % of them will also add FSD. So the ASP of performance is going to be over $82k. Let's say that only 10% go for performance over the long term.

That means that even when assuming what I think is a hugely conservative $45k ASP from non-perf buyers, the impact of the $82k ASP from the 10% of buyers opting for perf takes the overall average selling price to almost $49k.

Take what I think is a more reasonable $48k non-perf ASP, and/or a 15% take rate on performance, and either of those scenarios brings overall ASP well over $50k.

Tl;dr - a $50k ASP long-term is not a stretch at all.

 

[brian45011]

I think the P100D probably has at least a 50% GM, best guesstimate would be ~55% or even more.

Going another way, the difference is in large pack, improved materials, bigger wheels, autopilot etc. So compared to the base 75D with probably 15% GM at ca 80k$ most of the added options to get to the almost double price are options that have 50-100% GM. So averaging at 75% on those we get cost at 80*0.85+75*0.25=86.75k so let's round to 85k. So that would bring the GM to 45%. So yeah, ballpark estimate would be 50%

Thanks. Seems high, but that's based on my calculation using 1Q18 Income Statement (which backs out M3 GM% and regulatory credits) of 21.5% for S & X sales (all versions) .

 

[bhzmark]

how many people have $1,000 deposits locked up in the hopes of a $35K version? One of two things have to happen there, either the $35K model gets built or they come clean and offer refunds.

Offer refunds? Ha! They have a standing offer to give refunds. Anytime someone wants a refund they get it. And yet they don't -- at least on a net basis. The deposits that were converted to sold cars, or refunded, were replaced by yet more deposits.

Tesla shouldn't sell the cheaper cars before they come closer to satisfying the demand for the higher margin cars. And -- wow that demand just keeps going.

I agree you should rethink if the $35k Model 3 goes the way of the S 40/60 --- the demand exceeds the supply for the higher margin cars, so why sell the lower margin car?

 

[Reciprocity]

Performance doesn't include EAP and FSD. That's another $8,000 for 30% and $5000 for 50% for a total of 80% take rate for AP. The ASP for the average Performance model 3 will be $85k. Despite what bears will tell you, people want the options, all they can get.

 

[Krugerrand]

And now we have the loaded/P/AWD price at $78K

$42K on a $35K-78K price range vehicle doesn't seem out of whack...

Yeah, it does. At least for the next couple of quarters. You know what’s going to happen based on what’s already happened - people love an optioned out Tesla. I can see the MSP starting to drop into those low 40’s sometime in 2019 except that as M3 enters new markets up it goes again. So maybe 2020 it settles into the low 40s.

 

[ShortSeller]

Offer refunds? Ha! They have a standing offer to give refunds. Anytime someone wants a refund they get it. And yet they don't -- at least on a net basis. The deposits that were converted to sold cars, or refunded, were replaced by yet more deposits.

Tesla shouldn't sell the cheaper cars before they come closer to satisfying the demand for the higher margin cars. And -- wow that demand just keeps going.

I agree you should rethink if the $35k Model 3 goes the way of the S 40/60 --- the demand exceeds the supply for the higher margin cars, so why sell the lower margin car?

The difficulty in obtaining refunds is well documented. What I’m saying they should do is come clean and either give a date for the $35K version or say it’s never coming.

 

[ValueAnalyst]

Yeah, it does. At least for the next couple of quarters. You know what’s going to happen based on what’s already happened - people love an optioned out Tesla. I can see the MSP starting to drop into those low 40’s sometime in 2019 except that as M3 enters new markets up it goes again. So maybe 2020 it settles into the low 40s.

I agree with you, but it perplexing that management reduced its gross margin guidance to 20% in 2H18, despite high ASP. Thoughts?

 

[ValueAnalyst]

The difficulty in obtaining refunds is well documented. What I’m saying they should do is come clean and either give a date for the $35K version or say it’s never coming.

I suspect sooner rather than later, as Tesla will have proved the high profitability of Model 3 to the market by the end of 2018, so it can continue with its hyper growth rate following the upcoming major short squeeze, and not a day before. Tip toe quietly.

 

[bhzmark]

The difficulty in obtaining refunds is well documented. What I’m saying they should do is come clean and either give a date for the $35K version or say it’s never coming.

Here's the date for the $35k car: when the demand curve for the higher margin cars looks like it will cross the supply curve coming from the M3 production line. And they have a fiduciary duty to stockholders to not do it before. Sorry but those are the facts.

Your projections should very much account for the very real possibility that if those lines look like they will never cross on just the higher margin cars, the M3 production line will always be the higher margin cars.

 

[Krugerrand]

I agree with you, but it perplexing that management reduced its gross margin guidance to 20% in 2H18, despite high ASP. Thoughts?

I’d assume the usual - they’ve got plans they haven’t shared or they’re hedging.

They have said it’ll take more capital to get to 10k per week. It’s quite likely the ramp of the DP version of the car takes time and therefore expense.

Plan for the 20%. Be pleasantly surprised if they beat it a bit.

 

[bdy0627]

My take on the $78K - $82K M3 is someone (probably Deepak) told Elon the Company is in big trouble unless they can get the ASP to move higher. On that point, good for them. If there is a huge demand for those versions of the car, I may need to rethink my short thesis.

You make big financial bets based on assumptions like this? Apparently, the idea is to make the story fit your theory. Sorry to say but that kind of assuming is likely to get you in some serious trouble here.