The Long-Term Case For The Tesla Model 3

Tesla Model 3

FEB 22 2018 BY STEVEN LOVEDAY 80

Tesla Model 3

Tesla Model 3 (Image Credit: Tom Moloughney/InsideEVs)

Baird looks at the long-term case for the Tesla Model 3, and despite skeptics’ forecasts based on early issues, the Model 3, as well as the automaker’s future look very positive.

Yes, Tesla has had a plethora of issues with Model 3 production, and this is nothing new for the automaker. Many argue that the Silicon Valley car maker will always struggle to make margins, and much attention is focused on the company’s exponential spending, delayed productionfit and finish concerns, lagging tech updates, and the list goes on and on.

Tesla Model 3

Inside the Tesla Model 3 LA Auto Show (Image Credit: Tom Moloughney/InsideEVs)

This is all under the microscope because most people agree (fan or not) that the Model 3 will either make or break Tesla. It could garner the widespread appeal of the masses or tune more people in to the fact that the automaker is struggling. It could make the company a significant amount of money, or pull funding from higher margin pursuits.

Baird & Company – in reporting to clients and setting its latest price target – had to decide if early Model 3 production issues are working to cause a general (and unnecessary) lack of confidence in Tesla.

Will the concerns eventually be behind us, leading the automaker forward toward substantial successes? Conversely, will those issues, along with other problems eventually steer the automaker toward imminent failure? The firm deduced (via Barron’s):

• “Demand for the Model 3 could be underestimated,” Baird wrote, and “could accelerate with further positive reviews from early customers. Bears have argued that production delays, competition, and quality issues could limit demand for vehicles, but we continue to expect demand for all TSLA vehicles will remain robust and early reviews have not identified significant quality issues.”

Baird believes that Tesla could eventually sell more than 500,000 Model 3s annually. That would put it squarely among the nation’s top-selling vehicles.

• Baird also believes the company will be able to post substantial margins on the Model 3 over time.

“Bears may focus on weak gross margins in Q4 and we believe there is substantial skepticism on TSLA’s ability to “make margin” on its vehicles,” they wrote. “Importantly, while the slower-than-expected Model 3 ramp may have impacted margins in recent quarters, we expect sequential expansion throughout 2018 and think the company will be able to achieve a 25% gross margin.”

• Baird reiterated an Outperform rating on the shares. It has a $411 price target on the shares, roughly 30% above current levels.

Keep the conversation going in our Forum. Start a new thread about this article and make your point heard.

Source: Barron’s

Categories: Tesla

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80 Comments on "The Long-Term Case For The Tesla Model 3"

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These analyst spend to much time reading about Tesla and not the car market in general. The demand for cars is shrinking especially in the US. The chances of Tesla selling 500k Model 3 cars a year is zero. If this was the Model Y it might be able to argue it. But 500k of any car starting at more than $35k just isn’t happening.

It sounds like you have comcerns about the demand not being there. Have you studied this? Worldwide?

Perhaps he’s limiting his thinking to U.S. sales of sedans, for which 500,000 units of any one model would indeed significantly exceed what is currently being sold. There are sales of that many or more in pickups, but not sedans.

But of course Tesla’s market is worldwide. According to a Forbes article:

“Toyota sold 1,160,495 units of the efficient and reliable compact [Corolla] in 2017, easily beating the Honda Civic and Volkswagen Golf, ranked 2nd and 3rd, which sold 833,017 and 788,044 vehicles, respectively, according to LMC data.”

I don’t see any particular barrier to 500,000 Model 3 units for global annual sales, other than Tesla’s ongoing difficulties in ramping up production rapidly.

I am bullish on Tesla but 500K annual TM3 production is worrisome. Check out BMW (3), Audi(A4) and MB ( C ) sales in US, Germany, China.

Sorry.

Nothing to be sorry about. It’s quite a stretch that they will hit that number anytime soon, maybe 2500-300k, but in a few years.

M3 will sell between 4000-5000 for February 2018

My question was not about it hitting 500k or not but the logic he used to why ut could not. Globally I am not so sure demand is shrinking in the near term and even if it was there are other shifts that could play in the model 3s favor. I wad interested if he had more supporting detail on that aspect.

As for your logic to simply compare to BMW 3 series and the like – I think that is flawed. If you are intetested I can reply why I think that.

