2017 Investor Roundtable:General Discussion

[neroden]

Yes some independent gas stations will decide to turn into a convenience store since the building already exists and may add superchargers. They will suffer though because the car throughput won't be the same as a gas station. Obviously if they have a unique location advantage they might survive as a convenience store. This won't likely happen at the Exxons and Chevrons etc... because they will resist until it is too late.

I must emphasize that most "Exxon" and "Chevron" gas stations are independently owned. They pay a franchise fee to Exxon or Chevron. They'll drop the franchise like a hot potato.

Most gas stations will die because with EV's you don't need the chargers to be located at an existing gas station and EV drivers need to use Superchargers much less than a gas station because you charge mostly at home. This is called Disruption - you are stopping at refilling stations 1/10 as much as with an ICE and most aren't located at gas stations. Tesla doesn't care, they just want good supercharger locations.

Yeah. Gas stations are *already* closing at a rate of about 3% per year in the US, as of *2014*. This will *accelerate*. (Even higher fuel efficiency causes this to accelerate; electric car adoption will cause it to accelerate even more.) I suspect those in better locations will simply become convenience stores, probably with free charging, while those in worse locations will close totally.

There will be a tipping point when the volume of gas sales is just too low and the owners rip the tanks out. This will happen pretty much all-at-once and most of the gas stations in any given town will go away in the same year. I suspect there will be one gas station per town left, because the last station, being a monopoly, can jack its prices way up to make a profit.

 

[racer26]

This is just fundamentally wrong -- Sterling Anderson doesn't know what he's talking about and is exposing his own ignorance. He's missing two major characteristics of auto traffic:
(1) Rural areas. The value of your own car is that it is ready to go immediately. A shared autonomous car has to come to you first, and in a rural area, that's a *long* delay.
(2) Rush hour. The number of cars is sized for *peak* demand, not average demand. There will always be cars sitting around doing nothing at midnight, being used during rush hour.

Now, if you happen to live in a big city where there is likely to be a car nearby at any moment, (1) doesn't apply as much... unless you're in rush hour and all the autonomous cars have been taken already. And if you happen to live in a city which is very active 24/7 and has widely staggered shift starts and stops, then (2) applies less than it does to, for example, the Gigafactory with the entire shift arriving and leaving at the same time.

But these two factors are huge, and dominant. How many cars are really sitting idle *during rush hour*? That is the MAXIMUM number of cars that autonomous vehicles can permanently remove from the roads. Then subtract from that all the cars which are at isolated ranch houses or farms where it would take ten minutes to get to the next house. That even lower number is the MAXIMUM number of cars you'll see displaced. You'll actually see fewer than that displaced because many people will choose to have their own car for other reasons (not wanting smokers to use the car, etc.)

My point is that autonomous cars aren't really going to reduce the number of cars much. If you have data which shows that there are a lot of cars, in dense urban/suburban areas, sitting idle *during rush hour*, I would love to know how many there are. Maybe it's more than I thought.

The effect of autonomous cars on *cost* is another matter. I've often thought that big cities ought to have a lot higher usage of taxis (or the taxi-like Uber and Lyft and so forth) than they actually do, and the reason is probably the cost. Autonomous cars, once you've got enough corner cases working, are strictly superior to taxis in every way while simultaneously being much cheaper to operate. They won't just replace the taxi market, they'll substantially enlarge it.

But there are no taxis or Ubers in rural areas and it isn't for lack of drivers, it's for lack of practicality.

You're right, in that the automotive fleet is sized for peak demand. Except no, its actually sized quite a bit larger than that because of what you said, people like to have a car when they need it. Many stay-at-home types still have a car, that they rarely use, but want so that they can go to the grocery store or whatever on their schedule - those cars are all idle during rush hour. Some people like this will always want their own car - others will be happy to utilize TN if the price is right and its convenient enough. That's fine. Additionally, with the autonomous minibus, you can achieve much better people density with carpools that people are actually willing to do, if you're smart about it. People don't like to carpool because its inconvenient. The vast majority of cars on the road at rush hour have a single occupant. If you can be clever about how you route TN cars with the point to point demand of the customers, maybe you can finally achieve the holy grail that public transit is supposed to be.

