Warning: TLDNR Post - The State of Tesla

Warning: TLDNR Post - The State of Tesla

Sunday afternoon, I was out with my wife walking our dogs. A neighbor stopped her car to say hello and, I kid you not, did everything but beg me to take her for a ride in my MX right then. I had promised her one a few weeks earlier, but you know how things go, she's home I'm not, etc. I handed the leash to the dog I was in charge of to my SO and went inside to get my fob grumbling to myself more than a little. I then showed her the MX's storage, the FWD, the usual. We then piled in and I took her for a short drive showing off the acceleration, the usual there too. When we returned, she said, "I'm blown away! How much can you get a Tesla for?" I told her the price of the MX/MS and told her the smaller M3 is a cheaper option if you want to go that way but it's a smaller vehicle with less cargo capacity, etc. I think she rushed home to look at Tesla's website.

Yesterday, I stopped by a friend's house to pick her up to go to lunch. One of her neighbors, out walking his dog, stopped to ask me about my MX. He shared his son owned a MS and he was thinking about buying a Tesla for himself.

I watched a bunch of patrons waiting on the valet to bring their cars up crowd around a M3 to ooh and ah a couple of weeks back at a restaurant. When the valet showed up with our MX more oohing and aahing and being peppered with questions.

Last week, I took my MX in to be detailed. The owner told me mine was the eighth Tesla he had detailed that day.

Tesla cut the price of the MS/MX by a few thousand last year. The company recently decided to make the premium luxury package standard on all Teslas but raised the price by $3,000 or so; the good news is the $3,000 is cheaper than the $5,000/$6,000 the premium packages cost before the change. In effect, what Tesla did was to offer more car for a bit more, still for a lower price than if you had bought the car and opted for the premium package a la carte, a kind of sneaky price cut looking at it one way, fewer choices for more money looking at it another.

Demand exists, no question in my mind about that. The only thing stopping Tesla from taking over the car market in my neck of the woods is pricing. And that will be coming down. Musk dropped the bombshell that the price of batteries churned out by its Gigafactory will be around $100 a KwH by the end of 2018 and that he expects to hit the price of $100 per KwH by the end of next year with the cost of the battery pack included. That $100 cost is supposedly the Holy Grail in making EVs competitive with ICE vehicles on upfront cost.

Tesla stock has been hammered the past two weeks, most of it driven by FUD articles appearing in the straight press, blogs, etc. The latest example was Monday's WSJ non article pointing out Tesla is renegotiating prices with its suppliers. The WSJ treated it like Tesla is a desperate company clawing to obtain revenue anywhere it can think of to stay afloat. Veterans who have jobs in buying/selling OEM parts shrugged and said, "Nothing much to see here. I do the same thing all the time at my job." Tesla was forced to pay premium prices back in 2016 because of the quick turnaround time it was demanding to meet unexpected demand for the M3. (Folks who should know say the number of M3 reservations doubled the most optimistic internal estimates at Tesla). All Tesla is doing is using its newfound clout to negotiate better prices for parts and services than it could manage two years ago. However, to some minds that indicates nothing but desperation. I myself scratched my head over the claim. In my business career, if a contractor underperformed (i.e. Tesla's robot manufacturer that delivered a product that didn't work as advertised), you're damned straight I'd demand an adjustment. If I could offer higher volume = more profit for a service/part, I'd be remiss not to negotiate a lower price. That's how it works. This isn't desperation, it's a company using newfound clout to get a better deal for itself. That is supposed to be a virtue in business.
Actual proof is not yet available, but the anecdotal evidence is everywhere.
• Right here on the M3 forum, if you looked two months ago it was thread after thread bitching about not getting their cars. Now? It's thread after thread about being thrilled or complaints about this or that nit when taking delivery. The argument has shifted, and the shift is a lot of people are getting their cars now.
• Lots Tesla owns around Fremont are full of brand new M3s, MSes and MXes. The shorts got so excited that a couple did flyovers to show the backlog of what they claimed were unsold Teslas. That does not compute. Outside of demos and loaners for its sales/service centers, Tesla will not make a car unless someone has paid the $2,500 deposit at configuration. That's how the company does business. "But what about all those cars on those lots?" Each one has an owner. Trucks are just as busy taking them away to railheads as they are bring them in. What the full lots point to is vastly increased production. Tesla's problem right now is they are delivering so many cars their delivery specialists are overwhelmed with the volume. A company doesn't advertise to hire 1,000 new delivery specialists because the ones it already has are sitting around playing video games because they have nothing to do. Nope, the increase in M3 production is real.
• Another short thesis: "Opening up the reservation process shows that demand is falling, that reservations are being cancelled left and right." Wrong again. When the MS was first introduced, Tesla required a reservation price. As production cranked up, Tesla did away with the reservation process opening up the MS page so that anyone could put down the $2,500 deposit to get their MS made and shipped. This is nothing more than a repeat of past behavior. The fact that Tesla now says you can receive the LR RWD, LR AWD, and LR PAWD models in anywhere from 1-4 months is yet another strong indicator that whatever woes were affecting production are nearly if not already history. Anecdotal "I got mine in 4 weeks!" posts on the M3 forum indicate Tesla is indeed making a lot of cars these days.
"The M3 is a loser. They can't make it at a profit. It stinks. Once they work through the Tesla fanatics it's over."
I love this one. Reviews for the M3 are mostly raves. One poor soul published a positive review about the M3 performance version, a longtime, respected auto reviewer btw, only to have his Facebook page and Twitter account besieged by known, notorious shorts to the point that he canceled his social media accounts. That does not sound like confidence coming from the Montana Wildhacks (Skeptic) in the short world. That tactic reeks of desperation to try and control the narrative to silence anything positive. If you're winning and confident you're going to win, you don't resort to that kind of drastic behavior.

