Apr 6, 2013
luvb2b i've addressed reservations once or twice in the q1 earnings thread. but now that i'm convinced q1 earnings are going to be quite good, my focus shifts to the future. how will tesla do the rest of the year?
the shorts seem to be quite keen on the reservations issue. they cite high cancellation rates and quick turnaround times as reasons why the tesla reservations book has dwindled. i've been working on a reservations model, trying to take into account the various facts we know about reservations.
the cancellation rate is a slippery concept and it could be measured a number of different ways. the simplest is to take the number of cancellations and divide by the start-of-quarter reservation count. that misses some of the cancellations that would happen with people within the quarter. so i use a cancellation rate formula that incorporates the reservations from the current quarter. you can easily rework these numbers yourself using a simple spreadsheet.
basic formulas
quarter end reservations = start of quarter reservations + new reservations - sold vehicles - cancelled reservations
cancellation rate = cancelled reservations / (start of quarter reservations + new reservations - sold vehicles)
known facts
1. using the reservation numbers reported by users, it looks like q1 reservations in the eu were about 900.
2. reservations sequence numbers no longer exist in the us. using the last available data points, then extrapolating out the reservations rate gets you around 2500 q1 reservations in the us. i didn't add in canada because it seems small.
3. using the above and 100 reservations for the rest of the world (row) i arrive at 3500 reservations total for q1.
4. at the end of q4, "about 25% of the [15000] reservations were from outside north america".
5. cancellation rates are expected to remain elevated this quarter.
6. the tesla website has delivery times for north american customers in the range of 1-3 months, depending on the configuration. elon musk has said the average wait time in north america is down to two months.
7. unit sales this quarter will be 4750+.
8. eu production will start around june.
i have to make a few assumptions. in my initial attempt, i want to be conservative. i want to think like my opponents, the shorts. some of these assumptions might seem silly, but i can always make them more tesla-favorable later. i think i've taken every element of the model at made it go against tesla: cancellation rate skyrocketing, reservations stalling, and production climbing.
assumptions
1. cancellation rate will jump 100% above the 2012 q4 rate and then stay high the rest of the year.
2. reservations increase to around 4,000 per quarter, but tesla can't do any better than that the rest of the year.
3. production stretches over 5,000 per quarter, consuming reservations at a faster pace.
even with these horrible assumptions, the reservations model shows that we are clearly sold out through 2013, ending the year with around 2,500 reservations. numbers in bold italic are the estimates.
so how can usa production times average 2 months when there are supposedly 10,500+ reservations on the books? in order to make sure the model is logically consistent, i actually had to break out the north american and eu/rest of the world end-of-quarter reservations and track how they evolve.
prior count + new - sold - cancel = end count cancel rate 2012Q3 11500 2900 250 950 13200 8.3% 2012Q4 13200 6000 2400 1800 15000 10.7% 2013Q1 15000 3500 4950 2900 10650 21.4% 2013Q2 10650 4000 5200 2000 7450 21.2% 2013Q3 7450 4000 5400 1300 4750 21.5% 2013Q4 4750 4000 5600 700 2450 22.2%
the first thing to check is internal consistency. you'll see the total reservations and total production line up exactly in both tables. the next thing to check is logical consistency. you can see at the end of 2012 q4 there are 3400/15000 = 22.7% reservations outside north america. the production for 2013 q1 is entirely north america, and then europe gets added to the mix for a few weeks in q2 and more earnestly in q3. total production is kept near or above 5000 for all of 2013. so far, it's all consistent with the stated facts.
n.a. qtr end reservations eu/row q end reservations total qtr end reservations na production eu/row production total production 2012Q4 11,600 3,400 15,000 2,400 - 2,400 2013Q1 6,270 4,380 10,650 4,950 - 4,950 2013Q2 4,030 3,420 7,450 3,640 1,560 5,200 2013Q3 3,400 1,350 4,750 2,700 2,700 5,400 2013Q4 1,395 1,055 2,450 4,200 1,400 5,600
but how about the 2 month average wait time in north america? currently the model shows 6,270 north american reservations at the end of 2013 q1. since i am using a jump to a 20+% cancellation rate this is effectively only about 4,925 reservations. of those 4,925 i'd guess there are a bunch of deferrals, maybe 1,000 or so? that means only about 3,925 units of the remaining 6,270 north american reservations will be in queue for production. with production at 500 per week, that works out to around 8 weeks of production. so yes, it looks like this model is consistent with the 2 month average wait time for north american customers.
and no, the model shows that the shortened wait time isn't a major problem. as long as new demand generation keeps chugging along even barely above the q1 level, everything will be just fine because europe/row production will fill in the holes for a couple quarters. by the time we reach the 4th quarter, there will still be about 2500 reservations left even under these adverse assumptions. hopefully by then the tesla demand generation machine has reservations pushing well over 5,000 a quarter.
on the next earnings call i would expect to hear:
1. ended quarter with something more than 10,500 reservations with about 60% in the usa.
2. tesla affirming forecast of over 20,000 units during 2013 based on the existing reservations and pace of reservations.
3. european deliveries starting soon.
4. focus on demand generation, especially for 2014.
5. projecting q2 production of 5000 or more units.
i've just presented one approach for trying to reconcile all the information on reservations and production. hopefully someone else has some insights or thoughts regarding the latest decline in wait times? later i'll try to update with some more realistic numbers for the rest of the year. recent trends in european reservations indicate some pickup after a seasonally slow q1.
in conclusion, i agree with elon.
"tesla doesn't have a demand problem."�
Apr 6, 2013
hcsharp luvb2b thanks for your analysis. Have you thought about the possibility of a highly publicized safety recall that's basically a non-issue but the press goes on a feeding frenzy? Have you factored the likelihood of this and the potential effect on reservation rates? The Volt lost a lot of sales for a few months due to the press spewing out FUD over one of the safest cars on the road. Tesla is still suffering from the Broder fabrication and the NYT automotive editor still has it out for Elon.�
Apr 7, 2013
Norbert Where did the "2 month" info come from?�
Apr 7, 2013
Right_Said_Fred Great analysis! If there were any worries, it puts them to rest (barring a major event).
I like the fact that you take a conservative approach. There is definitely some upside, like extra NA orders from the 'leasing' program, extra European orders when cars hit the street there / get extensive press reviews, and a lower cancellation rate as the time between reserving and finalizing will shrink to a few days (a few days' waiting will result in a much lower cancellation rate than two years of waiting).
I like that European reservations seem to be picking up pace, especially in Norway.�
Apr 7, 2013
erha luvb2b, I just want to thank you for all your great posts on this forum. You're doing an amazing job. Please keep posting your analysis! They seem very accurate and I understand them without any knowledge about how businesses operate. Thanks�
Apr 7, 2013
luvb2b ya i think about a recall all the time. it would be bad. every estimate would have to get tossed out the window. every car maker has recalls. it's just with a new company that has only one product, the impact would be disproportionate. even for what you might see as a non-issue. since there's no way to predict when or if a recall would happen, if it happens i'll have to adjust depending on what it is.
i think that's the average wait. some configurations are down to 1 month, some are at 3 months. sources: a recent bloomberg article, log on to the tesla website and start configuring, or just look at the model above. they all point you the same way: the north american backlog should be down to a quarter or so.�
Apr 7, 2013
K Hall Elon stated in the last investor conference call that they are seeing 3 new orders with every delivery. This statement was in response to a "early adopter" demand discussion. The demand is growing exponentially.
They have expanded production 25% this quarter and I would expect another 25% in the near future. I hope you have you seat belts on.
Nice analysis Luvb.�
Apr 7, 2013
hcsharp If that's true then why has the avg wait time shortened to 2.5 mo? I agree that there's a good chance this could, or is happening. But the math doesn't prove this out.
Well, OK, the formula does have an unknown variable - time. I'm responsible for several reservations since taking delivery but it took a long time. Most of my friends and neighbors wanted to wait several months to see how it worked out.
Regardless, I'm not yet convinced of the "3 new orders per delivery" statement.�
Apr 7, 2013
Bardlebee Long term wise, I think demand will increase just due to their store front presence. Even in Austin the store reported that many people have not heard of Tesla before, but bought the cars the same day just by walking by. So there certainly a lot of brand realization to cover. Their stores are doing a lot of that work.