Ignoring that though, even with single-occupant cars, I see two ways that problem is handled - 1) in an area with a high enough saturation of cars participating in TN, it won't restrict your mobility to not have your own car. If you can hail a cost-effective ride on TN inside of 2-3 minutes, its not a big deal - rural people don't use taxis at all because even getting one to show up can take 15-30 minutes. Even in rural areas, it can work - the cars don't require a driver to sit there doing nothing, so even a much higher percentage of the time spent idle can be economically viable in places manned taxis can't be and 2) I can still own a Model 3, and choose the hours I'm willing to allow it to participate in TN. That way, its always ready when I need it (to commute to and from work) but it will go make some money during the 8 hours I know I won't be using it while I'm at work. There will be multiple kinds of people who are willing to let their cars go to TN service - the investor, who buys a car purely to let it be a part of TN 24/7 - the suburban 9 to 5er who commutes to the city, but instead of paying to park, would prefer the car just go be a taxi in the city while they work, and then be ready for them to go home - the stretch buyer, who's willing to mostly let the car go to TN, even to the point where it inconveniences them, because the TN revenue enables them to buy the car. There's probably a few more archetypes if I think about it.

All I was suggesting in my post that you disagreed with, was that TN is a brilliant way for Tesla's limited manufacturing ability to make a bigger splash in terms of saving the world, than its 500k capacity intuitively should.

 

[neroden]

2) I can still own a Model 3, and choose the hours I'm willing to allow it to participate in TN. That way, its always ready when I need it (to commute to and from work) but it will go make some money during the 8 hours I know I won't be using it while I'm at work.

This means that there will be a greater supply of these cars outside rush hour but not during rush hour. Which is great *financially speaking*, it's a little extra cash for the car owner, but doesn't do much of anything about the size of the car fleet.

All I was suggesting in my post that you disagreed with, was that TN is a brilliant way for Tesla's limited manufacturing ability to make a bigger splash in terms of saving the world, than its 500k capacity intuitively should.

I guess we only disagree on quantity; I think it's only a slightly bigger splash. (Maybe 10% bigger, probaby less.)

 

[MitchJi]

It would be a parallel effort in case the pouch technology advanced faster than cells. An insurance policy, if you will. The fact that they did not pursue the pouch cells indicates to me that they consider cylindrical cells to be the superior solution, confirmed by what we know.

What JB actually said was that they didn't see any advantage to pouch cells.

But you stated that the 2170's are so superior that other manufacturers would demand them. I can think about one possible way that could happen. The people who have the best understanding of the trade offs are Tesla and Panasonic employees. The people right behind them are the employees of LG and Samsung. They have both produced cylindrical cells for Tesla.

So, if as you contend, the small cylindrical cells are substantially better the possibile way that GM etc. would consider shifting from larger format pouches to 2170's would be if Samsung or LG offer to sell them packs made from 2170's that are either less expensive or more energy dense than their existing packs.

Do you really think that's going to happen?

That will happen if small cylindrical cells are clearly as superior to pouch cells as you claim.

Maybe you think you understand the tradeoff's better than LG and Samsung?

 

[jhm]

Yep, take a look at it from a Gas Station perspective and it becomes easy to see. Different business model - Tesla isn't selling markup on the energy but a flat fee access to the system (embedded in the car purchase) that they are happy to open up to other manufacturers. The analogy I see here is like a Costco that makes their money on their membership fees, where product markup is all to cover overhead. As well it is fundamentally a different and smaller market since most of your charging is at home. Gas Stations certainly can't compete by installing charging stations the markup would need to be ridiculous to have a car fill up a space for 30mins. Car companies don't think of themselves as infrastructure companies and by now they are way behind. Even if a car company made a real direct competitor to a Tesla you would always go with a Tesla because of the ability for long distance travel - it isn't really about range but the ability to travel. It will become obvious in the future that car companies need to buy into the Tesla supercharger network once they have cars that can actually charge quickly.

