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The Wall Street Journal



Image Credits: Tesla Motors (Top: Model S, Bottom: Model X)

October 28, 2014

Article Quotes:

With sales of its electric sedan declining in its home market, Tesla Motors Inc. this week launched U.S. incentives that cut its monthly lease price and aim to convince potential customers that buying the car is a safe financial bet.

Tesla Chief Executive Elon Musk said the Silicon Valley car maker is joining with U.S. Bank to cut monthly lease payments by as much as 25%. In a blog post on Saturday, he credited the bank’s lower cost of capital for the lease-rate cut. He also unveiled a “happiness guarantee,” promising to take back cars within the first 90 days of ownership “if you don’t like your car for any reason.” The return policy doesn’t allow a buyer to swap for another vehicle.

The incentives are unusual for Palo Alto, Calif.-based Tesla, which sells the Model S for between $71,000 and well over $100,000. Monthly leases currently run between $777 and $1,271, and leases represent a substantial share of Tesla sales.

The auto maker has long had a waiting list in the U.S. for its only car, which is currently back-ordered in its home market until December, according to a company sales representative. Tesla, however, is facing declining sales in the U.S., according to WardsAuto.com, an industry publication that tracks auto company data.

Through September, Tesla sold 10,335 Model S sedans in its home market, down 26% compared with the same period in 2013. The U.S. decline has come even as the company’s U.S. production increased 10% during the same period, according to WardsAuto.

Tesla doesn’t disclose sales volumes by region, but has said it expects half of its sales to be outside the U.S. by the end of 2014. With a goal of selling 35,000 cars this year, Tesla would have to sell about 17,500 models in the U.S. At its current sales pace, the auto maker will miss that target by a wide margin—and will have to double its sales pace to hit its goal.

“There still is extremely high demand for the car,” a Tesla spokeswoman said, declining to confirm WardsAuto’s data. The auto maker has said it needed to divert some production from its Fremont, Calif., factory to Asia as it ramped up sales in China in April.

Haig Stoddard, a WardsAuto analyst, said Tesla’s U.S. struggles suggest more than a need to divert production to international markets. “I would attribute the sales decline to the Model S being a niche product that has probably temporarily satiated demand, somewhat exacerbated by falling gas prices,” he said.

Tesla shares fell $13.57, or nearly 6%, to $221.67 in 4 p.m. New York trading on Monday. The selloff also followed disclosures last week by Daimler AG and Toyota Motor Corp. confirming the two had sold shares they held in Tesla.

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Elon Musk has responded to the WSJ article:

Tesla yesterday announced it was offering better pricing on leasing, thanks to an arrangement between the company and US Bank. The company made clear that the bank — being in the financial services business — has a “lower cost of capital” and therefore lease payments would be lowered by up to 25%. But in the land of the Wall Street Journal, no good news goes unpunished. It reported that Tesla “looks to lift sagging U.S. sales through new incentives.” Tesla CEO Elon Musk had this to say in response:

@WSJ re Tesla sales is incorrect. September was a record high WW and up 65% year-over-year in North America.

— Elon Musk (@elonmusk) October 28, 2014
 

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Re: Tesla Looks to Lift Sagging U.S. Sales Through New Incentives

“I would attribute the sales decline to the Model S being a niche product that has probably temporarily satiated demand, somewhat exacerbated by falling gas prices,” he said.
Let me just say that the Tesla is an incredible automobile. There are now four of them in my neighborhood, and I have driven two. The car is like a rocket on rails. It's also stunning to look at and with its long range, an absolute normal daily driver.

But I wonder about the future of Tesla - would they be where they are today without the California tax credits? What did Toyota and D/MB know to engage the stock sales? The Model S is getting a little long in the tooth, and the Model X is still six to nine months away. Mr. Musk seems to be betting the farm on battery technology while Toyota, Hyundai and many others explore hydrogen.

The tone of the WSJ article is not good, but consider this - the two neighbors I personally know that drive the Model S, adore their vehicles, love the constant software upgrades, the fabulous factory service, the generous warranty and factory-direct sales method. One of the two has a Model X on order.

I drive a hybrid electric vehicle and love it, but will be the first to admit that here in New York, it makes absolutely no economic sense (at $ 0.235 per kw). Next year, I will replace my luxury vehicle and will certainly consider a Model S.
 

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Re: Tesla Looks to Lift Sagging U.S. Sales Through New Incentives

Though I love the Model S, Tesla needs new product ASAP, a $70-80k car has only so much (limited) market. Instead of another high priced model, like next years Model X, they need to get the lower cost vehicle out first and speed up the development of the Model 3.
 

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Re: Tesla Looks to Lift Sagging U.S. Sales Through New Incentives

All we hear is about how great Tesla is, so how can sales possibly be sagging?
 

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That didn't last long.............
 
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I wouldn't read too much into those figures. At the moment Tesla's sales are still supply-constrained, so increasing or decreasing sales in one region or another have more to do with the allocations for these regions and their production schedule. The only thing that would actually tell you how they're doing is their order book and how that's developing, but of course that's not public information.

Yes, there is a risk that demand will decrease once the early adopters have got their cars, because the Model S is not a 1:1 replacement for a conventional car, but there's no way to know how that's going to play out in the future, and any journalist who tells you otherwise is engaging in fortune-telling. Shipments to various regions are not a useful indicator when the operation is still supply-constrained.
 

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First the car is expensive...you can only sell so many...Model S is limited by the price...
Two they don't even have dealerships in most markets...
If you want a Tesla you basically have to seek them out in half the markets...
No Tesla dealers in Michigan or New York for example....
The Direct sales method is much better for the consumer and is being assaulted by states like Michigan and New York etc...
How anyone can be against Tesla is beyond me....
 

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Re: Tesla Looks to Lift Sagging U.S. Sales Through New Incentives

All we hear is about how great Tesla is, so how can sales possibly be sagging?
Sales aren't sagging. Compare Sept. 2013 deliveries to Sept. 2014.
 
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I believe tesla was doing a refit to the plant ahead of the next new model and only just got back to full production
last month, they managed to sell 2500 units last month, that's not bad considering plant disturbances..
 

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I wouldn't read too much into those figures. At the moment Tesla's sales are still supply-constrained, so increasing or decreasing sales in one region or another have more to do with the allocations for these regions and their production schedule. The only thing that would actually tell you how they're doing is their order book and how that's developing, but of course that's not public information.

Yes, there is a risk that demand will decrease once the early adopters have got their cars, because the Model S is not a 1:1 replacement for a conventional car, but there's no way to know how that's going to play out in the future, and any journalist who tells you otherwise is engaging in fortune-telling. Shipments to various regions are not a useful indicator when the operation is still supply-constrained.

Why would they need to introduce incentives to move vehicles if they are supply constrained? I think they are seeing a decline in interest and need to generate some orders.
 

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.......Tesla Motors Inc. this week launched U.S. incentives that cut its monthly lease price and aim to convince potential customers that buying the car is a safe financial bet.....
This sort of thing is guaranteed to lower the resale value of the existing cars, thus convincing buyers that the car is NOT a safe financial bet.
 

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I'm curious what the hell the did to the Fremont plant that prevents them from building 35,000 units/year there... It certainly had a LOT higher capacity than that when it was NUMMI.

Wouldn't be surprised if there are other reasons for moving production to Asia...
 

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Before too long Tesla will lose their tax credits, especially if they offer something cheaper. That's when they'll really be hurting.
When others get in this game they'll be handed a pretty big price advantage.
GM and Nissan are going to be in the same boat, but electric cars aren't their whole business.
 
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