By on April 1, 2013

Just ahead of their Q1 2013 earnings called, Tesla announced that they were profitable in the first quarter of the year, with deliveries exceeding their own targets. In addition, Tesla has also decided to discontinue the base trim of the Model S due to a lack of demand.

Tesla reported 4,750 deliveries of the Model S, up from their own estimate of 4,500 units, which, according to the company, helped them turn a profit this quarter. Crucially, Tesla claims that profitability is achieved even using GAAP principles, since non-GAAP accounting is more easily manipulated to reflect positive results.

The 40 kWh car, which started at just under $60,000, apparently had a take rate of just 4 percent, leading to Tesla’s decision to axe it. Instead, customers who ordered the base model will get a 60kWh model electronically limited to only use 40kWh of energy. Buyers can have this reversed by Tesla if they wish, and future owners will be able to perform the procedure as well. 60 kWh cars will also be Supercharger ready across the board.

Given that Tesla’s customer base is made up of extremely wealthy EV enthusiasts who are looking to the Model S as either a) a status symbol b) a third car or c) an outright toy, the death of the 40 kWh model makes sense. Few would realistically want a base Model S whether because of status signalling or the reduced performance (in terms of both acceleration and range). Customers interested in the Model S are much more likely to gravitate to the 60 kWh model or the full-bore 85 kWh version, in the same way that the S63 AMG is the best way to use the Mercedes S-Class as an expression of one’s wealthy.

The higher profit margins on the more expensive models are also beneficial to Elon Musk’s vision of a profitable auto maker. Despite his grandiose vision of himself as a 21st century version of Henry Ford, there is little margin in producing mainstream cars. Better to let Tesla continue to market to the very wealthy while slowly allowing their product to become more accessible, rather than an ill-timed push into the mainstream.

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43 Comments on “Tesla Reports Q1 Profit, Cancels 40 kWh Model...”


  • avatar
    Sundowner

    the whole thing misses that Tesla (at the time I looked) was only offering the high wattage models. The low wattage ones weren’t going to be put into production for another year while 85kWh and signature models were already rolling off the line. I suspect that the low take rate was strongly tied to prospective buyers not wanting to wait longer more than anything else.

    cutting the 40 kWh model off and giving buyers the 60 kWh model with a built-in wattage limiter is a dick move. These people were willing to wait up to a year for a car and tesla cancels the car, then gives them the next model up with a nanny lock? f that.

    • 0 avatar
      Charles T

      It sounds like a dick move, but in the computer hardware world it’s completely normal. Within a certain family, low-end processors and graphics cards aren’t really much different from higher-end ones, but the only real difference is how fast they’re “allowed” to run. It’s actually not that different from a car company creating two trims of turbocharged car by setting the same hardware to different boost levels. The upshot is that the less highly-stressed version has a potential reliability advantage.

  • avatar
    CoreyDL

    Such an attractive car. Could easily have a Citroen badge on the front.

  • avatar

    Their website still lists the 40 kWh model, but for such a boutique vehicle, it seems to make sense that they would start at $63k if only to support the higher-priced, higher margin cars. These are truly beautiful sedans. A friend reminded me that ALL early cars were considered high priced toys for the rich, but rapidly became the appliances we know and love.

  • avatar
    gslippy

    I wouldn’t characterize Tesla’s customers as ‘extremely wealthy’, when its vehicles are priced at the high end of Ford F-350 or Lexus/Mercedes/Audi levels. Those cars are everywhere.

    This isn’t McLaren or Bugatti money we’re talking about.

    Maybe a distinguishing factor is that a ‘short-range’ Tesla is a second vehicle. Long-range Teslas may actually be primary vehicles, at which point there may be one in your neighborhood.

    Where are the haters predicting Tesla’s doom?

    • 0 avatar

      Well, at least one statement in this article is flat-out wrong.

      From reading Tesla’s forums, I would say the majority of customers are using it as a daily driver, due to the stratospheric levels of customer satisfaction. People are saying things like “I can’t stand my Mercedes” and “it’s horrible to rent a car”.

      This is empathetically NOT a car people put in their garage and leave there. These cars are driven.

      On the other hand, I don’t think there is much leasing of these cars yet, so an $85k car is not to be sneezed at. I could lease a Mercedes CLS550 for around $1k a month; I don’t think you can do that with a Tesla yet. I think most owners of these cars are very well off.