To put a price on this, the EIA breaks down the US retail price in Nov 2016 at $2.18/gal with 49% for crude oil, 12% refining, 19% distribution and retailing, and the rest taxes. So 31% is paying businesses for infrastructure from crude to gas tank. This is about $0.68/gal. The average car is consuming about 480 gallons annually. So that is about $324 per year per car just for infrastructure. Maybe about $80B for the US market, plus all the non-fuel retail sales. Through the recent oil glut the integrated oil majors were able to remain somewhat profitable through this downstream revenue. The lost money producing crude, but made it up refining and retailing.

Now if the auto execs were correct about hydrogen cars keeping EVs out of the market. Then this fuel processing and retailing market all stays intact and may even get subsidies from the government. The EV alternative compromises the downstream market. Pretty much any retailer with a parking lot could provide cheap charging as an inducement to shop. Even so, the vast majority of charging will happen conveniently at home or work. One wonders if the "infrastructure" problem auto execs envision is simply that there is no sizable downstream market to replace gas retailing. Certainly gas retailers have little motivation to support EV infrastructure at this point. That may change

 

[racer26]

This means that there will be a greater supply of these cars outside rush hour but not during rush hour. Which is great *financially speaking*, it's a little extra cash for the car owner, but doesn't do much of anything about the size of the car fleet.

Agreed. Its going to undoubtedly result in asymmetrical availability of cars. TN cars will be most available when they're least needed, just like taxis are today. Uber already plays with demand-based pricing, and I have no doubt that TN will as well. They'll be able to play with that equation in two dimensions though - the price paid by the ride hailer, AND the reward given to the car owner. If a city has a shortage of cars, then the cost to the passengers AND the reward can be driven up. My willingness to let my shiny new Model 3 go be a taxi for random strangers is highly dependent on how much I'm being paid for it. Perhaps you'll be able to set a threshold where you 'only allow my car to be a part of TN when being paid at least $x/mi' or something.

I guess we only disagree on quantity; I think it's only a slightly bigger splash. (Maybe 10% bigger, probaby less.)

I don't know how much bigger of a splash. You might be right, I suspect its a bit more than 10%, though. Uber is a very popular service in the places it runs, and I expect TN to soundly thrash Uber's pricing, and by extension market share. If it displaces a non-zero number of taxis and ubers in addition to being its owners primary car? Every little bit counts when it comes to saving the planet.

 

[Uncle Paul]

Gas retailers have all the motivation in the world to support EV.
They make very little on the sale of fuel compared to the much greater margins on their convenience store.
Putting in a couple charging stations is a no brainer for them, as those customers will be more apt to buy some sandwiches, drinks, and other snacks to enjoy while they wait for their charge to be completed.

 

[JGInnovation]

I must emphasize that most "Exxon" and "Chevron" gas stations are independently owned. They pay a franchise fee to Exxon or Chevron. They'll drop the franchise like a hot potato.


Yeah. Gas stations are *already* closing at a rate of about 3% per year in the US, as of *2014*. This will *accelerate*. (Even higher fuel efficiency causes this to accelerate; electric car adoption will cause it to accelerate even more.) I suspect those in better locations will simply become convenience stores, probably with free charging, while those in worse locations will close totally.

There will be a tipping point when the volume of gas sales is just too low and the owners rip the tanks out. This will happen pretty much all-at-once and most of the gas stations in any given town will go away in the same year. I suspect there will be one gas station per town left, because the last station, being a monopoly, can jack its prices way up to make a profit.

