Teslas are becoming too expensive for the mass market, especially when Tesla are aiming to sell
20 million a year this decade. Or at least this is what I am hearing a lot of people say,
as of recent. People saying no way I can afford a Tesla at these price points.
Or there are other EVs that are undercutting Tesla on price. Teslas are too expensive for
the average person. Well I just wanted to point out why this is, and why it's a good thing that
Teslas are becoming more expensive, not a bad thing. At least if you own shares in Tesla.
This is just supply and demand, and as you probably realize by this stage,
well Tesla, has a lot of demand. I am often saying this to people in the comments. What
does it matter how high the price is, if people are still buying every single car Tesla make.
Actually not every single car Tesla make, about twice as many as they can make.
Someone just told me they ordered a Model Y the other day, and was told to expect delivery in
August. And this is the demand now, before any EV rebate, or the 4680 batteries, etc.
Or as I call it the Tesla 2.0, because it is going to be a much improved version of
the 2170 equivalent. Lighter weight, more power, better performance, more rigid, better handling,
and safer. Tesla may even raise the price again to compensate for the extra demand the 4680
generation will create and this $8,000 rebate. Yea, the Model Y may end up costing $65,000.
Now $65,000 is really getting up there, and I understand where you are coming from, and what
you are thinking. Tesla's price is outrageous, even the Ford Mach E is under $50,000 with over
300 miles of range. Of course in this scenario the Tesla is actually only $57,000 with the rebate,
but then the Ford is only $37,500, due to an even larger rebate. This is a big difference in price.
Tesla is just too expensive. But my response to this is,
so what? The price doesn't matter, if Tesla are selling every single vehicle they make.
And like I started by saying this is actually a good thing. But I hear this is pricing too many
people out of the market for Teslas. Ok sure, there are people who previously wanted a Tesla
and now cannot afford them, at least not until there is perhaps a rebate. That
is unfortunate for them, sure. But from an investor stand point that doesn't affect us,
if there are still plenty more people still wanting to buy Teslas. Except now,
Tesla have much higher profit per sale as a result of the price rises.
Now this channel is targeted at Tesla investors, not Tesla vehicle buyers. If Tesla raise their
prices, due to demand, this is good as an investor, and thus good for my audience.
Alright if you are an investor and also want to buy a car, then you might be a little conflicted,
depending on how much you have invested relative to the price of a Tesla. But for the majority of
you this is good. It doesn't matter if others are coming in at the market at lower price points,
if people are still buying Teslas, and the waiting list keeps growing.
But a 2017 Tesla Model 3 has a lot more going for it, than it did in 2017, due to all the over the
air updates, and new features. Ok, there have been hardware updates since too, such as the heat pump,
octovalve, electric opening and closing trunk, and although there are continual updates with
the Model 3, a lot of them minor, like no more lumbar support for the front passenger.
Tesla still do major annual updates too. Just to name a few in the 2022 Model 3, it will have
12-volt battery becoming lithium-ion, new AMD chip, rear double glazed glass, the superhorn
to name some of the bigger updates, the same updates are coming for the Model Y. Of course
even ICE Cars get annual updates too, as we would expect. It's just more exciting when its Tesla,
and often unique features that we wouldn't expect from most legacy autos.
Now as an investor, when it comes to prices, there actually is something related to price
that is important. And that is the price of how much it costs to produce the vehicle,
and this is what matters the most. Tesla are not raising prices due to their costs increasing,
ok perhaps a little bit of that, due to some inflation and supply chain issues. But these
price rises are mainly to control demand somewhat to reach closer to the market clearing price,
where demand meets supply, except it would appear Tesla's demand is still inelastic even with these
price increases. Or perhaps its just that at the same time the movement of consumers to move over
to EVs is that exponential along with more people discovering Tesla cars.
For example, since I bought my Tesla my brother is now getting one later this month,
and 2 of my friends, and my dad already had one, through my influence. That's in just over 2 weeks
of ownership, I am sure I will convert a lot more as I go. But bear in mind Teslas are even
more expensive where I live, so there are fewer consumers that can afford them, yet they are still
buying them. Again more exponentials. Yes, Tesla is the company with so many exponentials going
for it. And we have seen these exponentials in play, but I get the feeling we will see more kick
in soon, 2 years feels like a good place to be, with the new factories and 4680 lines ramping up.