Demand for cars is shrinking because with or without a reservation, everyone is waiting for a Tesla.

Most people don’t need a new car next month, or next week, they can wait for Tesla to catch up with reservations, and then place an order.

Lol. Ok. What’s next? The 2008 recession was caused by the delay in Alfa Romeo’s return to the US?

If they are on a lease they’re looking for a vehicle. Also you’re ignoring the rise of CUV, SUV and truck sales.

The couple people I know with them seem to be very happy. I was just talking to one of them yesterday and he was talking about how enjoyable it is to drive and how much his wife likes it.
That is coming from someone whos other cars are luxury brands. You can find flaws with any car. But, as people here about the actual driving experience they well be more interrsted in the Model 3 and/or EVs in general.

No analysis is complete without a study of long term competition, which seems to be lacking here.

The Model S is five years in. So you must be talking REALLY LONG term competition.

The TM3 really has no competition, and won’t for some time. The Supercharger network alone sets this car apart from everything else in this price range, it also looks, drives and performs better. No competition.

I disagree. I’m a first-day reservation holder in Norway, and I consider both the Hyundai KONA and Nissan LEAF e-Plus Plus as very serious contenders for my money. The Ioniq too may come into consideration before Tesla can deliver my car. 2019 is the earliest Tesla can manage, and even that is far from certain, whereas a Kona might be available this summer (I’ve got a reservation for that as well).

Heck, even the VW I.D. may well prove real before the Model 3 does, in my market.

It is true that only 1 out of every 3 personal automobiles sold in USA are traditional cars. The rest are SUVs and pickup trucks.

However, until the wait time for a TM3 drops to ~ 1-2 weeks, any concerns about demands are just silly.

Competition is a different story. I personally don’t believe we will ever see the base $35K TM3 in any significant volume. So call it a $50K car. It’ll compete against Audi, Infiniti, WG’s future BEVs. So no competition.

At the lower $30-35K end, the 2018 Nissan Leaf will compete against the Chevy Bolt. Owners (at least here in NorCal) will fight for the 1-2 outlets available at most DCFC stations. Most will only charge at 100A (or ~ 38kW).

So am I in the UK

The supercharger network and the GigaFactory.
-Best charging infrastructure.
-Lowest unit cost, most advanced batteries.

95% of people charge at home so the supercharger network is a bonus not a need. And as far as battery technology Tesla is using a very basic format that is no different than what’s in a standard laptop. There’s a reason why Tesla uses 1000’s of batteries and GM uses a few hundred for the same 60kWh capacity. It gives Tesla some benefits (high discharge/capability). But it’s downside is the complexity of the pack assembly.

@theflew, “95% of people charge at home so the supercharger network is a bonus not a need.”

Even when EV’s owners charge their car at home 99% of the time, when they go on medium to long trips the supercharger network is needed, not a bonus.

As some examples, can a Bolt owner drive his/her car between Los Angeles and Las Vegas or Phoenix ? Where do you find fast DC chargers for the Bolt on I-10 and I-15 between those cities ?

“And as far as battery technology Tesla is using a very basic format that is no different than what’s in a standard laptop.”

Hmmm, I rather doubt that any “standard laptop” includes the following in its battery pack:

1. Liquid cooling system

2. Fusible link for every cell

3. A combination of parallel and serial connections between various groups of cells

I’m also fairly sure that a Tesla car’s BMS (Battery Management System) is far more sophisticated than the ones found in laptops.

White paper: “The Tesla Roadster Battery System”

http://large.stanford.edu/publications/coal/references/docs/tesla.pdf

Really?

That paper was based on the battery in the original Roadster. It was written in 2006.

The model 3 uses different battery cells and pack and substantially different electronics.

apples and …

some people wont ever need it but think they will and as a buyer that puts them in the same boat as people who do need the superchargers.

Because there is none.

When Wallstreet stock salesmen are pumping some stock, you need to understand they are most likely doing it because they are either underwriting secondary sale, or trying to dump or prepare for dumping their own shares.

Either do the opposite, or don’t pay attention. “Chinese wall” between so called analysts and traders sounds nice but everybody there knows what they are paid for.

So what are you saying about the analysis that constantly write against Tesla? If pro analysts have an interest in pumping to sell their shares do sell analysts have an interest to bash to buy shares?