Short term, I am also unsure how they are fairing right now. We will probably hear more in the Q1 call.�
Apr 7, 2013
DonPedro Fundamentally, the main point is not this year. Yes, it would be bad if they were able to produce 20k+ cars in 2013 and could not sell them. However, to be a "buy" at a $5bn valuation, there needs to be a long term demand that is far greater than that.
The question is whether historic demand tells us anything about the future. It is possible to make a good case for both answers - "yes" and "no". The negative answer would go something like this: "The demand we have seen so far is fully consistent with the Model S being a niche product that hits a small group of enthusiasts hard. When this entire group gets hyped about the car at the same time, demand looks OK for a year or maybe two. However, serving this niche at it's natural replacement rate of cars is simply not a big, viable business for a car company."
The positive answer would go something like this: "The current demand, that has outgrown even a very successful rampup of production, is just the 'early adopters' end of the adoption curve. This demand has been generated despite a huge marketing disadvantage as compared to other cars, since Tesla has a less-known brand, a fraction of the marketing spending, less of a dealer network and has almost not been seen on the roads at all. Going forward, there will be more and more Teslas on the streets, stronger and stronger brand recognition, and probably increasing marketing spending by the company. This points to a healthy growth in demand in the coming years. As additional models are launched, even more demand can be generated in new segments of the market."
It is crucial to appreciate both these answers fully, in order to make a good decision about the stock. What I like is that choosing between those answers is not something a whiz kid will get out of his spreadsheet. This is about really understanding the product and its value to customers, about getting a feel for who is buying Teslas (my mother is, which sort of weakens the "enthusiasts" argument from my perspective), and about having a vision about the future of road travel on our planet.
When I invest, I always ask myself how on earth I can imagine beating "the machine" - the institutionals with their superior information collection, with more time to spend on analyses than I can ever do myself, and frequently with special access to lunches with execs etc. Most of the time I end up just putting my money in index funds. But I feel Tesla is a company that the institutional guys are going to ne awefully wrong about most of the time. Also there are many amateurs dabbling in the stock (such as myself). That is why I feel it is possible for me to profitably invest/trade in the stock.�
Apr 7, 2013
Bardlebee Hey Don,
On that note of being out of the niche market, as I said above there are quite a few people who didn't even consider buying the car before the model S. I have a few friends that weren't even considered car people before seeing the model S, me included. There are a few people at my business who have one now and they drove very low end practical cars such as myself and did a 360 spin and got a very expensive vehicle, not totally due to the pluses of it being electric, but because it was great car.
I guess you could say I am on the optimistic side, but the negative side have many viable points. "Time will tell" is something we can probably tell will be the theme here.�
Apr 7, 2013
Norbert I haven't been following deliveries very closely lately, however I only remember Elon talking about something like 2 months for fully-optioned 85 kWh orders.
This post is from someone who reserved in Nov 2012, a 60 kWh, and is expecting delivery end of this month:
Model S Delivery Update - Page 480
This would be 5 months. On Bloomberg TV was someone who ordered a 85 kWh in Dec 2012 and got it in March, I think, which is 3 months. If those were representative numbers, they would point to an average of 4 months between 85 kWh and 60 kWh, but there are obviously a lot of variations. (All of these numbers are excluding european orders, of course, and specific options such as red body color.)
In any case, it is very interesting to see where you get even with these worst-case assumptions.
You are assuming steady reservation rates, which is fine for the kind of calculation you are doing here.
Nevertheless, here some thoughts about future reservation rate: (Unfortunately, we don't have numbers to quantify these things.) While there might be some saturation in the market of EV enthusiasts who have been waiting for an EV like this, Tesla's strategy was always built on going past this, from the get-go. Something which lately seems to find little attention is that there will be a number of new stores in 2013. New stores always generate reservations due to their newness, however also add to the growing number of stores with continuous generation. Then, Tesla is still very little known, and this is changing. Model S owners still have little experience for others to rely on when making a decision, and their numbers have been increasing into the thousands just in the last few months. As someone wrote above, buying a car is often a longer term process, and this may be true even more so for an electric car. So the effects of word-of-mouth should be increasing. Superchargers will be added, financing was just added, service will apparently be improved, software features will be added and improved. So the product altogether keeps improving, and people will get used to the fact that the Model S is a valid choice as a great car.
Then, the shortening of waiting time itself will have a positive effect. I think it was both GeorgeB and Elon who said that one of the larger factors keeping some from making a reservation, is the waiting time itself. And while it will reduce the number of those who make a reservation "just in case", a shorter waiting time will also reduce the cancellation rate, as you don't need to buy the car twice, at different points in time, so to speak.�
Apr 7, 2013
brianman Regarding demand...
Lance (Bellevue store manager) mentioned today that "only" 22% of the orders are placed in stores these days (the rest are online, triggered by word of mouth, etc.). That number was much higher months ago (he offered the number but I didn't remember it).�
Apr 7, 2013
Norbert Yet, how many of those ordering online have been in a store before?�
Apr 7, 2013
Bardlebee Many states don't allow the sale to happen in store. Texas surprisingly, is a large customer of Tesla's and they can't sell in store. Hopefully legislation changes soon, but Norbert has a solid point here.�
Apr 7, 2013
luvb2b the exact quote: "North American customers are waiting as little as �two to three months� for their cars, Musk said. That�s less than the current average of five months, including international customers, he said" from bloomberg.
i agree there is plenty of upside. the main point i was trying to make is that model s will likely sell out all available 2013 production. elon and crew have until next year to bring the average reservations up over 6000 per quarter. that's a long time!�
Apr 8, 2013
Norbert While the term "as little as" suggests that even the North American average is higher than that, it does mean that you'd have to pick '2 month' if you want to be sure to consider the lowest possible number, so to speak. However, most likely, of course, this is only for the top version. BTW, my impression was that for some time in summer they want to focus on the european version, and once european productions starts, US orders at that time will have to wait until they shipped a larger quantity to Europe.
It's a long time, and they have been planning for this exact development (in so far as we can tell), recently anticipating a demand of 30k to 39k /year, eventually, including Europe and Asia. (Asia starting later this year, I think.)�
Apr 8, 2013
Futurist Impact on the industry
I am wondering how the competitors in the luxury car segment will react to to success of the Model S when the official sales figures and numbers for market share for Q1/2013 will come out over the next weeks.
In Germany, Tesla Motors and their Model S still seems to be "under the radar" for most car makers. I have been talking to marketing and sales managers of two major German premium brands, and they had no clue, how many cars they sell in the US. They both guessed their market share "unter 0,1%". Well the fact is, that if Tesla will sell 20.000 Model S in the US in 2013, they will outsell the Mercedes S-Class and BMW 7-Series combined! In California, their market share in the "luxury car" segment in Q1 will be around 20%. In the entire US they will end up selling 1/3 of 5-Series BMWs or E-Class Mercedes or as many cars as Audi with the A6.
This will be pretty shocking for the guys here, because they believe that it would take another 10 years at least, before electric cars will cross the 5%-barrier in any market.
But on the other hand, this does not leave very much room for further expansion with only one Model in one segment. The key question is the adoption of the car in Europe and Asia, which accounts for about 70% of the car sales in this category worldwide.
