
Tesla Nabs 8% of the U.S. Luxury Car Market - cocoflunchy
http://www.fool.com/investing/general/2013/08/04/tesla-nabs-8-of-the-us-luxury-car-market.aspx
======
InclinedPlane
The fact that Tesla has been even remotely successful is kind of a side
benefit. The biggest thing they've done is transform the electric car market
in the popular consciousness from being a joke. Ultimately that means that a
lot more consumers are going to start considering electric vehicles when they
are looking to buy a new automobile. Also it means that there are likely to be
a lot more new entrants into the electric car market (both existing automotive
manufacturers and new companies), because it's becoming a place where
companies can make money. All of which will put the electric car market into
the same sort of profit -> R&D -> better vehicles -> profit feedback loop that
the internal combustion car has benefited from for over a century. One way or
the other we'll find out whether the potential of electric vehicles matches
the promise.

~~~
valgaze
FWIW, Mercedes & Toyota license Tesla technology

"Electric car maker Tesla Motors helped Mercedes develop and is manufacturing
parts of the new car's electric drive system, including the lithium ion
battery pack, electric motors, on-board charger and other electronics. Besides
producing its own car, the Tesla Model S sedan, Tesla already produces
electric drive components for the battery-powered Toyota Rav4 EV."

[http://money.cnn.com/2013/03/27/autos/mercedes-tesla-b-
class...](http://money.cnn.com/2013/03/27/autos/mercedes-tesla-b-class-
electric/index.html?hpt=hp_t2)

~~~
tehwalrus
very very interesting. Top Gear is scathing of Tesla cars, and yet they raved
about the new electric version of the Mercedes. (Admittedly, they did still
take the piss out of its range...)

~~~
adwf
Top Gear are only scathing of Tesla due to being sued by them over a joke.
Prior to that, they were actually being quite fair and reasonable from what I
could see. So in exchange for a failed lawsuit, Tesla lost the backing of the
largest motoring TV show in the world. Probably the biggest mis-step they've
made so far.

~~~
reaperhulk
I love Top Gear, but you're getting your timeline mixed up. It went like this:

1) Tesla loans Top Gear a Roadster'

2) Top Gear does a show showing it running out of power and being pushed back
into the garage at the track and they state that its range is comically low.

3) Tesla claims it was all staged

Whether or not you believe Tesla or Top Gear (and it seems relatively clear
that Top Gear probably did stage it) the timeline does not show a shift in
attitude from Top Gear regarding Tesla. They've always made fun of it.

~~~
cube13
>2) Top Gear does a show showing it running out of power and being pushed back
into the garage at the track and they state that its range is comically low.

Comically low on the track, going full out. Which seems to be a pretty
reasonable claim.

Also consider that Tesla didn't sue for over 2 years after the episode first
aired. The episode was in late 2008, and Tesla sued in March 2011.

~~~
jlgreco
> _Comically low on the track, going full out. Which seems to be a pretty
> reasonable claim._

Well, except for the part where apparently they didn't actually manage to run
it dry on the track.

This said, it's fucking _Top Gear_. Their idea of a "serious" car review of
the Renault Twingo is seeing if a car (undoubtedly not stock) can do a flip in
a sewer tunnel. Their review of the Reliant Robin was only about how the car
(again, modified), _only_ flips. Somebody should have clued Tesla in.

------
twoodfin
That's defining the U.S. luxury car market very narrowly. BMW alone sold
172,000 cars in the U.S. in the first half of this year[1]. 8% of that is more
than 13,000 cars, and the report is claiming Tesla sales of roughly 10,000.

Sure, not everything BMW sells is a luxury car, but the U.S. luxury car market
is usually defined as much larger than 125,000 cars in a half year.

[1] [http://www.theguardian.com/business/2013/jul/08/bmw-
record-c...](http://www.theguardian.com/business/2013/jul/08/bmw-record-car-
sales-first-half-2013)

~~~
tptacek
I'm curious where the model cutoff would be for "luxury" BMWs. They're all
luxury cars, from what I can tell.

