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The US sales decline is a non story. However, "production constrained" is not really accurate, as it implies they could sell more units for the same price if t

The US sales decline is a non story. However, "production constrained" is not really accurate, as it implies they could sell more units for the same price if they could make them. Tesla has bumped down the price many times, suggesting they're selling their whole inventory for the highest price they think they can get (which is still a great position to be in if that price is high enough). The demand for the higher trims in the US has hit steady state, and it's less than they can make. If they stuck with the launch prices and their revenue was 10% higher with no corresponding increase to COGS, they'd be laughing all the way to the bank. Every single quarter would be profitable and absurdly cash flow positive. https://insideevs.com/news/343373/teslas-confusing-price-changes-heres-a-chart-of-the-adjustments/ https://insideevs.com/news/343373/teslas-confusing-price-cha...

TrainedMonkey 7y ago
You are assuming any of the Elon companies are driven only by profit. I would hazard a guess that real M3 goal is to make a car that costs $35k while being profitable. Lowering price serves not only as incentive to sell more cars, but also internal incentive to figure out a cheaper way to make them.
- computerex 7y ago
  They are driven mainly by profit, as they are public companies and therefore Elon has a responsibility to maximize shareholder wealth.
  - Retric 7y ago
    Maximizing shareholder wealth and short term profits are very different things. De bears could flood the market with diamonds and make a lot of money in the short term, but it would be a terrible idea in the long term.
    - computerex 7y ago
      Yes I know. My point is that for profit, publicly owned companies are ran for profit where their ultimate goal is to maximize shareholder wealth. The parent seemed to imply that it may not be the case for Elon Musk's companies.
- reitzensteinm 7y ago
  Tesla's mission would be better served selling the exact same number of cars with a billion a quarter in FCF. This is true whether the true mission is Elon's pocketbook, sustainable energy, a performance art piece or to initiate the paperclip maximizer. (ok maybe not the third one)
zaroth 7y ago
The tax credit phase out is a big part of the pricing analysis. It’s absolutely expected for ASP to go down dollar for dollar due to reduction of the tax credit, because the economic effect is that the credit is paid to Tesla. Sticking with launch prices would have effectively meant rising the price $7,500 over the last year. That would imply that they massively underpriced their initial sales. Aside from the credit effect, margins are also lower on the lower trims, and lower on Model 3 than S/X, so total blended automotive margin dropped from 25.8 to 18.9% Q3 2018 through Q2 2019 but has recovered to 22.8% in Q3 2019. This is mostly due to production efficiency, but also worth nothing that they did recently raise the US price by $1,000.
- reitzensteinm 7y ago
  I agree with everything you've written, but none of it addresses my point. It is not accurate to say Tesla is production constrained, because if they were, they'd be focusing on higher end trims and charging more, and going from one spectacular quarter to another.
  - zaroth 7y ago
    It’s a simple fact that they delivered more units than they produced in Q3 2019. They can be production constrained across their full range of Model 3 ASPs, while it’s also true that they aren’t selling 100% fully loaded M3 Performance with FSDs each quarter. The thing you’re missing is the SAM is bigger when you have lower ASP options. So you grow your SAM and then become production constrained. Yes, you could shrink the SAM to no longer be production constrained, but since it’s profitable to sell at all price levels that would be a big mistake. Raising the price by $1,000 and a 10 week lead time is strong evidence of being production limited.
andrewtbham 7y ago
I believe Tesla when they say they are production constrained. I don't know why people commonly accuse them of lying with no proof. Changing prices is not proof. It's true they have changed prices quite a bit. They have had many conflicting adjustments to work around. The phase out of the tax credits (at the beginning of the 2019 and in the middle of the year), the promise to deliver a $35,000 sedan. Also Models S/X demand has fluctuated due to osbourne effect, and model 3 cannibalization. Furthermore, they have raised prices. The model 3 starts at $39,490. Up from a low of $35,000.
- querulous 7y ago
  they eliminated the base model, they didn't raise prices
  - davidgould 7y ago
    A couple weeks ago they raised prices too. Both the SR+ and the Performance went up several hundred dollars. You can also still buy the base model, it's just not in the online store.
andrewtbham 7y ago
I will believe they are not production constrained when they start advertising.

TrainedMonkey 7y ago

You are assuming any of the Elon companies are driven only by profit. I would hazard a guess that real M3 goal is to make a car that costs $35k while being profitable. Lowering price serves not only as incentive to sell more cars, but also internal incentive to figure out a cheaper way to make them.

computerex 7y ago
They are driven mainly by profit, as they are public companies and therefore Elon has a responsibility to maximize shareholder wealth.
- Retric 7y ago
  Maximizing shareholder wealth and short term profits are very different things. De bears could flood the market with diamonds and make a lot of money in the short term, but it would be a terrible idea in the long term.
  - computerex 7y ago
    Yes I know. My point is that for profit, publicly owned companies are ran for profit where their ultimate goal is to maximize shareholder wealth. The parent seemed to imply that it may not be the case for Elon Musk's companies.
reitzensteinm 7y ago
Tesla's mission would be better served selling the exact same number of cars with a billion a quarter in FCF. This is true whether the true mission is Elon's pocketbook, sustainable energy, a performance art piece or to initiate the paperclip maximizer. (ok maybe not the third one)

zaroth 7y ago

The tax credit phase out is a big part of the pricing analysis. It’s absolutely expected for ASP to go down dollar for dollar due to reduction of the tax credit, because the economic effect is that the credit is paid to Tesla. Sticking with launch prices would have effectively meant rising the price $7,500 over the last year. That would imply that they massively underpriced their initial sales. Aside from the credit effect, margins are also lower on the lower trims, and lower on Model 3 than S/X, so total blended automotive margin dropped from 25.8 to 18.9% Q3 2018 through Q2 2019 but has recovered to 22.8% in Q3 2019. This is mostly due to production efficiency, but also worth nothing that they did recently raise the US price by $1,000.

reitzensteinm 7y ago
I agree with everything you've written, but none of it addresses my point. It is not accurate to say Tesla is production constrained, because if they were, they'd be focusing on higher end trims and charging more, and going from one spectacular quarter to another.
- zaroth 7y ago
  It’s a simple fact that they delivered more units than they produced in Q3 2019. They can be production constrained across their full range of Model 3 ASPs, while it’s also true that they aren’t selling 100% fully loaded M3 Performance with FSDs each quarter. The thing you’re missing is the SAM is bigger when you have lower ASP options. So you grow your SAM and then become production constrained. Yes, you could shrink the SAM to no longer be production constrained, but since it’s profitable to sell at all price levels that would be a big mistake. Raising the price by $1,000 and a 10 week lead time is strong evidence of being production limited.

andrewtbham 7y ago

I believe Tesla when they say they are production constrained. I don't know why people commonly accuse them of lying with no proof. Changing prices is not proof. It's true they have changed prices quite a bit. They have had many conflicting adjustments to work around. The phase out of the tax credits (at the beginning of the 2019 and in the middle of the year), the promise to deliver a $35,000 sedan. Also Models S/X demand has fluctuated due to osbourne effect, and model 3 cannibalization. Furthermore, they have raised prices. The model 3 starts at $39,490. Up from a low of $35,000.

querulous 7y ago
they eliminated the base model, they didn't raise prices
- davidgould 7y ago
  A couple weeks ago they raised prices too. Both the SR+ and the Performance went up several hundred dollars. You can also still buy the base model, it's just not in the online store.

andrewtbham 7y ago

I will believe they are not production constrained when they start advertising.