Low oil prices, the strong dollar, and delivery difficulties were going to cause struggles for Tesla. At least that's been the theme of some analysts as the stock has come down more than 30% since the start of 2016. Well, the company sees things quite differently. With its earnings announcement, Tesla not only said it believes deliveries this year will increase 60-80% -- bringing the total for the year up to 80,000-90,000 for the Model S and X -- but that it's gaining market share against Mercedes, Audi, BMW, Lexus and Porsche.
Perhaps most importantly, the company has gone on record again with an assertion that the low-priced Model 3 sedan will debut in late 2017 as scheduled. There has been much skepticism -- warranted by past performance with respect to hitting delivery targets -- that the car would be delayed into 2018 or later. That Tesla seems to be sounding a drumbeat of seriousness with respect to this target will either demonstrate a newfound ability to produce new vehicles as planned or ultimately undermine credibility seriously. Expect Tesla and CEO Elon Musk to say more about the Model 3 at its first public unveiling March 31.
None of this is to suggest there aren't concerns. as Forbes contributor Chuck Jones noted, there are some hints Model S demand may be softening a bit. In 2015, nearly all the 50,580 vehicles Tesla sold were the sedan and the 2016 outlook mentions that Model X production should reach 1,000 per week sometime next quarter. While it's hard to be precise, it seems probable Tesla is planning on selling close to 4o,000 of the crossovers this year. That implies that even if overall sales reach the higher end of the forecast at 90,000, Model S shipments could be flat in 2016. Musk in the past has suggested he believes the ceiling for the Model S is much higher than 50,000 and it's very possible that Tesla's production constraints simply place an upper limit on total production this year. In short, even if they could sell more of Model S they can't also make more of them while going flat out to deliver on the backlog of Model X orders.
In the meantime, Tesla is cranking as fast as it can. Deliveries in the fourth quarter were up 76% over last year and plans call for a 60% boost in the current quarter to more than 16,000 vehicles. Musk noted that "Tesla is approximately doubling its cumulative sales every year. We started at the beginning of last year with 50,000 cars on the road, we ended with 100,000." He went on to add that Tesla can very nearly pull off that feat again in 2016 if it reaches the higher end of its forecast range.
Musk was especially excited about Tesla's success against the competition. Despite robust auto sales in the U.S. last year, luxury sedan sales were essentially flat. But Model S managed to grow more than 50% in sales (see chart) while most competitors saw declines in the double digits. Tesla cherry-picked some facts about successes in Switzerland and Germany as well, but significantly was able to report this: "Across all of Europe last year Model S outsold the Audi A8 and A7 combined and the BMW 7-Series and 6-Series combined."
He also did sort of a mixed post mortem on the Model X. On the one hand, Musk said: "Model X is the best car ever. I’d be surprised if somebody buys the X and ... it’s not the product they love more than any product they’ve ever bought." On the other hand, he admitted the company was too ambitious with adding too many features to the first iterations. If Tesla had it do over again, it would roll out improvements more slowly. Musk doubted the company would do a vehicle like the Model X again or that any other automaker would.
But that was then. Most of the Tesla story has centered on what's to come and Musk had some things to say about Model 3 in particular. He reiterated plans to release the car late next year and talked briefly about the unveiling next month. "We're trying to decide if we should show all the cards or keep a few cards close to the vest," Musk said, addressing rumors the reveal wouldn't show off the whole car. "We haven't made a decision yet."
But importantly, production of the vehicle seems unlikely to be slowed by developments at the Nevada battery Gigafactory. Development of that plant has been the source of some recent controversy as to whether Tesla has been meeting the terms Nevada laid out in granting more than $1 billion in incentives to the company. Musk was a bit annoyed by the assertions: "There is no way for Nevada to lose. They did an awesome job on behalf of their state. It's really annoying to see this stuff misrepresented in the press," he said, explaining along with Tesla CTO JB Straubel that everything in the package is incentive based. Importantly, Tesla sees progress there tracking its plan and believes the Gigafactory will ramp up production and not be a constraint on building the Model 3.
Tesla is focused on developing a car that's designed for ease of manufacturing, Musk said. He noted that the Model S was the first car the company built on its own (the original Roadster got significant help in that the body was basically sourced from Lotus) and the focus was on a car that worked, not necessarily easy to put together. Now that they can shift to better manufacturing and the scale economics of selling hundreds of thousands of cars annually, Tesla feels confident about lowering the production cost of the Model 3 to half that of Model S and reaching the $35,000 price target.
That said, the earliest deliveries will be better optioned, Musk said, as was the case with Model S and X. He didn't put a number out there, but expect the initial Model 3's to be north of $50,000.
In the meantime, Tesla is doing lots of little things to ensure success along the way. The company has plans to open 80 stores and service centers in 2016 and Musk was honest that some locations (particularly in Manhattan) weren't optimal. Company executives said demand was stronger than ever for both Model S and X but Musk admitted that over time he wanted to see demand outstripping supply and better store locations was an opportunity. "If you have a fishing boat, you want to go where the fish are," he said.
Musk cited Tesla's popularity in Mexico, where the company itself has little presence, as a focal point in 2016. At the same time he downplayed China, which had been seen as Tesla's next great opportunity not long ago. Musk pretty much admitted China was insignificant to Tesla right now but also suggested it remained very important in the long run. Given Tesla's struggles there to find the right local management and deal with issues surrounding getting home charging in place for many apartment dwellers, this seems like a prudent pullback. Still, it represents a short-term retreat for a company with global aspirations.
Eventually, those aspirations are likely to extend past just selling cars and to offering mobility on demand in some fashion. Though few analysts asked about it, Tesla spent some time in its shareholder letter touting the new "summon" feature, which is the first baby step in creating a robotic taxi service. And right now, the limited vehicle autonomy features in the Model S and X are helping the company build a knowledge base at a rate exponentially faster than anyone else: "Tesla Autopilot is learning at the rate of over a million real-world miles per day," Musk said. By contrast, Google's cars -- which admitted have the much more challenging task of full autonomy -- have only logged 1.4 million miles in total since the program began in 2009.
Tesla has a busy year ahead as it tries to juggle ramping production of Model X, engineering the Model 3, pushing the Gigafactory forward while achieving its goals of positive cash flow (starting next month) and GAAP profitability by fourth quarter. But if it can do this while achieving its sales goals, it will go a long way towards undoing the bear story that has weighed on not only the stock but also the story about whether it goes down in history as a revolutionary automaker or just a footnote. Musk seems revved and ready to prove the doubters wrong as he has done before.
