Articles/megaposts by DaveT

[JRP3]

also, i think the stated time line to get to the gen 3 vehicle is a bit too aggressive. the giga factory still has to be built. despite what tesla says, i don't see gen 3 coming out until 2019.

Panasonic took about 15 months from announcement to cell production on their last factory build. Tesla has plenty of time to build the Gigafactory, especially since it does not need to be at full production volume until at least two years into Gen3 production.

 

[eepic]

PM me if you figure that out! If so, I'm in

There's actually a thread on SpaceX on TMC with discussion of how to invest in it. As it stands, looks like the only place is SharesPost but you need to be an accredited investor and minimum size would be about $50k. If you qualify, they would look for current shareholders that may be looking to sell.

 

[DaveT]

Why I think the Gen4 vehicle will happen

I don't see Tesla introducing a "Gen IV" vehicle in the <$20k range, ever. The strategic plan Elon laid out years ago lined the company's Tesla marque up against BMW and Audi, not Toyota and Honda. That I think is more likely, and completely overlooked in the GS report, is a substantial amount of revenue in making drivetrains for other OEMs. Along with these revenues would be revenues from the sale of SuperCharger access for those cars.

I think the Gen IV vehicle is not necessary for tesla to be a major mass market car manufacturer. the gen 3 car will likely be an extremely compelling car on its own. even if it is priced like a bmw 3 series, the total lifetime cost of ownership will put it on par with the 25k to 30k ice vehicles. customers might not get it initially, but over time they will get it. people learn very quickly when their own dollars are at stake. i see tesla expanding Gen 3 much more than expected rather than having to go further down market to gen iv.

I understand the reservations behind thinking Tesla will release a GenIV vehicle, but let me outline some reasons why I think it’s likely.

Tesla’s long-term gameplan radically changed at some point 2nd half of last year, IMO. Prior Tesla was aiming to accelerate the EV revolution by being an example (ie., showing Model S can be done at a profit and eventually showing GenIII can be done in a compelling and profitable way). This was supposed to encourage other manufacturers to step up their game and make compelling EVs. However, late last year Elon expressed disappointment that auto manufacturers weren’t getting it and that he was disappointed at their lack of commitment/resolve and plans to make compelling EVs. So he said that his view has changed and that he thinks that the current auto manufacturers need competitive pressure. This mean that current manufacturers need to feel like their current business is at risk and this competitive pressure will lead them (or force them if they want to survive) to make compelling EVs. This was a huge shift in Tesla’s strategy IMO. Back in his 2006 blog post, Tesla’s vision wasn’t to exert competitive pressure on auto manufacturers. Late-2013 was when this strategy shift happened.

In order for other auto manufacturers to feel competitive pressure from Tesla, Tesla needs to make a boatload of vehicles. If Tesla is constrained to just the luxury market (ie., large sedan for Model S, SUV for Model X, and entry sport sedan for Gen3, etc), then that will only exert competitive pressure to the luxury brands (ie., BMW, Mercedes, Audi, Lexus, etc). Tesla needs to millions of vehicles and exert pressure to mainstream auto makers (ie., Honda, Toyota, VW, Hyundai, etc) for the auto industry to really feel the competitive pressure. And this is only done by Tesla making vehicles that compete directly with them.

The Gen3 was intended to compete with the BMW 3 Series class of vehicles and I think it will do very, very well. However, in order to compete with the BMW 3 series, Tesla will need to add a lot of extra cost (compared to a camry/corolla competitor) to make the car handle and perform comparable or better than this class of vehicle (BMW 3 series, Audi A4, Lexus IS, etc.).

The Gen4 vehicle will be a non-luxury car vs Gen3 is a luxury compact sports sedan. In other words, Gen4 won’t have BMW 3 series handling/performance/etc. Rather, it will compete with Camry/Corolla and it will handle and perform better than those cars but not nearly as well as a BMW 3 Series. By doing so, Tesla will save a lot of costs and those costs will be passed on to the consumer in the form of a lower price tag. I expect Gen4 to be priced $10k lower than Gen3. But $10k is a lot of money for some people and will open Tesla up to a whole new market of buyers. Gen4 will be the competitive pressure mainstream auto makers need to Elon’s vision of the EV revolution come to reality.

But don’t get me wrong… Gen3 will give competitive pressure to BMW, Mercedes, etc. since it will divert sales from their BMW 3 series class, C class, etc. However, there are a lot of manufacturers who aren’t in the luxury line of cars that Gen3 won’t affect much.

Gen3 would have been enough if Elon’s theory that the other auto manufacturers would get motivated by example. But it appears his theory didn’t pan out, so he’s testing out another theory… not example, but competitive pressure. “Competitive pressure” is a nice way to say that auto makers need to be scared that they’ll go out of business before they make the changes needed to take EVs as serious as they should. In that light, Gen3 is no longer enough. A cheaper and more affordable car than Gen3 is now needed for competitive pressure, and that car is the Gen4 car.

JRod0802 mentioned the link where Elon mentioned GenIV. And that’s another reason why I think GenIV is very likely. It was late last year as well, during the time where Elon was expressing his shift in strategy from example to competitive pressure.

Elon even gave a timeline (although rough) saying GenIV (or generation after Gen3) would come out 3 years after Gen3. Let’s say Gen3 comes out in 2017, that would mean Gen4 would come out in 2020. I think though Gen3 demand will be insanely high and they also need to come out with a Gen3 compact SUV (ie., X3) and that might take 1-2 years after Gen3. So, it might push out Gen4 to 2022 or so. Tesla will also want to release a truck and maybe another roadster as well sometime.

Anyway, the point being is that Gen3 was the completion of Elon’s 2006 blog post since he thought the example would be enough. But now since he’s changed his mind and he now feels competitive pressure is necessary, Gen4 makes sense.