      D

      • 0 avatar
        raph

        People are saying things like “I can’t stand my Mercedes” and “it’s horrible to rent a car”.

        Hmmm… I wonder what makes a Mercedes so terrible to drive now? Not green enough? Poor dynamics? Poor Ergonomics, to much ridicule at the country club?

        • 0 avatar
          CJinSD

          Having to drive my Porsche now is like going back to riding a horse! The fumes! The noise! It is torture! My Model-S has been in the shop three of the five days I’ve had it, but I love it so much that I can’t stand old fashioned cars anymore! I don’t even like thinking that there are people that believe ICE cars should still be available. It’s so gross. :-(

        • 0 avatar

          I gather from a fried who upgraded from a G37 that it’s just a different level of driving experience. At some poing we had a TTAC article that touched upon the subject, using a proxy of a woman who always drove low-end bimmers and the like, but could not stand rental cars. It may be something one needs to experience. All the other factors such as novelty and status are present too, I’m not saying anything to the contrary. But this adds to “I can’t stand my Mercedes”.

          • 0 avatar
            KixStart

            Sounds like a version of the humble brag. “I’m so well off I can no longer tolerate a car you can’t afford.”

  • avatar

    Until the Model S offers a base range of 200 (or 300) miles for less than $50,000, the average joe on main street won’t afford it – especially when there are so many other cars under $30,000 that offer the same luxury technology and don’t have range anxiety issues.

    Having a base model under $55,000 (with subsidy) was a nice entry point, but I was disappointed it didn’t offer supercharger support. The 60kWh battery being subbed for the 40kWh is claimed by Engadget to be “crippled” so that it won’t give you the regular 60kWh’s range, but will give you improved acceleration and top speed.

    I don’t think that’s a good thing -even if you will be able to use superchargers.

    RANGE is more important than acceleration and top speed to most people.

    http://www.youtube.com/watch?v=SWHlEC-SjFM

    • 0 avatar
      jmo

      I don’t think that’s true for people who have a realistic idea of their needs. At my last job, I worked at home 2 days and the other 3 days I drove 8 miles round trip. This job I just drive 16 miles round trip to the airport. Grocery/Target runs and other odds and ends might add another 50 per week at most.

      If I need to go on a long road trip, I can just run down the street and cash in some of my Enterprise miles.

      Keep in mind that for Tesla to be profitable it needs to sell just 0.1% of new cars sold in the US. There are certianly more than enough people with the right income and milage needs.

      • 0 avatar
        CJinSD

        Needs isn’t a word that should be used for people wanting a $70K golf kart. There are no needs involved in the duty cycle you just described. Drive anything that doesn’t involve so much lithium if you care about the planet. You aren’t going to be utilizing enough of the car’s potential to justify what goes into manufacturing it. You’ll have a smaller footprint if you drive almost anything else.

        • 0 avatar
          jmo

          I just like cool gadgets. What’s wrong with that?

          Why all the hate?

          • 0 avatar
            CJinSD

            If you were paying for your toys, that wouldn’t bother me a bit. Instead we all are.

          • 0 avatar
            jmo

            “Instead we all are.”

            I can’t imagine the $1 a year it’s costing you warrants all the rage. Certainly there are bigger budget busters that deserve your attention.

          • 0 avatar
            CJinSD

            It’s thinking like this that adds up to thousands and thousands of similarly wasteful uses of federal dollars, which constitute a pretty real problem. Meanwhile still other faulty thinking directs policies that raise taxes and bankrupt ‘marginal’ businesses which will create still more need for government spending, which will justify higher taxes, which will eliminate more ‘unworthy’ enterprises, which will put more people on the entitlement registers, which will require…

          • 0 avatar
            jmo

            CJinSD,

            I think you’re suffering from EV Derangement Syndrome. It’s very similar to both Bush and Obama Derangement Syndrome.

        • 0 avatar

          “You’ll have a smaller footprint if you drive almost anything else.”

          Even a Hummer H1 can run on biodiesel!

        • 0 avatar
          KixStart

          If you’re going to tell us about his footprint, please show us the actual energy inputs for the Tesla and for anything else he might be inclined to buy.