~~~
thrownaway2424
For the purpose of this headline, "luxury" appears to have been defined as
"expensive".

~~~
derefr
I bet there _is_ an objective criteria for it, though (if not a very clear
one).

A thought-experiment: say you wreck your car, and your insurance provider is
going to give you a loaner.

They want this loaner car to _impress_ you (the cost of one regular car,
however nice, is not much skin off their back, especially if they get to
amortize it over all the people they lend it out to; and they want to give you
the _impression_ that they've got enough money to cover any problem you might
have, so that you'll keep paying your premiums--the same reason bank lobbies
look so "stately.")

However, they don't want to spend _too_ much, because there's a point where
cars switch from regular goods, to being Veblen goods.
([http://en.wikipedia.org/wiki/Veblen_good](http://en.wikipedia.org/wiki/Veblen_good))

The optimum between impressing you the most, and avoiding spending way more
than the car "should" be worth for an any marginal gain of impressiveness,
should define the type of car they loan out (and it does, in my experience.)
You can draw the "luxury" inflection point as being exactly the next-most-
expensive models up from these, where the value proposition stops making sense
to economically-rational actors.

------
dave1619
Tesla has found it's groove. Not only is demand robust for the Model S, they
are expanding production as well. So far it looks like they will surpass their
21,000 cars they've given guidance for 2013. They're starting rollout in
Europe this month, and Asia later this year.

At the end of 2014, they will start rolling out the Model X SUV that will
offer dual engines. Some are speculating that it could give a 0-60mph time in
under 4 seconds. That would be truly incredible for an SUV.

Then, Tesla is readying the long-awaited GenIII vehicle due at the end of 2016
or in 2017. Elon Musk recently stated that his goal is to sell the vehicle for
$35000 (w/o incentives) and for the car to have a 200 mile range. Further, Gen
III is targeting the BMW 3 series and many are expecting the Gen III to handle
and perform better than a BMW 3 series. It could be the hottest car on the
planet when it's released.

Tesla as a company is doing very well. They're expanding like crazy. And
they're managing their cash flow well. They will report Q2 earnings this
Wednesday, 8/7 and they could report another quarterly profit as well.

In another area, Elon Musk has promised to achieve 25% gross margin on the
Model S by the end of the year. So, it will be interesting to see how far
they've come along when Q2 earnings are reported on Wednesday. Further, it
could be possible Tesla is shooting for 30% gross margin on the Model S next
year (which would be incredible). In the 2012 Elon Musk ceo incentive plan,
reaching 4 consecutive quarters of 30% gross margin is one of the key
milestones.

disclaimer: long TSLA

~~~
codex
On the other hand:

\- Tesla recently halved the deposit required to order a Model S, an indicator
of weakening demand.

\- Tesla is raking in up to $35K in profits per car by selling ZEV credits
earned through a CARB loophole which may soon close
([http://www.plugincars.com/will-likely-loss-zev-credits-
hurt-...](http://www.plugincars.com/will-likely-loss-zev-credits-hurt-
tesla-127916.html)), reducing ZEV profits considerably.

\- Tesla has repeatedly promised to increase its gross margin, but has so far
failed to do so.

\- While Nissan has invested in their own battery manufacturing plants (in
Japan, US, and UK), Tesla buys their batteries from Panasonic. While they
design and assemble their own battery packs, they haven't made raw battery
manufacture their core competency, which could hurt their ability to compete
on cost, or to innovate in lithium ion battery technology.

\- The BMW i3 will soon be entering production.

\- Tesla recently closed another round of funding, the cash for which will be
used to bring new models to market, meaning they're about to take hit to
earnings for R&D. This is fine, but the stock may collapse in the short term.

------
drinkzima
Here is the actual report:
[http://electrificationcoalition.org/sites/default/files/EC_S...](http://electrificationcoalition.org/sites/default/files/EC_State_of_PEV_Market_Final.pdf)

Let's also not ignore the obvious conflict of interest in a group promoting
electric vehicle sales trying to speak about actual statistics. As mentioned,
BMW sold 172k cars, Mercedes Benz 182k, Audi 87k for total of 441k. Tesla at
~10k, 2% of above (though all ~$100k).

