Tesla (TSLA) Executes the ‘Blitzscaling’ Strategy
By Gene Munster
Tesla (TSLA) recently published “An Update to Our Vehicle Lineup” on the company blog, making several tweaks to the Model 3 product line. Tesla is embracing the characteristics of blitzscaling — a net positive for the company.
Autopilot will now come standard, a new Model 3 lease payment plan is available, and some options have been removed from the online ordering process. Here are our takeaways:
- 2019 will be a bumpy year for Tesla as the company continues to experiment with the business model. Longer term, we believe the company will be successful at capturing the growth curves of EV and autonomy.
- Tesla will no longer offer the $35k Standard Model 3. Tesla made the Standard Plus value proposition better than its take rate was 6x greater than Standard. The base Model 3 available on the online ordering menu is now the Standard Plus for $39.5k. Therefore, Tesla is effectively discontinuing the $35k Standard to improve manufacturing efficiencies.
- Discontinuing the $35k Model 3 and making Autopilot standard will relieve gross margin pressure, given the incremental $4.5k is high margin software.
- We believe the company will reintroduce a $35k Model 3 once China Giga gets up to speed. China Giga will likely enable a lower-priced Model 3 due to lower cap ex, simplified production lines, cheaper labor, local manufacturing incentives, and no overseas freight.
- Tesla confirmed the Standard Model 3 is a software limited Standard Plus. This makes sense as Tesla listed both vehicle weights at 3,552 lbs, and the Standard Model 3 has a meaningfully worse rating in our Core Efficiency analysis.
- Autopilot is now bundled with all Tesla Model 3 purchases for an extra $2k (previously $3k). As mentioned, the base Model 3 is now Standard Plus for $39.5k.
- Tesla is now leasing Model 3. You can get a Standard Plus for $4,200 due at signing and $504 per month for 36 months. Leasing is a meaningful lever to creating demand given that most small luxury sedans in the US (60%) are leased. The drawback: leasing will measurably negatively affect GAAP financials and cash flow.
- Customers that choose leasing over owning will not have the option to purchase Model 3 at end of the lease. We expect Tesla to make those vehicles self-driving and supplement the owner fleet in the Tesla Network, their ambitious autonomous ridesharing platform.
Tesla’s Autonomous Platform
In our view, the new Model 3 lease plan is a small part of Tesla’s determination to build a fully self-driving fleet with regulatory approval within three years. We believe it is more likely 5-7 years away. We expect to learn more details about the platform at Tesla’s autonomy event on April 22nd. The timing of this event may be designed to add a layer of complexity for investors considering the upcoming Uber IPO.
If LiDAR is not necessary for level 5 autonomy, the company has a technical advantage over competitors. Tesla could push OTA software updates to activate a fleet. Capital investment in the Tesla Network would be low, as Tesla would only supplement the owner fleet with company-owned vehicles in markets where supply does not meet ridesharing demand. If successful, Tesla would shift the transportation business from vehicle sales to a cost-per-mile model and generate a ~30% revenue cut on the platform, similar to Apple’s App Store.
Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio.