Analyst Concerned Tesla Might Be Cannibalizing 85D Sales With Introduction Of 70D

APR 14 2015 BY ERIC LOVEDAY 52

There’s no denying that the Tesla Model S 70D is the clear value leader in Tesla’s lineup, but is the 70D positioned price and feature-wise to steal sales from the more expensive 85D and perhaps even the P85D?

At least one analysts seems concerned that Tesla’s introduction of the 70D will actually lead to less sales of the more expensive Teslas.

CLSA America’s Tesla analyst Andrew Fung, stated:

“Consistent with our recent [Tesla stock] downgrade, the new 70 makes the upgrade to the 85D less compelling now and could cannibalize sales of the more expensive model in our view.”

“This would obviously weaken the mix this year, which hits at our concerns around the margin pressure and downward earnings revisions that could happen in the second half of 2015.”

While this viewpoint might to true, we’re thinking that the introduction of the 70D will actually bring in more buyers who previously wouldn’t have considered Tesla’s lowest-priced offering (60 kWh) simply because it wasn’t all-wheel-drive.  Yes, some potential 85D buyers will now instead opt for the 70D, but the end results of releasing this new model is probably going to be more overall sales for Tesla, not less.

And who is to say something like a 100D isn’t in the offing shortly as well (perhaps replacing the 85D) when the Model X launches in the 2nd half of this year?   It doesn’t seem entirely unlikely, especially given Tesla’s steady trend of upgrading the Model S over time, while discontinuing the older product.

Tesla's New Model S Lineup

Tesla’s New Model S Lineup

Source: CNBC

Categories: Tesla

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52 Comments on "Analyst Concerned Tesla Might Be Cannibalizing 85D Sales With Introduction Of 70D"

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Speculawyer

There are some analysts that are always looking for something to whine about to support their short positions.

The people that want the high-end versions will still get the high-end versions. They’ll pick all the options they want and that is where the money is. The difference between 70 and 85 is trivial.

And it might be better if they get the 70 since if they are still battery constrained then the 70 will allow Tesla to get more cars out the door.

pjwood1

2 things

1 – People want to buy Teslas for utility. They want to drive them, and depreciate them with miles.

2 – The 60kwh car existed when many areas had far fewer superchargers than they do now.

If the analyst is wrong, it won’t be because of the above. You can buy $100,000 cars inexpensively, but not if you plan to drive them. The low miles on a lot of Model S’s kind of proves the disposition of many buyers, in my view.

Tesla mileage depreciation is vastly more expensive than the gas savings. Something to consider.

Waiting

Can’t imagine how this guy will wine when the Model 3 comes out. The Leaf is the leader is sales for a reason…it’s affordable. Questions is, do you make money through price or volume of sales?

Samuel Hoogendoorn
“Consistent with our recent downgrade, the new 70 makes the upgrade to the 85D less compelling now and could cannibalize sales of the more expensive model in our view,” CLSA America’s Tesla analyst Andrew Fung told “Fast Money” this week. This is one analyst’s unfunded idea. I would say that the recent upgrade to the Model S85D makes it more compelling than ever. It now has the performance close to the discontinued P85 for about $8,000 less than the P85 did. It also has AWD, better efficiency, a longer range, Autopilot, and other doodads that now come stock. For just $10,000 more than the S70D, the S85D gets a 0-60 time drop of .8 sec. BMW charges about $18,000 for the same difference in performance. Porsche charges a whole lot more than that for smaller increases in performance. The S85D is totally worth it! The S70D will bring more people into the Tesla fold since it’s actually a desirable entry-level Model S unlike the S60 which only made up 2% of Tesla’s total demand. They are not cannibalizing themselves. They are expanding their customer base. For the few that I read who are switching their reservation, they are switching to… Read more »
Alaa

I think the 70D with NO options is a fantastic deal. I think that this move by Tesla is telling us in a subtle way that there is an upgrade to the 85 to maybe 100 or more kwh. And I think it is a good way to tell who ever wants to buy one to wait until the 100kwh or so car comes. I think it will be very soon. And the 70D was a way to tell us that.

Pete

One friend canceld his 85D and ordered a 70D, and a friend of him also.
So perhaps the 70D is a great deal.