If you want model to model comparison, the model S clearly doing fine though,
all depends on the headline you want I guess:
[http://money.cnn.com/2013/05/13/autos/tesla-sales-bmw-
merced...](http://money.cnn.com/2013/05/13/autos/tesla-sales-bmw-mercedes-
audi/index.html)

~~~
twoodfin
Not to mention Infiniti, Lexus, Cadillac...

~~~
sk5t
Range Rover, Jaguar, Porsche, Aston Martin, Maserati, Bentley... I hesitate to
mention Lincoln as their designs have sucked bigtime for a really
disconcertingly long while.

~~~
chiph
Lincoln knows what they need to build (a modern version of the 1963
Continental) but has failed to commit design and manufacturing resources to do
so. So they end up badge-engineering Ford products.

------
NoPiece
From Car and Driver:

 _Luxury Car: A car that offers a full array of luxury features and an
outstanding level of refinement, starting at a base price over $40,000.
Examples include the Bentley Brooklands, BMW 5-series, Mercedes-Benz CL-class,
Jaguar XF, Lexus LS460, and Infiniti M45._

------
ereckers
"In the first quarter of this, year Model S sales outpaced Audi A8, BMW
7-series and Mercedes S Class sales."

If this is true, that's pretty impressive. I always saw Tesla as an
enthusiasts brand, but this looks like the real deal.

------
LAMike
How will Elon pull off a 30k dollar Tesla in 2016? And will the range be more
or less than the current Model S? (~250 miles)

~~~
cheald
I don't know about new, but I get the sense from Tesla's buyback-and-upgrade
program that they're looking to saturate the used car market with lower-cost
Teslas to provide options more attractive to your typical car buyer.

If I could get a 2 year old Tesla for the cost of a functionally equivalent
new car, I'd be _very_ interested.

~~~
Too
2 year old lithium batteries? Buying new batteries would be as expensive as
the car at that age.

~~~
johnward
Are you suggesting the batteries won't last much more than 2 years?

~~~
Too
Assumption based on experience from laptops, phones and other devices with
LiPo/LiOn/Lixxx. Maybe teslas batteries are better? In 2 years we will find
out...

~~~
akgerber
Cars generally cycle the batteries far more gently, as their weight and size
constraints are far less tight. 10-year-old Priuses have NiMH batteries
chugging along just fine
([http://en.wikipedia.org/wiki/Toyota_Prius#Battery_life_cycle](http://en.wikipedia.org/wiki/Toyota_Prius#Battery_life_cycle)),
but most 10-year-old gadgets are in pretty bad shape battery-wise.

~~~
mistercow
Hybrid vehicles have a significant advantage over PEVs when it comes to
battery life, which is that they don't need to utilize the full capacity of
their batteries. The control system on a Prius tries to keep its main battery
at an average 60% charge, which significantly lengthens its life. That's not
such a big deal when you can recharge the battery at any time off of the gas
engine.

Depending on heat, a fully charged Li+ battery will lose between 15-30% of its
capacity per year. If you keep its charge between 40-60%, it will lose only
around 4-10% per year.

Tesla estimates that after 5 years, their battery packs will still have 70% of
their original capacity, which would seem to indicate that this is indeed what
they're doing (70%^(1/5) = 93%, or 7% loss per year). That sucks for a car
which is entirely powered by its battery, since it means that a Tesla could,
at a long-term cost to total capacity, potentially have at least twice the
range its control system will allow. It seems like that would be a decent
feature to give for people making occasional long trips.

------
kayoone
This article has a big flaw imo, as the Model S is not a luxury car as defined
here. It competes with the likes of 5/6 Series BMW, Audi A5/A6 and Mercedes E
Class. The 7 Series, S Class and Audi A8 are not among its direct rivals, in
fact the Tesla only rivals them in price. That doesnt lead to the conclusion
that the Model S is eating away market share from the "real" luxury cars
though.