A few final thoughts on Gen4. Since it’s at least 6-8 years away, I don’t think Tesla is putting much effort into it right now. They’re probably just getting started on focusing in on Gen3 since Model X is wrapping up. Probably Tesla’s main effort toward Gen4 is making sure battery supply is ample for the foreseeable and distant future. In other words, the key to making Gen4 happen (and Gen3 as well) is battery supply. And that’s why the gigafactory is so important. If they can succeed in making this first one work, then they could scale the gigafactory model to many locations and provide the battery supply and price needed to realize the EV vision of over half new vehicles sold in 15 years being electric.

Lastly, the Camry/Corolla market is ruthlessly competitive. There's a reason why BMW and Mercedes have a difficult time going downstream. Margins are thinner and the competition is so good at economies of scale that it's tough to penetrate and make money in. In order for Tesla to succeed with the Gen4 in the compact and family sedan market, they'll need huge economies of scale (ie., millions of cars per year) and will need battery prices to continue their annualized compounded 7-8% price decreases for the foreseeable future. The continuously decreasing battery prices is the key advantage that could open up an opportunity for Tesla to sneak in with the Gen4 in 2022, start off with moderate sales, but as battery prices continue to drop then Gen4 will be more appealing and will attract more buyers... until 3-4 after (ie., 2026) Tesla could be selling millions of these vehicles as long as they're able to scale production fast enough.

 

[JRod0802]

So, here’s how Gigafactory rollout looks like:
Gigafactory #1: U.S.
2014 - start building
2017 - comes online

Gigafactory #2 and auto factory #2: China
2016 - start building
2019 - comes online

Gigafactory #3 and auto factory #3: Europe
2018 - start building
2021 - comes online

Then, from 2019-2020 they might need to start building a new gigafactory every year (or at least 500k capacity of factory for both battery and auto).

Now, some might think this sounds overly optimistic.

But Elon and JB have mentioned in the past that technology adoption usually starts off slower than people think but when it moves from early to mass market adoption, the adoption rate is much faster than most people realize. Meaning, Tesla’s challenge is going to be meeting the steep demand curve for Gen3 (and maybe Gen4) where we see demand really scaling like a hockey stick. This is the only way over 50% of new vehicles sold will be electric by 2030 (Long-Term Fundamentals of Tesla Motors (TSLA) - Page 32).

So today’s announcement that one gigafactory supplying 500k cars with batteries only will cost Tesla $2b provides us with a clear roadmap on how Tesla is going to scale to millions of cars. 5 million cars/year sold by Tesla by 2028 means they need 10 gigafactories (if each one has 500k battery pack production capacity). I think it’s doable.

Morgan Stanley estimates Tesla to sell 1.1m cars in 2028. I think they’re off by about 4 million.

Dave, I'm quoting you from a few weeks ago here. Your estimate of 5 million cars makes sense taking into account a Gen IV vehicle. How do you think Tesla will generate the capital required to build these auto factories and gigafactories?

P.S. Thank you for all these posts. This thread is by far my favorite in this forum.

 

[DaveT]

Dave, I'm quoting you from a few weeks ago here. Your estimate of 5 million cars makes sense taking into account a Gen IV vehicle. How do you think Tesla will generate the capital required to build these auto factories and gigafactories?

P.S. Thank you for all these posts. This thread is by far my favorite in this forum.

I'll give you a summarized answer and if you want me to expound just let me know.

There are several sources of funding Tesla can draw from to fund the necessary gigafactories for 5 million cars by 2028.

First, Model S/X is turning into a cash cow. If they can sell 100k Model S/X cars in a few years (let's say in 2016) at an avg selling price of $100k (roughly), then that's $10b in revenue. They will likely have up to 35% gross margin at that time on these vehicles, that's $3.5b. They can use a bulk of that for SGA and R&D expenses but they'll have some left over, ie., $1.5b they can invest into other activities like gigafactories. If it takes $2b to get a gigafactory up and running, then even with just 100k Model S/X cars per year they can start almost one gigafactory a year off of this alone. However, the reality is that they'll need money to launch Gen3 production and also other expansion plans. But anyway, Model S/X profit is one source of funds.

Second, while Tesla is growing they can issue more convertible notes when needed. As long as TSLA's valuation is high it likely won't dilute shareholders much. (ie., if TSLA if valued at $60b in a few years and raising $2b that's only a 3.3% dilution) Later on sometime in the 2020s as their stock price slows they can resort to issue bonds to raise funds since the money raised will go directly into car factories and gigafactories that will bring in more revenue and profit.

Third, as Gen3 starts to expand then Gen3 will become a cash cow as well. It will take a few years to ramp production and get costs under control. But if/when TSLA is able to achieve 25-30% gross margins on Gen3 then we're looking at a very lucrative funding source for future expansion. Consider if Tesla can sell 1m Gen3 cars (ie., in 2020-2021) at avg selling price of $45k (inc options), then that's $45b with gross margin (ie., if we say 25%) of $11.2b. Let's say they use half of that for expenses (R&D, SGA) then they'll have $5.6b left to use for investment into expansion (ie., car factory, gigafactory). $5.6b is a good amount, and this is in addition to the cash cow that Model S/X will provide as well as the opportunity to raise money via convertible notes (or bonds in the far future).

 

[DaveT]

As a point of reference... Toyota, GM, VW each sold about 10m vehicles last year.