Buy sell and hold is evenly split about 33% each. His views have never had any validity.

I wasn’t really looking for an answer there, i know he’s full of it and can’t see how silly his arguments are.

That old chestnut…?
You know what you really needs is a refresh of your view of Tesla. It’s so 3 years ago.
Stock is surging today, shorts are getting creamed, but it’s all just a conspiracy.

When serial anti-Tesla trolls (and fool cell shills) are bashing Tesla you need you understand that people like zzzz often have some inherent conflict for doing that.

My guess is he is associated with a Euro auto OEM or a fuel cell/H2 program or even an oil company.

Wayne Tracker

zzzzzzzzzzz said:

“When Wallstreet stock salesmen are pumping some stock… don’t pay attention.”

Likewise when short-selling Tesla bashing FUDsters like zzzzzzzzzz keep posting Tesla hater comments.

Too bad you don’t take your own advice. Comments would be much nicer to read without your bull pucky.

This speaks to a positive direction, so I fully expect a backlash from the usual suspects. But, naysayers aside, my take is that Tesla will do everything they can to make this car a successful endeavor and really make the case for switching to EVs.

Probably.

The problem with Tesla is the sleazy lies and the utter lack of integrity on the party of its CEO. Just look at the man, wearing his SpaceX hat, sell the snake oil of BFR doing earth-to-earth trips, and it becomes impossible to give him the benefit of the doubt. Musk doesn’t believe what he says, he says whatever his audience is prepared to believe.

There are enticing aspects of Tesla’s cars, to be sure. But if an honest company made the same products things would be infinitely better.

ah man, part of my lunch got ruined because I burst out laughing : )

#dontfeedthetrollsbutsometimesicanthelpit

Maybe our TSLA trolls are really Russian Bots!
They’re everywhere…… ?

You are joking right? Wow, such venom for the guy. Take a hard look in the mirror and ask yourself why do I hate the CEO of one of the most innovative, exciting, and well reviewed suite of companies in the current landscape. Why do I hate cars that most of their owners adore. Why do I hate innovation. Why do I hate the best EVs made. Why do I want Elon to fail and the sight of him repulses me. – OH because I am shorting Tesla stock and I am losing my butt…oh yeah.

Honestly, I don’t think Terawatt is shorting Tesla stock. I think it’s just an extreme case of jealousy over Elon’s string of successes, coupled with an amazing level of immaturity on the part of Terawatt. Not that Pushy is all that mature, but Terawatt makes me look good! 😀

Terawatt, “Musk doesn’t believe what he says, he says whatever his audience is prepared to believe.”

You are a LIAR.

Musk said many times before successfully landed the Falcon 9 booster safely on land and on drone ship in the ocean. He doesn’t believe the Falcon 9 booster can’t be landed safely ?

+1

😆 😆 😆

Terawatt must live in a plastic bubble, protecting him from the horrible real world in which company executives actually — GASP! — use hype to sell their products!

If using hype to successfully sell a product was an Olympic event, then Elon would easily take the Gold for how he used the “Roadster to Mars / ‘Space Oddity’ / Spaceman” SpaceX launch, rocketing demand for the Model S and Model X to previously unreached heights!

(⌐■_■) Trollnonymous

“the sleazy lies and the utter lack of integrity ”

Stealerships.

Ok, let me try some real-world analysis about the long-term case for Tesla as an automotive brand. First things first: Tesla is clearly positioned as a premium brand Tesla is competing for the same market as Mercedes, BMW, Audi, Porsche, Volvo, Jaguar, Lexus, Acura, Infinity, Cadillac, Lincoln etc. It is no competing with Toyota, Ford, Chevrolet, Hyundai or Volkswagen. So let’s see how big is the market in which it competes, segment by segment. 1.Model S Model S is competing in the premium Large segment, with competitors such as Mercedes E-Class, BMW Series 5, Lexus GS/IS, Cadillac XTS/CTS etc. In 2017, this segment was worth 286030 US sales and 422525 European sales. Model S sold 27060 cars in USA (taking 9.5% market share) and 16026 cars in Europe (taking 3.8% market share. The rest was sold worldwide. Sales of Model S had platooned in 2016 as it is now in the second half of model’s life cycle. If we take usual Tesla sales split of 50% US sales, 25% European sales and 25% for the rest of the world (mainly China), AND WE MAKE ASSUMPTION THAT TESLA SALES POTENTIAL IS 10% OF THE SEGMENT SALES IN USA, 5% OF THE… Read more »

I think you’ll find that the model 3 erodes Toyota and Ford car sales. The Prius is already down. People waiting for a Tesla.