~~~
eitally
I don't think the target market (or at least the people actually buying them)
are necessarily the same people who would have bought 7 series, S class, and
A8s. At least for the BMW & M-B, the demographics skew toward older, more
conservative buyers
([http://online.wsj.com/article/SB1000142412788732423510457824...](http://online.wsj.com/article/SB10001424127887324235104578241481012862470.html)).
Tesla, I suspect, is getting the folks who previously bought Priuses to make a
statement, or who would otherwise be looking at M3/5 BMWs or AMG M-Bs.

------
mtgx
I was very disappointed to hear that Tesla pushed the launch of the $30,000
Bluestar to 2017, from the initial 2015 date.

I guess they did it because they couldn't reach the quality they wanted at
that price point in that timeframe. That's fine, but I wish they started
getting more market share sooner, and get more people to use electric
vehicles. 2017 is quite a lot of time from now.

~~~
CamperBob2
I'm more concerned about the Model X, myself. An SUV that can't be used with a
roof rack doesn't exactly strike me as something that will set its market
sector on fire.

~~~
johnward
I think you misunderstand who the average SUV buyer is. Most people never use
an SUV to it's potential. That includes the roof racks. They basically
replaced minivans.

~~~
CamperBob2
I agree with you in the general case, but the Model X isn't targeted at the
"average" SUV buyer. They need to appeal to younger, more active buyers --
people who are more likely than most SUV owners to hit the bike trails or ski
slopes. We'll see, I guess.

------
christiangenco
The more I hear about Tesla the more I fall in love with them. I think this
may be the AAPL of the 2010s, gentlemen.

~~~
ams6110
Apple made products that were actually practical and useful to ordinary
people. Tesla is a rich person's toy only made affordable by heavy tax
credits.

Edit: I would think they are more like NeXT right now. They are making
something really cool, but very expensive and not practical for most people.

~~~
general_failure
> Tesla is a rich person's toy only made affordable by heavy tax credits.

Apple is also a rich person's toy only made affordable by heavy carrier
subsidy. Carrier subsidy is the primary reason why iphone sales are so high.
Nobody would otherwise pay 600-700 USD. As opposed to android devices which
are like 400 USD for no subsidy (nexus 4).

~~~
ams6110
Carrier subsidy and tax credit are two completely different animals.

~~~
beedogs
at the end of the day they're exactly the same to the end-user.

~~~
lysol
Except for being locked into a 2 year contract with a steep cancellation fee.

------
tvtime15
Their stock has risen 263% in the last six months. Sustainable?

~~~
joakleaf
The current valuation would be very good if they sold around 60000 Model
S/year:

    
    
      They have a Market Cap of $16B.
    
      Estimated longer term profit per Model S sold is around $15000 (as far as I remember); I think they are aiming for around 15% profit margin for Model S.
    

So at 60000 cars/year they would profit around $0.9B or trading at around 17x
profit. Which wouldn't be terrible for a growth-company.

Problem is that they are currently only on target for around 20-25000 model
S/2013 and they didn't have that big a profit margin last quarter.

As always, the next quarterly reports will likely tell if they are on track or
not. Last quarter was just the first profitable quarter for Tesla ever, so it
is hard to say anything. Nobody even knows if demand for the Model S is
sustainable, as Tesla received around 20000 preorders.

It isn't an outrageous valuation compared to e.g. Amazon, but it is definitely
based on the company achieving massive growth, so if the next quarterly
results do not reflect that, the stock will likely take a 10-15% dive over
night.

On the other hand, if the Model S is the new Prius (as some people believe),
they might sell 200000 cars/year within a few years. Musk is definitely aiming
for this, and the factory they have has a capacity for something in that
ballpark.

They also haven't tapped into the European market yet. E.g. Scandinavia has
high taxes on petrol based cars, so the Tesla S is _significantly_ cheaper
than other "luxury" cars in Scandinavia. I suspect Europeans in general have
shorter commutes, so perhaps electric cars are doing better here. Then there
is Asia...

It is a high-risk investment at this point, but it could go either way. The
stock price currently reflects optimism.

