After an onslaught of interviews with CEO Elon Musk and constant questioning from Tesla fanatics, rumors about a poorly named "5 part announcement trilogy" began to surface.
Now, after 3 announcements and a 100% run-up in Tesla shares, these rumors have been confirmed. Here's what we know so far.
Announcements 1-3 Of The Series
"Tesla Model S Sales Exceed Target" - April 1st, 2013
Although to naysayers and shorts this may have come as a surprise, for Tesla investors this was great, but old news. Tesla had previously guided for 4500 sales in Q1 (in its Q4 letter), a noticeable low-ball after reports that production had scaled between 400-500 cars per week (over 5000 per quarter) had already been confirmed.
Either way, Tesla managed to deliver "over 4750" vehicles (eventually reported as 4900), signaling the company is well on track to deliver its goal of 20000+ units in 2013. A major milestone for Tesla.
Profitability came as an added bonus. Not only had production been flawlessly scaled, but Tesla's gross margin doubled in the quarter (later reported at 17% from 8% in Q4). Interestingly enough, this wasn't a real surprise either. In fact, in Tesla's Q4 letter the company said it expected to be profitable in Q1. I guess no one believed them.
An interesting note on Tesla's gross margin: Tesla's margins in Q1 were already significantly higher than Ford (NYSE:F) or General Motors (NYSE:GM), despite efficiencies/economies of scale being in the early stages.
|Company||Q1 2012 Rev||Q1 2012 GM||Q1 2013 Rev||Q1 2013 GM|
*Tesla did not sell any Model S in Q1 2012, so comparables from that quarter have little relevance going forward.
"Tesla Unveils Revolutionary New Finance Product" - April 2, 2013
The easiest way to explain the bullish excitement behind Tesla's new financing product (remember this is not a leasing program), is in the words of CEO Elon Musk.
"If our car was exclusively available for purchase and not via financing I think that maybe accessible to 1% or roughly 1 million U.S. households. As a financed product with the right financing, sort of fully optimized financing product I think it's probably accessible to the top 10 million households."
Simply put, Tesla's leasing product could increase its potential market tenfold. As Musk goes on to point out in the CC, the bulk of luxury car sales (that compete with the Model S) are made via financing/lease products. Up through Q1, every Model S purchase was paid for 100% upfront by the consumer. This may have been artificially capping demand.
Just a month after releasing this financing product, Tesla revamped the entire thing.
Why? I'll let Elon explain.
"We appreciate the feedback from a number of journalists and customers that the first version of our financing product wasn't quite right .... They were right, so we are fixing it and, moreover, upping the ante by providing the best resale value guarantee in the automotive industry. The Model S is rated by Motor Trend, Automobile Magazine and many others as the best car of 2013, so it should naturally therefore have the highest resale value."
Not only did Tesla increase the 3 year resale value by 16% ($50K from $43K), but it lowered the monthly payments as well.
As Tesla continues to improve its financing product, and consumers begin to understand the benefits of it (versus traditional car company leasing), Model S demand will benefit. We may be seeing signs of this already.
Musk actually mentioned on the May 3rd call, that Tesla was seeing a "meaningful" increase in demand from the financing product. Does this have any correlation to Tesla's latest announcement (from its Q1 shareholder letter on May 8th) that demand has grown to 30000 units globally for the Model S? That would surely be in line with the logic behind Musk's 1% to 10% of households comment, quoted above.
"Creating The World's Best Service and Warranty Program" - April 26, 2013
The idea behind this announcement is peace of mind for Tesla owners. Musk has stated numerous times that service and warranty should not be of any concern to potential Model S buyers.
The service side of the announcement is simple.
"Making Service Better Than Invisible
The best way to experience service is, of course, not to experience service. If your car does need service, then it should be swapped with a car that is ideally better in some or many ways. To this end, Tesla is building a fleet of top of the line Model S loaners. These will not be our basic model - they will be state of the art with all the best features and options."
Your time is valuable and should not be spent driving to or waiting at our service centers. Tesla is putting in place a valet service, so that your car is seamlessly picked up and replaced with a loaner and then returned as soon as we are done. There is no additional charge for this."
The battery side is even simpler.
The battery pack in your car is obviously very important and expensive to replace. In developing the Model S, we took great care to ensure that the battery would protect itself, always retaining a few percent of energy. If something goes wrong, it is therefore our fault, not yours."
Tesla has set a new standard for the automotive industry with this service announcement. From a qualitative perspective this indicates several things to Tesla owners. First, the company is willing to stand 100% behind its products and accept responsibility for any kind of malfunctions. Second, in an industry that has lost sight of its most critical asset (hint, its customers!), Tesla has managed to turn a hassle into an exhilarating, and enjoyable experience.
