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• The issue of Tesla Motors (TSLA +1.1%) and its suppliers is getting more attention as the company positions itself for mass-market production levels.
• Global Equities Research says suppliers are jumping all over themselves to work with the EV automaker. Analyst Trip Chowdry notes supplier activity level has doubled since the end of December with a prestige factor now in play. If the firm is correct, there's some leverage for Tesla from the development.
• Devonshire Research Group takes a dive into what it sees as a fragile relationship between Tesla and suppliers.
• "Comparing the production cost for Model S with budgeted costs for Model 3 shows that suppliers will have to accept significant price cuts in order to manufacture Model 3 at its current target price," notes the firm in a research update.(see below)
• Devonshire also points to regulatory risk with some Chinese suppliers vulnerable to patent infringement charges.

Devonshire Research Group Issues Part II of Research on Tesla
NEW YORK, NY--(Marketwired - May 24, 2016) - On Tuesday, May 24, Devonshire Research Group issued part II of research on Tesla. Building on Part I of Tesla's intellectual property analysis issued back in March 2016, "Tesla Motors - Part II" analyzes in-depth three additional angles and scrutinizes aspects of the firm's operating model, deliverables, and tax incentives.
Model 3 is at the center of "Tesla Motors - Part II." Analysis of suppliers, tight costs and delivery schedules, and the likelihood and consequences of a default on its scheduled delivery date of July 2017 are plumbed. "Tesla Motors - Part II" elaborates on the possibility that with the launch of Model 3, Tesla has increased its vulnerability and fragility as opposed to competitive strengthening within the EV market. An example of such potential fragility is the analysis of overall cost reductions Tesla and its suppliers may have to incur to produce and sell Model 3 for around $35,000. Devonshire Research Group argues that the profitability of the Model 3 depends on Tesla's ability to optimize its supply chain. Comparing the production cost for Model S with budgeted costs for Model 3 shows that suppliers will have to accept significant price cuts in order to manufacture Model 3 at its current target price. Moreover, current suppliers of numerous strategic, high-technology components have few patents and export to the US. A regular risk may appear, given that many Chinese suppliers are vulnerable to patent infringement accusations, thus potentially facing ITC injunctions. Delay with any outsourced component of the Model 3, of which there are plenty, could translate into mass customer deliver delays.
"Tesla Motors - Part II" also looks into Tesla's operating position to use and report non-GAAP financials, accept deposits from unsophisticated investors on the premise of delivering a not-yet mass produced vehicle on an almost impossible time schedule, and use these contributions to finance a litany of current-day expenses: selling, general, and administrative. Devonshire Research Group argues that Tesla has escalated a dangerous habit of unorthodox future-earning-based financing in pursuit of the questionably-profitable and long-delayed Model 3. A misstep in the next two years could become greatly problematic for Tesla and its waiting customers, perhaps even its suppliers.
Devonshire Research Group also discusses Tesla's use of government subsidies and tax breaks. The firm observes that Tesla's placement of tax credits disproportionately benefits the wealthy at the expense of the average taxpayer. As a manufacturer of electric vehicles, Tesla is entitled to take advantage of tax credits and subsidies put in place by the U.S. government. In turn, customers who purchase Tesla vehicles are able to get a significant deduction on their taxes for having acquired an electric vehicle. At current price points, only a small segment of the population can afford to purchase Model 3 or Model X (and take advantage of EV deductions) while a significant portion of Tesla's operations are greatly aided by taxes paid by those who cannot afford a Tesla. The social value of this exchange is a persistent question.
"Tesla Motors - Part II" is available on Devonshire Research Group's website at www.devonshireresearch.com
 

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That dog won't hunt. I believe that the bubble that is TSLA will eventually burst.

KNS
There is a lot of stock out there to short. You could be a Millionaire in no time flat. But then again you are betting against a Billionaire that isn't know for being a dummy and has sent a rocket into outer space and returned it to a floating platform. Good Luck.
 

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It sounds like Tesla needs the average Model 3 price to be $42,000. Maybe they will be taking a loss on the base Model 3.
I am sure you are probably right but I am no financial guru but they will get the price down, the supply chain sorted out and by the time they are making 500,000 a year there should be no reason that Tesla wouldn't be making a profit on every one they sold at $35,000. As most will upgrade something in the car whether it is to 4 wheel drive, panoramic roof, bigger batter, Autopilot, leather interior, special paint or better rims. This will allow Tesla to make even more money while driving down the costs of the battery and the whole production line.
 

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All I want is a CPO S85 for mid to low fifties. I keep watching their CPO site and am getting dangerously close to my target.
 

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It sounds like Tesla needs the average Model 3 price to be $42,000. Maybe they will be taking a loss on the base Model 3.
I'm not sure where this number came from, but it's actually pretty close to Elon's stated estimate for the Model 3 average selling price.
 

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That dog won't hunt. I believe that the bubble that is TSLA will eventually burst.

KNS
You could be right.
However, there have been individuals saying this for 6+ years.

Tesla will disappear as a company. So will GM, Honda, Toyota, GE, Alcoa, 3M, Wells Fargo and many others.
The question is when?
 

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There is a lot of stock out there to short. You could be a Millionaire in no time flat. But then again you are betting against a Billionaire that isn't know for being a dummy and has sent a rocket into outer space and returned it to a floating platform. Good Luck.
Matt Clinch and Luke Graham at CNBC Friday said:
It was all smiles Thursday night as Elon Musk unveiled his new product to the mass market. But, despite the fanfare it appears some on Wall Street are taking a much sterner view of the prospects for the company.

