Discounts Of Up To $20K Are Available For The Current Crop Of Electric Cars

Now there is a surprise - NOT.

It has TWO reasons - 1 - the newer EVS and HYBRIDS have longer ranges - and are much better sorted out than the older ones. and 2 - THere is still a limited number of "green" buyers buying EVs - the market is NOT expanding at any great rate - and that is a concern for that company that has bet the farm on ONE model selling in numbers cars no longer sell in.

And as we have seen - the other car makers - although talking up their EV programs - are also not in a hurry - because they know that the limited infrastructure for EVs will have to be dealt with before real high volumes will ever happen.

Now - this is a Question - which one of the manufacturers will end up buying the remnant of that one seller that will not sell enough to pay the bills - ?

Let me ignore SanJose's comment and reply to Tom...Geely or Tata will pick up the pieces of Tesla if the junk bonds cannot be repaid.

The amazing thing about junk bonds is that in a restructuring, they are "senior" to the common stock but subordinate to any bank loans.

If Tesla encounters troubles, the equity gets wiped out and the junk bonds basically become equity. The 'invisible hand' of the marketplace will 'price' the bonds at a discount (i.e a $100 face value bond will trade at $60, $40, or even $20) which means that in a dust up, the entity that owns more than 1/2 of the junk bonds will control the company.

To do the math - So, right now, Tesla's market cap is $60 Billion. Lets postulate the Tesla runs into problems and can't generate enough cash to pay interest, let alone make cars, so the stock crashes and the market cap falls to $1 Billion. at the same time, the $1.8 Billion in junk bonds trade down to 40 (that's 40%) or $720,000,000. When the last nail goes in Tesla's coffin and the stock goes to $1.00/sh and its restructuring time - if a person/entity can assemble $370,000,000 in junk bonds (> 50%) they effectively own the company. That is what happens to Tesla is things don't pan out.

Doubtful? Look at the case of Valeant Pharmaceuticals (different because it has less operating risk and somewhat consistent cash flow) - its speculative holders bid up the market cap to $88.4 Billion in June 2015 (2 years ago!) and now the market cap is $4.8 Billion.

Further, if (when) Tesla fails, it will have no brand equity outside of Elon Musk (who will be kicked to the curb in a restructuring). Therefore there will really not much to sell, as most of the technology is "open source". That's why Tesla is so dumbfounding to many - there is only limited intellectual property and the union manufacturing plant should not be considered an asset. Unlike Tesla, Valeant has lots of intellectual property and immaterial unions.

The analogous situation will be when Martha Stewart had her legal problems which neutered her media empire and made it languish, which to this day, has never quite regained its luster.

You are smoking crack if you think Tesla is not going to survive at this point. Almost everyone that sits in or drives a Model 3 will want one. I was at a Tesla store over the weekend and there was a 10min line to just sit in a Model S or X. The big complaint is cost, and the Model 3 fixes that for many buyers. Infrastructure is a nonissue for Tesla, still an issue for other car makers that don't have a fast charging network.

Sorry - SanJoseDriver - but the conditions are NOT in favor of it being easy for Tesla.

First - we still do not have lower priced Tesla Production -they are only producing the highest priced product - and not in any high numbers.

Second - Infrastructure is a MAJOR issue AND is NEEDED by Tesla and others to sell the cars to urban areas - where the owners do not have the ability to arrange for charging on their own property. THAT is the major problem. EVS might sell well in urban areas - with short commutes - but Unless the Apartment renter with only on street parking has a way to charge the car - even TESLA is useless. Unless they have LOTS of charging stations - a few in an area is simply not going to support major sales of cars - period. TEslas fast charging network cannot even begin to match the number of gas stations that are available to a car owner - and I believe it will have to have numbers like that to be of use. If you sell 100 cars that do not have charging of their own - the "fast charging network" is swamped.

And Third - Auto Sales are down - sedan sales are down worse - we are heading into a slow economic period after 8+ years of expansion (not unusual) - and people will have less disposable income at the higher end - and an EV might be too much of a Luxury Purchase. I believe EV sales have reached a saturation point - and the NEXT way to sell them will require far more in incentives to get people to give up their cars that they own already - IT will not work with me - an EV simply does not fulfill my needs for a car. If a recession does hit - GM and FORD can produce smaller cars - and different varieties of Evs Hybrids, and ICE cars - and survive. Tesla still is dependent on a richer clientele - even at $40,000 - they are priced over the average New Car Price - AND more than 50% of the car buyers cannot afford that. And a recession will hurt them. By the way - I also know LOTS of others who have driven TEsla cars - and are not interested - both in an EV - and also a Tesla as well. Some are waiting for examples from real established Premium Manufacturers - others needs are simply not met by an EV of any sort right now.

While some towns in Europe MIGHT push EV sales by limiting ICE cars - that won't happen in the USA with TRUMP.

Questions for SanJose,Henry,vdiv etal.

See the attached data on cumulative total of electric vehicle sales by state.

https://cleantechnica.com/2017/05/04/us-electric-car-sales-state-whos-1-ohio-california/

California has 10 times more cumulative EV sales than the next 2 states Georgia (heavy Tax credit) and Washington (almost all in Seattle). It has almost 30 times more EVs than Mass. where I live, while the population is only 6.5 times larger. It's no wonder that you see them everywhere and we don't. So can Tesla meet it's lofty sale goals continuing to rely heavily on CA or is that market saturated? Like wise Tesla sells well into some wealthy high tech markets, but are are these saturated? How many more are there out there? Boston should be Tesla country but for some reason it isn't. The real issue for Tesla to meet its sales goals seems to be that it has to convert the Peoria's of the country (a popular marketing test market) to EV's when there is little evidence that they WANT an EV, for a lot of reasons. Is Tesla just a California phenomena?