Sandy Munro blew, a respected reverse engineering specialist, reversed an earlier negative review on the M3 declaring it a fun car to drive and much cheaper to make than he originally thought. One of the axioms about EVs is that they can't be made and sold at a profit. Many automakers offer "compliance cars" to meet government regulations that are sold at a loss and they certainly don't try to sell them. The M3 is a different rocket ship. Munro's report, available for a cool $85,000, blows up the "can't make 'em at a profit" thesis.

So, what's the state of Tesla? A lot less precarious than was true six months ago and growing less precarious by the day. Ben Sullins over at Teslanomics performed a layman's estimate of the potential profit the M3 is bringing in at Tesla. The numbers are astonishing.

My guess is Tesla, which has some notes coming due over the next year or so on debt, can and will pay said debts from operating income. The M3 is an unqualified winner. Musk said recently he bet the company on the M3 and will never do that again. That speaks confidence and he's probably right about not doing it again because he won't have to.

A refresh of the MS and possibly the MX will be announced in the not too distant future to further differentiate Tesla's premium offerings from the M3.

Tesla is taking its time developing the MY and that's a good thing. The M3 rollout was supposed to be a big improvement over the MS/MX rollouts but wasn't; the unexpected number of reservations blew that up. I seriously doubt Tesla repeats the mistake of underestimating demand for the MY.

There are still some shoals ahead, but they're much smaller and Tesla is well positioned to ride the disruptive wave to transition from gas/diesel to electric vehicles.

It could be worse!

SamO | 24. Juli 2018

100,000 Model S/X per year @ $100,000 Average Sale Price (ASP) = $10,000,000,000
500,000 Model 3 @ $70,000 ASP = $35,000,000,000
500,000 Model 3 @ $60,000 ASP = $30,000,000,000
500,000 Model 3 @ $50,000 ASP = $25,000,000,000

25% margins = ~$9B-$11B gross profit from S/3/X alone.

Then add in + Tesla Energy (stationary battery + solar) roof

But don't count:
Model Y
Tesla Truck
GW/h size stationary battery installations.
China Gigafactory
NY Gigafactory
Supercharging Network
Tesla Network

Tesla-David | 24. Juli 2018

Thanks @dmm1240 for excellent analysis as usual.

Thanks @SamO for listing the many reasons Tesla is winning!

Pricee2 | 25. Juli 2018

Then they fight you.
Final stage coming soon. | 25. Juli 2018

Elon has made a lot of mistakes, seemed like good ideas at the time ("the machine that builds the machine", ),probably ahead of their time but building the Model 3 was no mistake. It is a terrific car. They need to keep building more of them, faster.

Mike83 | 25. Juli 2018

I wish I could make the mistakes Elon has made. If you don't try something new you will never know if it works.
The anti-Tesla loudmouths should tell us what they personally have accomplished.
We love our both of our 2 Teslas with EAP/FSD and pleasantly await the next amazing features.
Come on Competitors show us what you got or Shut up. | 26. Juli 2018

@Mike83 - Competitors have given us quite a bit -
- Toxic air and water pollution
- Dealers
- Countless lives lost in wars over oil
- Terrorism related to oil wars
- Boring to drive machines
- Neglable useful innovation
- Lack of any software security
- Noise pollution

Ok, now I'll shut up :)

Mike83 | 26. Juli 2018

Well put. | 27. Juli 2018

Nice thread.
Like @Pricee2 -- I keep thinking then they fight you and then...

Tesla-David | 27. Juli 2018

I took my MS in to Seattle SC today for annual servicing and must sayI was absolutely blown away by the incredibly high numbers of M3’s, but also lots of new MS’s and MX’s as well. The number of obvious deliveries I observed was very encouraging indeed and points to the evidence that Tesla is on the cusp of becoming profitable. Made my day to see so much activity at the Seattle SC. :0)

Uncle Paul | 28. Juli 2018

Don't forget to add in the profits from Kayak sales. Tesla is the Amazon of transportation.

LOWTECK53 | 29. Juli 2018

In 1972 I bought a 9 year old VW Bug. About 63 HP 0-60... No one timed it... That POS blew up driving it 70 MPH over a few hours as the air cooled engine could not handle that kind of heat. FF 46 years I am spending more than I did on my first house for a M3. The excitement is hard to contain. I am still a few months from delivery but for us older buyers to see this kind of futuristic vehicle is really exciting. Buying one is beyond my wildest dreams even 5 years ago.

Tesla-David | 30. Juli 2018

@lowteck, congratulations, and you will absolutely love your M3 when it is delivered. It is a revolutionary vehicle and I feel your excitement, and it is very much worth the anticipation. I am a 5+ year Tesla owner, and have never gotten over the excitement I felt on getting our first MS in early 2013. That excitement has never worn off, and extends to our now 5 month old M3, which is my wife's car. I drive it every chance I get because it is so very much fun to drive. Hang in there, I know the time ticks slowly waiting, but your M3 will hopefully be here soon! ;0)