Published on May 5th, 2016 | by Zachary Shahan20
Tesla Drastically Underestimated Model S & X Demand (Financials Flashback)
May 5th, 2016 by Zachary Shahan
Tesla* gets a lot of love, but it also gets a lot of hate. People are very fond of highlighting that it has had a habit of missing timelines, but I think there’s a flip side of that coin that is at times directly related. The flip side is that quality has been better than expected, and demand as well.
The Tesla Model X is the star child of Tesla’s problems with delays, but note that the Model X wasn’t in Tesla’s initial master plan. There are plenty of theories why Tesla decided to take on the Model X, but if it was related to keeping demand for Tesla’s vehicles going while it scaled up and brought down manufacturing costs, the delay actually fit nicely with another surprise: Model S demand was well above what Tesla initially anticipated.
Strolling through way too many comments on EV forums last night, I ran into this great find/flashback from “dha” on the TMC forum: “Tesla is indeed very poor at making predictions. They predicted Model S sales would peak at around 20,000 units / year!” Here’s a link to a 2011 Tesla shareholder letter in case you don’t remember or believe us.
It’s funny to see the different design of the shareholder letters back then, and a bit shocking (despite following the company closely back then) that demand estimates were so much lower than they are now. Jump to page 4 of the PDF and you can see that Model S demand was pegged at 20,000 sedans a year and Model X demand was estimated to be 10,000–15,000 SUVs a year.
That turned out to be quite the cautious estimate. And it comes back to a point I made in my article about why Elon Musk is loved so much: despite being known as a risk taker, Elon is also super cautious. That may seem like a contradiction, but it doesn’t have to be. You can be compelled to take on difficult tasks, but be very cautious about how you do so. I think this unusual balance is one of Elon’s core strengths, and a key reason we have Tesla Motors today.
Another thing to note from that screenshot above is that the Tesla Model 3 was initially targeted at $30,000 after the US federal tax credit. The base price is now supposed to be $27,500 after the US federal tax credit. Again, Tesla’s target has improved.
Last night, Tesla made it clear another target had been too cautious, as it moved the 500,000/year target from 2020 to 2018. Noticing a trend?
Design of a complicated and heavily regulated vehicle has been a challenge for this Silicon Valley startup — as it would be for anyone entering this realm for the first time — but Tesla has gotten through the trenches and continues to surpass expectations. There is an excellent segment in the conference call about this transition from learning the ropes of design to scaling up on a production car to a daunting degree. I aim to publish the video soon, but here was the essence of that:
1) Model S was the first car they really built, and they were just trying to make it work
2) Model X was built off of that but more complicated.
3) Model 3 will be the first car they design for ease of manufacturing. Any design choices are discussed with the manufacturing team right from the start and nixed if they aren’t simple/reliable enough.
I’m a very cautious type myself, and I’m not going to say that Tesla is sure to produce 500,000 vehicles in 2018 (that is still hard to comprehend) or that the Model 3 will be even better than it seems today, or that Tesla will get to 1 million vehicles produced per year in 2020 (which is now the rough target for 4 years from now), but Tesla has — despite the hype and the anti-hype — managed to speed past:
- 20,000 Model S sedans per year
- 10,000–15,000 Model X SUVs per year
- Model 3’s projected/promised based pricing
- expectations for the Model S, Model X, and Model 3
- internal expectations for when it will produce 500,000 vehicles per year
Not too shabby.
*Full Disclosure: I’m long TSLA. Very long TSLA. My articles are not aimed at affecting the TSLA stock price and I’ve been writing in the same way about Tesla for long before I was a stockholder. Just sayin’.