Nov 6, 2014
Robert.Boston This line in the shareholder's letter caught my eye:
The talk has been about a unified body center, with the clever robots switching production on the fly. It looks like (a) Model S demand is so high that it's fully utilizing the expanded capacity and (b) there are enough differences between the S and X that building them on the same line is inefficient.�
Nov 6, 2014
ItsNotAboutTheMoney Margins in manufacturing are tight. Tesla has understood the benefit of colocation. As Elon Musk remarked, when asked about having Chinese manufacturing, when they looked at buying from China it ended up being more expensive because of shipping costs. Tesla doesn't make everything, and doesn't try to make everything; Tesla focuses on the high value items where expertise is essential.
The continuous upgrading is absolutely a strength. Tesla's policy is absolutely obvious: you get what you ordered, hardware upgrades might be possible but don't count on it and be prepared to pay a lot, software upgrades will happen but don't count on when. The upgrading means that they can catch up faster and that they don't get leapfrogged. Without inventory, dealers or marketing there's no reason for the typical cycle.
What other charging network gets people to pay a large amount of money up front in a lump sum? What other network has no account management or transaction handling? What other network pays the site owner to host chargers? What other network puts 6, 8, 10 or even 12 slots in one location? The innovation isn't just marketing, it's about building an actual, coherent network with the lowest possible cost.�
Nov 6, 2014
chickensevil 200 is being optimistic. They said 150k would be doable MAYBE 200 if they were to push Panasonic hard but both of those numbers were stated under the umbrella of a question about how much could you do if you COULDNT get the gigafactory.
The secondary evidence pointing more toward 150 is the production capacity for cells in the gigafactory is going to be 35GW but the number of packs produced will be 50GW. That missing 15GW comes from Panasonic and comes out to around 150k cars.
All that being said the timeline to get there is ~2017. So not 2015 which they will be lucky to be getting enough cells to hit 70k.
The X will surely be out by the time they are going for 100k+ cars.�
Nov 6, 2014
blakegallagher Totally agree. Whenever they bring X to market margins will suffer ...a lot. It will take awhile to iron the kinks out like it did with the model S. (edited ... use to say Model X)�
Nov 6, 2014
pGo I liked the conference call. The tone was upbeat and Elon seemed very confident on demand. What keeps bothering me is production. What in the world is taking so long to figure out production? It has been almost more than 2 years since they started production. Its a good enough ramp to figure out the best processes.
If you look at ICE, because of its more moving parts, it is supposed to an issue there, but everyone cranks out huge amount of cars. Tesla has a lot of electric components, and that should be easier to manufacture in masses. Before, battery was given a reason for slow production, but now I don't get it. Any thoughts?�
Nov 6, 2014
pGo Model S, in Q1 13, at about 4900 units made the quarter profitable while manufacturing processes still not being perfect. I think Model X doesn't have to go through a lot of those. They don't need duplication of teams and resources as a lot can be used for both products. I still don't get this.�
Nov 6, 2014
bonnie They completely shut down the production line and revamped it - and consequently took a one month hit. And until the gigafactory is up and running, batteries will continue to be a constraint.�
Nov 6, 2014
Right_Said_Fred The fact that this board was talking about 75K in 2015 doesn't mean that it's something Tesla was planning for. If they deliver 33K this year, then an 'over 50% increase' means at least 49.5K in 2015. Add to that 10K Model X and indeed you would get to just under 60K.
But that doesn't mean it doesn't add up with the 2000/week number at the end of 2015. That's just because Model X production starts up later in the year than planned. If Model S sales/production increases by another 50% in 2016 (Tesla: "by over 50% ... for probably several more years to follow"), then Tesla will produce at least 75K Model S in 2016, plus Model X, for which 25K is probably low-balling it. Together that makes 100K, or 2000/week. But Model X production will probably be much higher in 2016, so 120K is a reasonable number to expect for that year, based on Tesla's expectations.�
Nov 6, 2014
jhm My impression is that Tesla is coming to terms with a complexity constraint. The more variants they have to make, the more flexible the system has to be. But this flexibility comes at a cost that impedes efficient high volume production. So the solutions at this point are to reduce the number of configurations, i.e., no more 60D or P85 and consolidated options. Moreover, Model X will get it own production line, not because Tesla can't be more flexible, but because the complexity of ramping up MX could put MS production at risk. So this last quarter Tesla actually witnessed this sort of risk. The assembly line upgrade took about a month and set production back 2000 cars. And this is why we are guided to 33k, down from 35k. This risk was taken on to accommodate higher volume, D and Autopilot hardward, and Model X. Thus, it was a necessary risk, but Tesla is learning how to mitigate those risks. Having a separate line for MX and reducing options/variants are ways of confronting this complexity constraint.�
Nov 6, 2014
aznt1217 In regards to model X it was pretty clear what the delay is about. They just want to make the ramp up faster. A lot of this will come in Q1 with the new body and paint center up and running. We know Tesla isn't one to waste time, so while making these mass production improvements, why not tweak the product to perfection. They said on the CC that the team needs to work on not being perfectionists. I believe this 1000%. Just think about Elon's comment about the sunvisor sticker... If only GM had this attitude on THAT SWITCH. If only BMW had this attitude about that stupid idrive system. Its about getting the details right.
I also share sentiments that the team wants real world testing of the data for the dual motor and regulatory approval of side mirror cameras to work on range for the X. I also believe they want to scale faster to keep margins the same by pricing the base X slightly above the Model S.�
Nov 6, 2014
Robert.Boston Increased margins are not just coming from reduced costs. I noticed that the AWD option is now up to $5,000 -- up $1,000 from it's announcement last month. My guess is that demand for the D is so high that they decided to up the margin on it. Understandable but a little tacky.�
Nov 6, 2014
JRod0802 So you think production will increase by more than 100% from 2015 to 2016 (under 60,000 in 2015 to 120,000 in 2016)?�
Nov 6, 2014
Zzzz... I could not agree more with you! No point in bringing X to market if it would not actually increase sales.�
Nov 6, 2014
geturchiru From the bears point of view, they did not meet the Q3 guidance(minimal effect considering it a marginal miss), poor guidance for Q4 and for 2014(lesser by 2k cars which is 6% compared to previous guidance and the total revenue will be less by ~200M), not able to meet the previous guidance so what is the guarantee that they will in 2015, no ZEV credits for Q4(again 100M loss) and those who is looking for short term profits read as funds might be disappointed with the ER.�
Nov 6, 2014
Robert.Boston I was initially stunned by the 50% growth per year scenario. Then I actually ran numbers and realized that these are pretty much in line with what we've been kicking around here on TMC for some time. Specifically:
Looks about right, or borderline conservative if the Model 3 is as great as seems likely.