~~~
Someone
_" It isn't an outrageous valuation compared to e.g. Amazon, but it is
definitely based on the company achieving massive growth"_

For reference, check out Renault
([http://markets.ft.com/research/Markets/Tearsheets/Summary?s=...](http://markets.ft.com/research/Markets/Tearsheets/Summary?s=RNO:PAR)),
Fiat
([http://markets.ft.com/research/Markets/Tearsheets/Summary?s=...](http://markets.ft.com/research/Markets/Tearsheets/Summary?s=F:MIL))
or Peugeot
([http://markets.ft.com/research/Markets/Tearsheets/Summary?s=...](http://markets.ft.com/research/Markets/Tearsheets/Summary?s=UG:PAR))

Market-cap wise, Tesla is approaching the size of Renault ($25B) and larger
than Fiat and Peugeot combined ($13B)

------
mje__
Did anyone else notice the stock price? From $35 in March to $138 today;
that's pretty impressive growth

------
oinksoft
Is this car only regionally popular? I have yet to see a single Tesla on DC
area roads.

~~~
spicyj
It's amazingly popular in the SF Bay Area; I see several each day on my 2-mile
commute to work (right next to Google, but still). However, I also saw one
when I was in New Orleans a couple weeks ago, so it's not just SF.

~~~
sliverstorm
Of course, the SF Bay Area is its own special little bubble. Inferring
nationwide vehicle choice based on the SF Bay would be like living in Boulder
and assuming the rest of the nation is also Prius-crazed.

~~~
spicyj
Hah! Before this I lived in Boulder and did indeed feel like everyone drove
Priuses. (Although, my current office of 40 people has three people who drive
Priuses of the same color… but point still taken.)

------
josefresco
I'm struck by the comparison between what Tesla _can_ be and what Apple is now
within it's own industry. Who cares about market share when you're making the
highest profit margin? Many comments here are regarding BMW's or Mercedes
global sales numbers. I'm sure both manufacturers would trade most of those
lower margin sales for the kind of cream that _Apple_ sees on every sales of a
Mac. I'm guessing Tesla isn't there yet (profit margin wise) but if I were
Elon I'd rethink my goal to build an _everyman_ car, unless he's thinking it
will be Tesla's _iPad moment_.

~~~
MrFoof
Well, the reason is because auto manufacturers are notorious for chasing
volume, and still are.

For example, although they're not a luxury marque, VW specifically (not the VW
group) decontented their cars in what is referred to as the "beigekrieg". By
decontenting -- and then drastically lowering the price -- of the Jetta and
Passat, they are gaining significant volume to meet the goal of increasing
U.S. unit sales from 250,000 a year to 800,000 a year. So far they've managed
to increase it to > 400,000 a year.

Why is Audi bringing over the A3, BMW the 1 series (though that's not gone
terribly well) and FWD cars, and Mercedes the FWD CLA? These are cars at lower
price points, meant to increase volume and to get new customers into the fold
of the brand. On the entry-level luxury market, buyers are price sensitive.
Not as price sensitive as the mainstream compact and mid-size sedan markets
(who have been decontenting cars to keep prices from moving), but still price
sensitive. If the cars get too expensive, or if times get tough, these buyers
abandon their plans first. Regardless, all three marques are seeing record
sales in the U.S.

Even Porsche, one of the most profit-oriented marques on the planet, has the
sub-Cayenne crossover being launched at the L.A. auto show. It may break the
"we make at least $10K on every car we sell" informal rule for the first time
in over a decade. Why? Volume, which admittedly, allows it to fund other
versions (and entirely different) of existing sports cars which bring in very
high margin.

The only manufacturer I can think of that's genuinely attempting to be
exclusive is Ferrari, who is now trying to limit global sales to 7,000
vehicles per year, which will raise prices.

\-----

Regardless, I think Tesla's strategy is the correct one. To say it worked for
Porsche is an understatement -- hell, they used it to nearly buy VW from under
the planet's nose.

