Tesla needs to find new customers for its Model 3 EVs

After Tesla had a year first of "production hell" and then "delivery hell" as far as Model 3 production was concerned the question now arises how many more customers are there for the vehicle especially the higher priced models.

As noted in a recent Digital Journal article Tesla ended up the year with surplus stock of the Model 3 after earlier being in a huge rush to up production which it did.

Demand for higher priced Model 3s may be dropping

This is especially true in the US. However, in other parts of the world Tesla there may still be an opportunity for Tesla to keep on selling them. Tesla still has not started production of the cheaper $35,000 version even though it was originally promised back in 2016. The situation is worrisome for some as auto manufacturers are warning that 2019 will be a rough year for auto sales in the US. Tesla will also face less of a government tax credit on its EVs.

Wedbush analyst Daniel Ives said that Tesla's problems were shifting from production to demand. He said Tesla has a hard job ahead.

Tesla Chief Executive Officer (CEO), Elon Musk remained optimistic: “The demand for Model 3 is insanely high. The inhibitor is affordability. It’s just, like, people literally don’t have the money to buy the car. It’s got nothing to do with desire. They just don’t have enough money in the bank account. If the car can be made more affordable, they will... the demand is extraordinary.” Musk sold about 140,000 of the higher priced Model 3s in 2018 which was its first year of production,

If the problem is pricing when will prices decline?

It is not clear when Tesla will solve the pricing problem. Musk admits that the company has not yet figured out how to make any money on a lower priced $35,000 Model 3 a model originally promised. The models available have cost thousands more than the base model some tens of thousands more.

Tesla has made some headway in lowering the price of the Model 3. The cheapest model is now at $42,900 after it was lowered by $2,000 in January. This is still around $6,000 more than the average selling price of a car in the US which was about $37,149 in January according to the Kelley Blue Book. However, a top version of the Model 3 can cost up to $70,000, so expensive that Tesla has removed base versions of the Model S and Model X to avoid overlap,

The situation is complicated by the fact that Tesla EVs are no longer eligible for the full $7,500 federal tax credit for electric vehicles. Tesla's own website says production of the $35,000 version of the Model 3 is 4 to 6 months away. By that time there will be only a few months during which the cars are eligible even for a reduced tax credit.

The end of the EV tax credit

After Tesla sold its 200,000th EV in the US last summer the federal tax was reduced by half to $3,750 on January 1st this year. Some dealerships kept open until midnight on New Year's Eve to take advantage of the tax credit and clear inventory. The credit will drop again on July 1st of this year to $1,875. At the end of the year it will expire completely. Unless Tesla can convince the US Congress to better the incentives the situation looks bleak. Trump does not seem the type to push for better incentives to purchase EV's. Some state incentives can still take up to $2,500 off the price of an EV but that still leaves the price about $2,500 above what was hoped to be an under $30,000 price tag after the federal tax credit.

Tesla needs to sell higher priced models in the EU and China

Jeffrey Osborne of Cowen's said that despite the company's focus on expanding supply said he thought that demand for the higher priced versions of the Model 3 had largely been exhausted in the US. Growth rates in US sales appear to be rapidly dwindling. Cuts to Tesla's work force has added to worries that investors have. Osborne said that Tesla would have to rely on sales of these higher priced variants of the Model S in Europe and China at least for the short term.

CEO Musk said that leasing Model 3s would be another way of dealing with the situation.

Musk said that success in new world markets such as the EU and China could see the company sell 700,000 to 800,000 model 3s annually. If there is a recession he said this could decline to about 500,000.

As of now Tesla cannot make that many cars in a year. For 2019 the company expects to sell only 360,000 to 400,000 EVs world wide. About 100,000 of those will be model S and Model X rather than Model 3s.

The GIgafactory in China needs to come into production

The Tesla factory in Fremont California is already maxed out as far as production is concerned with Model 3s being made in a tent outside the factory. Last month Tesla broke ground for a Gigafactory in China but production will not be started until the end of 2019 at the earliest. Recently Musk said that the Shanghai Gigafactory is the largest variable in reaching the production of 500 thousand plus Model 3s each year. Tesla estimates the factory will be able to make 7,000 model 3s each week by the end of this year.

