What will this year be like for Tesla? Have they proven they can be profitable?

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Mark W

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Hi All,

The question I have always had with Tesla is, how can they be profitable? In my view, they are making EVs that seem miles ahead of other carmakers. All of the other car makers so far don't seem very interested in selling EVs. I've seen it said many times that GM doesn't make money from the Bolt, and Nissan's margin is very low if any on the Leaf. All of the other car companies seem to be making EVs just for compliance purposes, and their cars don't come close to what Tesla offers.

If the other automakers can't make a profitable EV, how can Tesla? I can understand niche cars like the Model S and X that sell for around $100,000. For that small market, I can see how that would be profitable. The Model 3 was supposed to be the car for the masses, sending them into profitability. I'm really surprised at how many $60,000 M3s they were able to sell. It's amazing what they have done there.

But what will happen now? There was a big push at the end of the year by Tesla to sell the high end M3s before the tax credit got cut. They were able to deliver cars to people in very short times at year end. This must mean that the demand for $45,000 and up M3s must have been met. I would imagine sales will be WAY down for all Teslas this year. Of course if they decided to sell the $35,000 M3, then sales would be way up again, but it seems that they don't think they can be profitable selling $35,000 M3s. It sounds like they are saying that Q4 profits were very small if anything. This is with high sales of expensive M3s. How can this be sustained?
 
BTW, you might 'report' your post with a suggestion this move to the "Tesla" forum. That is where we've been discussing Tesla financials with world class financial analysts.

Mark W said:
The question I have always had with Tesla is, how can they be profitable? In my view, they are making EVs that seem miles ahead of other carmakers. All of the other car makers so far don't seem very interested in selling EVs. I've seen it said many times that GM doesn't make money from the Bolt, and Nissan's margin is very low if any on the Leaf. All of the other car companies seem to be making EVs just for compliance purposes, and their cars don't come close to what Tesla offers.
Click to expand...
This what Bob Lutz claimed when he said Tesla was doomed because they don't have 'pickups to add the EV cost.' Lutz shares a car industry perception that EVs are just a legislated requirement that does not require the same commitment as their core business.

Mark W said:
If the other automakers can't make a profitable EV, how can Tesla? I can understand niche cars like the Model S and X that sell for around $100,000. For that small market, I can see how that would be profitable. The Model 3 was supposed to be the car for the masses, sending them into profitability. I'm really surprised at how many $60,000 M3s they were able to sell. It's amazing what they have done there.
Click to expand...
It was the only way Tesla could continue to exist. BMW is a prime example where they put together a great design team for the BMW i3 and then sold off the assets and the team left. In effect, they reverted to the same old design rules which made the BMW i8 into a hideous parity.

Mark W said:
But what will happen now? There was a big push at the end of the year by Tesla to sell the high end M3s before the tax credit got cut. They were able to deliver cars to people in very short times at year end. This must mean that the demand for $45,000 and up M3s must have been met.
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Not in Europe and Asia, previously untouched markets.

Mark W said:
I would imagine sales will be WAY down for all Teslas this year. Of course if they decided to sell the $35,000 M3, then sales would be way up again, but it seems that they don't think they can be profitable selling $35,000 M3s. It sounds like they are saying that Q4 profits were very small if anything. This is with high sales of expensive M3s. How can this be sustained?
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GM went over 200,000 EV sales in December and made no effort to time it for their customers. In contrast, Tesla timed the 200,000th sale to the first week of July so the maximum, $7,500 Federal Credit would last as long as possible. GM's tax credit will end just under three months early. Tesla wants repeat EV customers and GM has other priorities.

On Wednesday, Tesla will release their Q4 2018 financials. We'll all be able to go over the report in fine detail. But you may want to review some of the Sandy Munro, YouTube reports on his tear-down of the Model 3. Also read the Q3 2018 financials as Tesla reported a 20% operational margin on their cars. Facts and data are readily available.

Bob Wilson
 
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I still don’t believe in $35K Model 3. Tesla puts so many technologies into Model 3 and from the owner standpoint, the car should be priced at least $40k without Premium package and with standard battery. Model 3 is pretty much at the level of 2018 BMW340i which is priced above $48k to begin with.
 
Thanks for your reply Bob. I would prefer to keep this discussion here, since there is almost no activity in the Tesla section. Also, the question is about Tesla, but is actually more for the General forum, because my main question is about whether EVs can be profitable at current prices, or whether Tesla is simply selling unprofitably. I think the rebate program has to be changed, because it will be hurting U.S. companies GM and Tesla the most, and allowing Kia/Hyundai a big advantage.