"Worldwide vehicle sales at Toyota, including deliveries from subsidiaries Hino Motors Ltd. (7205) and Daihatsu Motor Co. (7262), rose 2.4 percent to 9.98 million units last year, the Toyota City, Japan-based automaker said in a statement yesterday. That compared with the 9.71 million units sold by GM and over 9.7 million units at VW. Sales will probably rise to 10.32 million units this year, Toyota said."
Toyota Beats GM in 2013 as 10 Million Vehicles Seen - Bloomberg

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And BMW sold about 2m cars last year.
"BMW reiterated its aim to achieve a significant rise in sales volume in 2014 to 2 million or more, after it delivered a record 1.96 million cars in 2013."
http://www.reuters.com/article/2014/03/19/autos-bmw-outlook-idUSL6N0MG1VG20140319

Mercedes sold 1.46m cars last year and Audi 1.58m cars:
"Mercedes deliveries jumped 11 percent in 2013 to 1.46 million cars and sport-utility vehicles in the biggest gain since 2010. That compares with an 8.3 percent increase to 1.58 million full-year deliveries that Volkswagen AG (VOW)’s Audi division posted yesterday."
http://www.bloomberg.com/news/2014-01-10/mercedes-2013-sales-increase-beats-audi-gains-on-compacts.html

 

[AlMc]

Dave: Thanks again for all your input/analysis. My take: I think by the time TM is ramped up sufficiently to get close to meeting Gen III demand one of the competitors for the proposed Gen 4 (Toyota/Nissan/etc.) will have entered the game with a pure compelling EV. Since it has been Elon's goal to pull the transportation industry into EV production he may announce that TM has accomplished it's mission and move to higher margin trucks/etc and general battery production for TM and other manufacturers vehicles and solar energy storage system. Just my 'hunch'.

 

[Auzie]

(Prior Tesla was aiming to accelerate the EV revolution by being an example (ie., showing Model S can be done at a profit and eventually showing GenIII can be done in a compelling and profitable way). This was supposed to encourage other manufacturers to step up their game and make compelling EVs. However, late last year Elon expressed disappointment that auto manufacturers weren’t getting it and that he was disappointed at their lack of commitment/resolve and plans to make compelling EVs. So he said that his view has changed and that he thinks that the current auto manufacturers need competitive pressure. This mean that current manufacturers need to feel like their current business is at risk and this competitive pressure will lead them (or force them if they want to survive) to make compelling EVs. This was a huge shift in Tesla’s strategy IMO. Back in his 2006 blog post, Tesla’s vision wasn’t to exert competitive pressure on auto manufacturers. )

I struggle to see a scenario were ice car manufacturers voluntarily make a technology switch. IMO they are not doing it and will resist doing it because it is economically punishing for them to make a change from ice to ev or any other technology. There is no pay off for ice manufacturers in switching from ice to ev now and there will be no worthwhile pay off for years to come. So many established ice car manufacturers have cash cows which they will milk for as long as they can. They will not be 'motivated or encouraged' into making ev's, as that is against their economic interests. They must be pushed and I am not sure that they can all survive when the technology switch happen. The likelihood of switch is very high in my mind.

My guess is that most ice manufacturers will not survive the technology switch. Any change to established manufacturing processes and plants increases costs. If a manufacturing plant is to be competitive, layout, process and work flow has to be flawless. That can not be achieved by doing a patch up job of changing an existing ice plant to an ev manufacturing plant. It is highly likely that such a large change makes it more economical to build a new plant rather than make changes and adjustments to existing plants. Perhaps some equipment can be reused but such savings would be small compared to the overall costs of establishing new, different plants.

A lot of pressure will come from customers who will want better product (ev). I think the switch will play out geographically. Some countries will simply have no access to evs and will be forced to keep buying ice. Tesla may be production constrained for a very long time.

Whenever I hear a Tesla bear argument that other car manufacturers will provide much better evs as a competition to Tesla, I just buy more shares, TSLA of course. For as long as there is such deep misunderstanding of what is happening in the car industry, shorts will keep supporting the TSLA rise. I might be wrong, but my money is where my understanding is.

I can hardly wait to drive ev car, once it comes to my country.

 

[JRP3]

I somewhat disagree. Some ICE OEM's are already building EV's on the same line as their ICE's. As battery pack energy density increases it becomes easier to build a competent EV in a similar platform as an ICE. They may not have the will to do so but I don't think there is a huge technological barrier for a motivated OEM.

 

[Auzie]

I somewhat disagree. Some ICE OEM's are already building EV's on the same line as their ICE's. As battery pack energy density increases it becomes easier to build a competent EV in a similar platform as an ICE. They may not have the will to do so but I don't think there is a huge technological barrier for a motivated OEM.

Perhaps technological barrier is not as relevant as lack of incentive to change. There is likely to be a lot of internal resistance to change as many people loose their jobs in that process. There is also a cost to bear if a plant has to be adapted for a different product.

In my view, and of course I could be wrong, ice manufacturers find it costly and self-destructive to switch to something that will cannibalize their bread and butter product. I am so curious to see how this will play out and who will stay in the game.

We would all benefit as drivers if ev technology were adopted fast by all car manufacturers, but that seems unlikely to me.

 

[kenliles]

It's a good point Auzie makes. The internal structures of these ICE based companies includes hundreds of wrong engineers and expertise of employees (for EV), wrong pay and bonus structures all the way to the top. Wrong payoffs to the wrong politicians. Wrong debts to the wrong creditors. The problems are endless. All resolvable with millions upon millions of dollars, the same dollars Tesla will be spending on GigaFactories, Super Charger networks, No profit Services centers, Direct sales to customers. Even if the spending to achieve is the same, the result to the customer base will be quite different, me thinks...

 

[hummingbird]

Everyone on this thread (and on TMC) is a fan of Tesla, including me. So we are all very optimistic about its future and stock price etc.

But I think when we think about Gen 3 and Gen 4 etc, and what Tesla may become in the future ....

