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Really great news! But something that shouldn't be overlooked is the discounts they gave in Q3 to push deliveries up. First, those that know me know that I am
by mitchellh 10y ago
Really great news! But something that shouldn't be overlooked is the discounts they gave in Q3 to push deliveries up.
First, those that know me know that I am a Tesla FANATIC. My girlfriend once challenged me to not talk about Tesla (motors, energy, something) for a 24 hour period. I dunno if I've ever done that honestly. I'm also an owner (no surprise given my fanaticism, lucky to be able to afford one). And I also own some TSLA.
Elon sent a company-wide email in Q3 to push sales to show profitability. I don't think its a fluke but they did something they never really do to help reach this number: they offered significant discounts on vehicles (new, pre-owned, showroom). Like, really big discounts (relative to the price of the car).
That certainly helped. Elon also sent an email at the start of Q4 that NO MORE DISCOUNTS are allowed. So I'm really very interested to compare Q3 to Q4 when that comes.
I also happen to know a lot of the people who bought a heavily discounted Tesla in Q3 feel kind of burned that right at the beginning of Q4 Tesla announced the new Autopilot hardware (that isn't retrotfitable on old vehicles). If you did your homework on Tesla though, this wasn't a surprise. It was expected that Tesla would make some big announcement to spur Q4 sales especially after Elon said there wouldn't be any capital raises in Q4 while he expected to hit Q4 numbers. You generally can't do that without some big news.
Just wanted to color this news with that. I'm still very excited!
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- usaphp 10y ago> "I also happen to know a lot of the people who bought a heavily discounted Tesla in Q3 feel kind of burned that right at the beginning of Q4 Tesla announced the new Autopilot hardware (that isn't retrotfitable on old vehicles). " Wow I guess this is the best proof of how Tesla is really changing the way auto owners think, this is something that wasn't unthinkable before Tesla and their over the air updates. Can you imagine a BMW owner complaining that his 2015 model does not have stuff that new 2017 models will get??
- tw04 10y agoNo, but I can imagine a BMW owner complaining that the 2016 model came out 3 weeks after he bought his 2015, with no notice from BMW, the sales guy, or the press. And that the 2016 model came with a bunch of new features he really wanted and would've been willing to pay for.
- eanzenberg 10y agoYou sure? Cause in this analogy, the 2015 model was at a serious discount while the 2016 has no discount at all.
- tw04 10y agoI'm sure. It's one thing to be told "Hey, there's a new model right around the corner. But we have this guy on a steep discount to clear out inventory." vs. "Hey, we have this great sale going on. What, new model? Naww, we are just having a sale!!" The incumbent MFG's literally have "new inventory" sales on their last-years model to clear out inventory. They let you know well in advance that a new car is coming with new features so you can make an informed decision.
- Anasufovic 10y agoI think we know which path leads to better sales.
- kmonsen 10y agoAnd which path leads to buyers remorse.
- Anasufovic 10y agoIt's similar to iPhones, countless complaints yet those same people keep buying them.
- enimodas 10y agoHow do significant discounts create more profitability? Isn't that like "we lose money on every sale, but make it up in volume."?
- fweespeech 10y agoPer-unit margin goes down (but is still profitable per unit) but you make up in volume to create a profit. Tesla's main costs aren't the cost per unit but the engineer/software costs iirc.
- cortesoft 10y agoIf they make more profit by selling more units at a lower price... then why don't they always just do that?
- jacquesm 10y agoThey don't make more profit per vehicle, they just made more profit in a short window of time by doing more sales but this may not be sustainable because it just shifts sales around rather in time at a lower profit per vehicle.
- mikeash 10y agoBuilding lots of cars is hard. It takes a lot of time and money to ramp up production capacity to this level. They've been building cars as fast as they could for years now.
- fweespeech 10y agoProduction bottlenecks. Tesla is constantly behind on producing cars for its customers. They just wanted to generate money now rather than later.
- Reason077 10y ago@cortesoft - It takes a lot of time and infrastructure investment to ramp up production to those sort of levels. This has actually been Tesla's business plan all along: start with a low volume, high-priced product (the Roadster) and gradually move towards successively higher volume, lower cost models.
- revelation 10y agoThey always do a "end of quarter push" of sorts. It's the terrible reality of being a publicly traded company where a few discrete points in time decide the up and down. Presumably that is also why Elon doesn't want SpaceX to go public. That kind of push could easily end in a giant fireball there.
- briholt 10y agoAlong with discounts, it's worth mentioning there were also some accounting changes in Q3 and they cashed in all of their ZEV credits for the year. So the profit didn't come easy.
- ebalit 10y agoDid the Q3 email say that it was to boost sales to show profitability? I think it's fair to assume that they discounted the price because they were close to announce an "hardware" update.
- mitchellh 10y agoThe Q3 email specifically said it was to boost sales to show profitability. You can find it via Google, it was publicly leaked. That doesn't make your latter point wrong though, that was probably true too!
