Crunching the Tesla Numbers

Richard Engdahl sits down with the Fool's own John Rosevear to discuss the auto industry. Now The Motley Fool's senior auto analyst, John says that it all started with his 2009 article, "Talk Me Out of Buying This Stock" (about Ford  (NYSE: F  ) -- still one of his favorites). Today he offers an in-depth look at Tesla Motors  (NASDAQ: TSLA  )  and the electric vehicle market, as well as Chrysler's unique situation with Fiat  (NASDAQOTH: FIATY  ) .

In this video segment, John says that Tesla hasn't been very forthcoming about its actual numbers, but some say the automaker's sales target may be on the order of 500,000 vehicles a year. Certainly Tesla is enjoying a high volume of orders as it begins to ramp up production, but will that translate into long-term demand?

A full transcript follows the video.

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Richard Engdahl: How many cars does Tesla need to sell to be successful?

John Rosevear: Good question. The number that's thrown around is 500,000 a year. Conveniently, that's about what they'll get out of their factory if they max it out. The factory is an old facility that was created years ago for a GM and Toyota  (NYSE: TM  ) venture. Toyota ended up owning it. Toyota sold it to Tesla.

Basically, Toyota invested in Tesla, and then Tesla turned around and gave most of that money back to Toyota to buy the factory. That's kind of how that arrangement worked out.

So they have a big facility. They're not using a whole lot of it yet.

Richard: From what I understand, Tesla has more of a supply problem than a demand problem. There's a lot of people wanting their cars. Is that a misperception?

John: Well, Tesla's coy about how many orders are in the bank and how many cars they've delivered, and so forth.

We look at, really, any automaker doing business in the U.S. and every month they'll tell you, "We delivered 4,600 of this model and 23,000 of that model," and so forth. Tesla comes out once a quarter and says, "We shipped about 5,000 vehicles." It's very different. They don't want that visibility yet, for whatever reasons.

They say they have a lot of orders in the bank, enough to keep the factory running full speed, and that's certainly believable because they're in the early stages of their overseas push, pushing into Europe and so forth, that they're finding new customers who now can order the product.

One of the questions that lingers with Tesla is, are they just running through the world's early adopters, and then can they sustain it? Will there be 100,000 units of demand for them, 500,000 units of demand for them, three years from now, five years from now?

Richard: Thinking about how many -- you said 500,000 cars a year -- kind of a target for sustainable. ... How does that compare to a competitor like BMW  (NASDAQOTH: BAMXF  ) ?

John: BMW built a little over a million last year. I don't remember the exact number; it was something in the 1.2-1.3 range, off the top of my head. Mercedes, slightly behind; similar range, though. BMW actually is... they have the motorcycle division, but it's a small part of their business. They really are pretty much a stand-alone automaker, and they make very good money at that level.

They make profits comparable to what a Ford makes, or a Nissan makes, because the margins are higher on luxury cars. Tesla's aiming for very high margins. They're aiming for margins that companies like Porsche are able to get.

Whether they'll be able to sustain them long term is an interesting question. Whether they'll be able to sustain them long term when there's an electric Audi and an electric Cadillac, and there's a little pressure on price and so forth, is an interesting question. We'll see how that plays out.

Read/Post Comments (12) | Recommend This Article (2)

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  • Report this Comment On October 19, 2013, at 2:03 AM, iamvoltron wrote:

    BMW Group production is higher, they also sell quite a lot of MINI cars, around 2 million in total per year is the 2013 estimate (would be a record):

  • Report this Comment On October 19, 2013, at 4:43 AM, normgarry wrote:

    I bought TESLA stock at $28. I have great respect for the way they conduct business and manufacture. Finally an AMERICAN COMPANY building w product in AMERICA and not just selling me CHEAP CHINESE GARBAGE that will break and cause me to have to rebuy and send more money to Shen Zhen.

  • Report this Comment On October 19, 2013, at 10:02 AM, Pakirk53 wrote:

    Hey its been two days this is only the 47th new story Motly has posted about Tesla

  • Report this Comment On October 19, 2013, at 10:42 AM, TMFMarlowe wrote:

    @iamvoltron: Yes indeed, Mini adds quite a bit of volume to the overall business. I was thinking of BMW brand sales, and I was also doing it from memory without having looked at those numbers in a few months. I was in fact a little low: 2012 sales of BMW vehicles were 1,540,085. (That doesn't count sales by BMW Motorrad, their motorcycle division.)

    The number that had stuck in my memory was 1.4 million, which was BMW brand's 2011 sales.

    @normgarry: I like Tesla too, but I don't understand your comment. Which major automakers are selling "cheap Chinese garbage" in the U.S.? I can't think of any. Help me out.

    Thanks for stopping by.

    John Rosevear

  • Report this Comment On October 19, 2013, at 10:49 AM, TMFMarlowe wrote:

    @Pakirk53: What can I say? Tesla is of great interest to a lot of folks right now.

    John Rosevear

  • Report this Comment On October 19, 2013, at 12:05 PM, rumee52 wrote:

    It is interesting to read your comparisons-it is too bad that tesla is so opague on their actual numbers. Perhaps that will improve with time?

  • Report this Comment On October 19, 2013, at 2:40 PM, muhammedatta wrote:

    Obama forced Toyota to invest in Tesla. He did this to pay back Musk as his largest campaign bundler. He illegally did this during the fake Camry accelerator "issue".

    Just prior to this, he was going to invest in Downey, as Obama had not come through yet... but it was just a ruse to trick Toyota into "investing".

