Actual Jerkwater…

Here at Social Capital we’ve been watching Tesla for many years. We originally tried to get cute on valuation and almost had our faces ripped off. We’ve learned that changing your mind is free — so we did and have been happy supporters ever since. We’re consistently amazed at Elon’s ability to stay true to an ambitious and audacious vision despite the naysayers.

The naysayers came out this past week calling into doubt the pre-order figures that Tesla has been releasing. They cited anecdotes of individual buyers who have managed to get 20 reservations — well above the two reservations per order limit — and suggested a speculative bubble. To get to the bottom of this, we went to our friends at Second Measure to get a read on how the pre-order sales actually went. For those unfamiliar, Second Measure has a panel of several million US credit and debit cards and subsequently provides remarkably deep analytics on spending behavior across a very large subset of US households.

The Second Measure data was irrefutable. It indicated to us that of all pre-ordering customers, 96% reserved only a single car. A further 3.5% reserved two cars and <0.5% made 3 or more. Put another way, the pre-order figures that Tesla is releasing could only overstate unique customers by no more than ~4%, and the true speculative bubble, if any, was limited to less than 0.5% of the buying population. If we had instead seen a significant fraction of customers going above and beyond the two-car limit that would have been a sign of a possible speculative bubble, as it would have suggested a very large fraction of the reservations were going to individuals who were reserving multiple cars presumably for speculative purposes rather than actually using them. However, at less than 0.5%, we remain very bullish that the Model 3 pre-sales figures represent true broad based demand.

To help put this into perspective, 400,000 pre-orders at $40,000 suggests demand at the level of $16B in sales. By our estimates, it took the iPhone roughly 2 years from their launch in Q3 2007 to reach $16B in cumulative worldwide sales (27M units at $600 each). While one may not have been convinced in Q3 2007 that it was a generation defining event in technology, one would certainly have seen it as undeniable by Q3 2009 that the impact was truly enormous.

The more time we spend, the more it seems to us that when looked through the lens of Model 3 demand, the quality of the product and the laggard nature of their competitors, Tesla’s iPhone moment may have arrived.