40's Need a Fix

Lots of folks who've waited faithfully for a long time, and committed to an MVPA for a 40kWh car, and now are justifiably hurt to hear production is delayed again, while noob 85's get their cars quickly.

This gripe is legitimate - TM has made business decisions that have the effect of stringing along 40KW reservation holders. (Even if that wasn't the intent).

I think TM needs to mend fences with them. Here is my suggestion:

If you have a 40KW reservation and signed an MVPA, TM will refund your money on request, but grandfather in your option to purchase at the original price when the 40 starts production.

This would be a good faith gesture to credit supporters who've loaned them money. I think it would fix the problem and reaffirm folks' faith in the company's decency.

What do all of you think?

(Please note your res type in your post).

I feel your pain, but we all need to accept that TM is guided by achieving financial stability and long term success. Right now, profitability through sales of 85s has to come first. The 40s don't have much longer to wait. Demanding a refund is counter-productive. I'm a 60kwh who reserved 9/2011. My latest window is mid-march. I wait while relative new comers with 85s get their cars. I'm impatient too, but it makes sense.

When Tesla first announced that 85 kWh models would be delivered first, I was a bit disappointed while considering a 60 kWh Model S. But it was a brilliant move by Tesla to have 100% of the first drivers enjoying maximum range. If customers were running out of power, it wouldn't read well in the press.

What it did for me is to encourage buying the 85 kWh Model S. A non-stop trip from Vegas to Barstow last month during freezing weather required the largest battery. I was pleased to have the extra range to make it possible.

That's all good if you are one of the lucky ones to afford the bigger battery, but the point is that there are some 40kWh reservationist who have taken more risk and supported Tesla in the early days with their deposits only to have "noobs" enjoy the spoils. The 40kWh battery has already been delayed twice before. It may make good business sense but at this point, there aren't that may 40kWh customers out there (less than 10%) to make a big financial impact to the company. They should be shown some appreciation for their sacrafice as well.
The minority should be treated with the same respect as the majority.

I can see both sides of the argument. I know that Telsa really has to make money now to survive and flourish. At the same time, I can understand the impatience of those that have to wait.

Sometimes, a personal note of appreciation or regret can help make things "slightly" better. Or else, it can come across as lack or respect or care or concern. Refunding money will not happen as Tesla needs the money. And the wait seems unfair as everyone stood in the same line till Telsa decided to create different lines for some.

~ Prash.

If I were a 40kwH holder I would by disappointed as well - to say the very least. Why don't you guys send an email to George Blankenship - all of you - to express your frustration. At the very least you should not have to learn about another delay from an investor conference call. This should have been communicated directly to you via email or whatever.

It's about unit production cost. Listen to the Q4 call. It is clear that unit production cost during the ramp was very high, and is probably still fairly high.

This means the margin per car was low or negative. It would have been more deeply negative with the 40kWh model. Tesla needs to protect its cash position and get to profitability. A lot is riding on that. It helps nobody if the company runs out of cash, not even the 40 kWh buyers.

As they control production cost, they will be able to make 40s without losing money.

Look at the bright side. Your 40 will come from a much better production line with more experienced workers, fewer quality issues, and most of the kinks worked out.

Gross margin went up from -17% (they were losing money on the cars they built in Q3) to 8%, which is still incredibly low given all the overhead they have, to say nothing of recovering the R&D costs. Presumably, their margin on the battery is much better than the rest of the car, and Q4 didn't include any 60kWh cars. So, they are already going to have to absorb lower-margin 60s into the Q1 cash flow.

I agree with @danielccc - they *have* to get to even on a cash-flow basis this quarter -- they cannot afford to have to sell more stock to finance operations. If that means they have to postpone the 40kWh cars to do it, then so be it (yes, I say that as someone who has my 85kWh car).

Put another way -- if the alternative were to delay the 40kWh or go up on the price to where the gross margin was the same as the 60kWh battery, which would you prefer?