Twenty five percent of all Tesla shares are out on loan, according to data from Markit, figures the firm uses as an indication of short selling. Short selling occurs when traders bet that the share price will fall. Markit highlighted that short interest is now at an all-time high for Tesla since its IPO (initial public offering) in 2010.

"Doubts have been raised about Tesla's ability to profitably crack the mass market especially since the company has so far been unable to deliver an operating profit on its current line-up of higher-end cars," Simon Colvin, a research analyst at the company, said in a note published Friday.
"Tesla's short interest is nearly twice that of the second most shorted, Harley-Davidson, which has 14 percent of its shares currently shorted."

Monthly data from the Nasdaq's website shows that short interest is currently at some 32 million shares for Tesla, slightly below a peak in February, but still around a quarter of the 132 million shares outstanding.
Tesla short interest hits record high
 

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I am sure you are probably right but I am no financial guru but they will get the price down, the supply chain sorted out and by the time they are making 500,000 a year there should be no reason that Tesla wouldn't be making a profit on every one they sold at $35,000. As most will upgrade something in the car whether it is to 4 wheel drive, panoramic roof, bigger batter, Autopilot, leather interior, special paint or better rims. This will allow Tesla to make even more money while driving down the costs of the battery and the whole production line.
It's really hard to tell what Tesla's profit margin per car is, especially with all of the difference cost centers being conflated with only one income channel (auto sales). Regardless, based on comments by various company representatives, it is clear that GM's cost per car with the Bolt is lower than Tesla's. Maybe economy of scale would allow Tesla to undercut GM's production costs, but it is going to be a while before Tesla is producing enough cars for that to happen. If a $35,000 base M3 is being sold at cost, it wouldn't be the first time an auto manufacturer did that. But Tesla would need to be making a decent margin on all of the upgrades, and they would need to hope that people were buying those upgrades.

I'm not sure where this number came from, but it's actually pretty close to Elon's stated estimate for the Model 3 average selling price.
That was what I was referencing. In my opinion, that might be a closer number to Telsa's break-even point on the M3 than the $35,000 MSRP, which I believe was announced in an effort to undercut the Bolt.
 

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There is a lot of stock out there to short. You could be a Millionaire in no time flat. But then again you are betting against a Billionaire that isn't know for being a dummy and has sent a rocket into outer space and returned it to a floating platform. Good Luck.
Musk doesn't need TSLA or model 3 to succeed. All he needs to do is continue to realize capital gains by exercising low strike price options until the first model 3 customers take delivery.

KNS
 

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That was what I was referencing. In my opinion, that might be a closer number to Telsa's break-even point on the M3 than the $35,000 MSRP, which I believe was announced in an effort to undercut the Bolt.
Tesla has been rumoring and hinting about the $35k price point at least as far back as September 2014:

http://www.engadget.com/2014/09/04/tesla-motors-gigafactory-nevada/

I don't know when Tesla found out about the Bolt, but the public didn't know anything until January 2015 (NAIAS), and didn't know a price until this January. So I seriously doubt that the $35k exists to undercut the Bolt.

It's quite possible that they are selling the base car close to cost, counting on the options to make their profit - that wouldn't really surprise me.
 

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Tesla has been rumoring and hinting about the $35k price point at least as far back as September 2014:

http://www.engadget.com/2014/09/04/tesla-motors-gigafactory-nevada/

I don't know when Tesla found out about the Bolt, but the public didn't know anything until January 2015 (NAIAS), and didn't know a price until this January. So I seriously doubt that the $35k exists to undercut the Bolt.

It's quite possible that they are selling the base car close to cost, counting on the options to make their profit - that wouldn't really surprise me.
Interesting. I highly doubt they just pulled that number out of their hats, so I think something motivated it. The two possibilities I see: Volt MSRP or average new vehicle MSRP. Both of which are ~$34,000.
 

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The Bolt is priced using production-based cost data.

The Model 3 was priced before costs could be calculated.

When Tesla was first thinking about making a "Compelling" (later versions will be rappelling) EV for an "Affordable" price (affordable meaning outside the range of first time car buyers), all they had to look at was a 2011 Nissan Leaf at ... Get Ready...

The Envelope Please!

$34,570 base MSRP.

No big surprise. Nor could Tesla make a $35k 215mi 5 seat EV in 2014 or today. Not yet. Their price planning is based on the assumption of large reductions in battery prices. The longer they delay the release, the more likely they can meet the $35k target price.
 

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Instead of ramping up with suppliers, I wish Tesla would ramp up with the Federal Government and repay their loans.
 

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Which loans are you referring to? The 1/2 billion dollar loan they paid off 9 years early 3 years ago?

Instead of ramping up with suppliers, I wish Tesla would ramp up with the Federal Government and repay their loans.
 

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No big surprise. Nor could Tesla make a $35k 215mi 5 seat EV in 2014 or today. Not yet. Their price planning is based on the assumption of large reductions in battery prices. The longer they delay the release, the more likely they can meet the $35k target price.
That's a big gamble, and failure only requires one aspect of a very large plan to go awry. Suffice to say, Tesla probably will be losing money on the first 100,000 or so units, and not in the way GM was "losing" money with the Volt. Actual cost of production for the Model 3 (not counting R&D) will most likely exceed the $35,000 mark.
 
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