Tesla has not provided data about the number of reservations in China or Europe. Tesla has had problems with early deliveries in Europe. In China, Musk wants the Gigafactory up and running before there are any more trade barriers.

Tesla's profits

A recent article in the Verge notes: "Tesla made a $139 million profit in the fourth quarter of 2018, the first time the electric automaker has ever posted back-to-back profitable quarters in its 15-year history. It was also Tesla’s fourth profitable quarter ever, according to an investor letter published on Wednesday. Tesla generated $7.2 billion in revenue in the quarter, a record for the company.

Total revenue for 2018 was $21.4 billion — another record for the company — though Tesla still posted a $1 billion loss across the year. Tesla remains short of CEO Elon Musk’s ultimate goal of generating a full-year profit, but it has been clawing back its losses and finished the year with $3.7 billion in cash. Last year, the company lost $2 billion. Musk and CFO Deepak Ahuja wrote in the letter that 2018 was the “most pivotal year in Tesla’s history.”

Tesla will need to improve its deliveries in Europe and make sure that its Gigafactory is up and running by the end of the year if it is to have any hope of having a profit for this year. It appears it cannot rely on a large increase in sales in the US to bring its first yearly profit. The appended video provides an interesting history of Tesla's financial results.

Previously published in the Digital Journal

Chinese and many European customers will be able to configure there Tesla model 3s

Tesla began taking reservations for Model 3s in both Europe and China at year's end of 2018. After making a $1,000 deposit customers were able to use the Tesla online configurator. However, now the customer can use the company's "design studio" as well.

The studio will be open to those with reservations in China as well as many left-hand drive countries in Europe including France, Germany, Sweden, Switzerland, Austria, Denmark, and Sweden along with others. In a tweet the company said: "Model 3 configurator is now open to left-hand drive countries in Europe. Design your Model 3"

Just two Model 3 versions available to configure at present

Just the long range all-wheel drive Model 3 and its jazzier counterpart the Model 3 Performance are available for configuration at present. The medium range Model 3 which is just rear-wheel drive and travels 260 miles on a charge is not listed on the design studio. The model was announced in October.

The mass market Model 3 is Tesla's fastest selling car ever

The Model 3 has become Tesla's fastest selling car. The company has been anxious to bring it to new markets especially China which is the largest EV market in the world. The European market is almost tied with that of the US. In 2018 Tesla concentrated on meeting the demand in North America for its most affordable car. This helped the company have its first profitable quarter in the last two years. Selling the model 3 in new markets may help Tesla show profits again.

As US market for Model 3 cools it could heat up in Europe and China

Tesla not only managed to meet demand for the Model 3 in the US, it had over 3,000 of the cars in stock at the end of the year. Tesla was so anxious to sell off its stock before the US federal tax credit for each car was cut in half at the end of the year that it kept some stores open until midnight on New Year's Eve as was reported in a recent Digital Journal article. The tax credit also reduces in June and phases out the end of 2019 for Tesla EVs. The company has already cut the price of all its US models to compensate for the halving of the government tax credit. Many US customers may be waiting to buy the cheaper $35,000 basic Model 3 which is not yet in production but will be sometime later this year.

Bringing the Model 3s to China and Europ may also help to provide profits while the company waits for new models such as the Model Y crossover SUV to come into production in the US.

Tesla planning to build cars in Europe and China

The company has already signed an agreement just last summer to build its third Gigafactory ibn China just outside Shanghai. In a change from earlier regulations, Tesla will solely own the factory with no Chinese partner. It is likely there will be a fourth Gigafactory built in Europe but there has been no announcement yet of which country it will be located.

Tesla has already been producing some Model 3s specifically for European and Chinese markets. It hopes to be selling Model 3s in Europe and China by late February or early March. However, it is still seeking full approval of the vehicle from European regulators.