And the other factor is the ability to bring another category of cars to the market quickly - the High-End-SUV-Market and the "Smal Luxury Car" market, which is about 4-5 times that volume.�
Apr 8, 2013
luvb2b i follow twitter feeds on model s pretty closely, and from what i see they are cannibalizing sales from other segments too. i mean, logically how can one car with limited market reach and brand awareness suddenly become the #1 large luxury car in america? it has happened, but it's not logical. they have to be reaching outside their segment.
of course the luxury sedan segment is the natural segment where model s fits, and of course they try to sell directly to the panamera, bmw-7, or benz-s customers. but i see buyers coming from:
1. mid-range luxury buyers with either high-mileage or green tendencies
2. performance car enthusiasts
3. higher income hybrid (i.e. prius/volt) buyers
4. smaller suv buyers
there's more stories over at the tesla forum, here's a quick sample:
"Personally, I'm not particularly rich nor green. The most expensive car I've ever purchased was a GMC Yukon XL for $42K, and that was out of necessity (I have 5 kids). My wife has been begging me to consider Solar Panels for years, but we never pulled the trigger until, well, after we reserved our MS. But after driving my Prius for 2.5 years, I realized how much I enjoyed saving money, especially when running the A/C while waiting to pick up my kids for basically no cost (unless they took >10 minutes, in which case the engine would kick on. I hate that!). In fact, I realized that most of my arguments with my kids were about wastefulness -- wasting their food, wasting their money, wasting their time, wasting their lives! So when I started looking around for a mid-life crisis car, I considered the Audi TT (wife's idea), Porsche Cayman, BMW 3 or 5, Nissan 370Z, and even the Subaru BRZ. We got a vacation home about 100 miles away last year, and I realized that I would never drive any of those there because, once again, I'm too cheap! I'd still drive the Prius, in spite of a total lack of any driving dynamics whatsoever. Then came the Model S. Ooooooh......"
"how did i decide to buy a tesla? it sort of went like this:Conversation with a friend on 04/15/11 -
Me: "So I'm trying to decide what car to buy. I really want an Audi S4 but then I feel bad for the environment so maybe I should get a Prius..."
My Friend: "Why don't you get both?"
Me: "Wait, what?"
My Friend: "Check out the Tesla Model S. Tesla is making an electric sedan!"
** google search interlude **
Me: "Holy $&@#!" I reserved one 2 days later on 04/17/11."
"Then a friend got a Volt, which he loved (and has since dumped for a Model S...)
My wife and I went to test drive a Volt, and we both walked away saying that considering the price, we'd rather start thinking about the base-model Tesla for "only" 20k more. Of course, as we know now, that rarely remains the final decision. We upgraded to the 60, got pearl white, Supercharger capability, air suspension, leather seats, and ultimately spent almost two Volt's worth.
And we're ecstatic about it."
the other interesting thing here is that tesla is mostly going after the urban markets. but as they get further along i think you'll find a pretty good pool of buyers in the rural markets as well. gas stations are a bit further apart in the rural markets, and sometimes the drive to a town could be inconvenient or expensive. one facebook photo had shown a guy who parked his john deere and used a model s for a tractor (hee-haw!).
http://www.facebook.com/virginiacleancities/posts/245511588925879
i think this is why tesla has catapulted to the #1 large luxury car in america. it's large luxury but it is captivating buyers from other segments. it changes the modeling substantially when you are no longer limited to that segment.�
Apr 8, 2013
Volker.Berlin Basically, i agree, but it's slowly changing (German):
Konkurrenz f�r BMW und Co.: Wie gef�hrlich ist Tesla? - manager magazin - Unternehmen
My favorite paragraph in that article:
Which is pretty much what you said:
They'd better start taking Tesla seriously...
�
Apr 8, 2013
Volker.Berlin Actually, Tesla seems to be planning on selling 10x as many units of GenIII as of Model S -- in the order of 200k/y.�
Apr 8, 2013
mulder1231 Interesting article, is there an English version available? My German language skills are a bit rusty...�
Apr 8, 2013
Iz That would send shockwaves through the auto industry. I've had my MS for 5 weeks now and would consider getting a GEN III for my children as a daily driver to college in 2021.�
Apr 8, 2013
daxz Google Translate- Competition for BMW and Co.: How dangerous is Tesla? - Manager Magazine - Company�
Apr 8, 2013
Norbert Tesla is estimating the annual demand in the US at 10k - 15k. Europe and Asia each 10k+, for a total of 30k - 39k. 2013 might be higher, in the US, due to the pre-existing waiting list.
Who knows, maybe they will sell 20k in the US alone.�
Apr 8, 2013
vgrinshpun
Just to clarify: Elon Musk mentioned 200k/y in three to four years for Model S, X and Gen III (interview with CNN). He was more likely implying that in three to four years, Model S and X production could reach maximum capacity, i.e. 100k/y. The remaining 100k/y is likely a planned capacity of Gen III production (5 day, 1 shift operation).
This is consistent with what I remember Gilbert Passin, Tesla manufacturing VP, said about capacity of the Tesla Palo Alto plant: Model S/X - 100k/y, total capacity of the plant - 500K/y, i.e. Gen III platform capacity is 400k/y
- - - Updated - - -
These projections came from Elon Musk speaking during the Q4 2013 call. At approximately 18min45sec mark, talking about Tesla internal projections for 2014: 10-15k for North America, 10k for Europe and 10-15 for Asia. Later during the call EM put projected demand for Model X at 70% of the Model S demand.
The totals:
2014: 30-40K
2015: 51-68K
I also feel that these are very conservative numbers. I predict that they will be close to 75k Model S/X in 2015 (i.e. they will be operating 3 shifts, 5 days per week)�
Apr 9, 2013
VolkerP Not just a translation, you will get my unrequested comments here, too. Zu manchen Punkten musste ich einfach meinen Senf dazu schreiben :biggrin:
I'm not sure here if he talks about the Roadster? Because for Model S, my impression is that many households acquired it as their primary car.
Now the article has turned from reporting facts and opinions towards offering an opinion by itself. Could it be that the authors underestimate the speed & leanness of Tesla?
They scaled production a 100x going from the Roadster to Model S, acquiring and retooling a factory in record time, all the way developing their first car in house. For a total of what, $700m? And this analyst throws doubt on Tesla's ability to scale another 10x. We'll see.
This article could be a first wake up call for German car makers. But I'm sure it will go by mainly unnoticed.�
Apr 9, 2013
Zzzz... Oh, I'm sure German automakers are watching Tesla closely.
And not only watching - but Porsche already introduced plugin Panamera... If not Tesla - it probably would not have happened. If Panamera had 50 miles all electric range and more powerful motor, it would had eaten a lot of Model S sales. But even as it is it will take away some "green oriented" customers from Tesla. And next generation might implement better electric drivetrain.
And what about Audi S6 - look at 0-60 performance of the latest generation. Right away taking away title of fastest sedan from Tesla. Yeah, may be not eco customers, but those who want most powerful/fastest sedan for around $100k will now go to Audi.
BMW and Benz are at the back sit for now(I don't count i3), but if they start loosing sales of premium sedans in North America - they will come up with powerful responses, IMO.�
Apr 9, 2013
SteveG3 thanks for the analysis luvb2b, I found it clear and helpful.
Your tables show 2013 finishing fine.
As to out years, I agree with points of other posters... currently 75% reservations North America, ultimately Elon sees mix near term about 40% NA, (and I've heard him say ultimately pretty much an even split between NA, EU, Asia). So the shift from 25% demand outside NA to 60% is just starting now. My understanding is test drives are beginning in EU now, deliveries about July. Seems Asia is 6 months later. So if NA has a bit of a lull from very first early adapters and/or price increase at start of the year, turning up order flow in EU and Asia will offset. In time other catalysts for NA picking up will include: cars on the road/word of mouth growing, Superchargers greatly increased presence, and mainstream consumers getting to see the cars have longer track record (all suggested upthread in other posts).
I see other catalysts for growth in the next couple of months... Consumer Reports piece expected quite soon, and Elon's "5-part trilogy" we are in the midst of right now. While I think the reservations are there for 2013 and beyond, I think Elon and Tesla are not taking chances, and the four announcements running into the quarterly earnings announcement in May are no accident. I think they are getting out in front of the likely sensationalist doom/gloom articles some will choose to write when Q1 earnings call reflects the first time that reservations for S ever declined in a quarter (I'm mentally bracing for "Is Tesla following Fisker..." nonsense headlines). I suspect the Tesla plan behind the "trilogy" is both to pep up reservations by making the product more appealing, and to have a strong flow of encouraging announcements to help shake off any "sky is falling" articles that likely will show up after the earnings release. Confidence tends to breed confidence and doubt doubt, and this would seem even more so for a startup electric car company.�
Apr 10, 2013
Robert.Boston I'll want to see the S6 and the MSP head-to-head before I believe that there's a gap. The MSP has more useful ?speed, I suspect.�
Apr 10, 2013
mulder1231 Thanks Volker, I couldn't really follow the Google translation--very poor.