Year Production 2014 35,000 2015 53,000 2016 79,000 2017 118,000 2018 177,000 2019 266,000 2020 399,000 �
Nov 6, 2014
aznt1217 I think the 50% was strictly talking about the higher margin vehicles for the next 2-3 years. When Gen III rolls around I think the goal was 500k annually by 2020.... somebody correct me if I'm wrong.�
Nov 6, 2014
chickensevil Initially I wanted to agree with you, but I think the way it was stated was almost an "at least" 50% we will ramp faster if we can but ramping up manufacturing is hard. So I would take that to mean that 50% is almost as fast as they feel comfortable in saying they can go across the board for everything. However at some point I think they would need to go just a bit faster if they want to hit 500k by 2020.�
Nov 6, 2014
Zzzz... 50% grows rate of Model S could continue only for a limited number of years. Worldwide Model S sales already exceeded worldwide Panamera sales(~33k vs ~30k units this year). Moreover MS in it segment already outsells every model, Audi A8/A7, BMW 6 and 7 series, merc CLS, Lexus LS in US so far this year, with exception of S-class.
Large Luxury Car Sales In America - September 2014 YTD - GOOD CAR BAD CAR
And it do look like next year MS will have a good shot at outselling S-class not only in US, but worldwide. Rest models would be left far behind in rear view mirror. But how far Model S could realistically grow to? I doubt MS from Teslas will outsell combined power of brands from Japan and Germany.�
Nov 6, 2014
Newb Elon clearly stated that 50% growth rate in orders and deliveries refers to Model S only (!). Check out conference call at 16:30-17:05�
Nov 6, 2014
ckessel One thing that bugged me in the call (sorry if this was mentioned somewhere in the preceding 11 pages), was the complete dodge on the question of current run rate. Elon hesitated and Deepak said it "wasn't relevant". How on earth is run rate not relevant? It's directly related to meeting projections. And it's a question they've always answered before.
I can't think of what value they'd have in dodging the question. The gave Q4 projections and that's close enough you can derive some run rate information. They also drained every possible car from supply and apparently ZEV credit to make Q3 non-GAAP profitable. Tesla isn't usually afraid to be honest and they're Q3 ER statement is pretty blunt about being willing to sacrifice short term for long term, so why the combination of dodging on the run rate and such an extraordinary effort to sell every car?
Probably nothing, but it stuck out as odd.�
Nov 6, 2014
WarpedOne Simple, current run rate is still lower then it used be. If they named the number, everybody would scream "tesla is dead".
They are still ramping up and are planning to ramp higher so they will 'reach projected number' for Q4.�
Nov 6, 2014
chickensevil I don't think it is lower than it used to be, but I would be safe saying it likely isn't 1000, like they said they would be. What worries me there is if they are still having some ramp up issues will they be able to make 13,000 cars this quarter?�
Nov 6, 2014
ckessel That's why it stuck out for me. If they're still having ramp up troubles 4 months after the upgrade, that seems like a systemic problem. If they're not having ramp up problems, why hedge on the run rate, but give concrete guidance for Q4? These things seem a bit at odds. Giving Q4 guidance implies a run rate, but they won't discuss the run rate.
Maybe the first rule of run rate club is you don't talk about run rate?�
Nov 6, 2014
chickensevil Ha! Fight Club
So, first keep in mind they shut down around 21 July and lasted at least 3 weeks per various sources and conversations I have had and seen. So in a best case they came back up the week of the 11th. If total production was 7200 and they were running at 800 a week prior to the shutdown on the 21st this means they did about 2240 pre-shutdown (assuming 5 days a week and assuming they worked July 4th). So from the point they came back online they made 4960 vehicles. So they had 7 weeks of additional work (plus 2 days). A straight 7 weeks would put the average at 708 from restart. But, that is an average over the whole time period and not a statement of what the rate was exiting Q3.
If they are going to produce 13000 for Q4 with ~13 weeks, that means they need to average about 1000 a week for Q4 to hit that target. So if they are not already at 1000 then the exit rate will be higher than 1000 a week or we can expect a Q4 miss.
Seeing that we are already into November, and they were hessitant to state numbers... I don't know what to think. If they aren't already at 1000 a week, then the exit rate for the year would almost have to be expected to go to 1200 or 1300 a week to make up for any lost time.�
Nov 6, 2014
BlueTan85 This was the most concerning part of the confcall imho. I didn't like how they fumbled that question. Not relevant my ass.
Ok we get that demand is not the issue, that production is the issue. But at some point, maybe we've reached it considering how long they've been saying production is the issue, production starts not being seen as the issue anymore and management starts being seen as the issue.�
Nov 6, 2014
aznt1217 Not sure what question you are referring to? I didn't really see anything that was a blaring concern. I think they are erring on the side of caution. Manufacturing as echo'ed by others is extremely complicated. Not only the physical part but we need to remember that Tesla is doing things from the ground up. If I remember correctly they built their own custom ERP platform. They need a really coordinated dance between the physical and software. But we need to add the dimension of suppliers not being up to snuff. I think when they refer to manufacturing they are talking the entire supply chain (including third party). I mean... production is the issue... that's not even a disputable fact as you mentioned, but what other things could management do? They originally had one line... now they have two and probably built in extra capacity to curtail any other risk with the next ramp.�
Nov 6, 2014
chickensevil Something to point out here that I think AJ must have missed from the call since it was clarified there. Apparently customer deposits encompass the amount of money that is used when a customer pays their full balance within 2 weeks of delivery so they said specifically that when you subtract out that fluff the amount of deposits have risen Q/Q (which makes sense given that orders have increased Q/Q in order to account for the increased run rates.)�
Nov 6, 2014
aznt1217 It's ok let them miss it. More money for us when it becomes "news"�
Nov 6, 2014
eepic About 4 weeks ago.. remember when they announced a family sedan that accelerates like a Mclaren F1? Probably with the best traction control of any family car you can buy for different weather conditions. Not to mention leapfrogging all the most advanced driver assistance systems of the Germans.
And about bringing something earlier to market, see below (date highlights mine). At the time, Elon stated an expectation to bring it to market within 3 years... 13 months later they demo'd it to the public and are rolling it out to the fleet.
�
Nov 6, 2014
Chickenlittle I am long tesla but not sure your correct. Most people will admit some disappointment in call. That will add another risk now....potential for two in a row less than stellar reports. I don't believe it will happen but still a risk�
Nov 6, 2014
Right_Said_Fred If with the sentence 'over 50% for probably several more years' Tesla was referring to Model S only, then yes I think we can expect 120K in 2016. The exact wording of the press release left that open for speculation, but I read in another post here that Elon in the conferenc call confirmed the 50% was for Model S alone. Does anyone know if he was talking about 2015, or also about 2016 and beyond?�
Nov 6, 2014
aznt1217 Not entirely sure what disappointment, we were fully expecting a production delay and the team lowered 2014 guidance which I'm sure Elon doesn't take with great comfort. Although there is potential for consecutive divisive quarters... there always are. That's the battle of TSLA. Most of us have been here long enough to say that there's always something. Right now we see junk going around again like Cult Stock and Demand is an issue blah blah.