We need to pay more attention to the Nissan Leaf and what Carlos Ghosn is doing. IMO he is the Elon Musk in the ICE world.

Don't ever forget that Ghosn already has three battery factories on three continents operational today.

I have leased the Nissan Leaf for 18 months now and it is a fantastic EV.

(I know the Model S is a fantastic EV too, I have put in my deposit for the Model X)

Leaf's volume has ramped significantly in the past 9-12 months all around the world.

The range is 75 miles. My family and I have gotten completely used to its range limitations: 1) we simply always plug it in in the garage, and 2) we use our ICE car when we need to travel longer distances. So 95% of the time we use the Leaf and 5% of the time we use our ICE cars. We have no range anxiety whatsoever. Not very complicated.

(also, using PlugShare.com we know exactly where the local quick charge stations are if we need it. I only need to use public quick charge about once a month on average- usually at my local Nissan dealerships for free. I never bother with public level 2 charge stations because they are way too slow. When I quick charge publicly I only do it for 15 minutes, just enough to get me from point A to point B. Lastly, public quick charge stations are popping up everywhere where I live. So we have no range anxiety at all when we drive the Leaf)

The Leaf has become very cheap to lease recently.

You put down $3000 and choose: $89/mo or $129/mo or $179/mo (three models: S, SV, SL)

Here in California the state will send you a $2500 check immediately if you lease an EV for three years. So we think of our third year lease as free !

Look forward about 5 years when the Leaf is likely to have a range of 125-150 miles at the same price point ... then think about Tesla's Gen 3 and Gen 4. Keep your eyes on the ball: money. What happens when you could lease the Nissan Leaf w/ 150 mile range for $99 per month! That's Gen 4's competition. (I agree the Leaf is very ugly. My son hates the look and I can see why. But otherwise the Leaf is a fantastic electric car)

I think in the long run it's very likely Tesla will spin off its car division and just sell BEV guts (battery pack + drivetrain + hw&sw smarts). In the long run Elon Musk is not interested in running a huge company cranking out millions and millions of cars with factories all around the world. That's too much hard work.

Similar to "Intel Inside" to PC OEMs; we may see "Tesla Inside" for auto OEMs. Today's Tesla Motors Inc may spin off Tesla Motors and change its name to Tesla Technologies (doing battery cells, cell chemistry R&D, EV battery packs, stationary battery storage systems, EV drivetrains, autopilot hw/sw systems, operator of "free" Tesla SuperCharger network for all EVs with Tesla-Inside guts)

The TAM is pretty staggering. By 2020 the world will be producing cars at the rate of 100 million per year. There are 800 million cars on the road today. By 2050 this number will quadruple to 3 billion.

Then there is the stationary energy storage market, which is equally big.

The Gigafactory Tesla wants to build will produce about 30 GWh of batteries per year. By 2050 our planet will need more than 100 of these gigafactories just for the auto industry. That's a lot of batteries (unless we come up with some other technology to store sun's energy)

 

[ecarfan]

Tesla will beat Nissan. Like every other ICE car company, Nissan will not produce a "no compromises" BEV because it would destroy their existing business model and dealership network. They won't be able to make the transition in time to provide serious competition to Tesla.

I agree that the Nissan CEO believes in the EV as the future of auto time transportation. But he still has to be accountable to the Nissan board and shareholders. So he cannot destroy Nissan's existing ICE business to build a new business based on BEVs.

 

[AlMc]

Dave: Thanks again for all your input/analysis. My take: I think by the time TM is ramped up sufficiently to get close to meeting Gen III demand one of the competitors for the proposed Gen 4 (Toyota/Nissan/etc.) will have entered the game with a pure compelling EV. Since it has been Elon's goal to pull the transportation industry into EV production he may announce that TM has accomplished it's mission and move to higher margin trucks/etc and general battery production for TM and other manufacturers vehicles and solar energy storage system. Just my 'hunch'.

Yep.

Everyone on this thread (and on TMC) is a fan of Tesla, including me. So we are all very optimistic about its future and stock price etc.

But I think when we think about Gen 3 and Gen 4 etc, and what Tesla may become in the future ....

We need to pay more attention to the Nissan Leaf and what Carlos Ghosn is doing. IMO he is the Elon Musk in the ICE world.

Don't ever forget that Ghosn already has three battery factories on three continents operational today.

I have leased the Nissan Leaf for 18 months now and it is a fantastic EV.

(I know the Model S is a fantastic EV too, I have put in my deposit for the Model X)

Leaf's volume has ramped significantly in the past 9-12 months all around the world.

The range is 75 miles. My family and I have gotten completely used to its range limitations: 1) we simply always plug it in in the garage, and 2) we use our ICE car when we need to travel longer distances. So 95% of the time we use the Leaf and 5% of the time we use our ICE cars. We have no range anxiety whatsoever. Not very complicated.

(also, using PlugShare.com we know exactly where the local quick charge stations are if we need it. I only need to use public quick charge about once a month on average- usually at my local Nissan dealerships for free. I never bother with public level 2 charge stations because they are way too slow. When I quick charge publicly I only do it for 15 minutes, just enough to get me from point A to point B. Lastly, public quick charge stations are popping up everywhere where I live. So we have no range anxiety at all when we drive the Leaf)

The Leaf has become very cheap to lease recently.

You put down $3000 and choose: $89/mo or $129/mo or $179/mo (three models: S, SV, SL)

Here in California the state will send you a $2500 check immediately if you lease an EV for three years. So we think of our third year lease as free !

