Tesla’s Model 3: What If Nissan’s LEAF Reservations Disaster Repeats Itself? – Seeking Alpha

… the only constraint on sales for the next three years will certainly be exactly how numerous battery packs the factories could churn out.

[the electric car] would certainly hit 500,000 units a year in three years. Mass production, he explained, would certainly lower costs enough to make the auto a sales victory free of subsidies sooner compared to once expected.

We’re going to have actually to put some efforts in to selling the car, yet the sort of spontaneous need is going to be driving the sales for the next three years … There is such a curiosity concerning the auto and attention to the car.

He predicted that 10 percent of the globe auto market would certainly be electric vehicles by 2020. ‘There is no doubt in the minds of anyone in the industry that this is going to be a factor in the industry,’ he said.

This followed a deposit frenzy, once enthusiastic supporters placed deposits on a auto that would certainly not be delivered for approximately yet another year. These deposits had steered the CEO to call for 500,000 electric cars per year to be produced, wondering only exactly how it would certainly be feasible for the production to scale up from the one first factory to two additional factories located on all three major continents.

It was a slam dunk. along with all these deposits, exactly how could the strategy possibly fail?

So this story is concerning just what Elon Musk is saying concerning Tesla’s (NASDAQ:TSLA) Model 3 throughout the last few days, right?

Actually, it is not.

For those of you whose memories are short, all the quotes above are actually from November 16, 2010, and refer to Nissan CEO Carlos Ghosn talking concerning the launch of the Nissan (OTCPK:NSANY) LEAF.

For those of us that have actually seen this movie before, there are numerous similarities here:

  • Automaker launches brand-new revolutionary $35,000 electric car.
  • Automaker takes deposits and is so overwhelmed that it expands from one factory to three factories, thinking it need to raise supply to 500,000 cars per year, within three years from now.

Nissan showed the LEAF to the globe in September 2009 and started taking refundable deposits in April 2010. I know, for I was one of them. numerous of my friends and neighbors did the same. A local enthusiasts club was formed. This revolutionary $35,000 electric auto was going to take over the world. It was obvious, wasn’t it?

So obvious, in fact, that I wrote this article in November 2010, which sounds adore a total copy of a Tesla bull short article from April 2016.

The Nissan LEAF started deliveries in December 2010. At some point in 2011, I got a call saying Nissan was almost all set to deliver my auto and wanted to make sure I was going to take my deposit and convert it to an actual purchase.

A year had gone by. various other cars had been announced and my preferences had shifted, and I told Nissan “No, thanks.” They sent my deposit back.

Meanwhile, the company’s dreams of selling 500,000 cars per year evaporated. It has actually sold a cumulative 250,000 or so electric cars globally due to the fact that inception at the end of 2010. While that’s a lot more compared to that for any type of various other electric car, it clearly fell short of all Nissan’s November 2010 targets – based on all those deposits – by an very wide margin.

Unit sales performed poorly.

US sales of Nissan LEAF

2010-2011: 9,674

2012: 9,819

2013: 22,610

2014: 30,200

2015: 17,269

Of course, the Nissan LEAF situation and the most recent Tesla Model 3 situation are not identical. Nissan never ever consistently reported exactly how numerous deposits it had taken on a day-to-day or weekly basis. In Could 2010, it reported that 19,000 deposits had been received in short order. The trajectory of those deposits was clearly enough for the company to strategy for two additional factories – to have actually one in Japan, one in the U.S. and one in Europe – and for 500,000 cars per year.

Still, the prospects for electric cars in 2016-2020 now looks brighter compared to it did in the previous 5 years. The Tesla Model 3 will certainly have actually a range of higher compared to 215 miles (versus 73 miles for the very first LEAF) and a long-distance charging network, to mention the two essential variables.

Well, there is an additional thing: Even from day one, the LEAF was widely considered to be a most ugly car. The Tesla Model 3 is a beautiful $70,000 auto that Tesla has actually priced at $35,000, so small wonder individuals are willing to authorize up, electric auto or not.

