Justin, I'm having difficulty wrapping my arms around the possibility of actually engaging in conversation with someone on this board. Just kidding.
To your points:
Potential luxury market is a nebulous term, really. In fact, auto makers access the potential market based on real numbers, meaning the total amount of luxury vehicles sold over a year. Those numbers, in the US, remain fairly constant. What tends to change is the number of "intenders", those who wish to move up to a luxury vehicle. Perhaps we're talking about a Toyota, Honda, or Nissan owner who owns a top-of-the-line model in one of those brands and is eager to try out the entry luxury segment.
However, in the high end of luxury rarely will you see a person with the easy ability to own/lease a high end luxury NOT already doing so. The days of Howard Hughes are over. People with money will always want to have the best of everything, as they see it. Autos are no different. Instead of a Ferrari, they own a 7 Series, and so on. That said, to me and anyone else in the auto business, a market is defined by sales, almost to a fault. The US luxury market IS 1.5 million people. Of that number, at least 60% fall into the entry level category, meaning the room at the top is quite crowded and NOT in an expansion mode. I've been saying this all along about Tesla. I felt it is a strategic blunder to aim at the high end first. While the upside could mean the possibility of a large push at entry when /if Tesla introduces the $30,000 vehicle, I believe Tesla is already experiencing great difficulty drumming up current 4dr business. This means there's push back at the retail level which goes to my early belief that the entire sales process for Tesla is screwed up! Really, it's NOT about having independent dealers because I don't believe dealers would be interested in just one product to sell. To me, it's about the trade in and finance/lease. This latest gimmick Tesla announced is silly. Clearly a confused company.
Throwing this out as an outlier thought (which I came up with this morning).
THe market is up well this year. Wouldn't that lead to people banking some profits and spending some "winnings" on stuff like a beach house or a Tesla or Mercedes or something like that? Could the up-market lead to more Tesla sales for some traders?
Absolutely - sure it's not a sustainable level of demand, but demand is positively a function of consumer confidence, wealth effects (like you mentioned), disposable income, etc. etc.
Coach doesn't believe that Tesla can capture a fraction of 1% of the luxury market, however, I believe it is absolutely possible (and likely)!
Sentiment: Strong Buy
Slice it anyway you wish. The US luxury market, and global as well, is fairly mature. Since no one knows for sure the honest demographics of all people in the world, it's mostly a scientific "guess". While I think is just wonderful how people on this board spout off their interpretation of the luxury market here and elsewhere, I would venture to a heavy bet not a single one of them has ever read any qualified auto research data pertaining to luxury vehicles. I have. This leads me to what, IMO, is Musk's view of the global auto world. While he's from South Africa, I consider him to have European values. Unfortunately, those values, IMO, are values of 30-40 years ago when financing/leasing a vehicle was completely out of the question. Europeans bought cars just one way....... with cash! If they didn't have the money, they didn't buy. Even when they did have the money, the process took many, many months. I really believe Musk is out of his "values element" in this regard. His personal belief of how a luxury retail transaction should take place is very much different from reality, at least in the US. Then again, WHY did Monaco and Singapore happen? Why just one store in France? What about Italy? Austria? Spain? IMO, Musk when exactly where he believed the big money to be to sell that kit car Roadster. Big, big mistake! Moreover, his people were so unfamiliar with the business values in places like Singapore, that project was doomed before it happened! And Monaco? Ever been there? I have. You can drive through the entire country in less than an hour! Aside from incredible wealth, what kind of market could truly exist for that Roadster? How about none!
In a nutshell, I believe the global market for luxury cars, all segments, is about 4.5 million, give or take. It's NOT 15 million plus either. Selling a high-priced 4dr EV, regardless of looks, requires constant appearance refinement and cutting edge technology EVERY YEAR! Tesla is unable to do it.
While I agree with your logic, the lower and middle markets are not feasible with a BEV. The battery simply costs too much. Some day it may not be so but for now it is. All of the makers of BEVs and PHEVs are losing money on them. (And lowering prices despite that.)
Without govt incentives the Low end and Mid markets would fold in days.
You are forgetting the fastest rising luxury market- China. With the government's involment- incentives for EV and their smog problems and the growing middle-class this car is a natural. There will be advancements in battery life and charging times- I think you are being very shortsighted.
Goooood morning Coach! Do you realize how early it is? (8:40am!) - and to think you wrote this 3 hours ago... was I the first thing on your mind this morning? ;) Haha, I'm flattered! So, I'm listening to some Bill Evans and am excited to respond to some of the figures and facts you threw out (Though I wish I had some coffee percolating to help, all I have is this laptop and my calculator! so go easy on me..)
So, the US luxury market = ...1.5 million "people." Why is it so incredibly hard to imagine Tesla capturing 1% of that market (i.e. 15,000 units)? According to Baird Equity research published 2.21.2013, the US automobile market is 15m automobiles sold PER YEAR - and 15,000 units would equate to literally 0.1% penetration. With financing involved now, growing infrastructure, and overall compellingly fast, gorgeous and reliable product (I don't need to sell it, the car sells itself), I honestly, honestly, honestly don't believe that it is psychotic to assume that 1 out of every 1,000 cars sold CAN BE a Model S going forward. In fact, they have already rolled out thousands of S's, and have thousands more waiting in line for their car to be delivered! With how much marketing costs involved? Zero.
Now, that is, once again, not including any other country in the entire world.
What is Mr. Musk and Co's plan for this year? You're right, European and Asian marketing/delivery ramp up.
Now, you believe that the figure for the global luxury car market is: 4.5m people/units sold per year (I'm very skeptical about these figures you've thrown out, be they 1.5m or 4.5m but we will use your numbers regardless!). Once again, a 0.1% (yes, that is literally 1 tenth of 1%) penetration would equate to 4,500 units. A 0.2% would be 9,000 - and these are annual figures. Once again, I find it hard to believe it be considered psychotic to assume that Tesla can capture that much of the LUXURY market.
Anywho - if you are shorting this thing, one of us will lose much this afternoon!
Sentiment: Strong Buy