More People Interested in Buying a Model 3 Than You Think

Last week we surveyed 519 people in the U.S. regarding interest in buying a Tesla Model 3. We found a surprisingly high number (17%) of people would buy a Model 3 at $40,000. Even if this survey is off by 3x, the results still imply significant market share gains are in store for Tesla given their current U.S. unit market share is below 0.5%.

Consumers wait in line for over 1.5 hours to sit in a Model 3 at a showroom in TX. January 2018. Photo: ntxteslaowners

Survey results: “Would you buy a Tesla Model 3? ($40,000)”

Yes: 17%, No: 61%, Maybe: 22%

Source: Loup Ventures, survey age and household income distribution representative of U.S. census data.

First-time survey has limitations, but insights still valuable. Longer-term (10 yrs from now) we believe Tesla can capture 17% of the U.S. auto market share, consistent with our survey results. That said, this is the first time we have conducted this survey and the true value will be comparing future survey results to our most recent exercise. It’s easy for someone to say they’re going to spend $40,000 and harder for them to actually do it. Our optimism regarding this initial survey is based on dialing back the intent to buy by 60%, which would still indicate significant market share gains.

Expect Tesla market share to increase from 0.5% to 1.5%. As of the end of Dec-17 Tesla has delivered 1,772 Model 3s. We expect 14k in the Mar-18 quarter and 168k deliveries in 2018, with a 70% chance they actually hit those numbers. Separately, we believe Model 3 reservations are effectively unchanged at 455,000 since the last public update in August of last year. If we assume Model 3 deliveries are heavily weighted (70%) in the U.S. initially, and that Tesla delivers the net preorders over the next two years, we expect Tesla (Model 3, S and X) to make up 1.5% of all cars sold in the U.S.

Ramp in Model 3 production won’t be linear. As Model 3 production scales to meet this backlogged demand, it will not be a smooth ramp from ~1,000 vehicles per week today to their goal of 10,000 per week. Steps up in output require factory retooling and significant capex investment that will cause temporary steps down in production. In other words, don’t be alarmed by the inevitable news of Model 3 production issues, as it may be part of the natural process of scaling production.

Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.
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Tesla Earnings: Continue to Wait… and Believe

Conclusion. Our confidence in Tesla’s ability to capitalize on the EV and autonomy opportunity remains unchanged. Our perspective that reaching this EV and autonomous future will take longer than most think, but be bigger than most think also remains unchanged.

Musk commented that Tesla will, “Productize the factory,” adding, “anyone could have made that car (Model T), but not anyone could make River Rouge (Model T production line).”

Updating our Model 3 thinking. We are factoring in comments from Tesla’s Q4’17 Update Letter that call for an increase in capex largely related to retooling for the Model 3 ramp. The company added on the earnings call that part of this capex spend will include, “significant investment in our required up front for the next phase of Model 3 production… Way more than 50% (of the capex) is the Model 3.” We believe retooling could cause a temporary step down in production in the fall of 2018, and as a result, are lowering our Model 3 production target to 168,400 from 182,000. Our revised numbers are in line with Street estimates as of yesterday’s close. Our weekly Model 3 production number exiting 2018 remains unchanged at 7,150 vehicles. Importantly, our 2019-2023 Model 3 numbers remain unchanged.

Link to model here.

Autonomy. One new insight from the earnings call was Musk’s commentary into why Tesla’s vision suite (camera, radar, and ultrasonic sensors) should eliminate the need for LiDAR. The dumbed-down version is Musk believes in taking the “hard path” and using a sophisticated neural net to solve passive object identification with cameras instead of using lidar as a “crutch.” In the long run, he believes this path will not only cost less and look better, but will produce a superior system capable of seeing through rain and sleet, and performing in more complex situations. This is important given that if Tesla is successful in using its vision suite instead of LiDAR, every Tesla produced today will be upgradable to full autonomy with a software update, which would catapult the company into the lead position in the race to autonomy.

Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Model 3 Miss as Expected, Production Ramp Encouraging

Tesla released Dec-17 production numbers highlighted by 1,550 Model 3 deliveries, below the Street’s published numbers calling for 5,250, but in line with investor expectations. Model S and X deliveries totaled 28,320, above Street expectations of 26,550. It appears outperformance was driven equally by Model S and X.

The Model 3 has been available for two quarters, and in both quarters has missed production targets. Despite these issues, we remain upbeat that Model 3 is beginning to ramp nicely. Tesla’s reported 793 Model 3s produced in the last 7 days gives us enough information to roughly model the slope of the Model 3 production curve for the Dec-17 quarter.

Estimated Model 3 Production by week:

  • 1st week of Dec: 50
  • 2nd week of Dec: 175
  • 3rd week of Dec: 420
  • 4th week of Dec: 793

This ramp has the markings of the exponential production curve that Musk has promised. In other words, the ramp is beginning, albeit later than expected.