What I find interesting about the article is that it starts out with Elon's quote that the Mercedes S-Class is one of the finest luxury sedans in the world, but then it goes on comparing Model S to the lesser Mercedes E-Class and BMW 5-series.
That in contrast to the recent blog posted here on TMC by CapitalistOppressor who compares Model S to Mercedes S-Class, BMW 6- and 7-series, etc. and correctly concludes that Tesla Model S already is the leading large luxury car brand in the US.�
Apr 11, 2013
Johan Surely the German auto makers (and also the Asian higher-end ones like Lexus, Infiniti and Acura) are following Tesla's success. I do think however that BMW, Audi and Mercedes may be a bit too comfortable and over-confident when it comes to their market share in Europe where they seem to think they are "untouchable". Historically this is more or less true, most US luxury cars (US cars period actually) have never had more than a tiny share of the market in modern times (Ford being the exception) and while Asian makers have substantial market shares in EU this is not in the high-end segment (Nissan, Toyota, Honda, Hyundai, Suzuki are selling quite a few cars, Infiniti, Acura and Lexus far fewer). However, with Tesla I believe we may see the first (well, second after Ford) US automaker to take substantial market shares in Europe. And this will surprise the German giants.
Audi have been meddeling with the E-tron, never getting anywhere with it, but I'm sure they have more concepts in hiding. Mercedes of course know Tesla very well from their partnership and are starting sales of their electric B-class, but again in low numbers (more of a compliance car). Then there's they overpriced and underperforming electric SLR which again is more or less a concept. BMW have the i3, a short distance compact, aiming for the segment where there's currently the iMiEV/iOn/C-zero and LEAF.
I believe in the next few years we will see plug-in hybrid versions of the 3, 5 and 7-series BMW with smallish batteries. We will also see plug-in hybrids of the A 3,4,5,6,7 and 8-series Audi and also of the C- and E-class Mercedes (probably not the S-class). Volvo are now launching their plug-in hybrid with a pure electric mode, first comes the V60, with I think 12kWh battery making for around 50 km of pure EV range.
The common theme here is all these traditional automakers are coming around to the fact that customers are ready for electric cars, but they all think (just like Toyta) that hybrids will dominate the market for quite som time to come. Some of them will continue making the hybrids a la Lexus while some will understand the benefit of electric drive and phase out the ICE as main motor and transition into using the ICE as range extender for the electric drive train. What they are all underestimating, IMO, is how quickly the transition to 100% BEV's will happen. And this will cost them. The smart one's have BEV's (with batteries of 40kWh+) up their sleeve that they can quickly phase in to production when they realize that there is demand.
I think a lot of people including the traditional automakers are exaggerating charging infrastructure as a pontential problem/barrier to EV adoption. With large battery EV's almost all charging will be done at home at night. The supplement required is fast charging along main highways, for long distance travel. Tesla has figured this out just perfectly with their SC network. As has been mentioned before expanding the SC network is actually quite cheap and will only require a small percentage of Tesla's revenue. This percentage will be even lower as sales increases. Once the SC network is in place it will be cheap to maintain it.
If Tesla continues to move and evolve at their current speed though, they will be able to position themselves very well in the Asian and EU markets in addition to the US market where this is happening already. The NUMMI factory has tramendous capacity and Tesla has shown extreme ability to scale up quickly. Tesla must sustain high quality and operating reliability must be very high in order for them to succeed.�
Apr 11, 2013
SteveG3 Thanks for EU perspective Johan.
your comment,
"The smart one's have BEV's (with batteries of 40kWh+) up their sleeve that they can quickly phase in to production when they realize that there is demand."
touched on a basic point I've wondered about as an investor. The auto industry seems to give 2-3 years of visibility of direction there development of new cars is going by the practice of unveiling prototypes. It would seem nobody is in position to deliver a compelling long-range EV to compete with the Model S for at 2-3 years. While this is not international law, and any company can do what they want with this... I'm wondering what others here think the likelihood of some undisclosed longer range EV at one of the major manufacturers? Anyone know of a precedent of "secret" development for a car that ended up being produced in volume (tens of thousands or more)?�
Apr 11, 2013
30seconds SteveG3 - I think that this would be a very hard secret to keep. For starters this would have required some significant hires in software, hardware and battery technology beyond the current people involved in the hybrid and i3 like platforms. Then all these hires would have to stay at the company for the last three to four years and then not tell anyone what they are working on. I think that Tesla's experience vs. the leaf and mitsubishi shows that a larger 40kWh+ pack requires a host of related technologies (including cell design!) this is rather more specialized vs. the smaller packs in these cars and hybrids.
Now, can one of these manufacturers catch up in a few years? Technically it sounds possible (unclear on how much they would need to invent around Tesla's patents vs. license from them vs. violate), but culture would probably be an large issue. Look how long it has taken any one of them to lightly embrace hybrid technology. The first Prius went on sale in 1997 and was mass produced in 2000.
Anyone seen a decent German hybrid yet?�
Apr 11, 2013
SebastianR I think one of the most frustrating things about German Car companies is that they are so damn good in engineering. And I believe that's their downfall with electric cars.
Let me explain: If you want to be a big-shot in a German car company you typically get big via the engine division. I.e. you need to be a petrol head by training and conviction. I mean, look at these engines, they are true marvels of engineering and are super sophisticated - and look at the guys who have a say in these companies: engineers who know about engines.
It's just such a pity that all these engineers rely on an outdated engineering paradigm. Anyways, the problem for them is that you don't switch to a new (and relatively unproven) technology on a whim - it would also be a personal tragedy since all your knowledge does not help in that new technology. So what to do?
Thus, the idea of putting the BMW electronic cars into a new company make sense from that perspective. But will it be enough? We will see.�
Apr 11, 2013
Volker.Berlin You nailed it. I agree 100%. The years ahead are going to be interesting times for these companies.�
Apr 11, 2013
ElSupreme I think this also. A person buying a PHEV is going to realize that EV driving is wonderful. Realize they don't need the range extender portion nearly as much (or at all) as they previously thought. And get an EV for their next car. And people first time buying into a PHEV may skip that step after there is a good portion of the population is happy and comfortable with pure EVs.
I honestly think once PHEV and EVs get about 25% of the market then PHEVs will become a niche vehicle within 2 product cycles (~7-12 years).�
Apr 13, 2013
luvb2b noticing on the tesla website the time to receive a model s performance is up to "about two months" in the us. the day leasing was launched it was at "about one month".
i wonder if that's increased due to new demand or if the eu units are sneaking in that timeframe slowing down production?
any thoughts or comments on exactly when eu production starts eating up time on the lines?�
Apr 13, 2013
DonPedro In Oslo, Elon Musk said that first European production would take place in June, with deliveries in July.�
Apr 13, 2013
vgrinshpun The one month lead time was there as late as this Tuesday, last time that I've checked it.
There seem that some pricing changes were made as well. The Performance Plus package now does not includes 21" wheels, but "requires" them. When selected from the Ordering Page, the Performance Plus Package ($6,500) automatically adds 21" wheels option ($3,500) on top of it.
Looks to me like the ASP should be revised up due to both of these changes.�
Apr 13, 2013
blakegallagher That is interesting .... I wonder how much reservation rates have spiked due to the Financing Program.�
Apr 13, 2013
luvb2b or possibly many of the deferrals converted to firm orders once financing was readily available.�
Apr 13, 2013
vgrinshpun It's questionable how much this financing could've helped in this situation. The financing was available even before this announcement - from various credit unions. Also, this new financing with elements of lease is not available in all states...
Another possibility is that there was an increase in the percentage of cars ordered as P85, but not necessarily spike in overall reservations.�
Apr 13, 2013
ModelS8794 Musk announced 80 P85 units for service loaners.