Open-Mind

When the 70D was introduced, the performance specs of the 85D were also increased. It sounds like your friend wanted the AWD more than the improved performance. Probably many others wanted the same, and I suspect that’s the justification for the new 70D model.

To me the 85D now seems like the sweet-spot. It has the best range and is only mildly insane. 😉

Lensman

So-called “financial analysts” who write articles for public consumption very seldom actually try to do truthful analyses. Nearly always, they’re just trying to promote their personal bear-or-bull position. Real financial analysts don’t offer their advice for free to the public; they get paid to offer it to individuals in private.

Will the availability of the 70 kWh Model S help or hurt Tesla’s profits? (You know… those profits which the long-term short sellers insist Tesla doesn’t have!) Only time will tell. Personally, I’m willing to wait and see if Tesla’s move was smart or not. And as Eric Loveday already pointed out in the article, this change may be just the first step in a Tesla “master plan”… perhaps involving an increase from 85 kWh to something closer to 100 kWh.

One thing’s for sure: I will continue to eagerly watch the progress (and occasionally, lack thereof) of Tesla Motors as it leads the EV revolution.

GO TESLA!

Lensman

I think there may be one factor many are missing here. If Tesla’s production is limited by battery cell availability, and I think there are pretty strong signs that continues to be true (and will be until the Gigafactory starts producing in high volumes), then a buyer moving from an 85 kWh car to a 70 kWh car might actually benefit Tesla’s bottom line. With a difference of 15 kWh per car, that means for every 5 buyers who change from an 85 kWh Tesla to a 70 kWh Tesla frees up batteries for another Tesla car to be made and sold. That might well be a net increase in profit for Tesla. If its a net zero effect on profit, then it’s still another customer who can help spread the word.

The counter-argument, of course, is that generally speaking, auto makers prefer to sell their highest-priced cars, because they make a higher per-unit profit margin on those cars. Would the equation be different for Tesla? Possibly, but if so, I don’t know why that would be.

Mark B. Spiegel

>>If Tesla’s production is limited by battery cell availability, and I think there are pretty strong signs that continues to be true…<<

…except for the "sign" that months ago Musk said they now have plenty of batteries, and in fact it's likely that Tesla is trying to roll out the home storage initiative a.s.a.p. because it has TOO MANY batteries due to a large "take or pay" deal with Panasonic.

Lensman

Well Mark, I see you’ve started another series of Tesla-bashing posts. Promoting your short-selling position, I suppose?

Tesla didn’t get into talks with Samsung for an additional supply of battery cells because they were getting more cells from Panasonic than they need! Also, the home energy storage system you refer to is something for the future, when the Gigafactory starts producing cells in volume. It’s not anything they’re going to start selling soon. See details here:

http://www.gizmag.com/tesla-home-battery/36276/

And Tesla’s primary reason for building the Gigafactory isn’t to lower the price of batteries. It’s to ensure the supply they need to expand their production; to put that supply under their own control, instead of the control of another company.

Mark B. Spiegel

If the home storage business is “something for the future” then why are they hosting a major press conference for it on April 30th (other than– of course– to try to hype the stock)?

If you’d read the financial statement (which no undoubtedly didn’t, because anyone who did wouldn’t own the stock) you’d have seen a massive amount of “raw materials” inventory at end of Q4. A chunk of that is almost undoubtedly “too many batteries.”

Omar Sultan

Mark:

I am sure you will have no problem providing a link to the Tesla statements that they are no longer battery constrained, right?

