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$100M NY Damage in cancellations

Lot's of bad news/press today.

Elon said $100 Million loss in sales (cancellations) due to NY Times Article.

Bloomberg numbers:
Cancellations:

Sept 2012: 950
Dec 2012: 1800

Also they report a production rate of 196 average during all but one week of last quarter. Falls short of 20,000 Target.

Stock get hit due to all this..

Some links:
http://finance.yahoo.com/news/tesla-team-mulls-plan-boost-004920100.html
http://www.forbes.com/sites/joannmuller/2013/02/26/elon-musk-bad-review-...
http://www.bloomberg.com/video/how-many-model-s-cars-does-tesla-produce-...
http://www.bloomberg.com/video/cancellation-troubles-for-the-tesla-s-Rsg...

I watched the interview and he specifically stated that the losses are not just from cancellations. He specifically mentions the drop in stock price being included in those estimates.

Either way its not good. But can't go back. Car is great so hopefully sales will continue to increase. He does mention that at least 2-3 sales are generated by word of mouth from every delivered vehicle. So that is very promising news.

Elon has no idea why people are canceling, unless he has perfected mind reading. I wish he would keep speculation out of the press. Now if elon said they will have trouble selling 20,000 cars this year due to cancellations, that would be news. But right now it is reporters trumping up a probably stupid and inadvisable remark from elon. As is their prerogative. Elon needs to be more careful about what he says.

He really should have just kept his mouth shut and let the whole NYT thing pass. Personally, I thought the outcome was about the best possible -- lots of publicity about it attracting eyeballs, and then all the other media outlets reproduced the trip with zero trouble.

The numbers don't add up blaming NYT, except for possibly the stock hit which will come back if Tesla executes well, and as long as there are more reservations than production capacity cancelled orders don't matter.

Just keep building awesome cars and get the gross margin up, and everything else will take care of itself. Looking for excuses doesn't get the job done, and is actually worries me more than anything that could have come out of the NYT article or Q1 financials.

The Bloomburg guy is wrong, and it's kind pathetic considering this is his job. It sounds like he didn't even listed to the earnings call last week.

Number of cars:
I picked up VIN5448 this past weekend. Tesla shipped 2300 cars in 2012. Do the math and that's 7.87 weeks at 400 cars/week, and these numbers are not even precise. I don't see the significance of 196 cars/week last year when Elon already said exactly how many cars they produced. They are producing at the 20,000/year rate at this point.

Cancellation:
He thinks they had trouble *selling* 5000 cars last year. Their issue was production, not sales. And he overlooks the fact that the Model S fills a new market segment, saying that they'll need to takes sales from the Volt, etc... I don't know how he calculates his cancellation numbers, but it wouldn't be surprising if he messed that up as well.

The vast majority of the "$100m loss" from the NYT article was the hit to the stock. There were 1500 cancellations last quarter, and one would assume that Q1 would be the last quarter with major cancellations (as the last of the long-time deposits came due for finalizing). If you're Elon Musk, why not blame an external factor, then show in Q2 how much things have improved since then. :-) Honestly I feel like the outcome of the NYT thing was probably net positive, with the positive CNN and CNBC coverage that followed.

If sales really is a problem (which I doubt...) ELON should ship a few hundred cars to Norway immediately, their 2. largest market. That would guarantee 3-5,000 out of the total 20,000 annual production this year.
Seeing is believing and this market is so ready for this luxury car at huge discount comparable to comparable cars.

If anyone else at, either inside or outside of Tesla, made that comment, it would barely have have been noticed. Unfortunately, as the face of the company, Elon's voice is heard more clearly so he needs to be extra careful in what he says.

Personally, I still think the whole NYT thing is just a blip. Ultimately, the car and its support will decide the company's future.

