Next week sees the start of Q3 of the calendar year which means the Q2 results for Tesla. If you have been keeping track that means an important question is going to get answered. Have they reached 5k per week or not? This is the goal set by Musk that is needed to reach profitability over the course of Q3 and Q4.
Today Tesla opened up the option for all current reservation holders to confirm their orders and make their build selections.
As tea leave signs go, I'd say this one augers well for the news at the Q2 call. Here is why...
There are ~300k + reservation holders. Those wishing to commit need to drop down another $2500 and select their build options among what is currently available (35k base model is not available yet). This goes 1 of 3 ways. Very few bite. Most bite. or Some bite. 1 in 3 biting would be 100k committed orders and at 5k a week production would represent roughly 6 months of production which neatly matches up with predicting numbers for Q3 and 4 so lets go there.
100k committed orders at $2500 nets a cool 250 million to Tesla. Not a bad take for 3 days. The current order options have been generating something around a $50k average sale cost. So somewhere north of 250 million in down payments leading to something around 5 billion (corrected earlier goof with 125 billion...) in sales across the next two quarters assuming they can manage a 5k average weekly production throughout the 2 quarters.
And if that all goes to plan then Elon Musk gets a lot of soiled underpants from those shorting Tesla for a Xmas present when Q4 results show Tesla in the Black. Probably gets some for Xmas in July if they are at or exceeding 5k a week and are above expectations on cash burn for Q2.
So the above is what I think more or less will be how things go barring some major new surprise. For example the tent production line blows/burns down literally or metaphorically (atrocious production quality issues perhaps?).
How could things go better? Higher take rate on higher optioned cars... but I doubt it. The notice sent out says 2-4 months to fulfill the orders. That seems to indicate they think less than 100k folks will commit with the current more expensive build options. Unless they have supireme confidence they can hit well above 5k a week production levels in the next 4 months. 100k+ takers ensures a longer period of $50k average sale price which drives profitability higher faster. But takes longer to clear the backlog before they can get to the lower spec builds.
How could things go worse? Very light commitment from the remaining pool and a mass exodus of reservation holders pulling their deposit back. I think that combination is what could cause Tesla to bleed out if they can't get from where they are to the lower build spec that is the foundation of the 3 concept.
Taking Musk's claim at face value that 5k a week production level means Tesla reaches profitability but thinking the rate to make the 35k build not eat them alive will have to be higher. I think the path forward for them is to bootstrap profitability at lower production rates with higher per vehicle sales then continue to ramp production to the point the base model sales and resulting lower avg sale price won't sink them. That said, one thing that is almost certain is that Tesla is not going to see 30% margins on their sales long term. That was based on early ideas of hitting 10k a week with a higher level of automation keeping cost of production per car down. Some of that is definitely gone with the removal of automation and increase in manual line work. But 30% margin leaves a lot of room to fall down from predictions and still make a decent profit.
Hard Predictions:
- Weekly production numbers a little shy of 5k a week... say 4750 +-100
- 50-60k commitments from the current window so 125-150 million in deposits
- Insignificant drop/no change in overall reservation churn (IE no large block exodus of reservation holders)
- ~4-5 billion in sales over the second half of the year
- Announcement of base model availability date at the end of the year leading to a significant net increase in reservations
- Massive furor will ensue over the fact the federal rebate will be at least half of what it is now by the time the baseline models begin delivery because the two quarters after the 200k delivery will be taken up delivering higher order commitments being made right now. IE no one will get a sub 30k model 3 after rebates.
- Assuming the tent production line doesn't fall on its face... Tesla is close in Q3 and makes it into the black for Q4.
Note to self... set alarm for January to come back and check on these...
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