I am not sure about that.
Price-wise, all Tesla models are clearly positioned in a premium segment.
I don’t believe that potential customers are putting M3 in the same basket as Bolt or Leaf.
M3 is more than 50% more expensive than those two!

Not really.

@Goran, the Model 3 starts at $35k, not $70k.

It is very clear that Model 3 is not twice as expensive as Bolt and Leaf.

You can buy Leaf for 30000 usd.
Tesla M3 can be bought for 49000 usd.
This is more than 50% difference.
Later this year, yet more expensive AWD and P versions will come to market.
35000 usd base model will wventually come in 2019.
Don’t get me wrong, I dearly want for Tesla to survive and thrive, I’m just trying to separate noise from the facts 🙂

The model 3 is not a $35k car. That is a myth that Tesla pushed in order to convince investors and potential buyers that it’s finally making an “affordable” EV for the masses. What’s funny is that nearly every Tesla fan fell for it. The Model 3 is really a $50k luxury car aimed at folks who currently drive luxury cars.

If you really want a new EV that’s under $40k (not counting tax incentives), you will never be driving a Tesla. You’ll be driving a Ford/VW/Chevy/Nissan/etc.

Don’t be so sure, there are lots of millionaires driving Priuses based on principles and/or value.

Prius sales are a dumpster fire right now, due to low gas prices (eroding value) and EV options like Tesla (eroding principle).

Worldwide Prius volume is where Model 3 is aiming for.

I would say Model 3 cross competes with entry level lux buyers and half of the Prius buyers. Tesla pulls buyers up to a higher MSRP based on value proposition (lower fuel price, premium tech mostly, and “mission”).

Prius is down because nationwide people want to drive pickup trucks, SUVs, CUVs etc. and believe that cheap/moderate price gasoline is here for a long time to come.

All small/midsize car sales are down. Plus the current Prius is very odd looking which may or may not matter much.

Another Euro point of view

I give you my thoughts, at least regarding Model 3.
I really thing this huge reservation number was driven by the (optimistic) $35K sticker price. People thought: OK, $35K less $7.5K tax rebate that is $27.5K, I now have only $12.5K in the bank but by the time the Model 3 comes I will have saved an additional $15K.
Then time passes, the $35K car becomes a $44K car and the tax rebate flies by. Also, often life situation of those people having made early reservation changes, people get engaged , having the last gadget in town becomes less of a thing as they get a life (a real one). Then they get information about how much it costs to insure a Tesla, how much it costs to repair a minor body damage on a Tesla, and wife says (wife is the new addition that puts the guy’s life in good order) “let’s buy a Toyota Corolla (ICE)”. So yes I indeed think that because of that old marketing trick Elon Musk used to get is big reservation number the transformation in real orders will likely be a bit disappointing to some.

Reality check: As time passes, the number of Model 3 reservations is going up, not down.

But then, every regular reader of InsideEVs comments knows better than to believe any of the Tesla bashing from Another Euro FUDster.

Another Euro point of view

Then you would be the only one outside a handful of people around Elon and Deepak that are privy of this information(current nr of Tesla M 3 reservation). As all we know is the new 12.31.2017 value of the total reservation which includes Model 3, semi & new roadster. Moreover the delay in the base version of Model 3 was announced recently so even if the had the breakdown of year end reservations it would not help much.

I am pretty sure that the last set of corporate docs from Tesla stated that the net amount of Model 3 reservations had risen. I believe they had risen in the final quarter of 2017 over the 3rd quarter but that is not as firm a memory.