I understand being frustrated about not having your car - every day I waited for mine was painful. But the company must be able to start paying its own way to achieve the grand plan of mass-market EVs for everyone, or it won't be around to do it for anyone.

i made the same supposition in another thread; lower margins, production efficiencies, etc... But do we really believe going to production on the 40kWh (maybe just over 1000 units total) 2 months earlier is going to break the bank? Tesla is already cash flow positive and that will only improve thru March. If we follow this logic, how efficient will they need to be to break even on the 40kWh? and more importantly, how long will it take to get there? It would be very difficult to predict when you will reach a target efficiency so Tesla could conceivably take another six months before it "makes sense" to produce the 40kWh. Unfortunately, we seemed to have signed an open-ended contract with a $5K carrot. Being in that position doesn't instill a lot of trust or good will. '
They made a promise, we backed them. It's not our fault they haven't gotten into the black on 40kWh production, but I don't think it would kill them to bite the bullet, take a few lumps for their miscalculation and make their loyal customers whole.

for reference to above, I calculate that they would only produce about 150 40kWh cars /month given the percentage of total reservations. How much would Tesla really lose on 150 cars/month?

I think you're missing the importance of the quarterly performance numbers. TM is committed to hitting a home run in 2013,Q1. Its in all of our best interests for them to do so. Remember, the car isn't going to matter so much if the company can't maintain longterm health. We need this baby to get some early nourishment. I get that a lot of the 40s are early adopters and a lot of good press on TM early on was (and continues) touting the initial price point. Still, as critical as the 40s are, you really gotta be patient. A letter from George - better overall communication, for sure.

I think it is easy for us non-40kwh holders to talk about the "best" for Tesla. And yes, they want and need to hit a home run on their Q1 financials - I sure hope they do because I bought more shares this morning:-)

It does however not change the fact that the 40kwh holders are terribly disappointed and so would you if you were in their shoes. They just want their cars!

Personally, I don't need it nor would I benefit from the suggestion.

I gave TM 20k in reservation money precisely with the hope that it would financially boost their mission when they needed it.

But I am listening to the hurt that others feel, and I think TM's practice does not present as fair. This harms the goodwill customers accord them, which is more important an asset than those few now frozen deposit accounts.

It is not my case, but if someone was pushed to sign an MVPA (in August for example), with the message that delivery was around 90 days after signing, they now won't get their cars for more than a year after contractually committing all the money to buy.

TM has made a strategic business decision to defer the 40's, which may be very rational for their marketing purposes. But it is very clearly a choice, not a result of uncontrollable circumstances.

To me, because this was their election, the gracious thing for TM to do is to extend some form of goodwill to those who are regrettably affected.

Many will let their deposit ride anyway, but will nevertheless appreciate that TM has acknowledged them by restoring the choice back to the buyer.

It's more of an affirmation of principle than any material financial effect. I think it's worthy of serious consideration by TM management to stem the loss of goodwill for their brand.

De minimus financially, but the gesture would restore trust. And deciding quickly is more effective.

Principle is exactly what got those owners to jump to defend TM when Broder maligned them.

Doing right really works.

Excellent new comments by others BTW, on the different facets of this situation.

Dear 40kWh Reservation Holders,

Sorry, waiting is no fun, waiting for your “S” is less than no fun. I have a question and it is one I considered. If TM allowed it, would you upgrade your battery, if this meant receiving your ‘S’ a couple of months sooner?

When I was waiting on my 60kWh, I seriously considered calling TM to step up to an 85 because I was incensed that reservations that were 6K higher than mine were taking delivery. Ultimately, I decided to deal with my disappointment and wait semi-patiently. I received my 60 and I can honestly say the reality exceeds my fantasy! Even the standard white paint is drop dead gorgeous. I am a happy camper but I feel for “Teslites” (‘S’ owners with 40 and 60kWh batteries) that had/have to wait longer than they want to.