The facts are as follows:
- Progress is being made to Gen III
- Demand is there
- The Product is great
- Higher ASP's are coming
- They worked out the kinks in the production improvements made in July which is why it took extended time
- They are streamlining production (removal of certain options, bundling of others, etc.) -- this move of standardization is huge for me. This is a signal that these guys are no BS about scaling. Chances are this means that the team made a decision about opportunity cost of delight vs. tangible benefit-- what is better for the bigger picture means dinging a piece of customer delight (for those who wanted green and brown and what not).
In a nutshell (I think many share my sentiments were) this: It's business as usual and Tesla is still going to make the best product we can as fast as we can without waste, but we hit a bump in the road when trying to upgrade. For those who care about short term-- we're probably not your best investment and we won't comment on stock price anymore (phew). We learned from it and now we are moving on and leave us alone so we can go back to changing the world one car at a time.
I also thought it was funny how they didn't directly answer the weekly production rate question asked by Andrea James. To me, it's going to be a set up for Q4 combo of better than expected output with a side of extra gross margin.�
Nov 6, 2014
Derek Vinyard +1 chicken!
and one more thing was wrong in terms of GM. Adam Jonas said 23%.
here's what Elon said:
�
Nov 6, 2014
ckessel 50% was for just the S for next year and when asked about the X, Elon said something like "Yea, so a bit over 50% increase including the X". For future years, the 50% increase is total shipments across all models, not just the S.�
Nov 6, 2014
maoing Be cautious about Elon's remote projection, often it turns out not accurate at all, the reality should really depend on the progress of production, demand and infrastructure deployment. It's really hard to project even Elon.
I remember I posted sth. in "China" thread, Elon said in an interview that the production capacity will likely be doubled every year in next a few years. I was excited about that but it turns out to be far off the reality.
Here is the link to my old post:
http://www.teslamotorsclub.com/showthread.php/28966-China-Market-situation-and-outlook?p=649462&viewfull=1#post649462
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Nov 6, 2014
Auzie Production is likely to be the issue for many years to come.
I usually fumble when I do not know what I should know and I get caught. Maybe both Elon and Deepak got caught :wink:�
Nov 6, 2014
maoing The production issue can mainly be attributed to two parts.
First, Panasonic cell supply, it used to be the issue before Q3, but right now it turns out not to be an issue at this point;
Second, TM assembly line, it used to be not the issue before Q3, but in Q3 it messed up the guidance, without ZEV, we might had potentially headed to $200 in AH of ER
The first issue is out of TM control. But the second issue really warns the TMC bulls that TM's excecution isn't perfect for some times, and it might come again in future Model X/Model 3 deployment for sure.
�
Nov 6, 2014
favo I'm thinking the current run rate may be down a bit as they incorporate the dual motor configurations (and maybe new seats, rear doors, P85D suspension) into the production line. Hence their being coy about it on the conference call.�
Nov 6, 2014
3mp_kwh This didn't stick with me, as I was listening / reading for units guidance, and margin. I don't get the stock pump, on "50%", when last quarter "100,000 annualized production, by end of '15" was spoken. Analysts want ALL units, not just 'S', and the numbers dodge ball, and production bogs, just leave me more worried. This is a whole lot better than a mega-story about unreliability, or a dreadful safety recall, but that doesn't stop the effect of numbers and dates being adjusted. I respect Musk's candor, but if the stock price had stayed the same, its multiple would have just gone up. That's great because, with Tesla, you can always sauce your way to rationalizing a higher price, through awarding it a higher multiple./sarc
Hedged and fearful.�
Nov 6, 2014
Chickenlittle What progress on gen 3. Did I miss something in cc or did you assume something?
worked out kinks? Sounded like George bush. Manufacturing very very hard. Remember debates? Would have preferred to hear solution not restating problem 3 times
sorry I am big fan but came away very discouraged, even musk sounded that way�
Nov 6, 2014
aznt1217 I was referring to the question where the analyst asked about the X and III being developed in parallel or one phase after the other. He asked if any progress was being made. Musk talked about the front motor being a smaller lighter unit and how it was basically a second generation motor and how he could easily just make a 20% smaller model S, but didn't want to just alter things.
He did walk through the problems and what they did to address it in past calls, but it's not something that can be phrased in a few sentences. Not entirely sure what your experience with manufacturing is but based on mine (have experience working with both mass market CPG's and high end products) I can tell you it's extremely complicated to set up work flows and get everything factored in in the beginning stage, nearly nobody gets it right on the first try (especially when Tesla adopts an agile working method with continuous changes).
Would you prefer him to give examples like he did in the past like with the tires that were flown in from Czech Republic? Frunk carpets not being made on time? I'd be curious as to what you would propose. We know Tesla Motors employees are probably on this forum so maybe your ideas can help all of us collectively.�
Nov 6, 2014
anticitizen13.7 We don't know for sure what is holding up the Model X, but I am sure that re-designing the unibody structure for conventional doors would almost certainly add to delays. According to the shareholder letter, the Alpha phase is finishing up, and initial construction of Betas has begun. This means that the design is more or less frozen at this point, and the task ahead is figuring out how to build the Model X in mass production.
Changing the design now would take time. Then there would need to be a new Alpha, and a new round of qualification tests. And then there would need to be alterations to the supply chain. If Tesla were to drastically change the design now, I don't think we'd see the Model X until 2016.
I might be concerned if Tesla wasn't improving its product line, but I was impressed with the Dual Motor release, along with the Autopilot and other tweaks to the Model S design. Tesla is keeping their products interesting. Axl Rose, in contrast, went into hiding for years and released nothing for years after GnR fell apart.�
Nov 6, 2014
Perfectlogic I don't think you should worry too much about the rampup, I think the 50%+ growth per year was just a conservative guidance as Elon doesn't know where demand ends up. He has also mentioned a possibility of 150-200k vehicle/y rate before the gigafactory, which must be refering to the X/S sales in 2016 ofcourse. So if the stars align there is definately potential, remember guidance is higher than 2k/week run rate at the end of 2015, I think we can see 130k sales in 2016, which is 100% growth per year in 2015 and 16.�
Nov 6, 2014
pGo So far Tesla barely met the guidance in all quarters with a slight beat in q4, 13. This is becoming more like scty where huge goals are set and then company barely meets them. No surprise whatsoever.�
Nov 6, 2014
Perfectlogic You are making it sound worse than it is, they will miss the Q4 and thereby the full year guidance by a bit, and that is because of the weeks of production they missed working on the production line, but they will still meet the higher than 1k runrate/week guidance and therefore forward guidance of 2k/week end of next year shouldnt be affected either. I think a lot of people are pretty harsh on Tesla not meeting guidance and launches, but forget about the huge improvements to the Model S they just made, they had scheduled the dual motor upgrade for the S for after the X so that is well before promised.�
Nov 6, 2014
anticitizen13.7 What is wrong with meeting guidance?