I think we agree. I'm looking at gas station as a business, while your looking at it more as a piece of real estate. The only reason gas is a lost leader for convenience goods is that with multiple gas stations close together people are sensitive to gas prices and less sensitive to the high margin on convenience goods. Its the same way that grocery stores don't make money on milk (because of price awareness) but if they stop selling milk they will go out of business. Most gas stations will go out of business when they can't survive as a holistic business and fast charging stations will only save a small percentage. You just won't have multiple convenience stores located near each other like you do gas stations (convenience store shopping will drop significantly without the customer that happens to be there already). Charging is more likely to be located at restaurants and shopping areas with a better selection of things to do.

 

[Krugerrand]

So I just remembered Tesla buying a body stamping parts company in May 2015.

A first in Michigan: Tesla buys Grand Rapids auto supplier

Now we know body stamping is among the longest leadtime items for M3 ramp. I'm sure glad they made that purchase in 2015.

More specifically and accurately, the building of the die sets has a long lead time. And building press lines - re. that curtained off hole in the factory floor. If a used press line was bought its lead time to dismantle, ship and re-assemble is a whole lot shorter than building a new, custom press line.

 

[TNEVol]

Gas retailers have all the motivation in the world to support EV.
They make very little on the sale of fuel compared to the much greater margins on their convenience store.
Putting in a couple charging stations is a no brainer for them, as those customers will be more apt to buy some sandwiches, drinks, and other snacks to enjoy while they wait for their charge to be completed.

If anyone needs to charge there, which will not be the normal case with home charging. Fast DC charging on the interstate like SC may work for a few gas stations.

 

[JGInnovation]

Gas retailers have all the motivation in the world to support EV.
They make very little on the sale of fuel compared to the much greater margins on their convenience store.
Putting in a couple charging stations is a no brainer for them, as those customers will be more apt to buy some sandwiches, drinks, and other snacks to enjoy while they wait for their charge to be completed.

Most will go out of business. There will just be a huge oversupply of gas stations + convenience stores.

 

[erthquake]

Most will go out of business. There will just be a huge oversupply of gas stations + convenience stores.

Is there anyway to short gas station real estate?

 

[jhm]

If Battery capacity was going to increase in the future to 400 kwh then home charging and destination charging would be the disruptive innovation but we know that isn't likely and the supercharger network is critical. The Problem with Experts - why Uber, Tesla and the iPhone are Disruptive Innovations

Nice article. Perhaps you could describe your network disruption theory. Is this based on how the value of a network grows with each new connection which can lead to an abrupt emergence of high value that was previously not envisioned? Thanks.

 

[racer26]

Is there anyway to short gas station real estate?

On that train of thought: what's the next big business idea that will be able to use all those obsoleted gas stations and the little chunk of real estate they're on? Suspect someone will come up with an idea and be able to pick up lots of disused gas station properties for a song, because they're too small for many purposes

 

[TNEVol]

@neroden I saw your bet for 200k on the prediction thread. Mine was 120 (110S&X and 10 M3). Your opinion is one I value considerably. Why are you so optimistic? I feel like the M3 ramp will likely be late due to batching for QA reasons and issues in late 2017 with huge gains in early 2018, but this is merely a speculation based on "Tesla Time". On the other hand I think S and X production could be adversely affected by the focus on M3 and everything else in the same factory and the same teams. I hope you are right!!

 

[neroden]

@neroden I saw your bet for 200k on the prediction thread. Mine was 120 (110S&X and 10 M3). Your opinion is one I value considerably. Why are you so optimistic? I feel like the M3 ramp will likely be late due to batching for QA reasons and issues in late 2017 with huge gains in early 2018, but this is merely a speculation based on "Tesla Time". On the other hand I think S and X production could be adversely affected by the focus on M3 and everything else in the same factory and the same teams. I hope you are right!!

Well, you did notice that I hedged my bet.

Musk said 100K - 200K Model 3 in 2017. I took the low end of that.
I figure they can ramp up from 77K S & X to 100K.