pjwood1
Omar, I think Tesla said as much in Q2 ’14. A link to “Take or pay” contracts is something I can’t find. Since Tesla could sell excess 18650’s in either the ESS market, or perhaps to another auto-maker, like Audi, it makes a bit of a moot point of battery inventory over-hang. For the 1.8bb cells, it’s not a take-or-pay. Its a “minimum” they “intend” to purchase, from Panasonic thru ’17. Tesla does reveal an 81mm buyout/escape exists, for materials contracts thru 2015. Almost no firm contract liability is represented after this date, though (page 58 of the 10-k). ’14 and ’15 are represented as about a half-billion each. I can see the timing of X production coming after a pile of 18650’s builds, but not the threat of contracts which probably won’t amount to a third of operating expenses, for ’15 and ’16. They were already over 1bb in OpEx, last year. It means a bigger balance sheet, if you can get the market to react on the short-term negative, but good luck with Tesla shareholders. Without speculating on Model E, or X, timing, there’s nothing mortal lingering in Tesla’s closet. If things go too slow, they’re paying, like,… Read more »
Lensman
Mark B. Spiegel said: “If the home storage business is ‘something for the future’ then why are they hosting a major press conference for it on April 30th (other than– of course– to try to hype the stock)?” Strangely enough, it’s only TSLA short-sellers who seem to think that every press release Tesla issues is an attempt to hype the stock. Most of us think that Tesla’s PRs are intended to sell cars. And informed persons realize that it would serve Telsa better to have a more stable stock price; a stock not subject to such large price fluctuations. Why did Tesla tout home storage batteries when they won’t be selling them until the Gigafactory starts delivering in quantity… probably at least a year from now, quite possibly longer? For the same reason that -any- product is touted or teased before the company starts selling it, of course. “If you’d read the financial statement (which no undoubtedly didn’t, because anyone who did wouldn’t own the stock)…” I don’t own stock, which is one reason Tesla-bashing FUD annoys me. Amazingly enough, not everyone interested in Tesla Motors has a direct financial interest in the company. I am, however, keenly interested in… Read more »
QCO

I find these invented pro and anti Tesla arguments quite fatiguing and detrimental to the value of Inside EVs.

Today’s black mark goes to Lensman for inventing a controversy that doesn’t exist.

Mint

Spiegel is a regular Tesla basher at InsideEVs. He manages a hedge fund that shorts TSLA.

Tech01x

There’s nothing that says that this first generation of storage product has the exact same cells as those that go into a Model S. Matter of fact, there’s no indication that they are of the same bin – in other words, it could be rejected Model S cells that can’t handle the high C rates for automotive use or didn’t end up with the same capacity but would still work well for stationary storage.

Therefore, whether or not Tesla is cell constrained at the moment is still unknown. Further, Tesla definitely moved to promoting higher priced models with cell constraints and factory production constraints. As both constraints are raised, it makes sense to be able to capture a larger market as Tesla’s costs also drop. Remember, the cells are priced in yen and the commodities pricing has also dropped.

M Hovis

This post was made 3 weeks after Analyst Mark Spiegel’s stock recommendations to bail. The stock is trading 20% higher.

Anon

Physics says Model X will be best enjoyed and utilized at 100 or more kWh battery size (mountain travel, towing, long remote area trips, severe weather driving, etc.). I could easily imagine 120 as part of a future premium package; once the GigaFactory is up and running.

Warren

I suspect the vast majority of SUVs are never used for offroad, long trips, towing, or even carrying more than one person to work or the mall.

NL

Can’t speak for the vast majority, but at east half of the miles on our Honda Odyssey are from road trips ranging from 250 to 3000 miles. Lots of mountains, remote locations and bad weather involved, at times.

Samuel Hoogendoorn

The same goes for trucks. The Ford F-150 is America’s favorite luxury vehicle!

Ford Prefect

Since so many were caught off-guard by the 70D replacing a 60 as a base model, I think Tesla has laid the groundwork for introducing a 95, 95D, P95D (based on the 10 kWh increase) or, as mentioned in this article, a 100, 100D, P100D is conceivable as well. Maybe we’ll all be stuck scratching our heads when a 110 or 120 is introduced with a mind blowing range near 400 miles. Who knows, but the analysts definitely don’t!

Lensman

P.S. — Yes, a Tesla spokesman (was it Musk?) did say early last year (paraphrasing) ~”We are no longer constrained by battery supply”~, or words to that effect. Tesla bashers like to quote that… and would very much like us to ignore the fact that Tesla increased the production of its Fremont assembly plant by 25% -after- somebody at Tesla said that.

Is there any indication that Panasonic increased its supply of batteries to Tesla by 25% last year, to match that increase? Did they suddenly cause another factory to spring up like a mushroom while we weren’t looking? I don’t -think- so!

PVH

Tesla is doing a good job, selling good cars in numbers that established car makers start to notice. Only annoying aspects are the fanboys and the hype.

Rick

Man… that’s so true. I could not agree with you more. it’s really a shame.

Omar Sultan

I think you can argue that Tesla is giving you 17% more range for free. Sure the price point went from $71K to $75K but beyond the larger pack, that also includes AWD (a $5K option) and Supercharging (a $2K option) plus nav and some other stuff, so for ~$4K, you are getting over $7K in options plus 17% more range. I think part of making that all work financially is cheaper or more efficient batteries. I think that bodes well for Tesla being able to hit its price points for the M3.

