Stupid Bloomberg video: "1200 Model S Cancellations"

A bit of crazy to start the day. Check out the talking heads at Bloomberg:

Why does the idiot on the right make some wild assertion that Tesla showrooms don't have/won't have cars in them?

Can the folks who are tracking numbers of reservations make any comment on the "1200 cancellations" info in the filing? How much of this is sig-to-p transitions?

Even without arguing that number -- what's a cancellation rate of far less than 10% for reservations that started three and a half years ago? Life requirements change, personal situations change, financial situations change, and nobody really knew what exactly we were queuing for! That's more than sufficient to explain that kind of drop-out rate. Look at it the other way around: A conversion rate of around or above 90%, that's HUGE!

+1 Volker

I'm still betting that the 1200 is the number if deferrals, not cancelations. Even allowing for changes in lifestyle/etc, I don't believe there have been more then a couple hundred cancelations at best. What cancelations there are I'll more readily attribute to people having two reservations (one sig and one prod for example) and letting one go to pursue the other.

I just can't stand these idiots. They also leave no way to comment on their deceiving clips. He states, "2012 profits now off the table" I do not remember Tesla saying they would profit in 2012. I remember them saying they would make a payment on the load.

Then he goes on with why would anyone would "believe this company" then plays a clip,
Elon, "There are three things I am very confident of achieving...... That we would start production no later than July of this year (2012).... The second one would be that we would produce 20,000 cars in 2013..... Third is we would achieve a gross margin of in excess of 25%..."
Basically this guy is saying that since Tesla did not make the 5000 car hope that they will now fail at everything.

Ratings and comment have been turned off on the video.

as far as nickjhowe link,

I like the guy saying, "....there is a guy that used to work at Apple leading the charge." That statement is about the misinformation of no cars in the showrooms.

Some guy... you know the mail room guy I guess. These people must be desperate to fill a slow news day with hype.

The claim of 1200 cancellations must be from the SEC filing, but it looked like 1000 to me. They were called cancellations not deferrals in the filing. The claims about profits being off the table in 2012 is also in there. The filing also warns about cash flow and the need to amend the DOE loan requirements to avoid default. Now I know what Elon meant when he said that the next 6 months would be tough.

I remember in the old days when the evening news was stretched from a 15 minute show to a half-hour. Hard to fathom all-day news shows. There isn't enough of importance going on to fill a full day, so you get non-newsy "news". I for one cancelled my reg S reservation and moved up to Sig S so I could get red paint. I'll bet I am in the "cancelled reservation" tally.

News is supposed to be about facts without spin. Bloomberg News doesn't practice that.

The number of cancellations is a simple fact that is pretty normal as Volker explained well.

Bloomberg's timing and tilt are contrived to drive the stock lower to exaggerate the near term buying opportunity.

A news source that caters to traders is unfortunately motivated to maximize volatility so traders stay glued to the news.

Inflammatory headlines profit Bloomberg, so they do it.

Here is the actual text from the SEC filing, in quotes below.

I'm all for cancellations, because it just means I'll get mine sooner lol!

"As of September 23, 2012, our Model S reservations, after subtracting deliveries, were approximately 13,000, up from approximately 11,500 at June 30, 2012. The third quarter has been the strongest quarter in our history for new Model S reservations, totaling more than 2,600 to date. We expect that our quarter-on-quarter new reservations will continue to grow as we open new stores and services centers worldwide, have more Model S vehicles available for customer viewing and test drives, launch our Supercharger network, make lower priced versions of Model S available, launch Model S in Europe and Asia and as consumer familiarity with Tesla and the Model S continues to grow. Our new reservations for the quarter were partially offset by cancellations which increased as we asked the first several thousand customers on our reservation list to configure their cars for delivery or risk losing their production slot. As a result, we expect that total net reservations for the quarter will increase by approximately 1,600. We expect the cancellation rate to decrease after we work through the older reservations on our list and there is less of a gap between a customer placing a reservation, configuring the car and receiving delivery.