I would love to know the number of cancellations from people who reserved a car after Dec 1. I had my reservation for years and desparately wanted my car, but putting up 5000 was a lot easier than finalizing something you began years ago. Most thought the economy would be stronger by now, we struggled with possibly cancelling purely for financial resaons. The car has been everything promised and more. I convinced my wife it was a win win by buying a chunk of stock as well. We will either continue to drive a very special limited car or make good money when it becomes a Tesla world.

Doesn't it really matter that they ramped up production to their goal of 400/wk (and more) since the end of last quarter?

Also, I really think the refundable deposit for reservation pumps up the cancellation rate significantly. It's better now that you get the invitation to configure a day after you reserve so they can figure out who is actually serious sooner. Otherwise, a lot of people will reserve just for the heck of it and know that they can cancel and get a refund at any point (until they finalize). I would guess that half the people who reserve don't have spouse approval or the funds to actually do so. Basically, the cancellation rate is over-inflated whereas the real baseline of serious buyers/reservation holders remains the same either way...

They just write all kinds of bogus, but it does hit the stock.

$100M is misquoted.

As for cancellations...

One way to look at it is that the cancellations in december doubled, as did the reservations.
Also expect a fair amount reserved just to ensure they could take advantage of the lower price, if they decided they wanted the car, so a real hard commitment.

DonS +1. What Elon says is very important now. My opinion is he must remember this game is about selling at all times. Get buts in seats doing test drives. When he speaks, Got to give people a reason to love the company. At the end of the day, the car will speak for itself. Have to be its biggest cheerleader when ever you hit the media circuit. This is the time people are becoming aware of Tesla. Give them a reason to fall in love and the rest will sort itself out.

Don't be Elon the defensive billionaire out to shutdown the media. Be Elon, the tireless champion of a better future, that gave an entire fortune to meet the challenges of the 21st century when no one else had the courage.

Tesla, SpaceX, and solarcity. American capitalism at its best.

I'm in your corner, Elon. Just take responsibility and move forward... The only person that cost tesla 100m is you. Not going to help by pushing more coal on the fire...This only brings more readers to NYT and future investors away from Tesla. See how negative statements work in the media?

Transparency at times like this wins out... TM should disclose all of the sales numbers, orders, cancellations, backlog etc, by model and price.

There is no question that all the noise is making many people think twice about whether an EV is right for them. To some extent TM has no one to blame but itself. If they had advertized the 85 kw Model S as having a normal expected range of 200, and the 40 with 100, etc., then the expecation would have been exceeded and no one could claim dissapointment (as I have, given that we can't use our 85 for a weekly 193-mile one-way trip, so whine about it not doing what it was sold to do...

I believe that IF TM can get through the current cash burn crunch, it will regain sales as word of mounth prevails. I am doing my part to sell the car, giving rides all the time, and have generated at least two orders so far for TM.

My fear is that Elon is out there with these kinds of statements to lower expectations and provide legal maneuvering wiggle room. If TM runs out of cash soon or has any other hiccup - he is essentially setting up the NYT article as a scapegoat. All smart executives anticipate the worst and try to establish the whipping boy somewhere else.

Not that NYT is blameless by any means, but TM did bring some of this down on itself. And don't bother repeating me all the BS about, "if you did your due diligence" or "it says on page XX that range is reduced in cold weather, driving highway speeds, yadda yadda...". The fact is that Elon goes around and gives a ton of interviews where he leads with 0-60 times and 300 mile/265 mile range numbers, no caveats, concluding it is just like any other car in teh iomportant elements, only better. I agree that it is better, but in a mutually exclusive way - Want range? Forget using the power. Want full range? Forget using the power or the cabin HVAC or driving at normal highway speeds.

No one wants to hear "you can drive 265 miles IF (1) you never go over 55, (2) you rarely stop, (3) the outside temperature is 65-70, (4) you don't worry about having any remaining range when you finish, (5) you never pass any other cars. I would not want Elon to say that. But it is just as valid to say the car can go 400 miles, as was proven, by averaging 26 miles per hour - it's just not reasonable in the real world.