Additionally, I would guess the changes may be pretty dynamic based on whatever batches are coming up in their queue. The combination of those two items may well be enough to have them making the adjustment to their design studio as they did.�
Apr 13, 2013
Grendal The other reason for this is to have cars around for an "impulse buy." This is very smart for Tesla and from what I understand was done with the Roadster.�
Apr 13, 2013
Citizen-T Pretty nice weather these past two weeks on the East Coast...�
Apr 13, 2013
dmckinstry The financing doesn't affect my deferral. If I could get away with only paying $500/month it might have. I would have made a down payment and borrowed from my credit union, but I still don't want to be saddled with monthly payments over a long period of time. I'm just going to have to wait until I can pay for nearly all of it at once.�
Apr 14, 2013
Robert.Boston The only important element of the announcement is the guaranteed buy-back. I think there are a fair number of people who are concerned that either the car or the company will fail prematurely. Elon's personal guarantee backstops the potential problem.�
Apr 15, 2013
mulder1231 Morgan Stanley just raised their Model S forecast for the year to 18k.
Yes, it's higher than their previous delivery forecast of 16k, but I'm not convinced this latest alert is anything that will move the stock up as it's still below Tesla's own guidance of 20k. One of the questions raised in this research note is about reservations:
Also, no increase in their price target--it remains at $47, which oddly enough they say is based on 150k Gen 3 deliveries by 2025. That's a long time out!�
Apr 16, 2013
Cattledog 150K total Gen 3 by 2025? I think they can cut 6-7 years off that. Now if it's 150K per year by 2025, we've got a conversation.�
Apr 16, 2013
lolachampcar Robert,
I scratched my head when I thought about the personal backing by Musk for the buy back. You need to tank Tesla to need the buy back and, if that happens, Musk's pockets may not be able to support buying anything back.
Did anyone one else cringe at the now $10K price point for better handling with 21s? Man am I glad I got my P85 with Pilots when I did.�
Apr 16, 2013
mulder1231 Not total, but 150k annual deliveries by 2025. This is how their model is estimating the ramp-up for Gen 3:
2016 15,000
2017 22,500
2018 37,500
2019 67,500
2020 90,000
...
2025 150,000�
Apr 16, 2013
luvb2b wow did tesla really say that? what's the motivation for keeping this key data point from investors?�
Apr 16, 2013
mulder1231 Tesla stopped giving out sequence numbers, in the US at least, now that the long wait times are over. There is still a reservation number when you make your reservation, but it seems more of a randomly assigned number.
I can understand that Tesla doesn't want to answer questions about number of reservations and cancellation rates on the earnings call. Most companies won't give out any details on their sales funnel--they typically just give guidance for future revenue (not even bookings).�
Apr 16, 2013
Cattledog mulder - Thanks, that's encouraging and helpful. I guess the $47 target is an intermediate time point (next 12 months?) and doesn't reflect the value of the stock/company in 2025. At 150K Gen 3s, and probably another 150K of Model S, Model X, new Roadster, etc. - or their variants - we are talking a company that, if it hits it margins, seems like the same value of Porsche. (I checked a couple months ago, Porsche had a $20B value on sales of approx. 200K units with the best margins in the mainstream auto business). So I would say 4-5 bagger from this price point in about 10 years if it hits targets. $247 in 2013. Very simple analysis on my part, and calling them a Porsche in 10 years is the leap of faith. I believe it. YMMV.�
Apr 16, 2013
mulder1231 You mean $247 in 2023...that would be a nice return on investment in ten years, I'd go for that!�
Apr 16, 2013
DonPedro If they believe the fundamental value now is $47, then in 2025 they are thinking a fundamental value of $47 + a compound interest rate for 12 years. If you assume 10% (which would be a simple and reasonable assumption for a stock), then that computes to $47 * 1.1^12 = $148.
Of course, in reality the $47 target would combine various future scenarios. So 12 years from now, you would be in one of the scenarios and looking backward with 12 years of extra information, the 2013 value would probably work out to something quite different than $47.�
Apr 16, 2013
vgrinshpun Maximum production capacity for Model S/X is 100 cars/day/shift. for a 3 shifts, 7 day operation production is maxed out at about 100,000 unit annually. In order to produce 150,000 model S/X Tesla will need to expand production line that they currently have.�
Apr 16, 2013
luvb2b yes, the sequence number were annoying customers who were wondering why their cars were being built late.
but the reservations activity they have reported with every quarterly letter. that's a key piece of material data about the business. would be very disappointing if they started withholding it.�
Apr 16, 2013
PureAmps I agree.
Reservation numbers were important when they were only selling hope. Now they are selling cars, and that is the only metric that matters.�
Apr 16, 2013
SteveG3 I think Morgan Stanley is backing into numbers that allow them to be bullish on the stock without sticking their necks out further than they need to.
In other words, if they have a buy on the stock, why speculate on 500,000 cars sold in 2025 when 150,000 backs into a target price today that warrants a buy recommendation (of course with 20% run past couple of weeks, they'll likely tweak their model after earnings call so they can raise target a few bucks and maintain buy).
Morgan Stanley stuck their neck out in the past. I'm looking at their 3/31/11 report where they had a $70 price target. In that report they had bear, base and bull scenarios modeled.
Here's total units sold (complete vehicles, excluding powertrains sold to other manufacturers) they had for 2025 in 3/31/11 report:
Bear: 106,000
Base: 454,000
Bull: 681,000
in another table in the 2011 report they show 370,000 of the base case units sold as Gen3.
I don't have the current report, but I strongly suspect that the current report calling for 150,000 Gen3 in 2025 Mulder has shared with us is driven by their wanting to back into a target price of about $50 rather than $100 (neighborhood their model would project with 370K gen3 assumption) , and does not reflect their genuinely believing the 150K 2025 sales figure, down over 50% from the 370K they modeled as a base case two years ago. I.E., though they've moved their price target down and back up in past two years, I strongly suspect price target they are comfortable publishing is the tail wagging the dog of what they publish as their sales model. Fwiw, IF Gen3 is executed more or less as well as Model S, I would think we see 150,000 units by 2020 (if not sooner).
�
Apr 16, 2013
mulder1231 Actually, their total unit delivery estimate also includes the Tesla Roadster v2, albeit much lower unit numbers, but with higher revenue per unit ($131k-$154k). Here's what that model's estimated ramp looks like:
2017 800
2018 1,200
2019 1,320
2020 1,386
..
2025 1,381�
Apr 17, 2013
SteveG3 Mulder, I'm not sure what the numbers in the chart in your last post represent.�
Apr 18, 2013
CapitalistOppressor Anecdotally, Cattledog recently spoke to an associate at one of the Texas stores who related that they were averaging 1-2 cars per day at that store, and that the number was far higher for stores in California.
My research has long pointed to an internal Tesla sales target of ~2 cars per store day for the new format stores. My model also assumes that new store openings will be the primary driver of sales growth going forward. The most simple model points to the existing 25 U.S. stores supporting ~18,000 sales per year, but many of those locations have only opened in the last couple of months, some are of the old format, and some are hampered by local regulations.
For stores that existed at the end of 2012 the model predicted they would generate ~11k U.S. sales for 2013, which was fairly close to the guidance that Tesla provided, and could have represented a conservative prediction based on then existing assets.
Its important to recognize that these are internal sales goals, and stores appear to get credit for all reservations within their sales area. In theory, new stores could just be cannibalizing "sales" that would have otherwise been assigned to another store. But I believe that the stores are the fundamental driver of sales, and I think Tesla believes that as well.
A key tell will be whether Tesla continues to expand stores. If demand stays level (or falls) they will cease expansion, because the sales/store will fall below their target. No need to invest in new stores if the ones you just built aren't generating additional sales.
Another tell will obviously be the production rate. There are rumors of Tesla moving to a production rate of ~650/week at the end of Q3. Whats interesting about that is that the current(?) 500/unit/week rate is extremely consistent with the simple U.S. model + a gimpier (more complex, less successful) sales model overseas + drawing down their order book. There is anecdotal evidence supporting good U.S. sales, and more uncertain foreign sales because Tesla is just beginning the process of expanding into the E.U., let alone the rest of the world. An expansion to 650/units/week would indicate success with the simple model in the E.U.
I've tried modeling reservations based on historical trends, or via other methods. But I've not been as confident in the predictive capacity of those models.