Even if we were to receive no new net reservations, we expect that it would take more than six months to completely work through our existing Model S reservation backlog assuming production rates remain consistent with our current expectations. We expect, however, that reservations will continue to increase for the reasons indicated above"

+1 VB

Heh. On a "% per year" basis that might work out to about half that cancellation total, or 2%. So if reservations continue to grow at 1260 per month (the rate since the start of July), less about ½ (5 months worth) of 2% of total reservations, that makes about 19K reservations +/- 190, less ~3K deliveries, =~ 16K reservations remaining by Dec. 31. About 3K more than now!

And, of course, it is likely reservations will be substantially higher than that. IMO.

My wife and I sell hand-made board games in our spare time, and we have a backlog of over a year at the moment. I can definitely attest that the cancellation rate goes up the longer the time between when the order was placed and when it comes up for production -- and that is talking about products averaging less than $100.

I agree, nothing to see here. If new reservations started to drop below cancellations, then I would worry.

And 1200 cancellations over three years isn't surprising. Actually, it's surprising that it isn't higher. Three years+ is a long time.

They are talking about cancellations in the last month.
While we're tesla supporters, thinking the reservation rate keep growing at the current rate is probably overly-optimistic.
The price has to drop, the cars should be delivered in under 6 months with no further delays.
It's a tough job to do, but unless Tesla do it, they'll go under.

There's another issue they've missed in the report - Daimler deal that's apparently still up in the air:

"In the third quarter of 2012, we anticipate that our gross margin will be negatively affected primarily by the limited number of Model S vehicles we intend to deliver, the consequent allocation of all manufacturing and labor overhead costs across a smaller number of vehicles, manufacturing inefficiencies, higher costs for initial parts, and the delay of development services revenue from Daimler, resulting in a negative gross margin in the range of 15% to 18%. Revenue from Daimler will be recognized when we reach final agreement upon the development milestones and related payments which we anticipate finalizing in the fourth quarter of 2012. In the fourth quarter we expect gross margin to improve substantially and turn positive mainly due to higher Model S volume, as well as cost efficiencies and planned cost reductions. "

Go ahead let them spin negative, gives me a chance to pick up some more stock for $27/share. I'll be laughing at them when the stock hits $50+. Yes the next 6 months will be tough for Tesla... growing pains. Elon has saved the company from near death before. Tesla doesn't have a demand problem they have a supply problem. I'm doing as much as I can by buying a car. The world needs this company to succeed.

jerry3 | September 27, 2012

And 1200 cancellations over three years isn't surprising. Actually, it's surprising that it isn't higher. Three years+ is a long time.

Come to think of it, it's sort of a mixed bag. The "raw" reservations at Sept end is about 17,000, so the total cancellations over the whole period is about 4,000, of which 1,200 are "new".

You make some good points, but I doubt very much the price will drop. Unless you see a big drop in demand ahead. What would cause that?

And as far as "going under", I think EM now has a much bigger hat to pull rabbits from than he did previously. If he chooses to, which IMO he would. He's now worth about $3 bn, and both SpaceX and SC are already profitable.

Corr; blew the tags.
jerry3 | September 27, 2012
And 1200 cancellations over three years isn't surprising. Actually, it's surprising that it isn't higher. Three years+ is a long time.

Come to think of it, it's sort of a mixed bag. The "raw" reservations at Sept end is about 17,000, so the total cancellations over the whole period is about 4,000, of which 1,200 are "new".

What I meant by a price drop is TSLA shipping smaller battery sizes.
They are only shipping 85kw at this point.
While they've planned to start shipping 60kw in Nov, that's probably at least 5 weeks behind now.
Yes, Elon has a bigger hat, but he's also running SpaceX that is not exactly profitable either.
They could use some good news, e.g. Daimler that generated 15%-18% negative margins could instead be a finalized deal with positive margins.