Mileage range estimates (for marketing, internal range software, and the web-based range estimator) should be based on what a normal person will get in average normal driving conditions, driving at normal traffic speeds. Not hypermiling or using power saving techniques that compromise something else. Any other approach sets you up to fail, as we are now seeing.

The press is making hash of this, but consensus "fact" is coalescing around this statement:

"EV cars are better than they were, but not yet ready for primary vehicle status in most households. They are still early-adopter experiments that will get better over time if the companies survive in the face of much cheaper ICE alternatives."

There will continue to be a "but" or a "jury is still out" caveat until the high-speed charging inftrastructure is ready and available, andthe cars are as cheap or cheaper than their ICE equivalents. I would argue that teh Model S is close compared to teh Audi, BMW and Mercedes equivalents, but the available marginal market share for EV's in that segment is not a real business. Meanwhile we will be stuck with stories of KOA kwh charging speed, which outlet is faster where, etc. if we are luck and TM survives.

Real people who typically don't know how to use their Tivo or set up their iPhone, won't deal with the limits of current EV technology. You and I may do so, but we are the exceptions.

I think a wild marketing idea would be to reward owners for referrals that materialize in sales...

If three referrals buy an MS, get your next Tesla free.

This would up the game considerably...

To clarify:

The $100 million dollar loss is the loss in value that the stock took after the NYT article. The company did not lose $100m. Tesla's Market Cap is over $4 Billion, meaning the company is worth $4 Billion. So a $100 Million loss in stock value is just a 2.5% drop in value. The stock moves that much ragularly so it's not that big of deal. And, TSLA likely got that back after Elon's response.

The cancellations are a completely different topic and not related to the temporary loss in value that the stock took. IMHO, the cancellation rate will start to decrease as wait times are now down to a few months.

I didn't read everybody's comments above - and somebody might have covered already.
But just a comment on the subject of the thread - Tesla didn't loose 100M$ in cancellations. TSLA stocks lost 100M in market capitalization.

JZ13 responded about the same time as I did. Sorry for the duplicate response.

That's true on the 100m market cap, but Elon stumbled around it for a while in the questioning leading Betty and probably some viewers to believe he meant 100m in cancelations. A little confusing and it shows in all the miss quoting going on out there.

Lesson: come prepared to all interviews. Have a message. Don't mince words or leave anything up to interpretations...

Because the article happened when it did, it makes it an easy target to blame losses on. Coincidentally, it came out around the same time when serious issues were coming to light. The broken windshield, and now pano roof problem, are giving me a great deal of pause. In concert with door handles not opening, losing so much charge overnight, even when plugged in but out in the cold, or doors just randomly opening or unlocking...I have a great deal of anxiety.

I know Tesla has been great about taking care of things for customers, but I live over 200 miles away from any service center, so it's not just a quick fix. I would bet that anyone who is any distance from a service center might also have second thoughts. I am sure this has much more to do with the cancellations than a silly newspaper article. While the article was faulty, I think it is being used as a convenient scapegoat.

It would behoove Tesla to make some sort of statement about the status of these issues. How many cars have actually been affected? How are they proceeding with fixing said problems? Maybe is sounds worse than it is on these threads, but I'm sure most customers and customers-to-be frequent the forum and would be concerned. Perhaps George B. should address these areas somewhere on the website, because this will affect further sales, as well.

He probably did also mean order book reduction, though I think it was more the "price change/squeeze out the 'floaters' finalization" requirement that caused it. $100 million is 1200 cancellations or so, and there were that many in Dec., and possibly half that since then, or more. But as others point out, those were "soft" orders, and the replacement/new order book will be "hard", as the wait time collapses to a month or two.

Some of the cancellations were surely people scared or disillusioned, probably inappropriately in many cases, but not most. IMO, Elon was right to intervene to prevent any "trending" along those lines.

In any case, given the "2-3 sales by each new owner" effect, Elon's prior generalizations that TM is not demand constrained remains true. Each new delivery => 2-3 new reservations, usually very quickly!