Bear in mind the standard range Model Y out of China actually only starts at around $46,000
without subsidies. Tesla simply don't have the capacity in Fremont to offer this car,
and there is plenty of demand for the longer range model anyway, so it's not necessary to offer. I
have speculated in the past, that possibly Tesla will offer the standard range model from the new
factories, as there may be enough batteries available from CATL, instead of 4680. But I
am not sure Tesla would want to cannabalize demand for the long range, by offering a standard range.
On the other hand, I doubt they can make enough Long Range versions to come close to demand. So I
haven't entirely ruled out the possibility we are being majorly sandbagged on these factories, and
that Tesla will actually add the standard range from these factories. A very similar scenario we
saw in Shanghai. CATL are ramping up their battery production, and will likely have a lot more
available next year, that will possibly coincide quite well with Tesla's production ramping.
Anyway, all this extra margin that Tesla receive by raising the prices, simply means they have more
money to re-invest into the company, adding to more economies of scale, vertical integration,
R & D, etc. Meaning they will be able to offer more of a better product, that will cost less to
build. The better a product is, the more demand it has, which means the higher it can be priced,
and with all the vertical integration and economies of scale, Tesla can make the product at
a lower cost, simply meaning more margin again. With the extra margin they obtain from their
products from these advances, they can re-invest into the company with more vertical integration,
economies of scale, etc, etc, and so on. It is one big virtuous circle of profit, and demand.
No other company has this, as all their BEVs lose money. Well except for perhaps the Wuling,
but they are very small profits, that likely aren't going any place that good.
Anyway, let's just say for example that Tesla get their cost for manufacturing a model 3
to $25,000 cost of goods sold. And we are at a stage where Tesla have the ability
to ramp up as many as they need to meet demand.
Perhaps Tesla can sell 1 million standard Model 3s a year, at $40,000. That would be a gross
profit of $15,000 per vehicle. But then if Telsa dropped the cost down to $35,000 per vehicle,
and say demand increases to 1.5 million vehicles a year. They have cut the cost $5,000, or 12.5%,
yet demand has increased 50%. However, the gross margin has dropped 33%, as now they only profit
$10,000 per vehicle, instead of $15,000. Gross profit at $40,000 would equate to
$1.5 billion, 1 million times $15,000. Gross profit at $35,000 would equate to
$1.5 billion, 1.5 million times $10,000. If Tesla have abundant capacity,
then they could offer their cars at $35,000 and it would not affect the gross profit. Assuming
it is not in someway cannibalizing a higher priced vehicle. However, it may actually mean more people
buy a Model 3 instead of a compact as well. So it might even out. And remember by this stage, a
Model 3 has become a lot more of a vehicle than we know it today, likely with front and rear die cast
molds and structural battery packs. Along with a plethora of other additions, and in car apps.
But it also means that it will expand Tesla's market share, if they sell 50% more vehicles.
There are possibly more economies of scale available at higher production rates too.
Although making more vehicles will mean they are competing for the same scarce resources too.
On the other hand if they don't buy a Tesla they would have possibly bought
from a competitor anyway, which likely uses said resources less efficiently anyway. Yes,
Teslas more efficiently use the world's resources to achieve the same result.
They also cost less per km, due to more efficient charging.
Ok, so selling 50% more standard range vehicles doesn't improve Tesla's profit, but it means there
are more customers. More customers is great too, more customers using FSD, paying $200 a month,
along with all the other subscription features that will eventually be available. And that is
serious value. 500,000 more customers a year, paying two and half thousand a year on FSD, if
we had 100% adoption. An extra $1.2 billion a year in profit, and that profit goes straight to EBIT,
as there is no marginal cost of an FSD user. Even if its only 50% adoption, you know assuming Tesla
reached full autonomy, then its still an increase of $1/2 billion a year. But remember, we are only
talking about the Model 3 standard range, the same will apply across the board for all Tesla Models.
Eventually these cars will be more valuable with the software subscriptions that the prices
will come down, and there will be lower cost variants offered, like a standard range Model Y.
But of course there will eventually be a compact version too. In the meantime,
whilst Tesla supply is scarce, and the entire EV and Tesla movement are exponentially growing,
then the price of Teslas will remain relatively high, relative to what they were previously,
but still better value than the equivalent competitor, whether it be ICE or EV.
So please just relax about the prices, it will all work out eventually.
Elon is an incredibly smart person who knows and understands this industry
better than just about anyone. I think we should trust he knows what hes doing.