Look forward about 5 years when the Leaf is likely to have a range of 125-150 miles at the same price point ... then think about Tesla's Gen 3 and Gen 4. Keep your eyes on the ball: money. What happens when you could lease the Nissan Leaf w/ 150 mile range for $99 per month! That's Gen 4's competition. (I agree the Leaf is very ugly. My son hates the look and I can see why. But otherwise the Leaf is a fantastic electric car)

I think in the long run it's very likely Tesla will spin off its car division and just sell BEV guts (battery pack + drivetrain + hw&sw smarts). In the long run Elon Musk is not interested in running a huge company cranking out millions and millions of cars with factories all around the world. That's too much work hard work. (similar idea as "Intel Inside" to PC OEMs; so, "Tesla Inside" to auto OEMs)

Instead, today's Tesla Motors Inc may spin off Tesla Motors and change its name to Tesla Technologies (doing battery cells, cell chemistry R&D, EV battery packs, stationary battery storage systems, autopilot hw/sw EV systems, operator Tesla SuperCharger network)

The TAM is pretty staggering. By 2020 the world will be producing cars at the rate of 100 million per year. There are 800 million cars on the road today. By 2050 this number will quadruple to 3 billion.

Then there is the stationary energy storage market, which is equally big.

The Gigafactory Tesla wants to build will produce about 30 GWh of batteries per year. By 2050 our planet will need more than 100 of these gigafactories just for the auto industry. That's a lot of batteries (unless we come up with some other technology to store sun's energy)

This is my thought/concern as well but you articulated it so much better than I. Thanks

 

[aznt1217]

Did the word fantastic and Leaf get used in the same sentence? No comment.

It won't be "spun off," but Tesla as an OEM is definitely in the cards so long as the company/person who buys it is as committed as Elon is to the electrification of cars (which at the moment is nobody). What I can see happening is him serving as a Chairman like he does SCTY. To be clear, there are more people on the Tesla team that are awesome and make the company run that Elon can trust (JB, Gilbert, Jerome). He's doing what has made him successful in the past but with cars.

 

[DaveT]

We need to pay more attention to the Nissan Leaf and what Carlos Ghosn is doing. IMO he is the Elon Musk in the ICE world. Don't ever forget that Ghosn already has three battery factories on three continents operational today. I have leased the Nissan Leaf for 18 months now and it is a fantastic EV.

I’ve listened to several talks by Carlos Ghosn and he’s definitely a smart guy. I highly recommend folks to watch some of his recent talks:
View From The Top: Carlos Ghosn, CEO of Renault-Nissan Alliance - YouTube
Carlos Ghosn, CEO of Renault-Nissan Alliance, talks about strategy, diversity and growth - YouTube
Driving Technology: Autonomous Vehicles, Connected Cars and the Future of the Automobile - YouTube
Carlos Ghosn of Nissan/Renault: Look Ahead, Dont Stand Still - YouTube

What I like about Ghosn is that he uses common sense and is very good at focusing his companies toward strategic and measurable goals. The guy excels at management and is also adaptable. He’s probably in the top 1% of CEOs.

While I respect Ghosn and his accomplishments, I have mixed feelings about the Leaf. With the $7500 federal tax credit, it becomes more affordable than the $30k it costs. And then if you’re in California, you add the $2500 tax rebate. So, with $10k in incentives it does drop the cost of the car significantly. And then you add the leasing deals. I’ve seen $200/month for 3 years with $2000 down. I haven’t seen the $89/month lease deal you’re referring to (how much are you putting down for that?). So, in terms of cost it can get attractive especially if you’re commuting 60 miles a day or so. The negatives is that it’s basically a Nissan Versa (ie., Toyota Yaris class) in terms of handling/performance which is a sub-$15k car and range is super limited. Further, when Nissan sell 200k EV units in the U.S. they’ll use up most of the limits for the federal tax credit. Without the $7500 tax credit incentive Nissan will have to find a way to significantly lower costs between now and then. But then they also need to increase range as well. Personally, with their current battery approach I don’t think they can reach cost parity with 18650 cells. It’s Tesla’s advantage using 18650 cells (lowest cost per kWh) that will open the door for Tesla to introduce the GenIV car in 2022(?) and establish a foothold in the super competitive compact/family sedan market. And it’s Tesla’s super focus on product that will allow them to produce a stellar GenIV car that’s better than it’s competitors (ie., in the same way the Model S is better than its competitors).

I think in the long run it's very likely Tesla will spin off its car division and just sell BEV guts (battery pack + drivetrain + hw&sw smarts). In the long run Elon Musk is not interested in running a huge company cranking out millions and millions of cars with factories all around the world. That's too much work hard work. (similar idea as "Intel Inside" to PC OEMs; so, "Tesla Inside" to auto OEMs)

Instead, today's Tesla Motors Inc may spin off Tesla Motors and change its name to Tesla Technologies (doing battery cells, cell chemistry R&D, EV battery packs, stationary battery storage systems, autopilot hw/sw EV systems, operator Tesla SuperCharger network)

I’ve read many people speculating that Tesla will sell a lot of powertrains in the future. I disagree with this. I don’t think Tesla will sell many powertrains in the long-term.

The reason being is that the car business is a low margin business where every percent of margin matters. If the powertrain takes up 1/3 of the cost of your vehicle, why would an existing auto manufacturer buy a powertrain from Tesla and give them 25-30% margin on 1/3 of vehicle? That leaves only 2/3 of the vehicle for the auto manufacturer to make money on. Now, they outsource most of the vehicle anyway so 3rd party companies are already making a decent margin on 1/3 of the car. So, the auto maker is left with trying to make margin on 1/3 of the car (ie., body, manufacturing, etc). This is a losing business. I don’t think any major auto manufacturer wants to be in a business where they can only make money off of 1/3 of the car and give Tesla profit on 1/3 of each vehicle they sell.

Auto manufacturers will want to develop their own EV powertrains since this is a big part of the car and they need to make margin on this.