Please be patient, it will be worth it

Thanks to Mark K for some very good comments that reflect my own ideas. I am an early adopter (#3702). Right now I am getting asked daily when I am getting my car and Tesla is looking worse with each further delay. Some form of compensation for my 3 year/interest free loan would be appreciated.

@petero - 60 is really more car than I need, but yes we are doing the financial calculation to see if we can make that work. I am not expecting a discount, but I really don't want to pay the price increase. Also I would have to forgo some of the options I had hoped for.

And finally, as much as I get that Tesla has to get up and running, I resent higher end owners who have their cars telling me to be patient because Tesla can't afford to make good on its promise to me. That is in Tesla's interest not to make good on its promise. If that is the case, Tesla shouldn't have made it in the first place.

Simply put, there was no way for Tesla to absorb the cost of retooling for the 40s in Q4. I was originally a 40 and upgraded to a 60, but am still waiting as well. That said, Tesla needs to hire a small team to focus entirely on communications. It would be a tiny investment with huge dividends.

Petero - agree that they will absolutely love it when they get it.

Remember though that you got your 60 with supercharging because principle prevailed.

I am siding the the 40s. I have my 60 and I was ready to raise hell if they delayed it. The 40s (all 150 of them) should rightly be vocal about the push back. I get that Tesla really needs to make that margin I do. I think one of the other reasons for such a low demand for the 40 is the continuos delay on it.

@syddent - it is hard to know three years in advance whether the promise can be made or not. For example, saying the base car would be under $60k after tax credit. Yet, if they didn't say these things, we wouldn't be here today because nobody would have given them any money if they said "well, we hope to produce a great car, but we don't know exactly when it will ship, how much it will cost or what features it will have".

So, they said it would ship in 2011. When I placed a reservation on a LEAF in April 2010 and finalized the order for it in August 2011, it was because I thought Tesla was unlikely to hit that date, plus with everyone in front of me I didn't think I would get it until 2013 (which turned out to be correct, if only by a few days). Likewise with other aspects -- they made bold statements, then worked like crazy to make them reality. Sure, they didn't hit everything, but personally they met more than I expected, and more importantly the car itself is far better than I expected.

I really do understand how frustrating it is to have put your money down years ago and wondering when you will ever get your car, and I think Tesla should find some way to make those that put down reservations long ago happy (such as maybe some discount to upgrade to a 60 that gives better gross margin than selling a 40, plus avoiding the setup costs of tooling up for 40kWh batteries and all the software testing that will go with that), but only in a way that doesn't compromise the company's ability to meet its goals.

Imagine if you ordered 40kwh plus standard suspension. You probably will be the last in line. I believed two factors play big part of your deliver date. Battery size (85 >60>40)and suspension option (air > std). So far no update on when standard suspension will enter their production. I guess we just have to wait.

ChaseF +1 and +1

I would seriously consider upgrading to a 60kWh if Tesla gave me a price discount to do it. This could be offered only to a select group of 40kWh reservation holders, perhaps to those who reserved over 2.5 years ago. Tesla would make a slightly higher margin than they might on a 40kWh and I would get my car sooner, a win-win. But if Tesla does not offer this, they should offer the 40kWh'ers something. So far I have a free hat and a plastic toy car for my $5,000 40kWH reservation made in 11/2009. --P1399

I called about the status of my 40, and it's 4 to 6 months out. I also asked about going to the 60, waiting an a call back.

@Brian10, at least you have a cool hat and toy car! I only have the card with my name and reservation sequence number on it.

The toy car is probably in the trash but you can have my damn hat if you can figure out a way to get Tesla to deliver on their promises and begin production of the 40kWh.

One thing I see left out of the equation is that Most who either have their 85kw cars or who can afford an 85kw car are preaching from a "high horse" with questions like "well why not just upgrade to a 60 or 85kw pack etc.