Goran said: “Sales of Model S had platooned in 2016 as it is now in the second half of model’s life cycle.” I think you meant “plateaued” (flattened), not “platooned”. A lot of commentators have said the MS needs a major refresh, and perhaps it will take that to increase demand. But Elon managed to create a pretty strong spike in demand from all the mainstream news media coverage of the recent “Roadster to Mars” SpaceX launch! So there is at least some potential there for more demand, should Tesla choose to start spending significant money on mass marketing. “…potential worldwide sales for the model 3. “Clearly, these numbers are not corresponding with 455000 reservations. “My best guess is that only half of them, or about 230000 will convert to actual sales.” 50% (“only half”) seems to be a lowball figure, given that about 75% of Model S reservations become orders. Goran, I appreciate your efforts here to perform a realistic analysis of Tesla’s future prospects, but at best you’re basing this on current EV tech. EV tech is advancing fairly rapidly, and as it does so, the market for plug-in EVs will continue to grow. Nobody can really predict… Read more »
Another Euro point of view
As from an European point of view current production delays are of course problematic. Indeed, our high average VAT rate implies every US price has to be multiplied by approx. 1.15 to have European prices with the exception of Norway which does not apply VAT on EVs, that makes the current available versions of Model 3 still an expensive cars (EUR 50’000+) with a more limited market that one could hope if base version was available. Also Europe is peculiar in the way that fast (150 kWh) charging CCS networks are currently slowly deployed, thus delay of M3 production is eating Tesla competitive advantage of SC network with every month passing. Also, the body form of Model 3 (sedan) is not at all adapted to the European market (would need to be a SUV or at least a hatchback or station wagon). Now going strong in favor of Tesla is the brand/image and that impact on sales is very difficult to assess, so far it has done wonders but it could also be that the novelty factor wears off with time passing (there was an article in a Norwegian newspaper not long ago about this issue Tesla allegedly starts to… Read more »

Preference for Tesla has little or nothing to do with national preference which can’t be said about European autos.
Tesla is the clear leader while everyone else follows. That’s just a reality of the situation. Yes they have made some missteps along the way no ones stepping over them, and in fact they are increasing their lead in the development and deployment of electric vehicles. Just another point of view.

Another Euro point of view
I believe Tesla’s are given a bit more slack regarding early production issues in the USA than they would in foreign countries. I base that opinion on the repetition of such opinions like “Tesla is the only all american car maker since the 1930’s (Chrysler) so it should be given a bit of slack” I read time and time again on US EV forums, there are other examples, that one came first. About Tesla being the leader, this is indeed a fact in that segment of the EV market. Now the problem is that Tesla is the only one in that segment as no one thought it could be a profitable business. I mean if a company now invested billions in the large scale production of personal submarines, it would also become the leader of that specific unexploited market, until the day the industry realizes it may be a profitable business after all. Tesla is not even in that situation now & OEM’s are slowly starting to notice,not so much because they think there are profits to make now, but because they think they can’t afford to miss out completely. Another fact is Tesla made a $2.2B loss in 2017.… Read more »

There is certainly a Tesla cult following,
but that has little to do with it being an American company.

People view it as progressive company offering products that are less detrimental to the environment. Also many of those same people would not be caught dead in an American made car by GM or Ford.
So that pokes holes in that argument.
Heck look at all people that said that they would never buy an American car, and started buying Toyotas, and even Mercedes, and BMW, because they were superior products.

It’s not like the 60’s where a person was either Ford or Chevy people for life.
Yes, tesla is losing lots of money, it takes lots of money to start up a car company. European ev manufacturers are behind as you admit.

Another Euro point of view

I don’t admit that European car manufacturers are behind I just admit that they did not address this market yet. They may be technically behind, we will know when they show us their products that compares to Tesla (long range EVs made on a dedicated EV platform). If for example, Audi eTron Quattro that will be shown in its production version by early March and be on sale later this year proves to be a bad/technically retarded EV then yes we will have evidence that Tesla has an obvious lead. Same with Jaguar i-Pace.

“Also, the body form of Model 3 (sedan) is not at all adapted to the European market (would need to be a SUV or at least a hatchback or station wagon).”

Another load of bull pucky from Another Euro FUDster.

Reality check: BMW’s best-sellers are the 3 Series and the 4 Series. Mercedes-Benz’ best seller is the E-class.

Altho those cars are available in a variety of body styles, looking at multiple Google images of all those cars, they certainly all look like sedans to me!

The idea that the TM3 won’t sell in Europe is deserving of nothing but a Bronx cheer.

Go Tesla!

Another Euro point of view

Model 3 competitors would be Audi A4, BMW 3 series, Mercedes C class and indeed some coupe such as Audi A4 and BMW 4 series but which are sold in smaller numbers.