On that note, moving the base price of the MS up a bit also opens up from room for the top-end of the M3.

sven

I think you can also argue that Tesla is overcharging for its $4,2500 Autopilot option to avoid or hide an increase in the base price of the Model S. Toyota just announced that the same tech is rolling out in its cars for only $400 in Toyota cars and $500 in Lexus cars. Nissan just announced that it is including this tech in all its volume-selling models in Japan as standard equipment by the end of fall in 2015.

Goaterguy

Ultimately Tesla is a car company not an investment. If the purpose of Tesla was to improve the rate of return, Musk would’ve sold it already…

James

I’ll be very surprised if Tesla keeps the 2wd Model S alive in any form. Anyone who’s buying a Model S right now can afford to pay an extra $5k, so why have it as an option at all? I think whatever losses they incur with lower end 70d sales have been made up by folks who already own a Model S selling it and buying the P85D. Also, Model X sales aren’t even on the books yet. “Analysts” will always be there to forecast the wrong thing, but eventually one of them is right.

Speculawyer

I wish you could drop the 70D to 2 wheel drive and just pay $70K for it. (And still get the supercharger access, 70KWH, and everything else.)

Soon, all these will just be drop down menu items.
Number of drives: 0/1/2/3/4.
Battery size: Enter your own KWH
Price: name your price and see if Tesla takes it.

Lensman

James said:

“I’ll be very surprised if Tesla keeps the 2wd Model S alive in any form.”

So will I. The fact that Tesla made the 2WD option unavailable for the new low-end package, the 70 kWh Model S, certainly suggests they are in the process of phasing it out entirely.

It also makes me wonder about the Model ≡. Will there be any 2WD option for that, or will they all be 4WD? I guess we’ll have to wait and see.

wavelet

I used to work in the venture capital business, funding tech startups. Initially we had multi-$10K annual retainers with various analysis firms, to get both general forecast reports and bespoke analyst time.
Here’s the thing: In any fast-changing new market (and EVs certainly qualify), those analysts are completely worthless.

There isn’t a _single_ example where an analyst has predicted any big disruptive change (think cellphone proliferation, then a couple of years later SMS or ringtones) — there is simply no basis to predict them.

Tesla is currently a tiny company in terms of automotive output. That may certainly change (as we hope), but until it does, any attempt to apply large-scale vendor conditions is laughable.

Get Real

I couldn’t agree more Wavelet. Analysts have horrible track records in accurately predicting disruptive tech and Mark Spiegel is almost certainly invested in shorting Tesla based on his incessant “the sky is falling” chicken-little anti-Tesla ravings he constantly writes here.

CP
Depends on what kind of analyst. If it’s someone selling analysis to the public (including VCs) for hard or soft dollars, well, that’s a tough business. And I’d add that you get what you pay for. But if you go inside the big buy-side firms, the quality of analysis is often pretty high. The issue isn’t so much “predicting disruptive change,” but the time horizon. Wherever you go in organizations that buy and sell stock, you will constantly hear claims about how they’re focused on the big picture and the long term. The reality is the opposite, and that’s because those organizations are responsible to clients who themselves are moving their money around quite rapidly. To put it differently: For an analyst (regardless of how good, and pretty much regardless of where they work), there is much more reward in making short-term calls having nothing to do with “disruption” and everything to do with blips that have short-term significance for stock price movements. VCs like to think they are different, but I dealt with them too. They have a slightly longer time horizon: Three years or so, compared to a year or a year and a half among the pension… Read more »
Turboro

1. P85D Was a change on the top and 70D on the bottom of the portfolio.
2. Soon Model X will come and lift the bar to 95D by 2016, to get enough distance to entry model.
3. Later in 2017 a 110D can be expected since capacity raises and price per kWh will fall down.
4. Owners can upgrade there Model with a battery swap option for USD 3’500 in 2017.
5. The Dual motor is mainly used to optimize range

Nix

The 70D SHOULD cannibalize sales! It is the only healthy way going forward for the Model S line of cars.

The majority of BMW 5-Series sales aren’t $95K+ M5’s. It is 528’s and 535’s.