          As far as I can tell, a pound of steel, a pound of plastic or a pound of glass refined and formed into automobile parts is the same for an EV or an ICE-driven vehicle.

          • 0 avatar
            CJinSD

            How much lithium does an ICE car need? It was $300 a pound in 2009, the last year I can find data for. That was up from $46 a pound in 1998, reflecting increased demand for batteries. It’s something like the 33rd most common element in the world, so that price reflects the energy required to extract it more than any scarcity. Build a car with a battery that costs tens of thousands of dollars, and you have a pretty big footprint, particularly if you’re going to use it in a duty cycle that could consume $1,000 of gasoline annually instead.

          • 0 avatar
            KixStart

            That sets an upper bound on the energy input, it doesn’t tell us what the energy input actually is.

            “33rd most common element” doesn’t tell us much, either. It could be that it’s only available in only a few commercially recoverable sources and the other sources are undeveloped.

          • 0 avatar
            shaker

            The most apparent effect of lithium being diverted for EV’s is the shortage available for pharmaceutical purposes, thus the increase in delusional h8ters.

          • 0 avatar
            Advance_92

            Zing of the day, and it’s only ten in the morning.

  • avatar
    wogzi

    Tesla cars use about 8.5 kilograms of lithium each with a life cycle of 2000-3000 charges meaning a full 10+ years of use before requiring new batteries (although the range on the cars would deteriorate dramatically until that point). That’s about 40 times the lithium usage in an HEV and about 8 times that of a conventional electric car.

    In the abstract long view, there’s more than enough spodumeme and ore to keep us supplied with lithium for a thousand or so years.

    In the short view, if Tesla were to go full bore and go middle class commercial, that would mean that the demand for lithium would currently exceed that of the production. Mining would have to increase which places the salt flats in Bolivia in danger and which may also lead to another political situation in South America that resembles that one in the Middle East (spodumeme deposits being concentrated in Bolivia, Chile, and Argentina; see here: http://www.newyorker.com/reporting/2010/03/22/100322fa_fact_wright?printable=true).

    So there are some other costs that are more than just the sticker price. There are more efficiently made electric vehicles that don’t look as pretty and won’t accelerate as quickly but such are the wants of the petite bourgeoisie and the idle rich. Nobody covets the Norwegian Buddy or the i-MiEV or the Smart Fortwo because, well, they’re cheap, they aren’t pretty, and who wants to be laughed at? With the Tesla, I suppose you’re also buying a bit of the cool which, I think, is a weirdly American thing.

    • 0 avatar
      shaker

      It’s fairly likely that Musk is aware of the lithium situation, and that the existence of the Tesla Motor Corp. will depend on advances in battery tech that don’t require as much (or any) Li – if you create a market case for EV’s, the market will find ways of making it happen. It’s just that we’re at a nexus where if the Gov’t doesn’t lend a helping hand, the oil/gas companies will “win” the next round, and we’ll be stuck with fossil fuels, drilling rigs and pipelines leaking in our back yards, along with droughts, food shortages and killer storms. An easy price to pay for “no range anxiety”.

  • avatar
    E46M3_333

    “Where are the haters predicting Tesla’s doom?”

    I stand by my prediction that Tesla will go belly up in the next 5 to 10 years. They may have made a quarterly profit, but they are a long way from re-couping the development costs of the Model S.

    • 0 avatar
      gslippy

      5-10 years? You could say the same thing about any number of mfrs, particularly GM or Chrysler.

      • 0 avatar
        E46M3_333

        So you’re saying that if they survive another 10 years, Tesla will have been a raging success and naysayers like me will have been proven wrong? 10 years is two product development cycles.

        There’s a big difference between GM, a company that’s made hundreds of billions of dollars in profit over its long existence going bankrupt, and Tesla, a young company that’s supposedly developed the technology of the future, going bankrupt a few short years after releasing its signature car.

        • 0 avatar
          Luke42

          There is a difference: Tesla has hired the same caliber of engineers, and put them in a silicon-valley style engineering culture. Oh, Tesla has a lot less baggage than GM.

          Same trick as Space-X, in management terms.

          The question is whether they run out of money before they start making it back. Or, rather, that *was* the question.

          Now the question is whether the gazillionairre who made a fortune in the Internet business and kept grown it by pursuing high-risk startups in several different industries, and the smartest people money can hire, will blow it?