Currently Daimler and Toyota have purchased powertrains from Tesla mainly because they aren’t convinced that EVs are worth it to develop their own EV powertrains. So, out of convenience they’ve contracted with Tesla. But this is largely to make compliance vehicles. When EVs take off, even Daimler and Toyota will insist on making their own powertrains.

Further, I don’t think it’s reasonable to think Tesla will license their powertrain technology either. The reason being is that Tesla’s technology is quite advanced and there are so many components to the powertrain, including advanced software and many computer-related components. By licensing powertrain technology, Tesla can’t insure the high standard of quality that is required to make sure the powertrains are safe. Thus, Tesla would rather make the powertrains themselves and sell them to other auto makers. But in the long-term other auto makers don’t want to give Tesla that much margin on such a big piece of the car.

So, in the end Tesla’s powertrain business is limited.

The heart and soul of Tesla will be selling stellar cars. This is how they will overtake Toyota to become the most valuable car company and eventually the largest car company by volume. This won’t happen overnight though… that’s why I call it a slow motion train wreck. Articles/megaposts by DaveT - Page 28

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Dave: Thanks again for all your input/analysis. My take: I think by the time TM is ramped up sufficiently to get close to meeting Gen III demand one of the competitors for the proposed Gen 4 (Toyota/Nissan/etc.) will have entered the game with a pure compelling EV. Since it has been Elon's goal to pull the transportation industry into EV production he may announce that TM has accomplished it's mission and move to higher margin trucks/etc and general battery production for TM and other manufacturers vehicles and solar energy storage system. Just my 'hunch'.

I think competitors will eventually release some decent pure EVs. It’s really just a matter of time. And with Tesla’s ascent, this will probably motivate some auto makers to do it sooner than later.

However, I think I look at the auto landscape a bit different than most folks. I just don’t see any standout mass market cars. By “standout” I mean a car that is significantly better than its competitors. Most cars are designed to compete well with its competitors, but I just don’t see the car(s) that are just so stellar that they significantly outshine and outperform their competitors, in so much that it becomes an easy decision for the consumer to buy that car.

For example, take the family sedan market - Camry, Accord, Fusion, Passat, Sonata, Altima, etc. There’s really no “one” car that takes over 50% of the market.

Even in the luxury compact sports sedan market, the clear leader is the BMW 3 series but there still is the Audi A4, Lexus IS, Cadillac ATS, etc. One of the reasons the BMW 3 series hasn’t take 50% of the market is because it doesn’t do everything well. Sure it performs/handles well but compared to a Lexus, the BMW has questionable reliability. If you took the performance of a BMW and the reliability of a Lexus, then you’d have a much more compelling car. But as it stands, the BMW 3 Series lacks reliability and the Lexus IS lacks performance. The result is you have a market segment with lots of players but no dominant player (ie., over 50% of the market).

It reminds me of the smartphone market before the iPhone. Lots of smartphones but they all were so, so. There wasn’t a smartphone that did it all and did it in a stellar way. Until the iPhone.

IMO the car market is like the smartphone market pre-iPhone. Lots of players making mediocre to good products but no ONE dominant player taking a dominant market position (over 50% of sales).

This is Tesla’s opportunity.

The Model S was the iPhone to the large luxury sedan market. In 10 years, I can see Tesla taking over 50% sales of the large luxury sedan/SUV market.

Gen3 will be the iPhone to the luxury compact sports sedan market. By 2030, I can see Tesla taking over 50% sales of this market.

Gen4 will be the iPhone of the family & compact sedan market. This one will take longer since it might not be released until 2022 and it will take time for costs (ie., battery) to come down and production to ramp. So, by 2035-2040 I can see Tesla taking 50% sales of this market.

 

[TSLAopt]

I’ve listened to several talks by Carlos Ghosn and he’s definitely a smart guy. I highly recommend folks to watch some of his recent talks:
View From The Top: Carlos Ghosn, CEO of Renault-Nissan Alliance - YouTube
Carlos Ghosn, CEO of Renault-Nissan Alliance, talks about strategy, diversity and growth - YouTube
Driving Technology: Autonomous Vehicles, Connected Cars and the Future of the Automobile - YouTube
Carlos Ghosn of Nissan/Renault: Look Ahead, Dont Stand Still - YouTube

What I like about Ghosn is that he uses common sense and is very good at focusing his companies toward strategic and measurable goals. The guy excels at management and is also adaptable. He’s probably in the top 1% of CEOs.

While I respect Ghosn and his accomplishments, I have mixed feelings about the Leaf. With the $7500 federal tax credit, it becomes more affordable than the $30k it costs. And then if you’re in California, you add the $2500 tax rebate. So, with $10k in incentives it does drop the cost of the car significantly. And then you add the leasing deals. I’ve seen $200/month for 3 years with $2000 down. I haven’t seen the $89/month lease deal you’re referring to (how much are you putting down for that?). So, in terms of cost it can get attractive especially if you’re commuting 60 miles a day or so. The negatives is that it’s basically a Nissan Versa (ie., Toyota Yaris class) in terms of handling/performance which is a sub-$15k car and range is super limited. Further, when Nissan sell 200k EV units in the U.S. they’ll use up most of the limits for the federal tax credit. Without the $7500 tax credit incentive Nissan will have to find a way to significantly lower costs between now and then. But then they also need to increase range as well. Personally, with their current battery approach I don’t think they can reach cost parity with 18650 cells. It’s Tesla’s advantage using 18650 cells (lowest cost per kWh) that will open the door for Tesla to introduce the GenIV car in 2022(?) and establish a foothold in the super competitive compact/family sedan market. And it’s Tesla’s super focus on product that will allow them to produce a stellar GenIV car that’s better than it’s competitors (ie., in the same way the Model S is better than its competitors).



