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Published on May 5th, 2016 | by Zachary Shahan

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Tesla Drastically Underestimated Model S & X Demand (Financials Flashback)

May 5th, 2016 by  


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.

Tesla Roadmap

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?

Tesla Model X red 2

Tesla Model X & me | Photo by Kyle Field, for CleanTechnica & EV Obsession (see the sidebar for more pics, stories, and a video)


 

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’.





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About the Author

is tryin' to help society help itself (and other species) with the power of the word. He spends most of his time here on CleanTechnica as its director and chief editor, but he's also the president of Important Media and the director/founder of EV Obsession and Solar Love. Zach is recognized globally as a solar energy, electric car, and energy storage expert. He has presented about cleantech at conferences in India, the UAE, Ukraine, Poland, Germany, the Netherlands, the USA, and Canada. Zach has long-term investments in TSLA, FSLR, SPWR, SEDG, & ABB — after years of covering solar and EVs, he simply has a lot of faith in these particular companies and feels like they are good cleantech companies to invest in. But he offers no professional investment advice and would rather not be responsible for you losing money, so don't jump to conclusions.



  • omar

    low income peaple should be targeted soon from EV makers as they need electrification more urgently than the luxury buyers… we cant wait more!

  • omar

    what mean “i am long TSLA” ? is it gramarly accepted in english ?

    • brunurb

      It means that he owns stock in the company and wants to keep it for a long time because he thinks the stock price will go up.

  • newnodm

    As of Today Tesla has not underestimated Model X demand.

  • MorinMoss

    I’m going to state categorically that Tesla will NOT hit 1/2 million cars / yr by 2018 and probably not by 2020 either.
    But I do think they’ll make big strides in simplifying their vehicle production which should also increase reliability which is crucial to selling many more cars at lower price points.
    For this year, they’ll ship perhaps 75k and maybe 90-100k next year.
    If they get the Model 3 in production on schedule, then 2017 may see 150k cars being delivered.

    • it’s a tall challenge to meet, but they seem to have a pretty clear path lined out. i wouldn’t bet against them, but no criticism of you having that opinion either.

  • Haha, the edit here is epic: “Misleading video link removed. (Misleading = POS)”

    😀

  • neroden

    It’s worth pointing something else out.

    Tesla underestimated the demand — guessing 20K/year — when they thought they could sell the Model S for $50K.

    The base Model S is now $70K and the demand is around 80K/year.

    Demand was *waaaaay* higher than they realized. If they actually hit $35K for Model 3, and they have solved the issues which led to high warranty costs on Models S and X, they’re going to be production-constrained for *years*.

    • Excellent points, as usual!

    • J_JamesM

      I wonder if they will be production-constrained long enough for a mid-cycle refresh. Wouldn’t that be something?

    • Dragon

      Yeah the $50k estimate compared to $70k reality struck me too.

      But we also must remember that S demand has been so high that they’re burning through the 200k cars that qualify for federal subsidies faster than anticipated. Thus they’re only going to hit that $27,500 price point (after subsidy) for the first year or two of production, then the subsidy will reduce to 50% for 6 months, 25% for 6 months, then gone. Since there is a period of up to 6 months after they sell 200k cars where they still qualify for 100% credit, I suspect they’ll try hard to make as many cars in that window as possible. As the credit expires, hopefully their high-volume production will reduce costs enough that they can lower the price to at least partially make up for the loss of credits.

      More info, in case anyone missed it: http://cleantechnica.com/2016/04/11/will-tesla-model-3-deliveries-to-be-timed-to-maximize-ev-tax-credits/

      • brunurb

        I’m wondering if they will be making Model 3 only for the US market for a while, before sending any to other countries…. in one of Elon’s tweets, he referenced “maximizing the number of people” who could get the tax deduction.

        What i’m envisioning is that they ramp up super fast, adjust their S and X deliveries over the next year/year and a half to send more to other countries (so they don’t hit the US 200k) and the first few thousand model 3s are stored somewhere until the beginning of a quarter, timed perfectly so that they hit 200k and in the same quarter, produce and deliver 100k model 3s. That way, they are already producing fast enough that a significant portion of 3 reservations will be ready within the “up to 6 months” time of the full federal rebate.

        I could be totally wrong, but that’s what I would try to plan for if I was Elon, the most ambitious man in the world 🙂

  • voracity

    Just curious. Are they planning to hit the rate of 500K/year (almost 1400/day) at some point in 2018, or are they planning to produce 500K cars for the 2018 calendar year? The former gives them a (small) bit of breathing space.

    • neroden

      They’re planning to produce 500K for the 2018 calendar year, but honestly, I doubt they’ll hit that; they’re going to hit the rate sometime in 2018. Elon always plans for an over-ambitious goal…

      He’s also saying they’ll produce 100,000 model 3s in 2017. That seems exceptionally unlikely. They’re giving their suppliers a July 2017 deadline, which means (as he said in the earnings call) realistically they’ll be up and running in October, and debugging is probably going to take them into Q1 of 2018….

      • Carl Raymond S

        Woe be unto the supplier who misses the July 1 deadline. Nobody wants to be that guy. Maybe they all make it?

  • AaronD12

    Predicting demand must be a black art. Apple — the world’s most valuable company — did a poor job predicting demand of their new iPhone SE. I wonder if there is a better way to figure these things out.

    • newnodm

      Is the SE demand high or low?

  • newnodm

    I don’t think it was a matter of being cautious. Starting out, no one would know how many $100K electric sedans could be sold per year.

    It is still unknown where the market levels out for the high priced car. It is also unclear how much 3 and Y sales will cut into S and X sales.

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