Same with Audi S and RS sales vs. base model sales. Same with Mercedes AMG vs. non-AMG sales.

Having a viable base model doing the bulk of sales, along with having a more expensive higher performance model is exactly what a mature market for the Model S should look like.

Any real analyst worth their pay should recognize this is a step forward for Tesla maturing their market segment sales the same as all gas car makers, and a maturing market for Tesla is a positive signal.

But sadly the vast majority of internet “analysts” are now nothing more than content fabricators for page hits to generate ad dollars. Their story lines are more based upon what will sensationalize and drive web traffic than actual financial analysis. If you are getting your finance advice for free from the internet, you get exactly what you paid for.

jeff

I’m throwing this out in case someone knows. Is the 70D the same drivetrain as the P85D? Maybe just limited by software and battery capacity?
Seems odd Tesla would create two different front and rear drive units.
thx

Nix

Sorry, different electric motors in the P85D than the 70D. Can’t find the specs though.

tedfredrick

I think the 70D uses two small motors and the 85D uses a big and a small.

Lensman
I can’t find any info re whether Tesla upgraded the rear motor from the 60 kWh Model S to the 70 kWh Model S, but here’s some older info from /Road & Track/ about the “D” dual drive Model S: “The short of it is this, you can now get the Model S with dual motors. The new setup adds a medium-sized motor just behind the front axle and makes the cars all-wheel drive. All three new models—the 60D, 85D, and P85D—use the same 188-hp front motor. The 60D and 85D use it on the rear axle as well. The supercar-grade P85D, however, keeps the existing 470-hp motor in back for a monstrous 691-hp / 687 lb-ft combo.” source: http://www.roadandtrack.com/new-cars/news/a6358/first-look-tesla-model-s-p85d-dual-motor/ It’s unclear to me whether Tesla has two motor types, or three, for the different versions of the Model S. Clearly there are at least two, and you can see pictures of the different types here: (Scroll down to the picture of the underside of the car, and toggle between the “Dual Motor” and “Single Motor” buttons to see the two types. The “Dual Motor” has two of the same motors front and rear; the “Single Motor” has a single… Read more »
Samuel Hoogendoorn

There is no Model S 60D.

Dave86

Two thoughts behind replacing the Model S 60 with the 70D…

1 – If Tesla has a surplus of cells from Panasonic with a “buy or penalty” type contract, then it makes sense for Tesla to use those cells up by replacing the 60KWHr Model S with a 70KWHr version.

2 – If you believe that there really will be a Model 3 in a few years, then the lowest range Model S should be greater than the lowest range Model 3. The 60KWHr Model S had a range of 208 miles, which is roughly the minimum distance for a Model 3.

stupid

Will cannibalize ? probably…
Will drive more sales ? certainly

Just makes sense in order to make room for a 55 kWh 200 mile model E

Mikael

Now we will just have to wait for the S95D and S120D

As well as the X counterparts soon, the third quarter is getting closer.

Someone out there

I don’t see why they cancelled the 60 line, it’s the exact same car only with a few less cells in the battery pack. Since they make the cars to order, why does it matter if the battery is 60, 70 or 85 kWh? It’s not like they have to keep a ton of different parts in stock.

Tesla really have to get the X out soon, all efforts should be focused on that. I guess the 70 model’s real purpose is to cover up another X delay. They need to launch “new” products every so often and since they don’t yet have what everybody is waiting for they do this.

Lensman

I see two possibilities (there may be others I didn’t consider), and possibly both contributed to the decision:

1. Tesla needs to upgrade the battery packs to allow the two versions of the Model X to have the same range as the two original versions of the Model S, as previously advertised. (Perhaps the 85 kWh battery pack will also receive a future upgrade, as many have speculated.)

2. With only 7% of orders going to the 60 kWh version, Tesla wanted to improve the range of the base version to attract more customers. (Why? My guess is because higher volume of production = lower per-unit cost, for the smaller battery pack.)

Samuel Hoogendoorn

Actually, that number was 2% of total demand for the Model S 60.

CP

Always fun to look into a Tesla thread. If this was a privately held company, or a public company but with a rational stock valuation, there’d be a lot fewer comments, less vitriol, and a lot more genuine focus on fundamentals. The majority of commenters on Tesla threads are actually commenting on TSLA, not the company — even if they pretend otherwise.