Among the Audi A4, the station wagon version outsells the sedan version in Europe approximately 2 to 1. For BMW 3 series, station wagon version also outsells the sedan version but not as much. For the mercedes C class I don’t know.

One more thing about demand.

News coming from electrec are that Tesla opened Model 3 orders to non-owners with reservations.

Tesla have 455000 reservations, out of which 50% are from US if we respect previous tradition. Elon said that 93% are from people who are new to Tesla.

Now, that leaves us with 230000 US reservations, out of which 7% or about 16000 are from current Tesla owners of MS or MX. If we take 50% conversion rate as discussed in my previous post (reservation to actual order), we arrive at 8000 cars maximum demand from current Tesla owners.

According to Bloomberg M3 Tracker, Tesla has produced 8000 M3 until today!!!

So, total demand in US for M3 should be (230000-16000)*0.5 = 107000 cars.
Tesla will deliver these cars in 2018 in USA.

Tesla will make as many cars as they can notwithstanding whatever tortured logic you are trying to present. You say based on a previous post which was also just speculation.
In other words you don’t know what you are talking about.

ffbj
I know what I am talking about.
And I am not participating in this forum with a wish to fight on a personal level.
I am here to express and share my opinion based on a hard market facts.

Another Euro point of view

If Elon said that 93% are from people who are new to Tesla then he blew the secret and it all become obvious. You have here an idea of the proportion of people that were attracted by the low sticker price ($35K) as those yet having a Tesla are likely in another league financially (able to afford a $70K car). Thus if to those 93% if they are explained that price is not 35K and that tax credit was only a wet dream then likely many of them just go away (rather pissed off).

There are currently about 565,700 pre-orders
so..

Tesla had about 12k pre-orders for Model S and about 20k pre-orders for Model X.

Don’t judge long term sales demand solely on pre-orders.

To finish my point, I could extrapolate from those above numbers and say the roughly 500k Model 3 pre-orders Tesla has now means the Model 3 market is 1.5 – 2 million sales per year.

We all know that is not true. 300k – 500k per year worldwide is the best guess at this point.

Don’t ignore the fact that Tesla plans to open production in China which would remove import fees and make Model 3 eligible for all local incentives. 200k+ per year China sales would be a reasonable expectation after local production.

A 200k US/ 100k EU/ 200k China split 5 years from now is my best guess.

Goran said:

“If we take 50% conversion rate as discussed in my previous post (reservation to actual order)…”

Citing your own lowball speculation, which is almost certainly wrong, as an “authority”, lends no credence at all to your analyses nor your arguments.

You are also ignoring the fact that TM3 reservations are going up over time, so your 455,000 figure is outdated. It’s reported to be at least 550,000 by now, and likely more.

……. Thank you for giving me The Opportunity to earn My Tesla… God bless you Oh Space Lord Elon….!!!

***yours forever

get a life

At last! It’s about time that Elon got the proper recognition and worship that he deserves. 🙂

“Many argue that the Silicon Valley car maker will always struggle to make margins”

Those folks who argue that don’t seem to understand that Tesla has control over this by deciding how much R&D they are doing on future lines of cars, how much expansion they are doing, etc.

It is like keeping a pot of chili simmering. You adjust the flame to keep it from boiling or to keep it from going cold. Tesla is doing the same. They are pushing expansion at the rate they can sustain at the edge of their finances, and will continue to do so as long as they can continue to expand like crazy.

“the Model 3 will either make or break Tesla.”

Meh. They have the Model Y following up the Model 3. After that Tesla pickup, Semi, Roadster, next-gen S and X, and future variants on all those, plus stuff they haven’t even talked about yet. There really is no single make or break car for Tesla anymore. That was the Model S, and it made the company already.

GO TESLA GO DESTROY DIRTY GAS GUZZLERS AND DIESELS LOL CONNECT THE DOTS ON CLEAN AIR WAKE UP FOLKS

Isn’t the long term prospect dependent on the maturity and adoption of Auto Pilot, then full self-driving?

The car’s display is optimized for someone who isn’t actually driving. In other words, it’s a simplified experience.

Tesla delivers that, buyers trust that, and Tesla is instantly the standard bearer for the future of cars.