"Meet Model X" event. Image source: Author.
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At last count, Tesla Motors had a Model X order backlog of around 35,000 units. The company only delivered about 200 in the fourth quarter, and has been slowly ramping up production and deliveries. Meanwhile, the "Meet Model X" tour has started to make the rounds around the country, allowing reservation holders to see the electric SUV and go for a spin before finalizing their decisions.
But Tesla has now started to proactively reach out to Model X reservation holders, nudging them to go ahead and confirm their orders.
Calling all reservation holders
A member of Tesla Motors Club, the largest online community of Tesla owners and enthusiasts, recently said that they were "cold-called" by Tesla. The representative said that the Tesla currently has open production slots available and that any order confirmed immediately would go into production by the end of the month. The rep even offered to try to arrange a Model X demo unit so the customer could see one in person.
This may be just one anecdotal data point with numerous interpretations, but there are some possible implications for investors to consider.
The point of no return
Keep in mind that as soon as a reservation holder confirms their order, the $5,000 deposit that they had put down is no longer refundable. The customer can change the order configuration for another 7 days, subject to a $500 change fee, but they're effectively committed at that point unless they can afford such an expensive change of heart.
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Converting reservations to orders is extremely important right now. At the end of last year, Tesla was sitting on $283.4 million in total customer deposits, just waiting to be applied toward purchased vehicles and recognized as revenue. While that sum includes deposits for new and used Model S vehicles, the majority of those deposits are for Model X (around $175 million).
Seat's not taken
However, it is interesting that Tesla has open production slots for this month. Elon Musk said that Model X production should reach 1,000 units per week in the second quarter, which would dramatically help with fulfilling the backlog.
In line with prior vehicle launches, Tesla is prioritizing high-end vehicles first, starting with the P90D, then 90D, and then 70D. Even certain options like seat configurations will affect delivery timing. This is done to recoup the substantial manufacturing and tooling investments that Tesla has made to ramp production.
That could suggest that the order mix isn't as favorable, if there aren't as many confirmed P90D orders to occupy all the upcoming production slots. That has implications on average transaction prices and overall unit mix.
Under the gun
It would be brash to say that Tesla is having difficulty converting reservations to orders, though, which would be the skeptical interpretation. While Tesla doesn't disclose a specific breakdown, President of Global Sales, Service, and Delivery Jon McNeil said, "And for both S and X, we -- both the order rate on S and the conversion rate to orders on X has been very strong."
More than likely, Tesla is just being proactive with its service and delivery, gently nudging reservation holders to click the big red button.
The article Tesla Motors, Inc. Is Nudging Model X Reservation Holders to Confirm Their Orders originally appeared on Fool.com.
Evan Niu, CFA owns shares of Tesla Motors. The Motley Fool owns shares of and recommends Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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