I’ve read many people speculating that Tesla will sell a lot of powertrains in the future. I disagree with this. I don’t think Tesla will sell many powertrains in the long-term.

The reason being is that the car business is a low margin business where every percent of margin matters. If the powertrain takes up 1/3 of the cost of your vehicle, why would an existing auto manufacturer buy a powertrain from Tesla and give them 25-30% margin on 1/3 of vehicle? That leaves only 2/3 of the vehicle for the auto manufacturer to make money on. Now, they outsource most of the vehicle anyway so 3rd party companies are already making a decent margin on 1/3 of the car. So, the auto maker is left with trying to make margin on 1/3 of the car (ie., body, manufacturing, etc). This is a losing business. I don’t think any major auto manufacturer wants to be in a business where they can only make money off of 1/3 of the car and give Tesla profit on 1/3 of each vehicle they sell.

Auto manufacturers will want to develop their own EV powertrains since this is a big part of the car and they need to make margin on this.

Currently Daimler and Toyota have purchased powertrains from Tesla mainly because they aren’t convinced that EVs are worth it to develop their own EV powertrains. So, out of convenience they’ve contracted with Tesla. But this is largely to make compliance vehicles. When EVs take off, even Daimler and Toyota will insist on making their own powertrains.

Further, I don’t think it’s reasonable to think Tesla will license their powertrain technology either. The reason being is that Tesla’s technology is quite advanced and there are so many components to the powertrain, including advanced software and many computer-related components. By licensing powertrain technology, Tesla can’t insure the high standard of quality that is required to make sure the powertrains are safe. Thus, Tesla would rather make the powertrains themselves and sell them to other auto makers. But in the long-term other auto makers don’t want to give Tesla that much margin on such a big piece of the car.

So, in the end Tesla’s powertrain business is limited.

The heart and soul of Tesla will be selling stellar cars. This is how they will overtake Toyota to become the most valuable car company and eventually the largest car company by volume. This won’t happen overnight though… that’s why I call it a slow motion train wreck. Articles/megaposts by DaveT - Page 28

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I think competitors will eventually release some decent pure EVs. It’s really just a matter of time. And with Tesla’s ascent, this will probably motivate some auto makers to do it sooner than later.

However, I think I look at the auto landscape a bit different than most folks. I just don’t see any standout mass market cars. By “standout” I mean a car that is significantly better than its competitors. Most cars are designed to compete well with its competitors, but I just don’t see the car(s) that are just so stellar that they significantly outshine and outperform their competitors, in so much that it becomes an easy decision for the consumer to buy that car.

For example, take the family sedan market - Camry, Accord, Fusion, Passat, Sonata, Altima, etc. There’s really no “one” car that takes over 50% of the market.

Even in the luxury compact sports sedan market, the clear leader is the BMW 3 series but there still is the Audi A4, Lexus IS, Cadillac ATS, etc. One of the reasons the BMW 3 series hasn’t take 50% of the market is because it doesn’t do everything well. Sure it performs/handles well but compared to a Lexus, the BMW has questionable reliability. If you took the performance of a BMW and the reliability of a Lexus, then you’d have a much more compelling car. But as it stands, the BMW 3 Series lacks reliability and the Lexus IS lacks performance. The result is you have a market segment with lots of players but no dominant player (ie., over 50% of the market).

It reminds me of the smartphone market before the iPhone. Lots of smartphones but they all were so, so. There wasn’t a smartphone that did it all and did it in a stellar way. Until the iPhone.

IMO the car market is like the smartphone market pre-iPhone. Lots of players making mediocre to good products but no ONE dominant player taking a dominant market position (over 50% of sales).

This is Tesla’s opportunity.

The Model S was the iPhone to the large luxury sedan market. In 10 years, I can see Tesla taking over 50% sales of the large luxury sedan/SUV market.

Gen3 will be the iPhone to the luxury compact sports sedan market. By 2030, I can see Tesla taking over 50% sales of this market.

Gen4 will be the iPhone of the family & compact sedan market. This one will take longer since it might not be released until 2022 and it will take time for costs (ie., battery) to come down and production to ramp. So, by 2035-2040 I can see Tesla taking 50% sales of this market.

I agree 100%, you are spot on with this DaveT...the stock will have ups and downs for years to come but eventually it will reflect the largest automaker in the world along with other businesses (ie. Energy storage and whatever else evolves from their superior battery technology

 

[AlMc]

I agree 100%, you are spot on with this DaveT...the stock will have ups and downs for years to come but eventually it will reflect the largest automaker in the world along with other businesses (ie. Energy storage and whatever else evolves from their superior battery technology

Well if I am in an investor's room with DaveT and TSLAopt I am definitely outclassed. I can not pull out data to support my position either. However, I do not believe that TM can capture 50% the worldwide sales of any segment of the car market, especially the Gen 4 one. TM has a protective first disruptor moat for S/X/Gen3 but I feel that the other worldwide automakers are not going to go out without a challenge, and possibly some compelling vehicles.

I posted over in the Google Chat thread as well that it would be interesting to get CapOp's thoughts on that particular subject if time permits.

Thanks Al

 

[Auzie]

Auto manufacturers will want to develop their own EV powertrains since this is a big part of the car and they need to make margin on this.

I respectfully disagree with 'want' bit in your statement. Most auto manufacturers love what they do, making ice cars, and may not, or do not want to, believe in ev technology taking over the world.

My view is that they may hold very strong biased view on ice vs ev, as ice is what gives them exceptionally good living. Bias is likely to direct their thinking and decision making process. Check BMW board of directors, it is full of people close to retirement age who spent a lifetime in the company or industry, often in highly technical roles. I can only imagine how much they might care about some new technology that will wipe out their lifetime achievements and that is superior to what they put their life into. Imho Tesla has posed the same challenge to established car manufacturers and car dealers, they have to negate part or the whole of their livelihood if they accept new technology and way of doing business. It is very difficult for anyone to accept being cornered like that and to welcome the change that corners them.