I believe that investors should be focused on probability of long-term success: establishment of the Gigafactory and production of the Model 3 in the 300k+/year range. Model 3 in mass production is the goal.�
Nov 6, 2014
pGo My thought is more in the way Tesla communicates. Well into a month in q3, Tesla knew of production difficulties but if you listen to q2 er, Elon was asked the exact question on how he will keep 35k delivery and he kept on saying that will be done.
Starting with q2, Tesla is talking about 2015 exit because current issues don't get more visibility unlike last year where they talked about 2014 only during q4 2013. The whole notion of putting bits and pieces here on 2015 exit rate and demand in q2 and q3 has me wondering why is Tesla doing that.
Before, batteries was a huge problem to increase manufacturing. Understood. That set up a debate on GF. We got that. Before that, it was anywhere from IHS not anticipating huge volume to USB cables coming in the way of manufacturing. Understood. Now what? I agree demand is a non issue, but then damn it, what's taking more to produce cars. As ive understood, electric cars have much lesser parts in total and that should be a bit easier to manufacture compared to ICEs which just has so many freaking parts. 2 years is a huge ramp to learn the best processes. Enough.�
Nov 6, 2014
pGo I agree. And a few announcement on future is what made this stock go higher today. But a lot of this companies valuation depends on current execution. A few more quarters like this and people will wonder if GF will really start at the end of 2016 and that will we really see model 3 in 2017. I know they will get it done but setting right expectations is very important.�
Nov 6, 2014
Perfectlogic Because for a growth company, the future is more important than the present.
Elon emphasized several times in the recent earnings call how difficult it is to produce such complex cars, I don't think you are appreciating that fact. Even though it is a difficult task they are still making the best cars in the world at the price while ramping up 50-100% per year, I really don't share the dissapointment.�
Nov 6, 2014
Lump "I think our stock price is kind of high right now...
This was said when the stock was at ATH & was pretty much ignored back in September, today many are surprised & disappointed.
Here is the full quote "I think our stock price is kind of high right now. If you care about the long term, Tesla, I think the stock is a good price. If you look at the short term, it is less clear." Musk also said that when it came to TSLA's share price, investors have a tendency to "get carried away."
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Nov 6, 2014
blakegallagher
Time will tell but as more and more people see the future coming the stock price will get more and more "out of hand"�
Nov 6, 2014
Perfectlogic The quote doesn't even make sense, it is self-contradictory. If he thinks it's a good investment long term then obviously he doesn't think it is a bad investment even at that ATH price point. He also said the same thing a year ago when the price was around $150, what is your point?�
Nov 6, 2014
Lump He knew of the production problems & delivery shortfalls when he made those comments, he didn't have to make that comment but he felt obligated to cool the stock, the point I am trying to make is if there is a next time...don't ignore it if you are a trader.�
Nov 6, 2014
sundaymorning Pgo, how long have you been invested in tesla? From reading your posts, I'm sensing aggravation because Tesla isn't producing at your expectations or timetable. Many of us here have been with tesla since inception, patiently waiting on the S and now X. We "smart ones" know where this is heading in 2017, but if not, 2018 is fine by me. I won't be leaving this stock and I think you know why..
2 years to ramp up a car company is nothing, especially if you are simultaneously working on multiple projects, spearheading technological advancements, building out your own charging infrastructure, and trying to rush your suppliers to increase production which implies that they shoulder more risk then they are usually inclined to, and as a caviar, you're also distracted by nitwits like the gov. of New Jersey, Texas, politicians, auto-dealers, shorts, newspaper agencies, journalists, big oil....not to mention that this is a product completely foreign to the automotive industry, so any engineer who steps in must be retrained. And on top of that, you have to balance your accounting, so that your losses do not exceed "expectations." If you think 2 years is a long time to work out all those stated bumps on the road, let's compare Tesla model S to the Ford's model T ramp up.
Below are Ford's model T production numbers:
Year: 1909 = 7,728 produced.
Year: 1910 = 16,890 produced.
year: 1911 = 26,405 produced.
if tesla produces 50k next year (on its 3rd year) it will almost double the Ford model T's production numbers. Now put that into perspective and be appreciative for this investment and the Tesla team.�
Nov 6, 2014
Perfectlogic He also knew about the D reveal, for the stock to sell off from $290 to $220 with the only significant news being the D event was highly illogical. I guess the selloff probably had something to do with low expectations for the quarter, but imo it doesn't salvage the stupidity of the recent selloff, and foreseeing illogical almost random price movements like that isn't easy.
Edit: If you think the selloff was foreseeable on the simple basis that Elon said the SP was kinda high right now then you thesis is wrong and you got lucky, he has said this one time before, and that time the stock rose 30% shortly after the comment before getting crushed by the fires.�
Nov 6, 2014
geturchiru Whatttt? A century ago numbers when the automation was no where near to the current one. Give me something more realistic and comparable!!
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Yes it is. But, how does anyone believe that when you did't deliver what you have promised a while ago!!�
Nov 6, 2014
pGo I purchased my first leaps in 2012. Still holding converted shares. No questions on the future this company holds. This does not mean I as a shareholder don't track the progress and judge them by their own words.
The comparison to model t in production ramp is almost laughable. I hope everyone here does not compare Tesla that way.
Remember what has Tesla shown as a perceived value once someone visits factory. Best in class robots doing multitasking and great big efficient factory where a lot of automation happens. I just want a bit more transparency on production from Tesla. That's all.�
Nov 6, 2014
kbeckley Maybe I misunderstand. A company set 'huge' goals and meets them (barely even) and somehow that is bad? Sounds great to me.
If you listen to Elon a lot it seems obvious to me that he barely cares about Tesla's stock price and pretty much just wants to build awesome electrical cars and change the paradigm. He only cares about the stock price, I think, insofar as it gives him access to cheaper capital to fulfill his primary goal. In a tertiary way he might be slightly interested in how 'investors' are feeling about the stock at any moment. This is all totally refreshing to me - think years out and communicate the vision. Today be damned - in complete contradiction to most public companies who are all so short term focused.
Tesla is interesting for 3 reasons in my opinion: model III, battery expertise, stationary power. Those are all huge. The X being delayed - pffft (although I am planning to get one). Today's run rate for Model S - pffft. Quality of cars being produced - now that is interesting. Status of battery degradation in the current fleet - also interesting. That is what analysts should be asking about but they rarely do.�
Nov 6, 2014
maoing I fully agree with Lump that Musk was intentionally cooling down the stock after Q3 miss is inevitable. Also AJ from Morgan Stanley knew a lot of production and X delay insider information, as a big fan of TSLA he also tried to cool down the stock a lot. So the TSLA price got tuned to the appropriate level before ER, otherwise it'll be a waterfall like Q3 in 2013.
