I was browsing the Tesla site at the start of the 3rd quarter, noticing that new inventory of cars was very low according to both tesla.com and ev-cpo.com. Tesla didn’t sell out of inventory in the same way they did some quarters, but they drew it down pretty low. Since they offered some incentives, like free Supercharging for a year on inventory Model 3 sedans, it seems like they pushed pretty hard toward the end of the quarter. [Editor’s note: This article was written before Tesla released its Q2 production and delivery numbers, but is still relevant and interesting to take a look at.]
I thought it was curious that since the Model Y is getting a lot of great reviews, including the Wall Street Journal asking if the Model Y is the world’s best car, that you can order one from the website and get it in less time than the other three models that Tesla has been making for some time. (I do have to mention that if you are ever in a hurry for the other three models — Model S, Model X, or Model 3 — you can select from the limited inventory and get a car, but it might not have the options or color you prefer.)
I think this matter is because the Fremont factory is supplying cars for the whole world (except China in the case of the Model 3) for those other three models. It is normal for Tesla to dedicate all of its production for the first half of each quarter to European, Australian, and other Asian markets like Japan and South Korea. If Tesla doesn’t get them on a ship in the beginning of the quarter, it won’t have many cars to delivery in the 3rd quarter, since shipping times are about 30 days or so. Financially, it is better to get the money for the cars before quarter end, so that cash balances, margins, and earnings are higher while inventories are lower. So, for now, Tesla feels the need to manufacture cars for remote markets early in each quarter. This also optimizes manufacturing, since the charging ports and a few other parts are unique to other markets (like right-hand drive in the UK, Australia, and Japan).
Note that Tesla’s long-term plan is to have production on the three major continents — North America, Asia, and Europe — both to reduce shipping time and costs, but also to take advantage of local incentives that might only be available to those that manufacture locally. Elon has also mentioned the ability to recruit engineering and design talent as another reason to have locations globally. However, Tesla is not there yet.
So, first of all, why does this global shipping and delivery routine matter in regards to the Model Y’s short wait time? Model Y’s relatively short wait time is in part because it is only available in the US and Canada. European and Chinese customers will have to wait for their own factories to produce the Model Y for their markets. So, after satisfying the backlog, the Model Y SUVs made at Fremont can be shipped to US customers without delay.
That raises the question: why doesn’t the Model Y have a larger backlog? I would give the following reasons.
- Tesla has never really promoted the vehicle. When I went to the unveiling event in March 2019, the unveiling was very calm and was really anti-selling the car. Tesla was clearly worried about the Osbourne effect, in which you hurt your current sales by announcing a better vehicle that isn’t available yet.
- The 7 seat version isn’t available yet. As I’ve said since the beginning, I think that is a key to high sales of this model. Although there are rumors of the 7 seat version coming out earlier, the design studio still lists the option as coming in 2021.
- The Standard Range Rear Wheel Drive Model Y starting around $43,000 is not available. Similar to the 7 seat version, it may be a earlier, but on the design studio, it shows as “Early 2021.”
- Leasing isn’t available yet. Tesla typically doesn’t offer leasing on its vehicles until they have been available for some time and the company needs to generate some additional demand. Elon Musk and his team have stated several times that leasing negatively affects Tesla’s financials. I am hopeful that as Tesla becomes financially stronger, it can be less worried about these impacts and offer leasing earlier. I don’t like leases for my purchases, but many people do and it would help Tesla achieve its mission.
It is pretty simple. It is a fortuitous situation for Tesla’s United States customers that they can get the Model Y faster than the other Tesla models. I will be waiting for the 7 seat version and I also am waiting for my son to make a little more money so he can afford to buy my Model 3 when I take delivery of the Y. I’ll make sure to give him a good price.
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