Minor tweaks to our Tesla model. Overall, tonight’s news has little impact on how we think about the Tesla model over the next 5 years. Below are our changes for 2018 and 2019, 2020-2023 had no changes. Link to updated model here.

Conclusion. These results further validate our thesis that EV and autonomy will take longer than most think, but eventually will be more impactful than most can imagine. Our optimism around Tesla’s ability to capitalize on the shift to EV, autonomy, and renewable energy has not changed.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

8 Tech Predictions for 2018

Loup Ventures’ predictions of 2018:

  1. AI theme continues and artificial general intelligence takes small step forward through Google’s “Deepmind” initiative.
  2. VR gets untethered but it still takes another year to take off.
  3. Google Home continues to gain market share in smart speaker market.
  4. Tesla Model 3 production ramps from 2,500 in 2017 to greater than 150,000 in 2018.
  5. Major automakers announce expanded electric vehicle line-up, but autonomous driving will not ramp up until 2021.
  6. Bitcoin pulls back.
  7. iPhone ASP’s $740 vs. Street at $710.
  8. Amazon will acquire Target.

AI theme continues and artificial general intelligence takes small step forward through Google’s “Deepmind” initiative. We believe the hype around AI is justified given it’s hard to understate the significance that AI will have on the future. In 2018 we expect the AI momentum to continue. In July of 2017, we counted 11% of Fortune 500 companies mentioned AI on their quarterly conference calls. We expect that number to grow in 2018. As for leaders, it’s clear that Google CEO Sundar Pichai is trying to get his point across: AI is the future of Google. We went back and looked at his opening comments over the last year and found he has led his prepared remarks by asserting Google’s evolution from a mobile to an AI-first company on each of the past four earnings calls. The company is pushing its AI into hardware devices (Google AI hardware note) and seeing its work pay off (Google Home’s the smartest smart speaker). Artificial narrow intelligence (ANI) is being mastered and we expect more news about the next frontier in AI, artificial general intelligence (AGI, the ability of a machine to think like a human), to be top of mind in 2018. We expect Google to play a thought leadership role in AGI with its Deepmind platform, but keep in mind true AGI is likely another 20 years away.

VR gets untethered but it still takes another year to take off.  The Wall Street Journal said it best in their Dec 30 article titled “Virtual Reality Needs to Cut the Cord”.  Oculus Go ($199 untethered) which comes out early in 2018 will be a step forward in ease of VR use, but it won’t be until 2019 until more powerful untethered hardware lay the groundwork for content developers and consumers to fully embrace VR. For those disappointed VR won’t be mainstream in 2018, you can at least look forward to Ready Player One’s release on March 30th. Here’s our Facebook in VR outlook.

Google Home continues to gain market share in smart speaker market.  In 2017 the smart speaker market was led by Amazon with the release of 3 new Echo devices (Echo, Echo Plus, Echo Spot), Alexa for Business, sub $50 pricing, and the Alexa app being the #1 downloaded app on Christmas Day vs. Google Home at #6 across Android and iPhone. That said the market is still up for grabs, as evidenced by Amazon and Google collectively spending more than $70m on TV ads from Thanksgiving through Christmas to push the theme. Despite Alexa owning 75% (Loup Ventures) of the global smart speaker market today, we expect in 2018 Google Home will be a share gainer in smart speakers given its performance lead. Here are the details of our recent face off between the smart speaker players.

Tesla Model 3 production ramps from 2,500 in 2017 to greater than 150,000 in 2018.  Near-term, we expect another miss in Model 3 production, but in 2018 we predict production will turn the corner. We continue to stress that Model 3 production over the next several quarters will be largely a guessing game and that short-term production numbers do not materially affect the long-term story. The last update on Model 3 production calls for “a production rate of 5,000 Model 3 vehicles per week by late Q1 2018,” which we believe is ambitious. That said, we’re encouraged by hundreds of Model 3s have been spotted at delivery centers and at the Fremont factory shown in a video here, along with several suppliers reporting that they are back to delivering Model 3 parts at volume.

The reason we remain upbeat on the Tesla story despite the prolonged Model 3 production problems is that EV and autonomy are the future. Tesla is fighting to gain production scale to create that future. While other car manufacturers build gas-powered vehicles at scale, building autonomous EVs is a vastly different process that will require traditional auto manufacturers to re-engineer their production facilities. That means every automaker that wants to compete in the future needs to go through the production pain Tesla’s experiencing today. Here’s our recent note on Model 3 production outlook.

Major automakers announce expanded electric vehicle line-up, but autonomous driving will not ramp up until 2021. 2018 will likely be the year of announcements around expanded EV lineups from traditional automakers. The Detroit Auto Show (Jan 13-28th) is an obvious window for these announcements and we expect a steady drip of EV model announcements throughout the year. We don’t believe these new vehicles will be available until 2019 or 2020. The autonomy theme will be equally top of mind in 2018, lead by likely updates from Apple around their autonomous shuttle project. We continue to expect 2021 as the year autonomy begins to ramp, and our bet is Waymo, GM’s Cruise, and Tesla will be first to market.  Here’s our autonomous vehicle industry model.