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TM can't keep their promise just 3 months ago, so it's an execution mistake. In my opinon, this mistake can be dealt in much better shape if TM mangement can forsee it. We all knew 2014 is an important year to ramp up the production significantly, why the assembly line retooling got pushed to Q3 instead of Q1/Q2? If the same extended shut down happened in Q1/Q2, then TM might have sufficient time to catch up the production loss. But right now the only way is to disappoint shareholder and market to lower the annual guidance.
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Can't agree more, the is exactly what I'm feeling. As a loyal investor, we all trust Elon & TM to success in long term, but we can't blindly do that. We need to inspect the execution of each step carefully and it's our Money in TSLA.
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Nov 6, 2014
30seconds It seems to me that reducing paint choices, seating and configurations are all aimed at simplifying production and increasing output. I doubt these decision were made without consideration of how to up production. Elon seems very intent on ramping production and only producing 4 main configurations (60, 85, 85D and P85D) instead of 7 (60D, P85, P85+) should help.
I'm also guessing that the Model X will have a reduced number of configurations at launch to help with ramp.�
Nov 6, 2014
Krugerrand And per the shareholder letter, if you aren't happy with how Tesla is doing things you are invited to invest your money in a company more to your liking because Tesla isn't going to change for you or any other investor. Now may be the time for some to take that advice and relieve themselves of current and further angst.�
Nov 6, 2014
Arb1ter Model X will only be offered in dual motor configurations.�
Nov 6, 2014
daniel Ox9EFD So it is either blind support and no questions asked, or 'take a hike'? That is no winning attitude, and probably not what Tesla has in mind either.
Being a public company means you get questioned.�
Nov 6, 2014
Auzie From my point of view, Tesla communicates quite well. It seems to me that their language is not understood due to a lack of understanding of manufacturing process and the process of extra capacity build.
Fremont has capacity to grow to output of 500,000 cars/year. That capacity cap is determined by press capacity. The rest of Fremont manufacturing plant, which has many modules or processes, is at various capacity rates at the moment, nowhere near 500,000 cars/year. So these other production processes, such as paint plant, various assembly plants, etc have to grow, or be built, in increments. These incremental increases are most likely of such sizes that it might take several iterations to reach the maximum capacity.
Most likely various infrastructure (power, IT, air, water, etc) also need upgrades along the way.
This is extremely complex process that takes time as it requires a lot of planning, building, testing, training, etc and then repeating it all over again for the next upgrade. It is likely more complex and challenging than building giga factory, as there are more constraints in the Fremont facility.�
Nov 7, 2014
schonelucht And yet, there are currently about 70 posts after yours in this thread alone discussing how 'production is the problem, not demand'. And there is Tesla themselves saying "Being unable to increase production fast enough, not lack of demand, is a fair criticism of Tesla." (comes verbatim from the recent shareholder letter, you can't have it much more official and up to date than that)
So I stand by my original point : "Tesla today is better at generating mass demand for electric cars than producing them in mass numbers".�
Nov 7, 2014
Auzie Production is the problem, no one is denying that.
I find Tesla's claim of 'innovative manufacturing' as its core competence justified, from what I have seen so far. These two statements are not mutually exclusive.
I would not put it that way, that Tesla is generating demand for electric cars. The demand is there for cars better than ice cars.
Also I would not critique Tesla for not being able to increase production fast enough. Increasing production capacity can be very slow and difficult process.�
Nov 7, 2014
FANGO In case you forget, the model t had neither air conditioning nor a 17 inch touch screen.�
Nov 7, 2014
Robert.Boston And in any color you'd like, provided that it's black.�
Nov 7, 2014
dalalsid It is faster than the Prius, leaf and volt.�
Nov 7, 2014
geturchiru Pardon my ignorance but I've heard about this model for the first time and I'm guessing it still has more parts to assemble than MS!!
We are talking about the making of it not how fast it can go!!
My point is, don't over promise and disappoint later. Give may be 40%(evaluate from the recent exp) and exceed the expectations with 45%. Nobody is asking for 50% YoY and get disappointed with 45% at the end. I'll be delighted if the current trend does not repeat!!
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I guess that comment was made regarding "perfecting the Model X" that they will do in their own sweet time and their own way and you can not rush them. If that's the attitude you bring to the table for every discussion good luck to all of us!!�
Nov 7, 2014
uselesslogin So as far as production is concerned, yes it sucks that they dodged the question. Anyone following the stock might want to read the delivery threads. That is where we go early indications of a production issue before Elon even said the stock is high. Right now there seems to be a lot of date shuffling but it isn't bad like last quarter. But, from their dodging the question, one can assume production is not high right now, but is planned to be high in late November/December. So first, I would say they are dodging the question because they don't want a low production rate to be taken the wrong way. Second, lets keep a close eye on the delivery threads. If everyone gets their cars in December we should be in pretty good shape. Elon said the orders are currently coming in at an annualized rate of 70,000 since the D launch. That is at least 5,500 orders since the launch and they still show a December delivery date on the website. They clearly plan on producing a lot of cars between now and the end of the year and I don't see them missing 33,000 deliveries for the year *if* December goes well. The huge difference between this quarter and last is that some people actually are getting their cars even on time or early. Others are getting delayed by as much as 3 weeks though.�
Nov 7, 2014
aznt1217 Where was the implication that production is not high? Did I miss it? I was under the impression the team wasn't comfortable giving an estimate because of weekly fluctuations.�
Nov 7, 2014
geturchiru They would have given the average over a month time. When you leave those lose ends FUDs tie to the wrong end and weave a story out of that.�
Nov 7, 2014
dalalsid Yes the making. Model S ramp is faster than all those cars.
Chart: http://seekingalpha.com/article/2457685-understanding-the-scale-of-teslas-battery-pack-production (disclosure - my article)�
Nov 7, 2014
aznt1217 Oh of course. Regardless of what Tesla says, FUD will try to tie something to a sinking rock in the ocean. I think the hard part of having such a technical wizard on the management team is that their range/standards is significantly tighter than a normal person would want to give. I honestly think that the line is somewhere at 950-1200 a week when they first started up because I think they can easily hit those ranges and it's consistent with next years estimates stated on the call (excluding the new line.�
Nov 7, 2014
geturchiru My guess is lower than your lower value. So far they delivered ~23k cars in 2014 and their estimate for 2014 is 33k. Assuming 1k cars will be shipped to SC/stores they need to make ~11k cars in 12 weeks(1 week for holidays!!) and that makes ~920 per week to meet their estimates.�
Nov 7, 2014
dalalsid +1-2000 for production because deliveries are generally lower than production.�
Nov 7, 2014
geturchiru Thanks Sid for the article. I don't have an account with SA and not planning to open one, but the the chart on first page gave me an idea of what you are talking.�
Nov 7, 2014
Zzzz... Great point! Prius got to top-3 best selling model in the world, and this is how it ramped up, worldwide sales by year, in thouthnds:
�
Nov 7, 2014
chickensevil First of all, I will forgive you for not knowing about the original for Model T given your stated location but it was basically THE first mass produced automobile starting in the 1900s.