Ambiguous sentence: "Some of the cancellations were surely people scared or disillusioned, probably inappropriately in many cases, but not most."

Meant to indicate a minority of cancellations were by the "scared or disillusioned", and a majority of those were inappropriately worried (and may well regret the decision and re-reserve later, in fact). Some feel forced into a "wait and see" stance, some are holding out for changes (which may never come, if they demand a non-Tesla design decision!)

Another segment (how large?) are those who want to lease, or were caught with overlapping leases. Given the faster deliveries, the "wait penalty" for cancelling and re-ordering has almost vanished, and that strategy is much more acceptable for those folk now.

More press from Forbes:

http://www.forbes.com/sites/davidthier/2013/02/26/elon-musk-really-needs...

Be sure to expand the comments ~~

My first post. I agree with bsimoes. Tesla should step up to the plate and instead of petulant responses, address the issues head-on. They already have a great car; if Tesla can also distinguish itself with unprecedented responsiveness to customer concerns, they will have gone a long way to recapturing the magic.

The 196 is from cars delivered averaged over the whole quarter. TM never said itbmade 400 per week in Oct, Nov and Dec. It is just another one of these misleading statments from d**b journalists.
The high number of reservation and cancelations in Dec I think is because a lot of folks cancel and reserved again before the price increase. When I made my reservation mid Nov I expected Aug/Sep delivery and now I'll pick up my car this Friday... My financial planing was targeted for late summer, but I could adjust to the earlier date. I think a lot of people got suprised and needed to delay as much as possible (leases, financials, etc). So I am really not suprised by the cancelations - some folks on this board have canceled multiple times - because spending $5k on a reservation is one thing, spending $100k on a car NOW instead of later is another.

@L8MDL;
Done. Here's my comment:
Wrong. In this, as in many other cases, "there's no such thing as bad publicity." While the nattering may discourage some, it will intrigue others. And even a little investigation will be good for Tesla.
.
Re the ingenuousness of Broder, consider he couldn't find the Supercharger unit at Milford for 5 minutes. This is impossible. There are multiple units in a string, lit up like daylight, right at the entrance, as you come off the driveway. Then to circle for 5 minutes without actually running into them you'd have to dodge, every time you circled the smallish lot.
BS detectors clanged across the whole of New England as the (many) owners who had actually seen the place read that. A thoroughly insincere, mendacious, dissembling, intentionally misleading account. No other conclusion is possible.
.
And false in one, false in all.

Most people cancel their reservation for one reason and one reason only. $90K.

They see this car and they want one because it is game changingly awesome, they want to help the environment, they want to reduce their fuel bill. They want to be the guy driving the Tesla Model S and are hoping all of these reasons will justify spending more than they ever thought they would on a car. So they throw down a refundable $5K and start dreaming.

But when it comes time to pull the trigger on a $90K car, they can't do it, because that's a lot to spend on a car, even if it is the best value they've ever seen.

I still can't believe I'll be spending this much on a car, but I'm also beside myself with excitement. I'm expecting delivery in April and I can't wait.

@bigdaddymak

I think you hit the nail on the head. The Model S is a expensive auto! I have never spent more than 45K on a car before. This machine is a game-changer and I will gladly plop down 90K for mine.

I just received my "Delivery" button two days ago and am also "beside myself with excitement". Come on April!!!

I reserved 16 months ago and received the car 3 months ago. Compared to what I anticipated 16 months ago, the car turned out to be more expensive than I thought, the range lower than I thought, and the charging costs higher than I thought (CA). I also had a few small problems that took perserverance and 3 months to solve.

Nonetheless, I like the car much better than 3 months ago and am glad I bought it. There is no other automobile that can match the coombination of performance, room, and beauty. Also, no gas stations, no fumes, no toxic fluids, no ICE noise & vibration. This car is a blast to drive, and it has soul. Tesla is going through growing pains, but I am rooting for Tesla. The world needs more fun and less exhaust.


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