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Why Reserve?

Please don't jump on me for asking this question.

I've been following these forums for awhile now. And I see everyone reserving their model s. I just don't know why. As I'm reading over the forums, I'm seeing production starting mid 2012 and deliveries ranging from late 2012 - 2013. I've also heard horror stories from other car makers of their delays in production. So why reserve? Why not just wait til the car actually comes or, then buy it? Is their any benefit to reserving besides the reservation may get you the car a month earlier ? Or is it more drastic of a time frame?

Might be a dumb question, but I've never reserved a car before.

I suggest you wait for that "Model T" in that case. It won't take that long, and probably costs less than you converting ICE car to electric. Then take a look at TCO ( and take a loan based on that: calculate difference between electricity and gasoline and probably also maintenance difference (no oil changes) and add that to monthly loan payment. You find out that you can afford quite a lot better car than you would otherwise.

And there I thought the Model T was going to be a Truck :)

Model S = Sedan
Model C = Convertible or Coupe?
Model X = Cross Over / SUV
Model R = New Roadster?
Model P = Pickup :)
Model T = Truck / Taxi / back to basic model
Model V = Van (Cargo or Passengers)
Model A = Amphibian
Model B = dune Buggy

Just having fun with this. Nothing serious. I think we are set for a few years.

In my logic, "T" is the letter alphabetically following "R"(oadster) and "S"(edan). Also it reminds me of Tin Lizzie which comes close to your interpretation as "back to basic model". For those reasons I tend to use it synonymously with "Blue star" (a term which has not been mentioned by either Tesla or the press for years now, I think).

Ford could file for copyright infringement on the Model T! Model T2?

"Model T2"

Come with me if you want electric.

Well, well... Actually, Model T stands for "T"hree series competitor! ;-)

Back to the OT: Why Reserve? That's why!

"I think probably a lot of you don’t realize that this is just wearing out and our sales team but I think something that people were interested in buying the Model S should appreciate if that if the model S reservations continue to accelerate that it is very important for them to put down a deposits soon or they will be getting a car in 2014."

Elon Musk in the Q3 2011 earnings call (transcript):

I thought that was a bit of braggadacio. Combined production for 2012 and 2013 is slated for 25,000 vehicles. With "only" 7,500 or so reserved as of Nov. 1, a reservation today would still be delivered in Q1 2013. Reservations will need to double before we're even into Q3 2013 deliveries.

Robert.Boston. “I thought that was a bit of braggadacio. Combined production for 2012 and 2013 is slated for 25,000 vehicles. With "only" 7,500 or so reserved as of Nov. 1, a reservation today would still be delivered in Q1 2013. Reservations will need to double before we're even into Q3 2013 deliveries.”

Robert, are you convinced Tesla can achieve 20K production numbers (January 1,2013 thru December 31,2013) ? I’m not. I think 20K is a goal that will need a 2 years to achieve. Tesla at NUMMI is a new company and it may be unreasonable to expect them to ramp up so quickly. There are a lot of logistics to overcome and $$$$ demands. Also keep in mind, the X is coming and they share the same production line.

Over extending like over promising can create problems. Tesla needs to grow… intelligently and be able to afford its’ growth. The pressure on Tesla to increase production will be overwhelming, especially after the Auto Press starts reviewing the “S”.

The bottom line is, Tesla will be a made to order Auto company for some time because demand will outstrip supply. The only way to get an "S" or "X" for the reasonable future is to reserve. The sooner the better.

Remember, they can put on extra shifts if needed. The X could be produced on the evening shift, e.g., and not interfere with S output at all.

No, no, Model T means "T"hird generation platform! It definitely refers to the project formerly known as Bluestar! :-)

I should ask an IP lawyer, but I'm guessing that Ford's trademark on "Model T" has lapsed. It's been a while since they sold such a product....

I too, think it is wise to be conservative in our expectations. There are some formidable hurdles ahead. Nevertheless, the guy running the plant for Tesla is the same guy who ran it for Toyota. Browsing through the executive resumes, they have some other well qualified automotive dudes, too.

@petero - Your post was not clear to me. Are you implying that Tesla does not have the capacity to produce 20K per year? Or are you implying demand might not reach 20K in 2013?

NUMMI has the capacity to produce 6,000 cars per week. Whether or not demand will reach 20K for 2013 is the only question. Tesla plans on producing over 20K units by Q4 2013 (both Model S and Model X).

NUMMI does not have that capability yet. To make 6000 cars / week you need more manufacturing lines than just one. Eventually when that entire factory is in use it will have that capability, but that takes some time. 20k should not be a problem though. 200k is.

Michiganmodel. Sorry for being unclear. I understand NUMMI has immense production capacity (far in excess of 20K ‘S’ and 20K “X”). Also, I am confident that the demand for 20K “S” will exist in 2013.