Remember, when your car is being serviced Tesla will valet (yes, valet), either a brand new 85kWh Performance Model S or Roadster for you to drive. Not only does this incentivize Tesla to fix your car quickly (another critical flaw in the automakers archaic service model), but it gives customers a full week to be convinced to upgrade to one of Tesla's higher end models.
Upcoming Announcements 4 & 5
As Musk's famed Twitter profile insinuates, Tesla's next announcement will be about the company's Supercharger Network. Doing some basic extrapolation based on Musk's tweet shown above, indicates it could be as soon as this week (May 13-17th).
Let's side track for a minute to talk about expectations and sentiment. After Announcement 1 (Profitability/Sales), 2 and 3 were a relative disappointment. Not because it wasn't what Tesla investors wanted to hear, but because there was no WOW! factor. The quality/intent of the Announcements was perfect, but Musk has admittedly built a little bit of a reputation for himself which isn't the easiest to live up to.
Now, in my opinion this bodes very well for the market's reaction to Announcement's 4 & 5. Why? Expectations are low, and no one is expecting a WOW! Announcement like the one that reflected Tesla's profitability.
So what's the WOW!?
Tesla originally launched its Supercharger Network in September 2012, and the market didn't like it. The stock was down almost 10% the next day.
Throughout the remainder of 2012 the company installed 8 Superchargers, 6 in California and 2 on the East Coast (Boson & Washington DC). Since then? We haven't heard a peep.
My guess? Tesla has been frantically installing Superchargers across the US and is waiting for a major milestone (such as 25 locations) to announce the next phase of the rollout. Tesla will also announce an update to Supercharger capabilities/technology.
My logic? If it took Tesla 3 months to build and install its first 8 Superchargers, then assuming the same pace, between 10-14 Superchargers should have already been installed in 2013 (bringing the total to 18-22 locations). Original Supercharger technology is already 9 months old, and Tesla's delayed announcements could be because of an impending upgrade of the Network's abilities.
March 21 2013 - Blog post from George Blankenship called "Inside Tesla"
"We will be adding Supercharger coverage in many areas over the next three to four months, installing our first Superchargers in the Pacific Northwest, Texas, Illinois, and Florida with additional coverage in the Northeast and California."
April 5 2013 - A quote from Musk in an EnGadget Invterview:
"It's a very exciting and dramatic -- really dramatic -- increase in the number of Superchargers and in what Superchargers can do. I think people will be really psyched."
May 8 2013 - What Musk wrote about the Supercharger Network in Tesla's Q1 Letter:
"We have been hard at work on improving our Supercharger technology and in building out new Supercharger stations, with a major announcement expected within the next few weeks. As always, Tesla Supercharging is fast, convenient and free forever."
May 9 2013 - Mysterious Musk tweet that insinuates new Supercharger/battery tech.
Tesla's Supercharger progress is undoubtedly a worthy announcement, but the final piece in Musk's trilogy could be much bigger.
What are the clues? Musk has been quoted saying "if you're driving a Model S it's right under your nose."
Other than that, it's still pretty much up in the air. Debates on the Tesla Motors Club Forum have been raging for weeks, ripe with speculation of everything from battery swapping to wifi/data plans.
My guess? Tesla will integrate some sort of metal-air battery than can either be swapped or recharged, vastly increasing the range for Model S.
1. This article (Tesla Patent Applications Reveal Next Generation EV Technology) I published on SA several weeks ago that details Tesla's patents surrounding metal-air battery technology used in tandem with ion based batteries.
2. Page 38 of Tesla's most recent 10Q filed on May 10th, 2013. Newly added to the risk factors is this bullet;
"our capability to rapidly swap out the Model S battery pack and the development of specialized public facilities to perform such swapping, which do not currently exist but which we plan to introduce in the near future"
I've spent a good amount of time reading Tesla SEC filings, and I don't remember reading much about battery swapping "in the near future", until this 10Q.
3. This might explain Musk's tweet I included above which says;
"There is a way for the Tesla Model S to be recharged throughout the country faster than you could fill a gas tank."
4. It increases the number of ZEV credits that can Tesla can receive per vehicle (quoted on the Tesla forums as adding 3 additional credits to the 4 Tesla already receives). This is because battery swapping would satisfy the faster refueling requirements portion of the law.
5. Fits with the clue. What's right under every Tesla's owner's "nose"? The car's battery.
Elon Musk's 5 part trilogy has clearly had an impact on the market, and the best announcements may be yet to come.
If Tesla does introduce faster charging via revamped Superchargers and/or battery swapping, the WOW! factor will be back.
Every announcement thus far has been an incremental improvement to the overall experience of buying/owning a Tesla.
How many other automakers can say they've done anything similar for their customers?