As for parts, it depends on how specific you want to get about the parts of the Model S since technically every microchip, resistor, and capacitor on each of the boards would be a separate "part", which was actually largely designed by Tesla to incorporate into the car... That would easily put the parts into the thousands without even trying.
The best I could find on the number of parts in the Model T was this:
taken from: Model T Ford Forum: Model T vs. Model A question
While I can't find specifics on the number of parts in a model S, we know in the battery pack alone there are over 7,000 batteries, all which have to be carefully assembled (by Tesla) into modules (which the modules have their own added parts, probably in the hundreds) of which there are 16 of them I believe that are assembled into the main pack (which also probably adds another couple hundred parts) so just in the battery pack alone I would estimate 10,000 parts easily. And these are TINY TINY parts being assembled with high precision. So that easily puts just the battery pack alone as double the number of parts as the entirety of the Model A which was about 3x as more complex as the Model T.
So yeah, very complex piece of machinery...
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Note that complex does not make it any more prone to failure given that most all of the battery pack is a "non-moving part". So outside of a design flaw it should last a very long time. What hurts an ICE is that you are moving parts constantly for 150k+ miles and hoping that you are keeping them well oiled. Even if you are keeping them well oiled there is still some friction and heat and wear down on these parts that shake the connectors loose, cause belts to fail, and shred gearing (which is why you have to replace a clutch generally every 70-100k miles). The moving part of the motor isn't actually *touching* anything because it is operating within the scope of a magnetic field. The center of the shaft basically has a metal pole coming off of it that spins a gear inside the closed gearbox to spin a larger gear that is directly attached to the axel that spins the wheels. So hypothetically with fewer parts moving in this critical chain, there is less risk of a design flaw presenting itself meaning that the product should average a higher lifetime. This is assuming that they are using high quality parts and are ensuring a high quality build process.�
Nov 7, 2014
Robert.Boston As we think about the required factory run rate, keep in mind that the plant will almost surely be shut down for a week between Christmas and New Years.�
Nov 7, 2014
mkjayakumar Geturchiru:
I am wondering if this is the first poster from India, a place where Tesla has no plans at the moment to sell. Not in the near future, perhaps not even in the distant future ?
I am wondering what is the level of knowledge or awareness about Tesla over there?
On the EV front, there is one model by Tata motors - Reva - that is more like an NEV.�
Nov 7, 2014
aznt1217 I think there was a post about the first Model S in india somewhere.�
Nov 7, 2014
Chickenlittle It is confusing since they guided on deliveries but provided run rate last qtr (7200 in qtr). Does the total delivery of 33k include refilling pipeline or again selling out?�
Nov 7, 2014
Zzzz... You could estimate India market attractiveness for Tesla by looking how direct competitors doing in that market. Models that directly compete with Model S are:
Are Panamera, A7, CLS class, A8, 7 series, S-class, XJ, Lexus LS etc got substantial sales in India? If yes, Tesla should and would enter India market. If no - sorry, not atm. Idk much about India market. But MS is competing in it segment, which is defined by price range, CURB, performance, perception of luxury etc. If Panamera doing Ok on that market, MS will have a great chance to outperform Porsche in such segment. In fact Tesla will sell more MS worldwide than Porsche Panameras this year.
One could not and should not compare Tesla MS to econoboxes like Leaf or Volt. NVM Reva. It does not mean that no one is cross shopping Leaf vs Model S, it just mean that number of people who could potentially afford MS on a given market is relatively low if sales of sedans from segment Tesla Model S belong to is low.�
Nov 7, 2014
chickensevil Probably a mix of the two since I know the stores never gave up *all* of their cars and the service loaners never ditched *all* of their loaners. At least, not in NOVA/MD/DC area, and I assume this would be the case elsewhere. I was at Bethesda, MD store like days before the end of September and they still had one test car and one floor model (a 60 and an 85 I believe). I also got a loaner car from Rockville (an S60) like a week before the end of the month and they had at that point talked about how they had a certain number of cars that were on hand for loaners. Granted, I suppose they could have hypothetically sold every single one of them off, but I think more than likely they retained some cars by the end of the Quarter to use for their obligations to the stores, test, and loaner fleet (they aren't making the same mistake they made last December).
Note that all of these cars I observed were made prior to the change over on the factory and didn't have the new autopilot hardware. So I expect that they will finish cycling these cars out (or probably already have, I haven't had a chance to get back over to either location recently) and backfilling them with current cars fresh off the line.�
Nov 7, 2014
Zzzz... About above chart: Tesla will sell at least 17k units in US this year, next year Tesla should outperform S-class in US and most models mention above in terms of worldwide deliveries, getting close to S-class sales numbers worldwide.�
Nov 8, 2014
geturchiru Its from Reva now acquired by Mahindra not Tata. The car they have is all electric and looks like a toy car that you see in cartoons with two doors and a 100km range. Range is not a problem for city driving. It costs double than the entry level cars(which are like hot sellers here) obviously!! and to add no incentives from govt. and people here usually do not maintain two cars hence a very low adoption and only seen in 4-5 cities.
Coming to Tesla, I'll be surprised if .1% of those with access to internet(10% of total?) have even heard about it.
EDIT: The best selling luxury car maker Audi managed 10k units in 2013 but mostly A3, A4s and Q3s and I'm sure 90% of those are chauffeur driven or young enthusiasts(read rich people's kids) so the market for MS will be very less right now. May be Model 3 can reach some good numbers if released with SC infrastructure.�
Nov 8, 2014
AudubonB From the recent 10Q:
On the face of it, that sounds to me as though someone in Finance fell down on the job regarding currency hedging. Now, given European sales' share of overall numbers, this could be very minor: we could be discussing all of a few basis points of gross margin - Tesla doesn't say. Comments?�
Nov 8, 2014
uselesslogin This was addressed on the conference call. Tesla does not hedge. I originally explained it but then thought I should just copy/paste from the transcript so I am editing this post to show Elon's words:
"Correct. There is effectively product hedging in the sense that we're delivering cars in Europe, North America and Asia and obviously just started delivering cars in Japan that does provide a natural hedge, a most efficient hedge really for currency. But there are occasionally adjustments we need to make in the purchase price and at some point in the near future.
We're probably going to have to adjust the price of our car in euros upwards because there has been a 7% change in the exchange rates of the euro versus the dollar. So we'll periodically have to make pricing adjustments if the exchange rate band gets too wide. I would certainly encourage anyone in Europe to purchase their car soon because we probably will have to make an adjustment there."�
Nov 8, 2014
Chickenlittle Yes I heard that as well. In the past others with louder voices have claimed they do but with yen being devalued, batteries are getting cheaper already�
Nov 8, 2014
AudubonB That was most useful, useless - thanks.
