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While Tesla is coming out of a year filled with "hell of production" and "hell of delivery" of Model 3, a new question has arisen: how many additional customers are there? does he have for the car?
This question was repeated several times during a phone conversation with industry badysts on Jan. 30, during which Tesla disclosed its full financial results for 2018. Tesla still has not started the production of the $ 35,000 model 3 originally promised in 2016, and some others. Wall Street is concerned that the company has exploited the demand for the most expensive versions of the car in the United States, especially since other builders are worried about a problem. difficult year for 2019, as car sales fall worldwide.
This would be a radical turnaround in the history of Tesla, given that the company has spent most of 2018 proving that it could manufacture enough cars to satisfy hundreds of thousands of people waiting to order . "Tesla has now moved from a production story to a demand story," Wedbush badyst Daniel Ives wrote this week. There is clearly "a lot of work to be done," he said.
Tesla CEO Elon Musk dismissed the demand problem several times during the call. "The demand for Model 3 is incredibly high. The inhibitor is affordability, "he said. "It's like people literally did not have the money to buy the car. It has nothing to do with desire. They simply do not have enough money on their bank account. If the car can be made more affordable, they will … the demand is extraordinary. "
So, according to Musk, the problem in the United States is pricing. When this issue is resolved, the demand will be there, as was the case when Tesla sold about 140,000 models 3 of higher prices in 2018 during the first full year of production.
But we still do not know when these prices will change. Musk acknowledged during the phone call that Tesla still had not found a way to make a model 3 that it could sell for a profit at a price of $ 35,000. In the meantime, Model 3 still costs thousands – sometimes tens of thousands – of dollars more than the base price originally announced.
Tesla dropped the price of the cheapest version of the model 3 to $ 42,900 last week after it lowered $ 2,000 in January. But the car still starts at around $ 6,000 more than the current average selling price in the US, which was $ 37,149 in January, according to Kelley Blue Book. Depending on some options (such as autopilot or all-wheel drive), model 3 can cost up to $ 70,000. In fact, a deceived model 3 can become so expensive that Tesla has recently removed the basic versions of the S and X models to avoid any overlap, said Musk.
Unless further price decreases, Model 3 will only cost more because Tesla cars are no longer eligible for the $ 7,500 total federal electric vehicle tax credit. When Model 3, worth $ 35,000, finally arrives, Tesla's website says again In "4 to 6 months", there could be only a few months of overlap with a federal tax credit.
That's because the automaker crossed a crucial threshold last summer when it sold its 200,000th vehicle to the United States, halving the federal tax credit to 3 $ 750 on January 1 of this year. The credit drops again on July 1 to $ 1,875 and it will expire completely at the end of the year. State incentives can save $ 2,500 on the cost of the car, but $ 32,500 would be well away from the initial dream of a price lower than $ 30,000 after the federal tax credit. And that gives a break to badysts.
"Despite management's efforts to increase supply, we believe that the demand for higher priced alternatives in the US is largely exhausted," Cowen's Jeffrey Osborne wrote in a note this month. this.
"[G]Participation rates in the domestic market seem to decelerate rapidly, "he added. Reports of weak sales in January and cuts to the company's delivery team in recent layoffs only added to this concern. That's why, in the short term, Tesla "will have to rely on these higher-priced alternatives in Europe and China to offset" lower sales in the United States, according to Osborne.
(Tesla said it did not detail sales by country or region and did not comment on sales figures released for January.) She described the workforce reduction report as "inaccurate" in a statement, adding that Musk's call center employees also said that proposing leases on model 3 – which he currently does not – would be another way to boost demand, but added that he was hesitant because this could deteriorate the financial position of the company.)
These two new markets for the Model 3 represent huge opportunities for Tesla to take advantage of the dynamics of the car. China is the world's largest market for electric vehicles and Europe is on par with the United States. Musk said on his call that he thought success in these new markets could one day boost Tesla's sales "in the order of" 700,000 to 800,000 models a year in a strong economy. "In times of recession, it could fall to around 500,000.