Tesla suspended production of Model 3 for 5 days in late February

The foremost electric car (EV) maker Tesla suspended production of its popular Model 3 for almost a whole week in late February. The suspension was planned to allow time to make changes that the company hopes will increase productivity.

The Model 3 production suspension.

The Model 3 production was stopped from February 20th to Febuary 24th at its assembly plant in Fremont California. Other models such as the Model S sedan and the Model X SUV are also made at the facility. Batteries are made in what is called the Gigafactory located east of Reno Nevada.

A Tesla spokesperson said: “Our Model 3 production plan includes periods of planned downtime in both Fremont and Gigafactory 1. These periods are used to improve automation and systematically address bottlenecks in order to increase production rates. This is not unusual and is in fact common in production ramps like this.”

Tesla ramping up production of the Model 3

The Model 3 is crucial to the plan of Elon Musk, Tesla CEO, to bring EVs to the mass market. However, ramping up production has been difficult and challenging, much more so than planned. Tesla has a target of a weekly production rate of 2,500 sedans by the end of this month and double that 5,000 by the end of June.

Musk recently said: “People have told me that my timelines historically have been optimistic.” Tesla also asked that buyers and investors be patient and noted the Model 3 rollout had “demonstrated the difficulty of accurately forecasting specific production rates at specific points in time.”

There is so much interest in the production rate of the Model 3 that Bloomberg developed a Model 3 Tracker. The Tracker estimates the weekly production rate based on Vehicle Identification Numbers (VPNs) registered with safety regulators and reported to Bloomberg by customers. While in February production plunged, it has revived in early March.

Tesla still leading in U.S. and EU luxury market

Tesla has managed to outsell all other EVs in the U.S. in February in spite of its declining production of the Model S. and that includes a popular Toyota hybrid.

In spite of production problems, Tesla shares are up 5.1 percent this year. Tesla has many other businesses, including manufacturing batteries, and also building and launching rockets. The company has a market cap of about $55.3 billion dollars more than GM or Ford.

As noted in a recent Digital Journal article there are many new EVs which will compete with Tesla models but at present Tesla is leading the pack in the US and also in the European luxury market.

Previously published in Digital Journal

Some lucky people with Tesla Model 3 reservations could receive their cars by Xmas or New Years

At long last Tesla is inviting non-employee reservation holders to design their Model 3s, perhaps a sign that the cars could be close to entering full production, a giant leap forward for the company.

Up until now only employees, their family members, or others close to the company who are special reservation holders have received Model 3s.

Design phase opened to non-employee reservations

A reservation holder must design the car they are reserving. This includes paint color and wheel choice. Some vehicle options are not yet available. The early production stages are focusing on vehicles that have long-range batteries and the Premium Package. Those who want other packages will have to just wait longer.

Tesla has confirmed that it has opened up the design phase of the ordering process to some who are non-employees for the first time.

Tesla said at first that deliveries to regular reservation holders would begin in late October. However when October came around Tesla announced that it was experiencing production difficulties. Instead of reaching a production rate of 5,000 per week by December, the company now hopes to achieve that level by the end of the first quarter of next year.

However those configuring their car designs now are being told they will be able to take delivery by the end of the year or about four weeks.

You You Xue, an early reservation holder is based in San Francisco. He has screen shots of the design process shown in this article.

Tesla's production problems with the Model 3

Elon Musk has referred repeatedly to the present state of Model 3 assembly as a "production hell".

However even the the revised date to reach the 5,000 level a week production may bring some hope to the thousands of reservation holders. It remains to be seen how many cars will roll off the production line in the next month.

Tesla continues to suffer large losses

Tesla's third quarter earnings showed an adjusted loss of $2.92 per share higher than the Thomson Reuters estimate which was bad enough at $2.29 a share. However, its revenue was $2.98 billion somewhat higher than the $2.95 billion estimate.

Tesla's quarterly loss was $671 million its largest ever and 76 percent of what it lost in all of 2016. Tesla burned through $1.4 billion dollars partly due to its attempt to ramp up production of Model 3s.