Actually SpaceX is very profitable. It has made a few commercial launches, and will make its 1st NASA cargo launch at full price to the ISS Oct 7. It has the largest commercial launch contract ever signed, with Iridium for $485 million, 8 launches over 5 (?) yrs. Etc. 44 launches on its manifest, now taking the lion's share of new contracts because its pricing is so good, and takes payment only if successful. Game-changer.

When you figure the percentage of cancellations you really have to weight it considering the number who have been forced to finalize. Sure, some people may have canceled before they had to, but I'm sure most of the cancellations came when finalize time arrived. The relevant number is higher than 10%.

Just for fun, I did a rough count of paid launches scheduled:
2012: 4
2013: 8
2014: 12
2015: 15
2016+ : 5 (to date)

They are not a public company, so it's hard to get solid data on them, but they do have some contracts and claim to be cash flow positive.
Private company valuations are really hard to judge, and I imagine the R&D costs are high, probably more so than tesla.
I remember after the first successful launch Elon was talking about it and said they had two attempts and if the second one didn't work they wouldn't be able to try again.
That was back in May.

But the launches in question were in 2006.

+1 Vawlkus

We made our Sig reservation last November and when pricing came out made a regular reservation to cover our bets. Cancelled the regular one after we finalized configuration of our Sig. I know we're not the only ones to do this based on what I've read here.

I also upgraded to a Sig in May/June of this year. I cancelled my #2405 production reservation. The good news is all the productioners moved up. The bad news is that Bloomberg counted this as a "cancellation" and hit the stock.

While delivering a small number of vehicles is a good step forward, until they can deliver vehicles in volume AND those customers can give positive testimonials, Tesla will remain at risk.

The cancellation rate is actually higher than 10% because the cancellations are probably mostly among those reservation holders that were among the first 5000+ reservations - so it's more likely closer to a 20% cancellation rate.

But that shouldn't be surprising. These are the oldest reservations - based on what people thought they would see from Tesla at this point. For many people, this could be the most expensive vehicle they've ever purchased - and we are still in a challenging economy - so even a 20% cancellation rate, among reservations that were probably made a year or more ago - shouldn't be surprising - and actually might be a positive sign, in that the cancellation rate very well could have been higher.

And, I'll be honest, while I'm enthusiastic about the potential for the Model S - I'm still not 100% committed. My delivery probably won't happen until March/April - and by the time I have to commit - there will be thousands of customers with Model S - and it will be more obvious how well Tesla is fulfilling their vision of building a high quality car.

Once Tesla is manufacturing in high volume - and they continue to have positive feedback from their customers - and continue to see new reservations - then the stock price will have real meaning. Until then, the price is more speculative - and will be more reactive to any small positive or negative news from the company...


I just attended my local AEE/IEEE chapter meeting last night
@ the Oak Brook, Ill Tesla store.
There were multiple people in the store, a Model S platform and
a new White Model S, (charging), in the showroom.
As with most start ups, there will be growing pains, certainly financial ones as we are seeing now.
This company is not run by accountants, bankers and lawyers, it is run by engineers and visionarys.
While Tesla is a slightly different model than "business as usual" is used to seeing here stateside, I full expect the existing technology hurdles, (energy density, charge time etc), to be overcome, the financial hurldes may be more difficult.

In Chicago, I wait anxiously, with great anticipation

Based on this and that and hunches, I suspect that Fremont is awaiting resolution of some of the supplier issues to finish off nearly-complete cars which it is "setting aside" in waiting. Elon said the supplier issues were for fiddly things, not affecting the chassis, drive train, etc.; mostly (entirely?) 'fit and finish' stuff.

It is thus possible that a "logjam" may break at some point in the next couple of months, give or take.

Fascinatin'! What inspired the enjinears (sp?) to meet at that store? And did y'all interact with the staff and/or looky-loos? Tell all!

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