          The other question is how long it will take them to earn their money back. I think that’s a secondary question at this point, because Musk’s IRR for his personal fortune is likely 0, or less.

  • avatar
    1998redwagon

    does anyone else find the tesla badged chevy van in the background humorous?

  • avatar
    Da Coyote

    As a professional engineer, I really don’t see much of a future for electric cars in the short term – battery and grid concerns being prime.

    However, I love the idea, and having seen the Tesla in person, it’s quite a lovely car…and one that I actually might consider (yup, as an engineer’s toy) after the thing has had a year or so in real time use.

  • avatar
    Hummer

    Excuse my ignorance, but what does it mean by supercharger? Is that just a built in program for the computer?

    • 0 avatar
      KixStart

      It’s a charging station that charges the car at a very high rate. The top-of-the-line car gets up to 300 miles per charge and can be charged by a Supercharger in about an hour – maybe an hour and fifteen minutes. That’s something like 4 to 5 miles of range taken on per minute. This is really good by EV standards.

      Still… I timed a stop at the gas station the other day and a Prius takes on range at the rate of 150-180 miles per minute.

      • 0 avatar
        KixStart

        I should add, at the present time not all Teslas have the capability to use a Supercharger. Tesla has provided Superchargers in various locations with more planned.

        There are two articles on using the Superchargner network with a Telsa on the NYTimes web site. The first involved a trip around part of California, which went pretty well and the author was fairly enthusiastic about the experience.

        The second, more widely discussed article was written by John Broder back in early February and, thanks to cold, bad advice and bad decisions, he ended up getting a Tesla towed because he ran out of charge.

        Long distance travel with an EV is still an iffy business. At best, you spend an hour fuelling for about every 3 hours of travel. A Prius spends about 5 minutes fuelling for every 6 to 8 hours of travel. Even an F-150 has a better fuelling-to-travel time ratio than a Tesla.

  • avatar
    Mazda323

    I believe “Supercharger ready” just means it is able to use one of the “Supercharger” fast-charging stations Tesla has set up. Not performance related, and no relation to a forced induction supercharger for a gas-powered car.

  • avatar
    APaGttH

    It makes sense. The Chevy Volt reaps some benefit out of this decision. I really question if this was on “low uptake” or after the furor over the largest battery models and “range anxiety” did real world data show that the 40K pack was going to be inadequate and not achieve the Tesla range. If we extrapolate from the following:

    Tesla said 300, EPA said 265, real world says 240 – that’s a full 20% off

    The 40K version had a range that Tesla said was 160, real world range would be about 128 miles – and if you drive it like a sports car – less.

    With that said I’ll eat crow and say I’m wrong, Tesla has delivered thousands of Model S vehicles and I’ve seen three of them in the wild. Gorgeous cars (except from the arse end straight on, baby got back). I saw one, interestingly, with a red Volt behind it. BUT – all three I’ve seen were in the right lane of the freeway limping along at 50 MPHish. In defense, that is how a lot of people drive here in Puget Sound and at least they had the decency to be in the right lane, not the passing lane like a lot of Prii drivers, rolling along at 50 MPH

    • 0 avatar
      rodface

      On the appearance point – I, too, think the car is gorgeous, especially from the front 3/4. The view from the other side—which is typically one of my favorite on a car—is strange; possibly because of the aforementioned large, square posterior.

      http://www.blogcdn.com/www.autoblog.com/media/2012/09/lead5-2012-tesla-model-s-fd-1347337015.jpg

  • avatar
    lungchin

    im still amazed by the fact that tesla is getting heat from US car enthusiasts –
    Here is an incredibly innovative car company – that from scratch, from ground up managed to create a fantastic looking desirable vehicle that is fully competitive with any mid luxury / sport sedan -
    has a way better space concept – AND wondrous “pushed by god’s own hand” acceleration, amazing handling – and made in the USA with an incredible vertical integration –
    as far as range – the free supercharger stations put back 150 miles during a half hour stop – needs to bee seen to be appreciated

    yes it is expensive, yes zero emission claim is dependent on what the electricity source is….

    but go drive this car, see the factory – and you tell me this isnt a national treasure!
    we have a domestically made car that kicks ass in every possible way – and we complain?

  • avatar
    danio3834

    Ha, good one. April Fools.


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