NigelM
Recovering Member
To recap, the theory I've been advancing is that the world will only need a fixed number of gigafactories in perpetuity owing to the potential for technology to grow energy density faster than global population growth.
On what basis will that potential become reality?
For instance, suppose GM believed that 200 would be required. This of course is a $1T investment a cross the industry. GM may be tempted to think that the have plenty of time. That they can wait until EV pent ration gets upto 3 or 4% before investing in their first gigafactory. But, by that time there may well be 10 to 15 gigafactories already built or in the pipeline. However, if only 20 gigafactories are ever economically justified to be built, they are waiting until there will be quite poor return on their investment. If they want to maintain a 10% share of the auto market. They will need 2 gigafactories. Sadly there may not be enough time to build 2 of them. They may be too late to the party and find themselves needing to make an investment that destroys shareholder value in an attempt to preserve market share, or GM will irrevocably lose market share. So there is an existential risk to any automaker that overestimate how long they can put off buying into the Terrafactory.
Why is vertical integration suddenly a good thing? Arguably car companies know nothing about battery production and would be financially stupid to invest even greater amounts of capital into an already capital-intensive business.
The companies that build out the first 10 gigafactories will control half the new car market, and they will realize the most favorable returns on those investments.
Only if you assume that the guys who are good producing batteries will also be really good at building cars people want.
Will Tesla investors support this sort of rapid build out? We are talking about an investment of $25 to $40 billion. What investors will need to know with great confidence is that this investment will be worth locking in 25% to 40% of the global auto market.
Investing n battery production doesn't guarantee massive market share. Let's assume for a moment that you're correct and it does....With billions of investment in battery production Tesla would need to have billions more to build plants to produce cars to put the batteries in. The global passenger car production of the top 50 manufacturers is something over 60m cars a year. Assuming that you are right on >25% market share then Tesla will be producing ~15m cars per year. They might get 0.5m out of Fremont so they only need another 30 similar factories? Don't the Ter/Terra factory builders need Tera/Terra car factories also?
So how can investors profit? Simple, invest in those companies that are building our gigafactories. If Musk is able to lead shareholders down this path and build out 5 or more gigafactories, then it will be an unprecedented opportunity for investors to hold onto these shares, provided the share price does not get ridiculously high.
Risk that ROI drops through the floor due to a massively capital intensive business model.
There's a number of reasons why it doesn't make sense to be totally vertically integrated.....