Why didn't I think of that?
Sorry, I don't mean to be a smartass. It seems that more than 95% of what Tesla does to grow is about increasing production over time (resolving bottleneck, working with suppliers, building factories, hiring more employees, expanding sale/service/charging networks, etc.), and the other 5% or less of effort goes into building demand (new products, new features, prices reductions, generating publicity, etc.).
While it takes years to build out a factory, Tesla has a clear road map on how to grow production more than 50% every year. Looking out 2 years, that's more than 125% more capacity required or out 4 years is 400% more capacity. So in the time that it takes to begin production in a new gigafactory, Tesla needs to have mapped out roughly a quadrupling of total capacity. Moreover, the supply chain for everything that a gigafactory requires to make products also needs to ramp up and be ready to quadruple supply to Tesla. Tesla has to do massive multi-year planning just to sustain a 50% annual growth rate.
Moreover, if Tesla's competitors are going to keep pace, they have to do massive multi-year planning. Incremental capacity can come in fits and starts. So looking at market share changes from one year to the next is going to be pretty noisy. It might look like Tesla is in a pickle with US share of EVs dropping from 80% to 66%. But wait until Texas is cranking out Cybertrucks and Model Y. We could see Tesla's US market share surge ahead as new capacity comes online.
The important thing is how much growth Tesla and competitors can sustain over the next 5 or more years. I still think that Tesla's share of the EV market is important to monitor, as is their share of the total auto market. But they address two different issues. EV market share really is about measuring how well can OEMs keep pace with Tesla over the longer time horizon. It measures how capable competitors are at entering the EV market. Conversely, Tesla's share of the total auto market is more specifically about how quickly Tesla can take market share from ICE vehicles. Globally, Tesla is on track to take about 0.5% points of market share this year. That is actually a spectacular gain, but as Tesla scales up it will be able to take more than 1 point per year. My outlook is that Tesla can rise to 20% market share by 2030, and it began with less than 1% in 2020. So that is a massive run, and it depends critically on expanding capacity 50% or better per year. This of course is the big payoff for investors.
So with as important as share of the total market is, why even bother with share of EV market? The answer is that Tesla's ability to take 20% share of the total market is predicated on being able to sustain better than 20% share of EV market as EVs become 100% of the total market. Tesla's ticket to becoming twice the automaker as VW or Toyota is riding the tech advantage that BEVs have over ICE vehicles. As BEVs become 80% or more of the auto market, it will be incredibly difficult for Tesla or any other top EV maker to gain significant share of the total auto market. Most of the gains of market share at that point will come mostly from takes share away from the remaining 20% of the market that still requires motor fuels. Indeed, growing EVs by 10% on a bases of 80% EV penetration will be a huge effort, and growing more than 25% would be a mathematical impossibility. Let's focus in on Tesla. Suppose that by the time EVs reach 80% penetration, Tesla has 25% of the EV market. Thus, it has 20% (= 25% * 80%) of the total auto market. Can it still grow by 50%? Well that would imply taking roughly another 10% points of share from the auto market in a single year. So if ICE is just 20% of the market going into that this year, Tesla would likely need to mostly do conquest sales from other EV makers as those makers feverishly try to cannibalizes there remaining ICE sales into EV sales. So the point is, at 80% EV penetration, it is very unlikely that Tesla will be able to sustain 50% annual growth for another year. And even if this were possible, in the next year EV penetration would be closer to 90% while Tesla is at nearly 30% market share, so one more year of 50% growth is even more nearly impossible to sustain.
No matter how I try to game this out, Tesla has to gain most of its long-term share of the auto market before EVs reach 80% penetration, which I think will happen by about 2030. This is why it is critical for Tesla to grow and maintain very high share of the EV market for the next 5 years.
It's also really important for Tesla to be pursuing stationary storage, solar roofs and bots so that 50% revenue growth can persists through the second half of the decade and into the 2030s. After about 2026, it will be very hard for Tesla to keep growing auto unit sales at 50% because market saturation will progressively become a limiting factor. Additionally, FSD will be key to sustaining auto revenue growth past 2026.