Predicting based on historical trends in the segment (ie, how well the ICE brands sell month to month) was always a failure, as its clear that the Model S has many buyers who would never consider traditional vehicles in this class (which if you think about it, is a failure on the part of traditional automakers to fully capture their potential market).
Projecting based on known reservation rates (before Tesla discontinued that system) from 2012 and early 2013 also seems fraught with difficulties. Do you project based on December rates, or January rates? Both are problematic for a variety of reasons, and predicting based on the overall trend isn't really better.
My best predictive results have come from the basic store based sales model, and an assumption of a large number of deferrals/cancellations at the end of 2012. I believe the new non-lease-lease was designed to recapture as many deferrals as possible, and there is anecdotal evidence of success on that front.
I question whether Tesla would have gone to a 500/unit flow rate if they were concerned about demand. That likely increased margins, and benefited the stock price, but if it was done at the cost of a major production slowdown in a couple of months that would be a terrible decision. I can't imagine that suppliers would be willing to invest to expand capacity for a short term production contract. If Tesla was forced to cut back to 300/units per month in July to compensate for an empty orderbook it seems likely to me that there would be penalties incurred by their suppliers.
Based on that supposition, I would hope that management would only act to increase capacity if they were seeing demand levels which necessitated it. The simple sales model and the large number of store openings in the last couple of months points to a possible reason for the seeming confidence of upper management.�
Apr 18, 2013
CapitalistOppressor Just to throw in some numbers, Tesla currently has -
25 U.S. stores
9 E.U. stores
3 Asian stores
Simplest of the simple models (ie I don't actually use or rely on this as my real world model, but its interesting) 2 cars sold per day per store = 27,010 cars sold per year.
If the current production rate is still ~500 cars per week, that works out to about 26,000 cars produced per year. 520 cars per week = 27,000 cars/year. The last reported production rate (from a factory tour in mid March) = 509/week.
Again, I don't rely on that for real world projections, but it tends to support my research that Tesla targets 2 cars sold per store per day. They are likely failing to do that right now for a variety of real world reasons, but I find the apparent correlation between factory capacity and retail sales goals to be interesting. Of course, there is a chicken and egg argument to be made that the sales goal is set based on production capacity.
But there are repeated anecdotal reports across a wide range of dates and from many stores which support the notion that Tesla is consistently coming close to the goal at most U.S. stores and heavily exceeding it in California. I don't read European, but fortunately we still have reservation rates which show sales appear to be in excess of 2/store/day.
Edit: In my previous post I mentioned that 500/units/week assumes "gimpier" sales because there is a major expansion of retail stores underway right now in Europe. If those stores (along with every other Tesla store) produce sales consistent with a simple sales model, production will need to be increased substantially.�
Apr 18, 2013
Cattledog C.O. - Good analysis. One tweak is my story about a Tesla employee sharing their '1-2 cars per day sales average' is that it was from the Denver store.�
Apr 18, 2013
GSP Are Tesla's stores open 365 days per year? If not, I would only count the days they are open.
I would not use 52 weeks per year for factory operation. Shutdowns are usually needed for factory maintenance and upgrades. Tesla has already shut down the first week of 2013. I don't know their future plans, but I would start with a 50 week per year assumption.
GSP�
Apr 18, 2013
mulder1231 Actually, I should have said next-gen Tesla Roadster, not v2. The numbers are the ramp according to Morgan Stanley for this car that is expected to go into production in 2017.
The plans and timing of the next-gen Roadster was recently confirmed in a George Blankenship interview, discussed in another thread here.�
Apr 18, 2013
luvb2b cappy, i've tried a bunch of ways to forecast reservations since the sequence number data stopped. some of the things i experimented with:
1. some kind of poisson process based estimation, using the reports of new reservations in the ordering threads. this is a fail because people aren't reporting reservations very often any more as delivery times have shortened. this makes sense as it takes a user a while to discover the tmc forums and become comfortable enough to post some information. shorter delivery times mean less time to discover and post to the reservation threads.
2. estimating us reservations of eu reservations pace. also a fail as the variability between eu and the usa is quite high. sometimes the usa is running 2x the eu, sometimes 5x.
3. looking for sequential data in rn numbers. failed, rn's are not sequential. much more complex coding of the rn would require many more data points to work out.
4. trying to follow twitter for people reporting ordering or purchasing model s. fail, "ordering model s" search leads you to an article about ordering the murder of a brazilian model. not enough people boast this way.
5. historical trends, using seasonal adjustment factors. there are a bunch of seasonal factors available for auto sales, which show that sales in march are much higher than jan/feb. but as you said, these methods are far from satisfactory.
so i am at a loss. i have no idea how to forecast reservations. and apparently now tesla won't tell me.
all i have is the model i posted to kick off the thread. it shows that under even relatively conservative assumptions they'll produce at full capacity through the year. so i have high confidence that q1-q3 of 2013 earnings should be good.�
Apr 18, 2013
CapitalistOppressor Back in July 2012 when I was making my decision to invest I tried projecting sales using every method you mention, and all were unsatisfactory. At the time we had great reservation data, but reservation rates didn't really support 20k units per year. And other methods of projection just sucked.
But George Blankenship kept emphasizing the new format stores and was citing foot traffic increases at every shareholders meeting. Substantial time was spent on those metrics, which made me elevate the importance I placed on analyzing the retail model. I have tried to keep my models as simple as possible because its not my full time job.
But I am convinced that Tesla sees the new format stores as the core of their sales strategy, and there is plenty of data there that is amenable to rational analysis.
Re: factory closures, and stores being open affecting the simplest of the simple models (which I don't actually use). Those factors would tend to balance each other, but are dominated by cancellations regardless. But if you assume that the sales per store day is based on a 363 day calendar (Christmas and Thanksgiving off, which is typical in retail) you are still talking almost 27,000 sales.
Taking 2 weeks off at the factory would drop production to ~25,000. That would imply an expected cancellation rate of ~7.5%. Not exactly unreasonable when new customers are finalizing immediately.
There are other layers you need to add as well, such as many stores are old format in low foot traffic areas, and likely underperforming the new format stores based on the effort Tesla is making to shut them down and open new format stores nearby. There is lag after opening before a store reaches goal. Some stores are just better because of higher foot traffic or better demographics. Etc.
You can add as many layers as you like. But Tesla is going to mine as many customers as possible and there is a two way relationship between the retail side and the production side, and you need to take into account the investment that Tesla is putting into new format stores, and new production capacity.�
Apr 18, 2013
kcveins Here in IL, they are not allowed to discuss sales / pricing / features, etc on Sundays. So that would knock off 52 more days as well - it would be reasonable to use a 300 day calendar.�
Apr 19, 2013
Doug_G Canadian stores, of course, simply don't exist.�
Apr 19, 2013
blakegallagher I thought Canada had one store? is that sarcasm Doug or is Canada really not represented with a store?�
Apr 20, 2013
aronth5 From Tesla's web site. One existing (Toronto) and two "coming soon" Montreal and Vancouver
http://www.teslamotors.com/yorkdale
http://www.teslamotors.com/findus/stores�
Apr 20, 2013
Doug_G Yorkdale | Tesla Store Locations | Tesla Motors�
Apr 20, 2013
bonnie I think Doug_G was simply pointing out that CO had left Canada off his list.�
Apr 20, 2013
Cattledog Yes 2023, bad typing.�
Apr 20, 2013
vfx As I understand it Tesla use postal codes to denote store location sales. So if an order comes from a buyer's home computer, the zip code entered determines which store gets the credit for that sale. Regardless of day.�
Apr 20, 2013
Zzzz... Hmm... With 27 or so stores in North America and above mentioned target sales per store of one or two cars a day, Tesla should average around 50 cars a day. Which is not bad.�
Apr 21, 2013
c041v Would this not mean that the Toronto store would receive a disproportionate amount of the Canadian sales simply because it's the only store that can be assigned a sale?