@Vette71: you asked: "Is Tesla just a California phenomena?" - Based on my own "survey" of real life people (that I know) from different states, and online forums, I would say the "Tesla phenomena" is not limited to California alone. I attended a few social events at Fremont factories and witnessed the excitement of the crowd at the reservation lines on 3/31/2016 - and one thing stood out: the Tesla "fans" are of all ages and social-economical background, many are technical people but they are not representative - there are many non-technical/non-enthusiast "fans" in the crowd.

If you go back to media coverage of Mar 31, 2016 events, you would see the world-wide interest in Tesla Model 3. That interest will only intensify when the Model 3 production cars are widely available.

It is difficult to explain the "EV phenomena" in California without enticing derogatory comments from the opposing camp, but in all honesty it has to do with the progressive mindset - not so much the "green" attitude but the openness to obvious benefits of EVs. Keep in mind that Tesla still has a small share of the total EVs in California. Among the benefits ALL EV drivers enjoy are the ability to drive solo in carpool lane, no line at the pump, low cost electricity by charging at night (it also helps if the home has solar installed). For my household, the reduced commute time alone is worth it.

Particularly for Tesla, their cars are many levels above the rest of the EV field: performance, design and layout, techs, OTA updates, charging networks, ... . It's easy to see why Tesla is popular.

With more capital to work with, in addition to ramping up the Model 3, Telsa is rapidly expanding its charging infrastructure in the US (link below), not only for long distance travel but also for the urban drivers. This should remove another concern for the potential customers regarding charging.

http://insideevs.com/musk-promises-major-increases-tesla-supercharger-urban-charging-network-next-several-months/

Henry, thanks for taking up the challenge. A couple of points:
1. A lot of people are interested in Tesla. Hell I was interested enough to go to the Tesla store to see what it was all about. It isn't for me and the way I use a vehicle. Interest, or even a refundable reservation, isn't the same as a sale which is what Tesla has to get. San Jose, is there a map of those reservations by state?
2. Progressive is a key factor. Progressive government that puts in place all those incentives. Most would agree California is the most progressive state in the USA. The problem for EVs and Tesla is that the rest of the USA isn't that progressive so those incentives aren't widely in place. Indeed when those incentives are reduced or taken away, EV sales drop significantly. The state situation isn't likely to change much in the next 4 years. Hence Tesla has to depend on California to meet its near term goals. That seems to be a huge challenge.

@Vette71: you asked SanJoseDriver "is there a map of those [Model 3] reservations by state? " - since I have some available data, I share it here with you (thanks to Stefan Leever at Ocasual.com for compiling these numbers and making them available): http://model3.ocasual.com/

The map was dated last year, less than 2 months after the initial reveal on 3/31/2016, but I think it's still relevant as a reference. From the map, a few things emerge:

1. California, as expected, lead by a large margin at ~25%.

2. Texas - the second most populous state and the cowboy country where pickup trucks are king - ranks second with ~7%

3. Reservations are spread out across the US, with strong interests on either coasts and weakest along the border of upper-midwest and upper-western regions where population is sparse.

4. In the 6 states that ban direct sales of Tesla cars (Alabama, Michigan, New Jersey, Texas, Utah and Virginia), total reservation is ~16%. This speaks volume for the people of those states who want a desirable car regardless of what their corrupt governments and the dealer networks try to deny them the right to buy it.

5. Except for California, and Colorado with $5000 state EV tax credit which has high interest (~3%), the reservations from the other states don't seem to depend on state EV incentives. See full list of states with EV incentives - here https://www.tesla.com/support/incentives

6. Northeast states - where electricity rate is high - also rank high in term of reservation by population (roughly 100 per 100K people).

7. Federal tax credit of $7500 - most people who are interested in EV would know by now that the Federal tax credit has a limit of 200K units, and that Tesla will soon exceed its quota (details are a little more complicated, but 200K is the basis). This incentive is often brought up by the Tesla bear camp as the primary driver behind the interest, but in reality most reservation holders are well aware of their own situation and that many of them will get only partial credit or not at all.

8. World-wide interests - Canada, Germany, the UK, Spain, Sweden, Norway, Australia, ... all show very strong interests knowing they would not get their cars at least until late 2018.


Items 5, 6 and 7 combined show that incentives and cost of electricity are not the deciding factor in the interest in the Model 3. It is the desirability of the Model 3 that makes it such a big hit. Recent release of early production samples confirmed that.

Take it however you want, but an objective look at the big picture shows where Tesla is and where it's heading - to the future and no looking back.

What I would add to HenryN's excellent points is that EVs are not limited to driving a Tesla, being socially progressive, or living in a state with major incentives. I have Republican friends that drive EVs from other automakers and for a variety of other reasons. They prefer the superior technology, the lower cost of ownership, work in a related industry (supplier, auto, utility), want energy independence including being off-grid, hate losing people in useless wars in the Middle East, etc.

When demand declines, then sales decline.
When sales decline, dealers are inspired to move product.
When dealers are inspired to move product, the put cash on the hood, offer great financing and leasing deals, and other incentives for prospective buyers to become consumers.

Any questions?

Oh! I can get $20k off of any current EV?! Where do I sign up? :)