I think competitors will eventually release some decent pure EVs. It’s really just a matter of time. And with Tesla’s ascent, this will probably motivate some auto makers to do it sooner than later.

I am curious to hear your thoughts on why we have not seen yet any decent pure ev's coming out from existing auto manufacturers.

 

[DaveT]

Can Tesla capture 50% of the worldwide sales for a segment of the car market?

Well if I am in an investor's room with DaveT and TSLAopt I am definitely outclassed. I can not pull out data to support my position either. However, I do not believe that TM can capture 50% the worldwide sales of any segment of the car market, especially the Gen 4 one. TM has a protective first disruptor moat for S/X/Gen3 but I feel that the other worldwide automakers are not going to go out without a challenge, and possibly some compelling vehicles.

I’ve been talking about the possibilities for Gen4 since there have been several people expressing doubts that Tesla should and will go into that segment at all. I think achieving 50% market share in the Gen4 market will be extremely difficult and it’ll only be possible if Gen3 is a massive hit in the luxury compact sport sedan market. That will set up momentum for a Gen4 car but it will take 15 years after Gen4 production before realizing Gen4’s true market share potential (via falling battery costs, economies of scale, etc). Whether they can achieve 10%, 20%, 40% or 50% of the Gen4 market, who really knows. But I think a better way to look at it is to look at Model S and Gen3 first and then to go from there.

Can Tesla capture 50% of the worldwide sales for a segment of the car market?

For Model S, it’s kind of difficult to classify it since it reaches into the BMW 7 and 5 series market. But if we classify the Model S as a large luxury sedan (ie., BMW 7 series, Mercedes S Class) and we leave out the mid-size luxury cars (ie., BMW 5 series, Mercedes E class, etc), then here’s what we have:

We’ve got a global market for large luxury sedans at roughly 200-250k cars annually.
“Last year, Mercedes sold 80,300 S-Class vehicles globally vs. 59,200 for the BMW 7 Series and 38,600 for Audi’s A8.” (Mercedes Revamps the S-Class to Lure China's Wealthy Buyers - Businessweek)

So if Model S sells 125,000 cars per year, they will take probably over 50% of the large luxury sedan market. In my previous post, I gave a 10 year timeframe for this happening. So, in 2024, can you see Tesla selling 125,000 Model S cars per year? (already they’re forecasting demand to be 50k/year) We do need to account for rising car sales in the overall large luxury sedan market over those ten years. But still, in 2024 I think it’s plausible to think that Tesla could sell 125,000-150,000 Model S cars per year. This would give them the dominant position (over 50% sales) in the large luxury sedan market.

Now for Gen3, it’s targeting the BMW 3 Series market with is the luxury compact sports sedan market. The market is larger than the luxury large sedan market, but it’s still a niche luxury car market.

“The company’s [BMW] 3 Series was the best-selling luxury brand and generated global sales of 462,740 units, according to research firm Focus2Move. The Audi A4 sold 335,137 units globally in 2013 and the BMW 5 Series sold 334,382 units. The Mercedes C class sold 303,787 units globally.” (BMW CEO: Well Be Leading Premium Car Maker Again in 2014 - 24/7 Wall St.)

So in 2013, BMW 3 Series sold 462k units, Audi A4 sold 335k units, and Mercedes C class sold 303k units. That’s about 1.1m units from the biggest players. Lexus IS, Cadillac ATS, Acura TSX, etc… might add a few hundred thousand sales. So we’ve got about 1.5m sales (maybe 1.75m max) in the luxury compact sports sedan market.

So for Gen3 to take 50% of the market Tesla needs to sell 800k Gen3 cars per year. Now, I think I was conservative in saying that I can see Tesla selling 50% or more of the luxury compact sports sedan market by 2030. Let’s say that market grows to 3m in 2030, then Tesla would need to sell at least 1.5m Gen3 vehicles in 2030 to take 50% of the market. Completely plausible in my opinion. Would you bet against Tesla selling 1.5m Gen3 sedans in 2030?

(note, also there's Model X taking a dominant position in the luxury SUV segment and the Gen3 compact SUV taking a dominant position in the luxury compact SUV segment.)

Now, moving on the Gen4… this is where 50% of the market probably sounds lubricous to most people, even Tesla fans. Part of this, in my opinion, is because Tesla and Elon hasn’t shared much of their post-Gen3 plans and goals. But as I shared earlier, in order for mainstream auto makers to feel “competitive pressure”, making just Gen3 is not enough. The luxury compact sports sedan market is a tiny slice of the overall auto market (ie., 1-2%) and Tesla releasing a stellar Gen3 car is not going to give “competitive pressure” to Toyota, Hyundai, Honda, GM, Ford, etc and the likes. In order for them to feel “competitive pressure” Tesla will need to release an even more affordable car than the Gen3. Now, I won’t go into details on the size of the Gen4 market and the main players. And I will say that 50% of that market sounds crazy. But I bring up 50% of that market because I think it’s a possibility. Tesla just needs to keep doing what they’ve been doing… namely, thinking out of the box, re-inventing and improving all aspects of the auto business, and releasing stellar products that are significantly better than the competition. So, whether they achieve 20% or 50% of the Gen4 market in 2035-2040, to me it doesn’t really matter. It’s the 8% annual reduction in battery costs that will propel EVs to be the majority of new cars sales by 2030 and it will be that industry disruption that allows Tesla to extend their leadership position with EVs from the Model S, to Gen3 and eventually to Gen4.