I think as you said, for the short term, non-US sales will be key. I have not been following how big that market is, but I'm sure it's pretty big. It better be, because I think US sales for the S and X will be the lowest in a long time in the first quarter. My guesses for US January sales:
Model S: 350
Model X: 400
Model 3: 5000
 
Mark W said:
Thanks for your reply Bob. I would prefer to keep this discussion here, since there is almost no activity in the Tesla section. Also, the question is about Tesla, but is actually more for the General forum, because my main question is about whether EVs can be profitable at current prices, or whether Tesla is simply selling unprofitably. I think the rebate program has to be changed, because it will be hurting U.S. companies GM and Tesla the most, and allowing Kia/Hyundai a big advantage.

I think as you said, for the short term, non-US sales will be key. I have not been following how big that market is, but I'm sure it's pretty big. It better be, because I think US sales for the S and X will be the lowest in a long time in the first quarter. My guesses for US January sales:
Model S: 350
Model X: 400
Model 3: 5000
Click to expand...
I moved the thread to the Tesla sub-forum, but left a 2-day redirect in General, so hopefully it will get some eyeballs from there as well.

To answer your question, though, scale and vertical integration.
 
Mark W said:
It better be, because I think US sales for the S and X will be the lowest in a long time in the first quarter. My guesses for US January sales:
Model S: 350
Model X: 400
Model 3: 5000
Click to expand...
You might look at the sales records maintained by InSideEVs:
https://insideevs.com/monthly-plug-in-sales-scorecard/

I don't see Tesla sales less than July/Oct 2018:
  • 14250/17750 - Model 3
  • 1325/1225 - Model X
  • 1200/1350 - Model S
Tesla dropped the 75 kWh Model X/S which may soften USA sales. However, Tesla can counter numbers by lowering the price. Tesla has laid-off the 3d shift on these two lines which maintains their operating margin.

Bob Wilson
 
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Mark W said:
If the other automakers can't make a profitable EV, how can Tesla?
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1. By cutting out the middle-man of the dealership. For legacy brands of automobiles, both the auto maker and the dealership has to make a profit... which drives up the selling price.

2. By selling only "premium" (i.e., luxury) cars, Tesla can sell cars which make a higher profit margin on a per-unit basis. For more down-market (cheaper) cars, auto makers have to make up in volume what they lose in profit margin. To some extent Tesla is succeeding in trading off profit margin for volume, with the Model 3. But with only a single auto assembly plant, there's a very strict limit to how far Tesla can go with that.

3. Sandy Munro has a lot to say about how Tesla is saving costs, after his teardown analysis of the Model 3 was complete. In fact, he has had a "road to Damascus" conversion experience, going from a Tesla detractor to an outright self-proclaimed Tesla fanboy. He raved at some length about the brilliance and savings of (for example) Tesla using only a single heat exchanger int he Model 3, where other auto makers would use three. You can hear Sandy's extensive comments if you want to spend the 1 hr 42 minutes watching the Autoline After Hours interview... or a bit less if you go into YouTube's settings and choose 1.25x speed. (Link to video below) I almost never watch "talking heads" videos of anywhere near this length, but Sandy is an animated speaker with much to say of interest to me about making cars in general, and Tesla cars specifically.

* * * * *

On a per-car basis, Tesla makes considerably more profit than the average auto maker. But to be fair, this is also true of auto makers which specialize in luxury (or "premium") cars in general... at least the successful ones!

The only reason that Tesla bashers can get away with continually saying Tesla "isn't profitable" is because Tesla invests such a great percentage of its profits into growing the company. Reinvesting profits isn't being "unprofitable", no matter how many times Tesla bashers say it is. Investing money in a successful endeavour isn't "losing" money!

I find it very unfortunate that so much of the conversation about Tesla as a business is driven by the investor perspective. Investors want stocks that pay dividends. Tesla has never paid dividends because it's re-investing those profits rather than paying them to stockholders.

So it's perhaps understandable why the "investor perspective" finds Tesla to be a poorly run business... because Tesla isn't focused on rewarding investors! But that doesn't mean we should accept that perspective as reality. It's a rather narrow viewpoint, and certainly isn't an objective or unbiased one.

Hopefully things will be better in 2-3 years, when Tesla has the Shangai Gigafactory running at volume production of the Model 3... and possibly the Model Y, too. In the meantime, I hope Tesla pursues its plan for a third auto assembly plant in a European Gigafactory. We haven't heard much about that for awhile, so I guess Tesla has (wisely) put that on hold while it develops projects which should yield more immediate results.

Mark W said:
I would imagine sales will be WAY down for all Teslas this year.
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You must be talking only about domestic (U.S./ Canada) sales. Tesla is only just now opening up overseas markets for the Model 3, so it's a sure bet that Tesla's overall global sales will be up this year. Global Model S and Model X sales may be down, due to the increasing number of alternative choices in the plug-in EV market, unless Tesla offers a major refresh of the Model S.