Now, as someone whose specialty - back around the Miocene-Pliocene divide - was International Trade & Finance, I will say "Excuse me, Mr. Musk, but what you just said makes absolutely no sense in any way, shape or form". Not for an organization based in, manufactured in, and whose financials are derived in the currencies of one of those regions (USA, of course). That is not, Not, NOT either a natural hedge nor a most efficient currency hedge.
That said, you certainly can make the case that it is a "sales volume" hedge, or, as Mr. Musk stated, "product hedging". China or US or Norway or Germany or Australia, etc., could evoke stronger demand during any one period, likely offsetting a weakening demand in one or more other regions. BUT - absolutely no reason not to set up currency hedges atop same in order to smooth the finances when brought back to the home currency of the USD.�
Nov 8, 2014
Robert.Boston Elon really needs to learn the difference between a "hedge" and "diversification of risk." Having sales in many markets with many currencies diversifies risk, but it doesn't hedge it. An example of a true hedge is this: Tesla buys batteries from Panasonic in yen, and sells Model Ss to Japanese in yen. Those car sales hedge Tesla's exposure to yen/dollar variations (i.e., Tesla needs to buy fewer yen with dollars to pay Panasonic). Some of Tesla's euro exposure may be hedged by its purchases from Daimler, though I'm not sure which currency those supply agreements are written in.
I do have to wonder why Tesla's finance department doesn't use forward currency markets to actually hedge their FX exposure. It's a very efficient, liquid market.�
Nov 8, 2014
Auzie My guess is that Tesla have not employed currency hedge yet as they did not come across that bridge in their business yet. Most of their sales was in NA, so no need to hedge. That is changing quickly and they will learn even more quickly that they better hedge or their revenues will be subject to too many uncontrollable variables.
Currency hedging is a necessity for Tesla, unless they wish to diversify their car making business with currency speculation business and develop some competencies there as well. I doubt it though, most likely they will start currency hedging like most other businesses do.�
Nov 8, 2014
chickensevil Currency hedging should we bother?
Assuming things haven't substantially changed over the past two years, it would seem that hedging has little benefit... If not possibly causing harm.�
Nov 8, 2014
Auzie That article refers to hedging for investors, not businesses. The two species are very different animals.
The article makes a point that for investors, hedging reduces volatility, thus reducing the risk. That comes at a cost, as there is a cost to hedging.
If Tesla does not hedge, its revenue will be heavily influenced with USD fluctuations across the globe, thus increasing uncertainty and volatility.
Hedging is not that relevant for Tesla yet as US market is the largest revenue driver. If some other foreign market overtakes US market, then hedging may be more relevant.
Imagine a scenario: Tesla sells 90% of their cars in Europe. Euro is dropping against USD further and further, with no signs of recovery. Hedging may help to protect the revenue against continuous unfavourable exchange rate moves. It might be easier to hedge than to continually chase the exchange rate by revising the sale price.�
Nov 9, 2014
chickensevil There were other discussions which referenced small businesses in that equation and I would contest that given how little of their revenue is coming from foreign exchange it isn't as big of a deal for them right now. Which I think is also your point, Auzie.
They were also getting one over on the euro back about a year ago which is why they dropped the price by a couple thousand because it was becoming more favorable for Tesla. So since I don't think the European situation is likely to continue to get better in the short term the fluctuation is very likely to go south again which would make it back in a positive direction for Tesla.
I was honestly trying to find the point where paying for a hedge would be worth it to counter the exchange over a period of one year (since I assume they will revise the price about once a year).
Although they could just add the cost of the hedge into the sale price of the car (assuming it isn't that bad) and then it doesn't cost the company anything. Is that the angle that large companies tend to take?�
Nov 10, 2014
Robert.Boston For a start-up business, there is an asymmetric outcome to a symmetric risk. The $/� rate may be symmetric, but an earnings miss causes greater harm than an earnings beat causes benefit. The cost to hedging is quite small, because there are just as many parties facing the other side of the risk.
@chickensevil, one can't assume that you can pass on the cost in the sales price. After all, if you could raise the price without affecting demand, why didn't you in the first place? In this case (where Tesla has effectively monopolistic pricing of its product), effectively all of the incremental cost of hedging will come out of profits. But, i think it would be money well spent.�
Nov 10, 2014
chickensevil They have stated that the only price inflation over seas vs US is whatever they have to add on top to balance out the shipping and fees and such... so wouldn't the hedge be just a "fee" that they are adding on to the price? The car is already the same cost or substantially cheaper than competitor options (MB, Audi, BMW) in Europe, so I don't see how this would be an issue.
They are already tacking on this price fluctuation by changing the price every 6 months or whatever anyway. I don't see how this would really be an issue. I assume the hedge would come out to at most 1k per car. Anything more than that and it seems like it would be some crazy cost for a hedge and they shouldn't bother with it.�
Nov 10, 2014
dalalsid currency hedge = better option than changing prices every 6 months.�
Nov 10, 2014
chickensevil Wouldn't they still have to change price every so often as the currency floats too far out of spectrum? I mean the hedge is only going to be valid for so long, right?�
Nov 10, 2014
Robert.Boston I think you're right, CE; the hedge would only be economic for short periods and it would simply protect Tesla's gross margins between price resets.�
Nov 10, 2014
Auzie That adds complexity to business, having to hedge or revise prices with currency moves.
When buying stuff like machinery, the price is always in the country of origin currency, not in my local currency. I wonder if Tesla can sell cars in USD all around the world. Let buyers worry about the exchange rate and bear the cost. Though I have never seen any car maker do that, probably for good reasons.�
Nov 10, 2014
pz1975 That would piss off buyers having to buy in USD in their own country - I know I would be as a Canadian. It would make them seem like the "stereotypical American" who has no awareness outside of their own borders.�
Nov 10, 2014
dalalsid Yeah until they have local manufacturing. I think annual (or during major updates) revisions in prices are ok. Otherwise it just gets too much for the consumer.�
Nov 10, 2014
Auzie Would that deter you from a purchase?
It is standard practice to sell some goods in a country of origin currency. It may not be standard practice for cars, so people are not used to it. Like they are not used to buying cars directly :wink:�
Nov 10, 2014
chickensevil I have bought tiny consumer goods in foreign currency. Specifically Euros and Pounds... When making the purchase over the internet usually the service negotiates the transaction for you at that time and you pay whatever the listed going rate is for conversion. I don't know if the online service hedged anything or not, it didn't matter. I wanted the product, could only get it from a foreign site and happily paid whatever the conversion was.
Why is this any different? You are buying a product online... I would almost prefer a real-time conversion of the going rate at the point of sale.