The patriot in me would like to think that we Canadians boost sales projection numbers by at least a few hundred annually. Our one store could count for quite a lot!�
Apr 22, 2013
CapitalistOppressor In my brain I always tend to think of Canada as a part of the U.S. Like an extremely large county in upstate New York, or possibly Massachusetts... Like a great big Canadachusetts... :tongue:
But yes, I missed the store in Canada. Thought they were all "coming soon"
- - - Updated - - -
Yes, thats essentially what I've been told. The various postal codes (for whatever country) are sorted into a sales region for each store.�
Apr 22, 2013
Doug_G I don't think that point of view would be terribly popular north of the border. You haven't annexed us yet. Remember, we kicked your asses in the war of 1812.�
Apr 22, 2013
DonPedro Besides, whom would they then blame?�
Apr 22, 2013
CapitalistOppressor In fairness, everyone kicked our butts in 1812. We were so shambolic then that we waited until after the war was over to win a battle. Probably some deep Yankee logic at work there...�
Apr 22, 2013
xtothem For those worried about the size of Tesla's order books - you can rest easy for at least another quarter. The image below taken from the Tesla website "Design Center" shows a wait time for the Model S and Model S Performance to be 3 and 2 months, respectively. Around April 10th (a week after the financing offer was released) the wait time was just one month less for both models. Without any VIN numbers reported this could be the best gauge for production vs. demand.
�
Apr 22, 2013
K Hall Excellent deduction xtothem. The evidence shows that orders are accelerating and production even though it has been ramped up to 650 units a week can not keep up.�
Apr 22, 2013
Zzzz... Yeah, but Tesla is about to start producing Model S for Europe. IIRC they should start EU production run in June.�
Apr 22, 2013
ShortSlaver If they can produce and sell 650/week for the rest of the year then we truly have a real monster on our hands. I can hope that's the case but I'm not counting on it. That would be so insanely above projects I can only imagine what would happen.�
Apr 22, 2013
vgrinshpun What is the assumption of current production of 650 cars/week based on?
As far as I remember this production rate was based on frunk liner production rate reported by the supplier. The timeframe reported by this supplier was, however, "early fall". The latest reference for current production rate was 500 cars/week, not 650.�
Apr 22, 2013
ShortSlaver I've recently read a rumor of a glass manufacture shipping 600-650 units/week right now but this isn't substantiated by anything that I could put hooks into. Hope for the best?�
Apr 22, 2013
CapitalistOppressor The last report I heard was that 650/week was planned for late Q3.
- - - Updated - - -
That's a nice find, but we are also getting near to the point where European production could be included in that time frame, which would also stretch out the U.S. wait times. And we don't know if that is based on a continued production rate of 500/units/week or if they downshifted to some slower rate. I should spend time in the delivery thread and see if anyone has been on the factory tour lately. That channel has given us good snapshots on production in the past.
Devilish advocacy aside, its very consistent with the sales model I am using, and that model also requires a production increase in a few months if the new European stores being built manage to increase demand. The new "lease" program might have also recaptured some of what might have been a large number of non-cancellation/deferrals that Tesla has been carrying on their books.�
Apr 22, 2013
xtothem I wouldn't be surprised if 650/week is reached by the start of Q3. Further digging into the job postings for this week shows temporary job openings on production line positions (Casting, Stamping, Body Finishing, etc). Many are daytime positions but there are a few that have a swing shift.
To me this means a few things:
- First and most importantly, new hires across the board mean they have met 500 car/day production levels.
- Next given they are temporary positions, I believe Tesla is attempting to exceed 500 cars/day production in the very near future. If demand remains high into the fall/winter they will be retained for full time employment. If not, they get the chop.�
Apr 22, 2013
mulder1231 I heard several weeks ago they were laying off some factory people, which got me concerned initially. But then I thought Elon is a business man and it's all about making profits. So it's good they are adjusting hiring carefully, and if they are rehiring temps now that's a good sign too.�
Apr 23, 2013
brianman Give it a few more years, Doug. We're about 8 years from saying 'f it' for border security entirely apparently.�
Apr 23, 2013
Citizen-T They seem to be developing a pattern of hiring a bunch of temps to increase production, then unwinding those temp positions as they get more efficient at operating at that new higher rate; presumably, converting the best of the temps to full-time positions.
We might have found a new way of tracking the production ramp. A trend to keep an eye on at least.�
Apr 24, 2013
DonPedro EU reservations seem very stable between 10 and 11 per day.
Between April 2 and April 22 approx. 220 reservations, which means approx. 11/day. In the period from 06Dec12 to 12Mar13 there were about 1000 reservations, which works out to 10.4 per day.
To fill 40% of 500/week capacity, EU demand needs to be uncreased to almost 30/day in the longer term. This is not unrealistic, but neither will it be achieved without effort. In Norway, stores seem to be opening in the 3 biggest cities outside Oslo (which already has a store). I am sure similar efforts are underway in other countries.
Assuming that the "2 cars per store per day" thesis is realistic (and assuming 300 opening days a year, being Europe), 17 stores are needed to generate 200/week demand.�
Apr 24, 2013
xtothem I was trying to articulate this very concept. You said it perfectly and I fully agree. Why they would do this.....it is better to get an additional employee than to have current employees work overtime or weekends for morale and $ reasons.
The only issue with using this to forecast production is they provide no specific starting date.�
Apr 24, 2013
vgrinshpun I think that Tesla is a bit more optimistic about working habits in Europe. Visiting their European Stores page, there are 13 open and "soon to be open" stores in Europe. Doing the math: 360 x 2 x 13 = 9360, which closely matches 10K cars/year that Elon Musk mentioned during the Q4 2012 conference call.
http://www.teslamotors.com/findus�
Apr 24, 2013
brianman In some ways, it's likely faster and simpler to hire a lot of temps and convert a few to full-time than it is to hire many full-time and then let the "not working out" ones go. There are all kinds of termination rules and paperwork for full-time employees. And then there's fun stuff like health care to contend with.�
Apr 24, 2013
Robert.Boston If you anticipate the need to hire more employees, then running current employees harder doesn't address that need. It appears that Tesla is using temps as other companies might use interns: get 12 interns in during the summer, see which two or three really stand out and succeed in the corporate culture, hire those and bid the others godspeed. Perfectly rational behavior when the available labor pool is large.�
Apr 24, 2013
K Hall The temp labor is used to fill full time positions. It's a long term interview process to select the best personnel. In a mature auto factory it is not uncommon for a worker to serve two years as a temp before being eligible for a full time position.
It is a great indicator of production ramping up. The second shift is very interesting.�
Apr 25, 2013
Citizen-T Would you like to explain this to my employer? We seem to think coops should be used like temps. We spend significant resources bring them up to speed over the course of 7 months, making them the best new hire candidates by the time they graduate. Then, we tell them we don't have any positions open, and our competitors hire them instead. We go on to hire more coops because we need people but aren't allowed to hire full-time employees.
Drives me insane.�
Apr 25, 2013
K Hall Short term and sighted thinking Citizen. Management is focused on cost verses value.
Unfortunatly it is an epidemic in Business today.
You can't save yourself to profitability.�
Apr 27, 2013
luvb2b seems on the tesla forums the eu deliveries are getting ranges from july to october. so are we somehow fully booked through august at least? my model shows we should be.�
Apr 27, 2013
ShortSlaver That would be incredibly great news and we will likely know this after the earnings call and guidance. The wait is about 2-months according to the Tesla order page for a US delivery, but it could be longer. Nothing firm set in stone.
Elon mentioned that the 100 loaners are in addition to the "20k number". Does anyone think there's a decent chance they actual sell over 20k Model S cars this year?�
Apr 27, 2013
DonPedro Well, people ordering in Norway now are anxious to know if they will get their cars "this year" (and being reassured by Tesla staff because EM promised that everyone ordering before June would get that). And Norway is getting a head start on the other EU markets. It would be very surprising to me if there were a demand problem this year. It is next year that is exciting in the demand department, I feel.�
Apr 27, 2013
luvb2b that was my thought too at the beginning of this thread. under relatively conservative assumptions 2013 should sell out. by 2014 hopefully by 2014 the demand generation is in high gear.
an interesting consequence is the next couple quarters of earnings should be quite good, making life even more miserable for shorts than just one good quarter.�
Apr 27, 2013
kenliles The 2014 positives would be ramp up of Europe and Asia markets, added stores and 20,000 owners with time in, the added 'lease' program buyers, and free marketing via ModelX reservations in last half for 2015 delivery. Negatives include initial pent up buyers from years waiting are largely accommodated.�
Apr 27, 2013
cwerdna 500 cars per DAY?!?! Assuming there are 30 working days/month, that's 15,000 cars/month. I don't think so.�
Apr 28, 2013
DonPedro Obvious typo - easy to understand what he meant.�
Apr 29, 2013
smorgasbord I believe that Tesla's reservation model is changing.