My points are: timing and money. Tesla can and will produce as many cars as they can afford to make. Manufacturing cars is immensely expensive. I am not criticizing Tesla, management, or labor. – In fact I admire what they have accomplished in so little time and with so little money!

In my opinion, the profits from ‘S’ sales will not be enough to expand production, pay off loans, and pay dividends. When Tesla is ready to ramp up production for ‘S’ and later ‘X’ they will need a large infusion of capital. Tesla will need more equipment, more production line labor, afford inventory, etc. A second shift won’t accomplish anything if you can afford the parts. Tesla should not have to live hand to mouth, paycheck to paycheck. They need a lot more capital to the job they want to do.

There is no car company on the planet that can match what Tesla has accomplished. Tesla is amazing. By the way, Nissan spent something like $6 Billion developing the Leaf and getting it to production.

Michiganmodel. I appreciate your reservation forum. Could you give us an idea of reservations by state or region? Thanks.

petero, I disagree. I think if they can sell out of Model S's (and even more likely Model X's), then capitalization will be the last of their worries.

Oh, and michiganmodels can't provide more granular statistics on reservations because he simply doesn't have them. He's merely gathering numbers that people report on various websites and consolidating them into what you see here.

@petero: I wouldn't expect to see Tesla pay a dividend any time soon, and Tesla doesn't need to start paying back the loan until a year after production of the Model S begins (as I understand the loan terms from public reports). So, I don't think there will be a "cash crunch". Even if there were, if orders are flowing in faster than Tesla can make cars, I'm sure that a new equity issuance would be well received on Wall Street.

Mycroft. “I disagree. I think if they can sell out of Model S's (and even more likely Model X's), then capitalization will be the last of their worries.”

Nothing would make me happier than Tesla funding capitalization from sales. Let’s say Tesla manufacturers 7,000 cars in 2012 and the average price is $80K. How much gross profit do you anticipate? My guess is $10K if they are lucky. Setting up production, working out logistics, arranging suppliers, purchasing inventory, staffing, salaries, etc. These are expensive times for our friends at Tesla. While $70 Million is a lot of money it is a fraction of what they need to do the job right.

Thank you for the clarification on my request from Michiganmodel on the statistics.

In the Q3 2011 Shareholder Letter Tesla claims to be targeting a gross margin of 25% (twice your assumption) and Elon reinforced in the earnings call that this seems to be a realistic target. This is certainly not achievable while production is still being ramped up, but Tesla wants to get there with the planned-for 20k units/y sold. A gross margin like that should provide a solid basis for further investments in R&D as well as manufacturing (and for opening up further funding one way or the other).

@petero - Mycroft is correct. I did not record states specific information for the reservations.

As Volker.Berlin noted, Tesla has stated a 25% profit margin. At 20k a year, they're looking at 375 million in profit per year just on the Model S (given an average price of 75k).

Though that 25% margin is once the scale economies of manufacture and sales are realized. The lack of those economies initially will reduce the margin, which Tesla seeks to counterbalance by selling only heavily optioned-up cars initially (because it's widely known that options have higher margins than the base vehicle).

In the 3Q conference call, didn't Elon say they had over $300 M cash equivalent on hand and that they needed no more money to produce the Model S and the Model X?

Yes, but "produce" means "begin delivery of cars". There will be significant cost-of-goods-sold expenses (labor, materials, parts, etc.) and inventory costs; clearly Tesla needs cash simply to run the business. I don't see this as a problem, though, particularly because Tesla will carry no finished inventory to speak of. I also expect that we will be asked to write another check to confirm our order.

According to Elon, I believe on the 3Q earnings conference call, accounting rules require that all expenditures for production, before production begins, are shown as R&D. When production/deliveries actually begin those expenditures will be moved from the R&D account to expenditures for production. Does that mean that a significant pportion of cost-of-goods-sold are already on the books as R&D? That additional cost-of-goods-sold will be minimal?

Building all the alphas, the betas, and the RC's will count as R&D. Beginning with the Founder's series that are actually sold, the material expenses will shift over to cost-of-goods-sold.

That suggests most of the costs of production are already on the books but in R&D accounts. At the time of first production, those costs will be moved to new accounts, but not increase the total costs. If that is the case, additional costs as production begins will be variable costs, proportional to the actual quantity sold.

"That suggests most of the costs of production are already on the books but in R&D accounts."

You may be confusing capital assets and production costs. Production expenses are things like labor, paint, plastic, aluminum, etc. etc.

So the labor and materials used to create the alphas, betas, and RC's would be charged to R&D. While those items used to create the founders series, the signature series, and general production would be charged as cost of goods sold, outside of R&D.

Plant equipment like the stamping machines and sprayers would be charged to capital equipment and expensed off in depreciation.

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