We've seen no direct hint of a new Model S refresh, but nonetheless it's my pet theory that this is coming within a couple of months. Tesla recently ending production of all but the highest capacity battery packs in the MS/MX may be an indirect sign that the company is preparing for a major change in MS/MX production. But that's just speculation on my part.

* * * * *
Sandy Munro on Autoline After Hours:

 
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As a general rule, SeekingAlpha has been a constant stream of Tesla bashing but this is different:
https://seekingalpha.com/article/4236086-tesla-just-increased-position-42-percent

Summary
  • Tesla's stock recently cratered by 20% in just 3 days following the company's announcement for a fresh round of layoffs.
  • Investors are also anxious due to some of the content in Elon Musk's late-night employee email, and the company's apparent need for a cheaper Model 3 vehicle.
  • However, the company likely dismissed a portion of its employees because of increased automation, improved production efficiency, and the continued materialization of Tesla's economies of scale capabilities.
  • Tesla is likely to become increasingly more profitable over time, should surpass consensus EPS estimates for the full year and could be trading at a very attractive forward P/E right now.
  • Also, the stock is now trading towards the lower end of its 22-month trading range, and this is likely a good time to re-enter, average down, or initiate a position in Tesla.
The full article is long but pretty well covers what we've already discussed. However, it also has some interesting modeling data.

Bob Wilson
 
bwilson4web said:
You might look at the sales records maintained by InSideEVs:
https://insideevs.com/monthly-plug-in-sales-scorecard/

I don't see Tesla sales less than July/Oct 2018:
  • 14250/17750 - Model 3
  • 1325/1225 - Model X
  • 1200/1350 - Model S
Tesla dropped the 75 kWh Model X/S which may soften USA sales. However, Tesla can counter numbers by lowering the price. Tesla has laid-off the 3d shift on these two lines which maintains their operating margin.

Bob Wilson
Click to expand...

Thanks, yes, their numbers is what I based my projections from. There is always a big drop off from December to January sales for any EV, because people don't want to wait the extra year for the tax credit. For example, with the Model S, December 2017 sales were 4975, and Jan 2018 were 800. This year is also unique given the fact that most buyers would have saved $3,750 buying in December as opposed to January, making the dropoff worse this year. Almost all of the January sales this year will be purchases that were not planned for in December. But, as has been said Tesla is of course very aware of this and has been planning non-US shipments to keep sales going.
 
Mark W said:
There is always a big drop off from December to January sales for any EV, because people don't want to wait the extra year for the tax credit.
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The new car market is highly seasonal. Even for gasmobiles, there is a pronounced trend towards a sharp dropoff in sales during January and February. This is due to various factors such as people not wanting to expose a new car to winter driving conditions, and the fact that dealership prices on cars are highest when the model year is new. Dealers use end-of-year sales to clear out the old inventory during December, which leaves mostly higher priced cars on the lot in January. Also, there's the simple fact that people generally spend more time indoors during the winter, and don't do as much shopping.

Now obviously, all those factors are generalities. Your mileage may vary!
:)
 
Pushmi-Pullyu said:
The new car market is highly seasonal. Even for gasmobiles, there is a pronounced trend towards a sharp dropoff in sales during January and February. This is due to various factors such as people not wanting to expose a new car to winter driving conditions, and the fact that dealership prices on cars are highest when the model year is new. Dealers use end-of-year sales to clear out the old inventory during December, which leaves mostly higher priced cars on the lot in January. Also, there's the simple fact that people generally spend more time indoors during the winter, and don't do as much shopping.

Now obviously, all those factors are generalities. Your mileage may vary!
:)
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Yes, as you say there is a dropoff for all cars based on the reasons you note. For ICE cars, the DEC to JAN dropoff looks to be typically 25% - 80% by looking at Camry, Altima, etc sales the past few years. But for EVs, the dropoff seems to be 90% - 600% looking at Tesla, Leaf and Bolt figures.
 
LOL!

Your quote shows "600%" which is amusing. I don't have a clue to how it happened but I had this instant image that 6x the number sold were in a line to be returned. <GRINS>

Bob Wilson
 
Ha Ha,

You are both correct, my "math" is certainly wrong, and not even understandable! What I was meaning by the 600% was for example, with the Model S, December 2017 sales were 4975, and Jan 2018 were 800. December sales being ~ 600% higher than January. Bolt for the same time period, 3227 down to 1177. Whereas Accord 22100 to 17600, Camry 43300 to 26600. Note that I am staying away from math calculations! :)
 
Hi,

I try to avoid percentages when I can report the raw numbers. It is so easy to screw up percentages that I tend to narrow in on them ... not just you. <wink>

Bob Wilson
 
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