Bitcoin pulls back. We feel cryptocurrencies are in a bubble, but something can be in a bubble and still over time become a foundational technology, just like the internet. Those who jumped on history’s greatest “get rich quick” event enjoyed 1409% increase in value in 2017 as the world watched a coin formerly synonymous with the “Silk Road” break into Wall Street. We believe that blockchain technology and cryptocurrencies are here to stay and represent the future of storing value, however, we anticipate that increased oversight (banking and government), speculation amongst institutional investors along with operational difficulties on trading platforms will trigger a crypto sell-off in 2018.  Here’s our recent Bitcoin outlook note.

iPhone ASP’s $740 vs. Street at $710. We remain optimistic that iPhone units in FY18 will be inline with the Street (~242m up 12% y/y), but the mix of iPhone X will exceed Street expectations and have a higher ASP of $740, up 13% y/y compared to the Street ASP of $710. Our ASP estimate is based on a 30% mix of iPhone X and iPhone 18% mix of iPhone 8 (iPhone 8+ and iPhone 8). In a typical iPhone cycle, the newest phone represents about half of the mix, in line with our FY18 outlook of a 48%new phone mix. Here’s our recent note on why we remain comfortable with our iPhone estimates.

Amazon will acquire Target. We saved our boldest 2018 prediction for last, Amazon acquiring Target. Getting the timing on this is difficult, but seeing the value of the combination is easy. Amazon believe’s the future of retail is a mix of mostly online and some offline. Target is the ideal offline partner for Amazon for two reasons, shared demographic and manageable but comprehensive store count. As for the demographic, Target’s focus on moms is central to Amazon’s approach to win wallet share. Amazon has, over the years, aggressively pursued moms through promotions around Prime along with loading Prime Video with kid-friendly content. As for retail stores, Amazon’s acquisition of Whole Foods 470 stores along with testing of the Amazon Go retail concept is evidence that Amazon sees the future of retail as a combination of mostly online and some offline. Despite gaining Whole Foods, Amazon’s ~470 store presence still dwarf’s Walmart at 11,695 (global).  If Amazon acquires Target’s that would jump its store count to about 2,300.  As for anti-trust, the Trump administration won’t do any favors for Jeff Bezos, but the market share numbers suggest the deal will be approved. Walmart will reach about $315B in U.S. sales in 2017 (total 2017 Walmart is expected to be $500B, up 2.6% y/y), and Amazon North American ($105B in 2017 up 31% y/y) and Target ($71B, up 2.4% YoY) would equal about $176B in U.S. revenue. Looking at the top 18 U.S. retailers (including grocery), Walmart has about 23% share and an Amazon/Target combination would have about 13% share. Lastly, Amazon can afford Target. If you assume they pay a 15% premium to the current TGT trading level would imply a take-out valuation of $41 billion, about 8% of the value of Amazon’s current $564 billion market cap.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Expecting Another Model 3 Miss, but Remain Upbeat on Tesla Story

Next week, likely Jan 2nd or Jan 3rd, Tesla will release delivery and production numbers for the Dec-17 quarter. We estimate Model 3 deliveries will total 2,500 vehicles, below the Street at 5,200. We’re looking for Model S and X deliveries to total 26,600, which is in line with the Street (link to our model here). Separately, the last update on Model 3 production calls for “a production rate of 5,000 Model 3 vehicles per week by late Q1 2018,” which we believe is ambitious.

Tesla’s behind in Model 3 production, but ahead of the competition in building the car of the future. The reason we remain upbeat on the Tesla story despite the prolonged Model 3 production problems is that EV and autonomy are the future. Tesla is fighting to gain production scale to create that future. While other car manufacturers build gas-powered vehicles at scale, building autonomous EVs is a vastly different process that will require traditional auto manufacturers to re-engineer their production facilities. That means every automaker that wants to compete in the future needs to go through the production pain Tesla’s experiencing today.

Model 3 breakout in 2019. While reservation holders grow anxious and investors frustration continues to mount, we continue to stress that production over the next several quarters will be largely a guessing game, and that short-term production numbers do not materially affect the long-term story. We predict a breakout year for the Model 3 in 2019 which means, until then, other elements like solid Model S and X production numbers, increasing energy deployments like the South Australia installation, and future vehicles (Roadster, Semi, Model Y, and pickup truck) will stoke investor optimism.

Fremont flyover shows hundreds of Model 3s. Though it is far from the goal of 5,000 per week, we have seen encouraging signs that Model 3 production is ramping up. Hundreds of Model 3s have been spotted at delivery centers and at the Fremont factory shown in a video here, several suppliers reported that they are back to working with volume in line with Tesla’s guidance of 5,000 vehicles per week, and Model 3 invitations to configure seem to be accelerating. Nonetheless, we encourage bracing for a production miss and further reassurance that bottlenecks are being addressed. More to come the first week in January.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.