However, we do not know what these global sales figures look like. Tesla can not yet manufacture as many cars in one year and even fewer models 3. The company plans to sell between 360,000 and 400,000 cars worldwide in 2019, including about 100,000 models Model S and Model X, according to estimates, published by the group this month.
Tesla's manufacturing capacity at its plant in Fremont, California is also nearing completion. The company's on-site operations were already "booming" when the company started making models 3 in a tent on the parking lot last summer. Last month, Tesla launched a gigantic factory in China, where it plans to manufacture more models 3 (especially for this region), but production will not begin until the end of 2019 at the earliest.
Musk said in the January 30 call that the Shanghai plant was the "biggest variable to reach more than 500,000 people." [Model 3s] A year ". Tesla's best estimate is to be able to produce 7,000 models 3 per week by the end of the year, which means that the company will spend most of 2019 producing models 3 at its current or near-production rate .
At the same time, Tesla has not provided any concrete information on the number of reservations issued so far in China and Europe. In response to a question from Goldman Sachs earlier this month, Musk said there was a demand "absolutely" higher than the 20,000 orders already placed in Europe and the "one-digit thousands" in China.
He also said Tesla was not concerned about demand in Europe or China, and was currently focusing on basic logistics to move models 3 to both locations. But there are barriers in both markets. Tesla had some problems with the first deliveries in Europe and, in the case of China, Musk said Tesla was trying to deliver the models 3 before the trade war triggered new tariffs. Prices are already a challenge for non-Chinese automakers, and will likely be a challenge until Tesla gets the Shanghai Gigafactory up and running. As a result, the company has already changed its prices and options.
Tesla will eventually have to worry about Model 3 sales demand in these markets as it is essential to keep the car's sales to keep the company out of the red. Tesla lost $ 1 billion in 2018, but made a profit in the last two quarters, thanks in part to Model 3, which has achieved unprecedented popularity for the company. In its first full year of production, Tesla delivered approximately 140,000 models 3, 40,000 more than the combined S and X models and almost as many cars as those delivered in 2016. and 2017. The Model 3 is more sold than many other high-end vehicles of the world's largest car manufacturers, such as the BMW X3 SUV or the Mercedes-Benz C-Clbad.
One of the keys to this success has been the accumulated demand for Model 3, which has taken hundreds of thousands of car bookings in recent years. This meant that sales were almost directly related to the speed with which the company could manufacture (and ship) cars. Some 450,000 people have placed orders in advance for the car, and therefore the higher the number of Tesla, the higher the number of sales made. (This is why the focus was on the "ramp" of Model 3 production in 2018.)
This changed in the second half of 2018. Tesla stopped taking reservations in the United States. Instead, it allowed direct orders to enter in order to move more more expensive versions of the model 3 that the company was manufacturing. That returned the script: the company is now doing a lot models 3 more expensive, so he must continue to find buyers in the short term, which is why he turns to Europe and China.
If Tesla manages to put Model 3 into production at $ 35,000, there will likely be more demand waiting, as Musk said. But we do not know how many of these 450,000 reservation holders remain. Tesla said last October that "less than 20%" of the reservation holders had requested a refund, but did not provide an updated figure.
Deepak Ahuja, chief financial officer of Musk and Tesla, also curiously rejected the reservations made during the January 30 call. "Reservations are not relevant to us. We are really focused on orders, "said Ahuja, before going back a bit. "We still have a large order book, which tells us that a large number of customers are still waiting for these cars. But I do not think it's appropriate to share the reservation number. "
Even with the federal tax credit, there could be many new customers for a $ 35,000 model 3 once it has arrived, but car sales are slowing down in the world after years of growth. Automakers warn investors that 2019 could be a bad year for their bottom line, not least because the Chinese auto market is experiencing its first decline in decades. If Tesla wants to continue developing its business on the back of Model 3, then it will have to do the same thing it has always done: prove that its competitors are wrong.
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