As a recent Digital Journal notes, the sinking stock is providing generous profits for short sellers.

Tesla deliveries

In the third quarter Tesla delivered 25,915 Model S hatchbacks and Model X SUVs. This is roughly a 4.5 improvement over its 2nd quarter deliveries. Used car sales were up.

However, statistics with respect to Model 3 were miserable. In Quarter 3 only 222 Model 3 designs were delivered even though Tesla had estimated that it would produce 1,500 Model 3s in the third quarter.

Tesla expects to produce about 10 percent fewer Model S and Model X cars in the fourth quarter as some personnel will be diverted to help boost Model 3 production.

Previously published in Digital Journal

Reviews of the Tesla Model 3

Buzz is pouring out regularly for the new sedan from Tesla. The new all electric car's base price begins at a modest $35,000 U.S. and that is without any government incentives.

  

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CEO of Tesla, Elon Musk hopes the car will take over first place in the market edging out the Chevrolet Bolt EV that ranges in price form $37,495 to $41,750. The higher end model of the Tesla will be about the same price as the high end Bolt. In 2nd place is the Volkswagen e-Golf and third the BMW i3 and next the Mercedes-Benz B-Class Electric Drive. Production started on the model 3 just this July as described in a recent Digital Journal article.

The new Model 3 owes a great deal of its styling and features to earlier Tesla models. It looks like the Model S but smaller and has a tall roof and a bobbed nose and tail. The snout reminds one of the original Tesla Roadster and the front of the Model X. Like most other Tesla models it has both a front and rear trunk. Tesla CEO Elon Musk said to a crowd when he first revealed the car: “For all of you who bought an S or an X, thank you for helping pay for the Model 3. With any new technology, it takes multiple iterations and economies of scale before you can make it affordable,” Musk said. A mass-market car “was only possible to do . . . after going through the prior steps.”

Motortrend`s review claims that this is the car the will either save Tesla or kill it. Many other analysts take a similar view. Tesla will need to ramp up its production tremendously to provide for the over 500,000 vehicles that have already been reserved. All production units will be larger and if there is a large recall the results could be disastrous. The stock market has been favorable to the release of the Model 3 with Tesla valuation now being more than that of General Motors and Ford.

Billionaire investor David Einhorn, has been shorting Tesla for some time suffering considerable losses but he insists that the company is over-valued and will soon need more capital as it has used up $2 billion so far this year mostly on the Model 3. Einhorn has been wrong so far not just on Tesla but Amazon and Athenahealth Inc. that he calls his bubble basket stocks. Most of the reviews of the car are positive some very much so but should there be production problems or recalls Einhorn could perhaps recover some of his losses and even post gains on his bets. Those who have reserved their Model 3`s will not likely receive them until the end of 2018 according to Musk.

Among the innovations in the Model 3 is the back single-piece panoramic window. Kim Reynolds, testing director of the model said: . “That Mammoth wrap-over rear glass is wild. It’ll adequately protect against sun problems due to high UV resistance — don’t worry about that. But some folks may not like being so exposed — you’re really in a fishbowl.”

An early Consumer Reports review of the Model 3 summarizes the pros and cons of the car. One of the pros are its range of more than 200 miles. The premium model goes much further even. The car also has quick acceleration. There is room for for five. However the associate Edmund`s editor Christian Seabaugh said he was literally squished when he sat with 3 people in the back although he said his leg room was satisfactory even though he was over six feet tall. Another plus was the front and back storage spaces. Finally, the Model 3 is able to use Tesla`s high-speed Supercharging network. One con was that the car was not to begin construction until late 2017. However, construction has already begun in July. Consumer Reports also noted that there had been reliability problems with other Tesla models.

More details on the features of the Model 3 are to be found in the three different reviews selected from You Tube. If Tesla is able to produce the Model 3 in the numbers required to satisfy demand and there are no serious recalls the model may establish Tesla as the electric car maker to beat.