But the comparison has actually shifted in various other methods too. Over 5 years hence, gasoline cars have actually become a lot a lot more attractive compared to they were in 2010 – smoother, cleaner, a lot more fuel-efficient and cultivated in every way. 5 years ago, the LEAF was competing along with cars that we laugh at today. There is no comparison between the 2010 model year Hyundai Elantra and the 2017 model year Hyundai Elantra, for example.

This time around, the Model 3 will certainly compete versus a long list of competent electric cars between 2017 and 2020. Every automaker will certainly have actually several models, and rate competition tends to make sure that profit margins, if any, are confined deep in to the single-digit percentage territory.

One a lot more consideration is the timing from deposit until delivery. Nissan’s 2010-2011 experience was much less compared to a full year. Tesla is over a full year from deposit to the very first delivery, which it promises for the second half of 2017.

The longer the time from deposit to delivery, the larger the probability of individuals falling off the roster. Tesla’s very first buyers will certainly be dominated by its own employees. Why? Since they are the ideal customers to suggestions ring out the last quality testing, to which most automakers normally allocate a year.

The various other automakers just have actually not shown their cards, in terms of the products that will certainly be introduced in to the market about that time, near the second half of 2018. The closest thing we can easily grab to on that front is the Audi eTron Quattro Concept, which was shown in September 2015.

Aside from the Chevrolet Bolt (NYSE:GM), which has actually already entered pre-production and will certainly be in U.S. dealerships by December this year, there is obviously the Nissan LEAF 2.0, which is expected in U.S. dealerships in 2017, and many, numerous a lot more models in 2018. Mercedes, Jaguar, Land Rover, BMW (OTCPK:BAMXY) and others will certainly either be in mass production by the end of 2018 or will certainly have actually shown last versions of cars that enter production in 2019.

Any one of those cars could create the exact same evaporation of the refundable deposits that hit Nissan in 2011, adhering to the 2010 deposit bubble. Nissan received 22,500 deposits from U.S. customers as of June 2011, and having delivered “only” 2,094 of them, it got over two times as numerous cancellations (4,500). include a decimal point to those numbers, and you have actually some indication of exactly how history could repeat itself.

There is an additional thing I have actually to cover, and that’s the uncritical examination of the $35,000 rate of the Tesla Model 3. To examine the lack of analytical rigor, you need to ask the adhering to hypothetical question: just what if the rate had said to be $30,000 as opposed to $35,000? would certainly you have actually questioned it from a profitability perspective?

What if the rate was $25,000? would certainly you have actually questioned it then? exactly how concerning $20,000?

My point is this: If you said you would certainly question the soundness of any type of rate below $35,000, just what calculation allowed you to arrive at $35,000 being one where fully costed profitability can easily be achieved?

In various other words, if you believed a $30,000 figure would certainly be insane, just what is your calculation that suggests $35,000 is perfectly fine? Why isn’t it $40,000? Why not $50,000 or $60,000? Or $70,000?

I grab the impression that Tesla enthusiasts take certain numbers as gospel. Examples that come to mind include the February 2012 promise to deliver the Model X by December 2013, or various statements concerning profitability and your hard earned cash flow targets for 2015.

If the company could sell the auto it showed last week profitably for $35,000, after that imagine just what an automaker that’s got scale could sell profitably for $35,000. It doesn’t include up.

Disclosure: I/we have actually no positions in any type of stocks mentioned, yet Could initiate a short placement in TSLA over the next 72 hours.

I wrote this short article myself, and it expresses my own opinions. I am not receiving compensation for it (various other compared to from Seeking Alpha). I have actually no business partnership along with any type of company whose stock is stated in this article.

Additional disclosure: At the time of submitting this short article for publication, the author did not have actually any type of positions in any type of of the companies mentioned. However, positions can easily adjustment at any type of time. The author regularly attends press conferences, product launch events, factory visits and equivalent, often hosted in whole or in section by the respective automakers, including EVERY company stated in this article.

Editor’s Note: This short article discusses one or a lot more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated along with these stocks.