- ebalit 10y agoI checked the Q3 email [1] and while it is indeed about motivating their teams to reach profitability, it doesn't mention any discount.
- franciscop 10y agoHere you go: [1] http://www.bloomberg.com/news/articles/2016-09-06/full-text-of-elon-musk-s-aug-29-e-mail-to-tesla-employees http://www.bloomberg.com/news/articles/2016-09-06/full-text-...
- jasonlingx 10y agoThis email does not mention anything about discounts. It does not even mention sales. It does talk about "building and delivering every car we possibly can".
- ebalit 10y agoI think GP just linked to the email because I cited it but forgot the link.
- matt4077 10y agoI don't see how a discount changes their profits(!) dramatically – especially considering Tesla does its accounting on an accrual basis. It's perfectly possible (and actually wanted) that someone walks onto a car lot with a fat bundle of cash, uses it to buy a car, drives off – and the whole transaction didn't change profits at all.
- samfisher83 10y agoIf that was the case why did their gross margins also go up?
- forgetsusername 10y agoZEV credits count as automotive revenue.
- topbanana 10y agoOut of interest, what levels of discount were on offer?
- Vik1ng 10y agohttp://i.imgur.com/6X1zqDp.png http://i.imgur.com/6X1zqDp.png
- mikeash 10y agoIt was common for Tesla to waive the $1,200 "destination fee," and they also have a referral program going which gets another $1,000 off. There were also some stories of people getting bigger discounts, like getting the 60kWh to 75kWh battery upgrade at no additional charge. Those were supposedly rare and were not supposed to happen, though.
- secabeen 10y ago>Really great news! But something that shouldn't be overlooked is the discounts they gave in Q3 to push deliveries up. Elon stressed in the call that they did not give significant discounts, and the few that did happen were not to be repeated.
- jrv 10y agoExactly! There were very few discounts, and they were never sanctioned to begin with. Elon made it clear in that internal email that these were not allowed by Tesla's internal policy. Had nothing to do with this quarter's profitability, as reaffirmed by him in today's earnings call.
- erikpukinskis 10y agoThe exact quote: "Our vehicle gross margin increased Q2 to Q3. One of the other things I've seen out there is that somehow we achieved these numbers as a result of widespread discounting. That is absolutely false. There were a few discounts but they were few and far between and that has been absolutely shut down to zero. You can see that in the fact that the vehicle profitability increased, even excluding ZEV credits, Q2 to Q3."
- mikeash 10y agoI'm guessing this is a bit of misdirection. Outright discounts on the purchase price probably were rare and not supposed to happen, as he says. However, from what I've seen from new buyers in that period, it was nearly universal for Tesla to waive the $1,200 "destination fee," which is effectively a $1,200 discount on the purchase price. They also have a referral program going which gets you $1,000 off, although that's been going for something like a year now and isn't new for Q3. That's a $2,200 total discount on many vehicles, which isn't a whole lot on a car that starts at $66,000, but it's something.
- dylanz 10y agoMy girlfriend also told me to stop talking about Tesla. She would actually get angry when I started talking about Tesla news :(
- aidenn0 10y agoYou're telling me I could have gotten a steep discount on an S in Q3? How big a discount are you talking about; I've avoided test-driving one because I don't want to drop that much cash on a car.
- mikeash 10y agoIt's probably good that you missed it. They made a huge improvement in the Autopilot hardware in cars built after October 10th. Tesla says that with software updates, that hardware will be capable of full self-driving.
- harryjo 10y agoThat sounds like extreme short-term thinking that is used to fool investors and partners until the gig is up next quarter.
- nodesocket 10y agoNice writeup. I do think this quarter is a bit misleading because of the 139million emission credit. Howerver, I believe they've done just enough to move the needle and support investor confidence. By the way, huge fan of HashiCorp Mitchell. ;-)
- WillAbides 10y agoI didn't notice that was Mitchell. Makes sense. The one time I met him in person we talked about Tesla. Now I need to track down Elon Musk to discuss Consul.
- guiomie 10y agoIf the discount is what brought profitability, than wouldn't this mean the car is mispriced?
- smtheard 10y agoHah! How random to see someone I used to play warcraft on hackernews posting about TSLA, what up mitch. Totally agree with you on this, long elon musk is always the play.
- briantmaurer 10y ago"My girlfriend once challenged me to not talk about Tesla (motors, energy, something) for a 24 hour period. I dunno if I've ever done that honestly. I'm also an owner (no surprise given my fanaticism, lucky to be able to afford one). And I also own some TSLA." I talk about Tesla a ton as well. My GF is similar, but with dogs. We made an agreement that whenever I talk about Tesla I have to replace 'Tesla' with 'dog'. She does the reverse. Let me tell you, there is this new dog, it is so fast. And this dog has a low center of gravity which is great for handling. The craziest thing is that this dog can go from 0-60mph in just 2.8 seconds, it is ludicrous!