Tesla, in SEC filing, says U.S. auto sales fell by $2B
mercurynews.com
mercurynews.com
Current estimated delivery time for a Model 3 in the US is “5 - 9 weeks”. Basically they reserve about 1/3rd of their production for US sales which is all the units in the last month of the quarter, in order to minimize the number of units in transit at the end of the quarter, because they do not recognize a sale until the car is delivered.
Do other automakers do that? Seems like you risk alienating a big chunk of your local market (wait goes from 1 week to 9 weeks based on the week in the quarter cycle you are in), to see a temp bump in earning reports?
They also need to make enough money to be cash flow positive while they continue down the manufacturing learning curve.
Those are two good reasons why you can’t just keep all your supply in the US even if the demand could cover your production.
GF3 is online in Q4 and Tesla will no longer ship any US units into China as of a couple weeks ago. All that Fremont production that had been shipping to China will revert to EU/US going forward.
They’ve said they would like to smooth out the delivery timing, and eliminate the dedicated delivery phase but I don’t see how that happens until you have more geographically distributed production (EU GF4 in 2021).
However, "production constrained" is not really accurate, as it implies they could sell more units for the same price if they could make them.
Tesla has bumped down the price many times, suggesting they're selling their whole inventory for the highest price they think they can get (which is still a great position to be in if that price is high enough).
The demand for the higher trims in the US has hit steady state, and it's less than they can make.
If they stuck with the launch prices and their revenue was 10% higher with no corresponding increase to COGS, they'd be laughing all the way to the bank. Every single quarter would be profitable and absurdly cash flow positive.
https://insideevs.com/news/343373/teslas-confusing-price-cha...
It's true they have changed prices quite a bit. They have had many conflicting adjustments to work around. The phase out of the tax credits (at the beginning of the 2019 and in the middle of the year), the promise to deliver a $35,000 sedan. Also Models S/X demand has fluctuated due to osbourne effect, and model 3 cannibalization.
Furthermore, they have raised prices. The model 3 starts at $39,490. Up from a low of $35,000.
You can also still buy the base model, it's just not in the online store.
Sticking with launch prices would have effectively meant rising the price $7,500 over the last year. That would imply that they massively underpriced their initial sales.
Aside from the credit effect, margins are also lower on the lower trims, and lower on Model 3 than S/X, so total blended automotive margin dropped from 25.8 to 18.9% Q3 2018 through Q2 2019 but has recovered to 22.8% in Q3 2019.
This is mostly due to production efficiency, but also worth nothing that they did recently raise the US price by $1,000.
It is not accurate to say Tesla is production constrained, because if they were, they'd be focusing on higher end trims and charging more, and going from one spectacular quarter to another.
They can be production constrained across their full range of Model 3 ASPs, while it’s also true that they aren’t selling 100% fully loaded M3 Performance with FSDs each quarter.
The thing you’re missing is the SAM is bigger when you have lower ASP options. So you grow your SAM and then become production constrained. Yes, you could shrink the SAM to no longer be production constrained, but since it’s profitable to sell at all price levels that would be a big mistake.
Raising the price by $1,000 and a 10 week lead time is strong evidence of being production limited.
This is true whether the true mission is Elon's pocketbook, sustainable energy, a performance art piece or to initiate the paperclip maximizer.
(ok maybe not the third one)
The mix look pretty healthy so far (I would ignore October, which hasn't had meaningful units yet).
In their Q3 report they said “Despite reductions in ASP of Model 3 as global mix stabilizes, our gross margins have strengthened.”
In other words, their global deliveries benefit from higher ASP while they were initially delivering only the fully loaded models.
We can also look at base price of the SR Model 3 and see a basic case for higher ASP internationally, but it’s a very tricky analysis to try to back out taxes and transportation costs.
Presumably, Tesla is prioritizing those states rather than the entire US market.
[1]: https://www.usatoday.com/story/money/cars/2019/10/29/gm-gene...
https://www.usnews.com/news/top-news/articles/2019-10-29/tes...
Not only are they making less money on the sale, but they face higher costs even just getting the car to the UK, meaning that the effective margin on the international is even lower.
Pure uninformed speculation, but it seems to me like its about sales pipeline and leveraging momentum. It doesn't make sense for them to fully pump the US dry before then expanding into other major international markets. You want to be entering a new large market on an upswing, not on a downswing. Also, waiting would give a lot of space for other international automakers to catch up in their local markets, since people are increasingly interested in buying EVs today
Restricted supply of hot product leads to greater demand and froth... see Tickle me Elmo, early model iPhones, etc. Hype is gold for new products.
Markets that never get demand met will eventually wither as alternatives arrive and resentment grows.
Establish distribution channels early at low volumes, fix the bugs, then scale at maximum profitability.
However, the US market is the most valuable market on a gross and margin basis, and Tesla acknowledges that growth in the US has slowed. Many analysts believe Tesla's US market has plateaued, though that remains to be seen.
(And note to anyone claiming that they're only selling less in the US because they want to expand internationally: companies don't sacrifice high-margin sales in high-margin markets for low-margin sales, especially not when the low-margin sales are in markets where they don't have any competition.)
Not true, when they are selling overseas, they first start with higher margin cars only, thus starting to sell in new markets does the opposite of what you're claiming.