    If we had 10% EV success, we would need to double our electrical output. Over 10% for solar and wind requires build of coal/gas back up generation.

    The "true believers" (see e. Hofer's book) say: "oh, these would only get recharged at night, and, wait for it, because of that, 10 million EVs charging would actually make electricity cheaper for everyone. I'm quoting here. This is how low information obamavoters think.

    In reality however, the hope and change folks are going to find that already (just look in the bay area for EV charge subscriptions), the target price for money out of your pocket per mile, is the same as it is currently for a gas car. Plus there are already per mile charge/tax schemes being built in sacramento, to ensure EV users "pay their fair share", of road use.

    The karma of all this, is the same young, and poorly informed hope and change kids, are going to be forced to subsidize my health care, throughout their entire working lives.

    In the book "creating wealth from global warming", the author encourages that EV folks focus on people with garages. Good move, as all those who have clamored for free stuff, generally live on the street, or in apartments, and will not have access to recharging.

    While they doth protest against corporal punishment in schools... they will soon get it, via shovel smack upside the head when they realize they have been scammed in every facet of their lives: giant school debt they can not escape, 27% gross tax on earnings to subsidize health care with no market competition, and ecobabble taxes on their iPhones and EVs, making them much more expensive than the wiser European solution - diesels, or a 1996 Honda civic which gets 50/gal.

  • Report this Comment On October 19, 2013, at 2:42 PM, jamesdan567 wrote:

    The reason Elon quotes 500K vehicles is that number equals what people believe the factory can do. To quote a higher number would signal folks they are going to build another factory to meet demand. He's simply avoiding stock price supporting statements for legal reasons. A few weeks ago Tesla bought 31 acres of land adjacent to the Fremont factory for future expansion. Anyone who thinks Tesla just wants to build 500K cars a year has their head in the sand.

    That old factory builds the finest electric car in the world. Makes me wonder why the dimwits at F and GM can't do that after 100 years of soaking the American people for everything they can get with their basket case cars (Foreign auto makers have 34% market share...)

    Tesla has no requirement to report cars delivered on a monthly basis. That Tesla only reports these figures quarterly times well with the quarterly reports and is not coy at all. Its much more that if F and GM do it this way, then Tesla finds a better way.

    The EV has now been proven to be over 400% more efficient to operate than the ICE car (EPA rated Model S 95mpg vs BMW 7 series 22mpg). As a result, all new cars sold in 2023 will be EV's. This is inevitable. Tesla will get a substantial share of these 80 million + units. That's easy to see. Do your homework. Is demand for Tesla vehicles sustainable? what a laugh. Demand for their vehicles is inevitable. What will Toyota Prius do in 2017 when an American car has 2.5x the mileage, higher quality and the same price? Let's face it folks, foreign auto makers are going to get slaughtered by the Gen III as US consumers shift to the US car.

    Why? Because Tesla does not soak the consumer with high cost service business after the fact (a huge competitive advantage) and as noted above, and Tesla builds with the desire to achieve aircraft quality cars.

    The end statement is simple. Would you fly in an airplane built by GM or by Tesla? We all know that answer. 20th century auto business models simply cannot compete with a quality 21st century high efficiency/low cost offering like Tesla. They will all have to adapt by 2020 or go BK.

    Tesla is the world's largest maker of sustainable autos. All the rest have $ billions in stranded assets and worthless business models.

  • Report this Comment On October 19, 2013, at 2:44 PM, jamesdan567 wrote:

    The Grid will handle demand from EV's just fine. EV's require only 1/4 the energy, and that's equivalent to taking 3/4 of the cars off the road....

    Night time grid capacity will cover it fine.

  • Report this Comment On October 20, 2013, at 2:02 AM, jeffhre wrote:

    @normgarry: I like Tesla too, but I don't understand your comment. Which major automakers are selling "cheap Chinese garbage" in the U.S.? I can't think of any. Help me out.

    Cars are of course sourced world wide. And actually John, I think you're right here, the Spark is actually a nice little car.

    The Mustangs Chinese transmissions seemed pretty solid too.

  • Report this Comment On October 21, 2013, at 10:12 AM, Sudre wrote:

    The only thing I find odd about the 500K statement is, how many cars did Porche make last year? Why is it only BMW's numbers that Tesla has to compete with?

    Sure I want to see Tesla put out 500K or even millions but I think if interest wasn't there they could scale back the dream and live on half that just fine.... of coarse the stock price would have to come done to match.

  • Report this Comment On December 04, 2014, at 7:41 PM, jeffhre wrote:


    "The Grid will handle demand from EV's just fine. EV's require only 1/4 the energy, and that's equivalent to taking 3/4 of the cars off the road....

    Night time grid capacity will cover it fine."

    It's a bit like taking 3/4 of the cars off the roads yes. But there is more to it. Gasoline requires about 5 kWh of energy for refinement for each gallon of gas. Wind, NG, solar which over 35% of Tesla purchasers deploy to offset their energy use, and even coal do not require and equivalent energy expenditure.

    So it is actaully like taking 3/4 of the cars off the roads and saving an additional 5kWh of energy for every gallon of gas avoided. Some of that energy is currently taken from the grid, as oil refineries are some of the nations largest users of grid electricity.

    And there's more (along with a free set of eternaly sharp knives!!!). In California, where the most Teslas have been sold, moving water from the arid parts of the state to areas that have high population, and high agricultural and industrial production, is the largest user of electricity. Refining gasoline uses vast amounts of water. Solar and wind power generation, in contrast, do not.

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