Has it occurred to anyone that many 40kw buyers pushed to their finances close to edge to get it and don't have a spare liquid 10 or 20k sitting around purchase a car. It may push a large number of those customers out the door, with a bitter taste in their mouth.

While the decision to stretch ones finances to purchase a car "is debatable" but Tesla said they would build it and they should build it. They could have known how the 40's would affect margin and I for one would assume that the 40kw cars and their associated "lower margins" were already baked into the cake.

It's beginning to look like Tesla merely offered a 40kw option to advertise the 49k price point secretly hoping there would be minimal if any takers. Okay perhaps there is no "conspiracy theory"

But perhaps a lack of financial planning for margin drains they already knew were in the pipeline.

Aside from unit margin differences, what TM had to rely on in the push was experience. All the Signatures were 85s, and continuing that string was the path of least screw-ups -- which they had no time to absorb. Now that the 60s are out, there has been one "pass" through that gauntlet. And they know what it will take to do it again. Keep in mind that there are more differences between a 40 and 60 than 60 and 85.

Given the need/plans to produce "variants" (and battery variants within each, one presumes), this is necessary "training". But its easiness and smoothness should not be taken for granted.

I note that many take syddent's POV that "[it] That is in Tesla's interest not to make good on its promise. If that is the case, Tesla shouldn't have made it in the first place." Assumes what is surely false: that TM kew it couldn't get the 40s out that quickly, and would delay delivery. All promises are subject to the caveat, "The Lord willin' an' the crik don't rise," however. Prediction is hard, especially about the future. TM was sideswiped by various events and factors. Its bounce-back has been strong, but not perfect. Probably there have been many "hits" it took and survived which we know nothing of.

IAC, it CERTAINLY did not conspire to relieve 40s reservers of their $10 million or so in deposits. In the big picture, that's chump change.

typo copy/paste error: that "[it] is in Tesla's interest..."

Chuck Lusin - what is your reservation number?

Here is what helps me with the wait (I am P3056 - reserved in 2/2011):
1.) I can save more money for the down payment. I am (have been) saving an estimated car payment monthly.
2.) The 40's may benefit from new hardware enhancements implemented on the line (4G capability, center console improvements, vanity lights, "oh hell" handles, maybe...). Less time later having to go back and forth to the service center.

What would help calm me further is knowing that the 40kWh battery has been certified by the EPA. That milestone would go a long way with me. At this point, I don't know if there is a functionality obstacle or is it purely a financial reason for the delay.

I haven't called Telsa since making the reservation but I feel the need. If someone is willing to compose a letter on behalf of 40s to Tesla I would support it.

-George V

Hi George,

@Brian H,
What references are you siting to get that the differences between the 40 to 60 are greater than the 60 to 85? IMO I believe that the 40 battery would be an easier design (simply by reducing the 60 by 50%), that to have a completely different design on the standard suspension, which is also computer controlled.

I just got off the phone with Tesla, I wanted confirmation that the 40s have been delayed. I was told by the configuration guy that the build schedule now seems to be standard suspension in March, followed by multi-coat paint and then the 40KWh batteries in late spring to early summer.

I was shocked to hear this, since it was brushed over in the financial statements so lightly.

We could be waiting until June for 40KWh cars to roll off the line. He said that the battery pack is being re-designed not just removing cells, which is going to take more time. Makes you wonder how they could have ever thought/promised these back in November/December.

I really feel like my arm is being twisted while they dangle this more expensive carrot out in front trying to get me to upgrade.

I am not wearing a tin hat and I don't believe in conspiracies. I don't believe Tesla is so cynical as to pull a true "bait and switch". That being said, at some point Tesla should responsibly evaluate when cars will get online. I am finding the excuse that the company has to be stable before it meets its contractual obligations remarkably hollow with each delay. If I hired a contractor to do work for me and that work was delayed repeatedly in favor of higher paying contracts, I would have a very good case in small claims for any deposit I made.