The only risk there is that currency can fluctuate before you actually pay the rate since it takes about 3 months to get your car. That would be the only remaining risk to Tesla and I think that was what they were attempting to point out on the earnings call. The point at which a customer "negotiates" price is not the point at which the sale actually transpires.�
Nov 10, 2014
Johan It would be a difficult thing for most consumers in "foreign" countries (foreign to you, domestic to them) to relate to a price in USD. In principle I agree with you but in reality there is a big difference between buying a $10 gadget from Ebay or Dealextreme.com and a $100k car. They would run in to all sorts of issues: how to you register the purchase price with local authorities? Price lists for cars used by insurance companies would be messed up. Financing would be messed up. Etc.
As a side note I've found that with for example PayPal I get the option to pay in Norwegian Kroner and is shown their conversion, but it always pays for me to choose to pay in USD (when buying something that priced in USD) or in whatever other currency I'm paying in. VISA or Mastercard then does the conversion, but always a better rate than for example PayPal would. Interestingly, I once tried to understand precisely how VISA calculates their currency conversion rate - I even called their European head office in London, but it was utterly impossible to get a hold of the "equation" the use internally. So if you pay with VISA or Mastercard the only real way to know the rate you're getting is to do the purchase and check the transcript after two days...�
Nov 10, 2014
chickensevil I'm not saying it is "easy". I didn't like trying to quickly guess what the underlying price was for some stuff I was shopping around in pounds as I was comparing those prices against some things priced in USD. But it isn't that hard to quickly google the going exchange rate to tell you how much the final bill of sale will be. So my car came out to 96.5k, I put that into google and it says it will run me 77.6k Euro. So I look at my current financial situation and then determine if *about* that price is doable for me financially. The final price shouldn't come out much different than that if I am able to "lock in" my price at the time of order. Which then Tesla will tell you what that is. So again, Tesla would only have to worry about drastic price movements within that 3 month window (or however long it takes to take delivery). This stuff doesn't move very fast. Yes, over a period of years you see a lot of movement, and for 2014 we have been steadily dropping value compared to the Euro (or rather the Euro is getting stronger compared to the USD), but it has been pennies at a time over months. How much would that really hit Tesla's bottom line?�
Nov 10, 2014
Johan I agree that from Tesla's POV it would be best to get payed in USD from anywhere in the world and not have to worry or spend on hedging. But my point is from the global customer's POV and what I'm saying is that at this time I think it will be a difficult thing to get accepted.�
Nov 10, 2014
chickensevil I could buy that. People wouldn't like the random variation in price... They would view a yearly (or every 6 month change or whatever) as normal price changes, but I could see them not accepting the frequent changes.
I mean look what happened the last time when they actually lowered the prices because of the Euro drop compared to USD. Everyone tried to claim it was because Tesla was actually trying to get more demand in Europe because it wasn't working out for them, when really they were just trying not to overcharge the consumer. I bet none of the shorts will write an article this time around when they do a price increase... -_-
But yeah, I get it, people won't like it... but in this day and age people should learn to adapt to operating in a global economy that doesn't deal in your local fringe currency. Which was actually one of the good things about the Euro was that it sorta unified the currencies across the board in those countries that participated (yes there was a LOT of bad about the Euro... I wouldn't wish that on anyone... just pointing out the one thing I liked about it).
So the only way to get around all the bad things that is sharing currency across sovereign nations, is to get used to doing on the fly conversions.�
Nov 10, 2014
eepic Sorry for the longer post, but I want to debunk the common misconception that you can (feasibly) hedge away future exchange rate movements.
I think it's best explained through an example, so let's suppose company ABC will sell premium dinner forks to Canada each year for the foreseeable future, with the USD/CAD starting at 1.00. Here are the options of how they can deal with currency fluctuations.
Option A: Unhedged
The company will set the price of their forks based on the current exchange rate and revise prices as required.
Option B: Typical FX Hedging
The company will forecast sales for the quarter (time period can vary) and hedge this amount to lock-in the pricing for sales during this period. At the end of this period, you would forecast and hedge the next period based on the prevailing spot rate at that point (roll your hedge forward).
The below table shows how it would work if you have perfectly stable sales, thus perfect forecasting. The three sets of numbers are unhedged, hedged (theoretical), hedged (with example cost built in).
Notice that over time, the economics still reflect the underlying currency. There is no way to escape this. All you can do is always push out the volatility forward one period (whether that be a quarter, year, or otherwise), as your new roll cost will reflect the spot rate at that point. You basically pay to push forward the rate by one period perpetually as you roll your hedge. I coloured the different rows based on which spot rate it's based on to highlight this.
While locking in upcoming cash flow exchange rates has a lot of merit (more reliable quarterly guidance, as one), over time you are incurring a cost for the hedge transaction. In addition, it adds risk that the cash flows occur as predicted in your forecasts, if the quantity or timing is off then your hedge itself becomes currency speculation.
While this tradeoff makes tremendous sense for a lot of businesses like a commodity producer with thin margins, it may not necessarily be the case for a high margin product growth company that is long-term focused and can absorb some short term fluctuations. Personally, I think there's no clear case as to whether Tesla should or shouldn't hedge at this point - it can be justified either way.�
Nov 10, 2014
Johan Great post eepic. I agree in principle. Also remember that Tesla buying from Japan and selling globally acts as a natural hedge: strong dollar means lower cost for batteries (Deepak Ahuja made a point of them paying in Yen) but lower revenue when overseas sales are returned to USD and vice versa: weak USD makes for better revenue (in USD) but more expensive batteries. As Tesla become more global, perhaps with production on several continents, the "need" for hedgeing will be even less.�
Nov 10, 2014
mibaro2 All the SC accesory prices are in USD even on the Canadian site . Buying all weather floor mats I had to pay more after it was converted to Canadian.�
Nov 10, 2014
ItsNotAboutTheMoney Yes, it would be crazy to have a single currency and central bank for a bunch of different places with varying laws, taxes and economies. It would never work. :|
I would have no problem with real time pricing buying from other countries.�
Nov 10, 2014
bsd It also causes problems for those needing to finance their car. Bankers aren't too fond to deal with plus-or-minus $10,000.
Oh, and since the biggest cost item on the car are the batteries, we should denominate in yen.�
Nov 10, 2014
schonelucht Never mind that paying VAT on goods invoiced in a foreign currency is a PITA., especially when deposit payment, delivery and invoicing all on a different day. Then you get all kind of different fun rules in action like if invoicing is before/after the 15th day of the month during which you took delivery and whatever. Can't even think about the hassle of trying to convince insurance companies to cover the currency risk in your policy when you decide for a 'make-me-whole-on-accident' type of coverage (don't know how this is called in English). You don't want to burden your customers that way.�
Nov 16, 2014
FrozenCanuck Nice post. The bottom line that everyone needs to understand is that hedging is a temporary stabilizer. Hedges expire, and CFOs will typically re-establish hedges every so often at whatever the new spot rates are. It's inescapable unless there is natural hedging (for example, you buy materials in less expensive Canadian dollars, and you have similar salary in that same currency). Natural hedging is never perfect.�
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