If they can't, then maybe they manage 80K S & X and 80K Model 3, which leads to my more conservative claim of 160K.

I am really betting on production of model 3 going full blast in Q4 2017, basically.

 

[neroden]

I think we agree. I'm looking at gas station as a business, while your looking at it more as a piece of real estate. The only reason gas is a lost leader for convenience goods is that with multiple gas stations close together people are sensitive to gas prices and less sensitive to the high margin on convenience goods. Its the same way that grocery stores don't make money on milk (because of price awareness) but if they stop selling milk they will go out of business. Most gas stations will go out of business when they can't survive as a holistic business and fast charging stations will only save a small percentage. You just won't have multiple convenience stores located near each other like you do gas stations (convenience store shopping will drop significantly without the customer that happens to be there already).

Yes. I definitely agree that the "four gas stations at one corner, one on each side" thing is going to go away fast. Each location will most likely support at most one convenience store, not two on opposite sides of the street.

I'm in a sufficiently rural area that the "back to back gas stations" have mostly *already* gone away here, so I didn't think of that.

 

[tslagreen]

You only proved that you don't know what the word miss means.
Tesla said they would do 50,000 in the second half, they did not. They were off by about 3k.
Based on that you claimed "truly amazing that anyone can say Tesla missed anything"

Now you are doing some blah blah blah about powerwall, mean old oil industry, lawsuits, which is entirely irrelevant to the your amazement that people are commenting about the FACT that they missed their numbers

Oh, and now you want to blaming vacation as if it is a big surprise that people take vacation in Q4 - do you think Tesla is that lame, that they didn't know that on October 26th?

They missed.
Get over it.

BTW, when someone is off about 3k on a projection of 50,000 where do you get that they are off by 1.5%. I get that you don't like facts, but you should at least learn to do math - it would make you look less silly.

Still feel the same way about Tesla's "miss?" You are likely one of those Tesla bashers that has perennially claimed that Tesla will go BK, that the Model S will fail, the Model X is a egotistically designed disaster, that no one wants to drive EVs,, yada yada and are only so glad to point out a mere delivery miss of a small proportion. Meanwhile, while you point out the proverbial miss (the tree), the Tesla forest continues to grow.

 

[neroden]

On that train of thought: what's the next big business idea that will be able to use all those obsoleted gas stations and the little chunk of real estate they're on? Suspect someone will come up with an idea and be able to pick up lots of disused gas station properties for a song, because they're too small for many purposes

That's a fascinating question. They're "brownfields" because of previous oil spills; any buyer has to check them and clean up the old oil spills. If they date from the days of leaded gasoline, the environmental cleanup problem is even worse.

They will, for that reason, be left vacant for fairly long times, I'm afraid. Those in more booming urban areas will probably eventually be cleaned up and turned into shops or offices or apartment buildings. Those in rural areas will be left both vacant and unfarmable, sadly.

Eventually government funding (EPA) will be needed to remediate the land so that it can be returned to productive use.

 

[MitchJi]

After really looking at it for a while, large pouch cells are an awful design. It took me a while to figure out why cylindrical cells were superior to button cells (...also a cylinder) until I figured out that the materials expand and contract in a particular direction -- expansion in a button cell would *lengthen* it along the axis, where expansion in a cylindrical cell puts pressure on the *outside circle* which is stronger against the pressure.

It's well known trade off between cell types. Hardly a show stopper or even a big deal. Pouch cells are subject to "puffing" which is why Volt and Leaf packs stack the cells between plates that are under compression. You could consider that an advantage for pouches because the housing of cylindrical cells probably weighs more because the anti puffing structure is repeated in every cell.

It'll be years later than that when it comes to my "wonderful" rural environment. Count on it.

It'll probably work fine in the vicinity of Fremont by late 2017. I don't live there.

Thanks, but I'm betting on Elon to be much closer to what he says, rather than what you say.

Also the worst case projections other than Toyota are all about 2020-2021. So your projection is definitely an outlier, among experts.