I'm predicting that the market won't understand it, and so when the new model is made explicit, the market will provide us with another buying opportunity.
What I think is happening is that Tesla is moving away from having a big long reservation list. This is just part of being mainstream - no other mainstream car has a waiting list. We've heard about upcoming opportunities for buying cars - from some cancellations being available for sale to service loaner cars being available for sale. The wait time for some Model S configurations is reportedly down to about 30 days. Seems obvious that pretty soon all configurations will be available within 30 days. With this kind of turn-around, there doesn't seem much need for a reservation list - my guess is that list size is shrinking rapidly in the US. It will peak overseas probably about a month or two after cars are sold there, too.
And, I think the market will freak out. Many will wonder if demand for Model S is sustainable. People will talk about Leafs and Volts, etc.. People will short the stock again, and even if not, people will take profits. That the reservation list was so big earlier will hurt expectations as investors today look to the reservation list as a cushion for and indication of demand for the car. They think without that list, Tesla won't be able to sell 80 cars a day.
Then after a little while, as deliveries continue strong throughout the year, people will regain confidence and the stock will go back up.
As for the timing, that's hard to say. For the upcoming in 10 days conference call, the reservation list might be big enough from overseas reservations. Then again, US deliveries might have taken the list down quite a bit. So, there could be a hit then, or the hit could come in the Q2 conference call. For those holding Tesla trying to figure when to sell so they can buy back cheaper, I really have no advice. My speculation here is actionable if all you want to do is ADD more Tesla to your portfolio. But, it won't help for timing a peak.�
Apr 29, 2013
Cattledog 2/day matches the Denver store anecdote. Looks like the galleries are powerful sales tools. Weren't as critical for early adopters, more important for second wave.�
Apr 29, 2013
vgrinshpun I've test drove MS on Sunday in Philadelphia during the test drive event. The event was staffed with several people and some cars from the NJ Paramus store. I was told that reservations at the NJ Paramus store, which is open 6 days a week, lately average at about 60 cars per month. I was also told that delivery time shown on Tesla Design Studio page will soon increase as European delivery cars will start blending into the production.
If above rate of reservations is seen at other US stores, the rate might be picking up as warm spring months are upon us. The total yearly rate of reservations for all 25 US stores would be 60 * 25 * 12 = 18,000.
There were a lot discussions and modeling done on this Forum indicating strong Q1 results, with the slowing reservation rate as the only possible relatively weak spot. The uncertainty about the rate of reservations was partially based on shrinking delivery times quoted by Tesla (from 5 months during the Q4 2012 CC to currently 3 months given on the Design Studio pages of Tesla Motors site), and partially on a guess work about current reservation rate in which all of us got engaged once Tesla stopped using sequential reservation No's in US.
The shrinking reservation time given by Tesla, however, is not necessarily an indication of lower backlog of reservations. Another possibility is that Tesla stealthily increased production and are now operating at the weekly rate of well above 500 cars a week. If true, it would explain away another question that I had for a while: why Tesla would pre-announce profitable quarter, risking stealing thunder from the official Q1 CC? This seemed to me a smart idea only if there is another, potentially as big or bigger piece of news
which Tesla is planning to reveal during the Q1 call. The increased production as well as increased guidance for total deliveries in 2013 could be just such piece of news, especially when coupled with details on increasing margins and reservation list which does not look as bad as speculated by numerous professional analysts. It could also underscore Tesla's confidence in strong European and later this year Asian reservations.
Such turn of events could have explosive effect on the seemingly slow process of short covering, forcing all remaining holders of short positions to exit immediately.
The calculation below, although mostly based on bits and pieces of information that was made public by Tesla, is not perfect as lack of data required quite o few of assumptions. The assumptions were always made to be conservative regarding the calculation of the current production rate. Due to many assumptions calculation below can not be off course used as a proof of the increased production, but rather shows that this hypothesis is at least plausible.
The data and assumptions made below indicate that Tesla is possibly producing 617 cars a week starting in April. If true this would indicate projected Q2 production/delivery of 8,021 cars, handily beating the 4,500 estimate given by EM. This would be an explosive piece of good news for the Q1 2013 CC.
Link for the calculation is included below. Will try to embed it tomorrow.
imgur: the simple image sharer�
Apr 29, 2013
DonPedro @vgrinshpun
I think your logic is sound, and I think it would be just like Tesla to increase production capacity as EU deliveries draw near, to not lose momentum in deliveries in the US unless absolutely unavoidable. Your model also shows why it makes sense to assume that TMC could close all stores and still deliver cars at full throttle for the rest of the year.
What I don't like about your calculations is the way you arrive at the reservations rate. EM has given a ballpark picture of backlog in late Feb, but the reservation rate in your model depends critically on exactly what that figure is. Subtract 5% from that figure, and the reservation rate that comes out of the model drops from 35 to 23 cars per day. And I can assure you that such ballpark figures have much higher uncertainty than +/- 5%!
European demand is easy to calculate, since we still have the old reservation number system. It has been a quite steady rate of 11-12 cars per day (7 days a week). What will happen to that reservation rate when the Model S starts rolling in the streets here is anyone's guess, but it is certainly going to move upward! This increase will be supported by the increasing number of stores.
US demand is the #1 question right now. 2 per store per day seems like a good approach to understanding the potential. It is also very easy to use. The downside of that metric is that it does not say anything about how Tesla is doing in terms of capitalizing on that potential. As smorgasbord pointed out above, waiting times are a poor indicator of reservations, as TM probably have a lot of flexibility now to increase production temporarily to meet demand peaks.
I think the best thing to do would be for the TSLA investors at this forum to put some $ in a pool to hire someone to sit at the factory gates and count the cars rolling out. Knowing delivery rates would help A LOT wrt. knowing reservation rates. (I am only half joking here).�
Apr 30, 2013
brianman This may be starting to branch off-topic but I'll throw it out for discussion nonetheless ...
Simplifying assumptions:
1. Tesla increases production rate (quietly) but remains below 1000 cars/mo.
2. Model S reservation rate drops to zero
3. Model X reservation rate remains steady
4. No Model S cancellations
5. No Model X cancellations
6. Model X VIN #1 delivery date of 1/1/2014 is announced and met
Given these assumptions, we should be able to predict at what point they no longer need new Model S reservations to keep the product line occupied.
If anybody who's been looking at the numbers feels like throwing out a chart along these lines, I'd love to see it. If not, I may take a crack at it.�
Apr 30, 2013
luvb2b so does that mean the wait times do not currently include eu cars? that would be great news. please verify.
your model results are badly skewed due to missing cancellations.�
Apr 30, 2013
smorgasbord Aren't we already a year delayed on that?�
Apr 30, 2013
vgrinshpun Confirmed. I was told that wait time will increase as compared to the times shown on Design page due to european cars being added to the production. Good news indeed, I am sure to see a couple of tweaks to be done to your model...
Regarding the cancellations, the model does include them. Calculations are based on EM indicating 5 month wait on Feb 20 during the Q4 2012 call, so cancellations up to Feb 20 are accounted for. The wait time between the ordering/puting down deposit and finalizing was reduced to 2 weeks in the second part of March, so cancellation virtually went to zero. So the only period that is not covered is between Feb 20 to the mid-March. Once again cancellation rate was very low as wait time was drammatically decreased in the second half of Q1.�
Apr 30, 2013
ModelS8794 Sorry for the brief tangent... but where and when and how was this test drive event publicized and held? I have been seeking out sources for Philly Tesla events (including the KoP store opening) but thus far my Google-fu has been extremely weak in this regard.
Is there a group somewhere that I just don't know the secret handshake for?�
Apr 30, 2013
Theshadows Create an account in Tesla's website. They sent me an email last week about it.�
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