Forbes: Will Tesla's Battery Investment Win It the Inside Track Against the Germans?

[dauger]

Will battery supply be a deciding factor in the future of long-range BEVs? This Forbes article today considers the discussion:

Will Tesla's Battery Investment Win It The Inside Track Against The Germans?

The author quotes from this "published report":

Tesla Disrupts Different - Market Share

and his interview with . . . me.

It's nice to see my favorite take on the "Tesla bull" argument discussed on Forbes.

 

[Tam]

..."Tesla bull"...

Thanks for sharing the article and your visions and predictions in the interview which make a lot of sense.

The author Neil Winton concluded with 2 demands to avoid to "succumb to predators":

1) fulfilling its ambitious manufacturing targets

2) making profits soon

In my opinion: Tesla has always been ambitious and may not meet the deadline but it has always met its goals eventually.

Amazon didn't turn profit for over 20 years so does the author mean "soon" just as the same timeline as Amazon?

 

[GoTslaGo]

Thanks for sharing the article and your visions and predictions in the interview which make a lot of sense.

The author Neil Winton concluded with 2 demands to avoid to "succumb to predators":

1) fulfilling its ambitious manufacturing targets

2) making profits soon

In my opinion: Tesla has always been ambitious and may not meet the deadline but it has always met its goals eventually.

Amazon didn't turn profit for over 20 years so does the author mean "soon" just as the same timeline as Amazon?

We also have to remember that these are traditional Automotive analysts. Hence the emphasis on "make profits soon".

They are ignoring the other facets of Tesla: Energy storage, Energy generation (solar), Infrastructure (superchargers), and IT (and Tunneling?).

Of course valuation of these at this time are muddy, but IMHO, over time we will see these to become strong revenue and "goodwill" (attracting customers) sources as well.

 

[wdolson]

I've been saying for over a year, it's all about the batteries and Tesla is the only company that will have enough batteries to mass produce long range BEVs by the end of this decade and VW is the only other company that has announced plans to have their own GF by 2025.

Smart suppliers are building up capacity a bit, as their cash flow allows, in anticipation of the rush, but with 20 car makers scrambling for their batteries, they will be like OPEC in the 1970s able to charge anything they want and the car makers will have to pay. To compete with the Model 3, car makers will have to sell their BEVs at a loss because the batteries cost too much.

The Germans are more serious than anyone about designing their first generation of long range BEVs. They have been hurt the most by the success of the Model S, so they're worried about their bread and butter markets getting destroyed by the Model 3. The rest of the car industry is only mildly concerned about the threat and they will be the ones hurting the most when the crunch comes.

Dauger may not be 100% right, but I think his predictions will turn out to be the most accurate.

 

[SageBrush]

Three people throw out an opinion, and it becomes a news article.

Why not just post to TMC and call it a day ?

 

[jbcarioca]

Seemingly everyone ignores the Chinese manufacturers, the Chinese industrial policy and BEV support. Sticking to only US-centric coverage:
China Aims To Be No. 1 Globally In EVs, Autonomous Cars By 2030

But there is solid evidence to the steps Chinese BEV manufacturers are taking to develop BEV markets where they did not exist, developments that are totally ignored because they happen in disreputable poorer places in odd countries like irrelevant Brazil (6th largest auto market globally by some measures). Here is one example:
The photo above is in Fortaleza, Ceara, Brazil. The municipal government together with a couple corporations began a BEV hourly rental operation with
ZD-1 (pictured) and BYD e-6. They have 20 of them now. On a weekday morning there was only one at this site, which has four stalls. The target is carefully chosen by the Chinese and Brazilians, of the six sites in Fortaleza this one is less than a block away from a street full of condominiums that sell at Miami Beach prices. They're already adding more cars. Their other similar site is in Recife, Pernambuco, another poor area, ignored by most, but with plenty of demand fir their BEV's.

Sorry for belaboring the point, but nearly everyone here blithely forecasts global EV demand ignoring the biggest worldwide market with the only BEV builders that individually produces it's own batteries, BYD. I have posted about this before to derisive dismissal.

I have only this to say about my defense: in 1977 I was working in Kuwait, when I came upon a new car, the Hyundai Pony, that cost less than even a decent used car. Koreans built the apartment building I then lived in. Koreans had rebuilt the Morgan +8 I had pereviously in the UAE as a labor of love. I figured they might build cars. Two of my friends had bought Ponies because they were cheap enough to throw away, but they worked.

The Chinese builders are using that highly successful Korean model. Thus, please ignore them in your projections at your peril. Tesla long range threat is not the high-cost Germans, it is the endlessly improving and innovating Chinese. The market is big enough fir both, but Tesla is all but ignoring all the huge but traditionally ignored markets, because they have too little capacity. The Chinese are beginning with those and working up.

Now dispute my logic as you will.

 

[ItsNotAboutTheMoney]

Now dispute my logic as you will.

The key disadvantage of working up is that you're more limited by cost and the market is much more value-seeking, which limits margins.
Working from the top allows for return on R&D, which allows for greater innovation.

The danger from Chinese automotive companies isn't their approach to the market, it's that they operate in a country with a large population with rampant protectionism and favoritism, which allows them to succeed despite inferior products.

 

[EinSV]

View attachment 210168 Seemingly everyone ignores the Chinese manufacturers, the Chinese industrial policy and BEV support. Sticking to only US-centric coverage:
China Aims To Be No. 1 Globally In EVs, Autonomous Cars By 2030

But there is solid evidence to the steps Chinese BEV manufacturers are taking to develop BEV markets where they did not exist, developments that are totally ignored because they happen in disreputable poorer places in odd countries like irrelevant Brazil (6th largest auto market globally by some measures). Here is one example:
The photo above is in Fortaleza, Ceara, Brazil. The municipal government together with a couple corporations began a BEV hourly rental operation with
ZD-1 (pictured) and BYD e-6. They have 20 of them now. On a weekday morning there was only one at this site, which has four stalls. The target is carefully chosen by the Chinese and Brazilians, of the six sites in Fortaleza this one is less than a block away from a street full of condominiums that sell at Miami Beach prices. They're already adding more cars. Their other similar site is in Recife, Pernambuco, another poor area, ignored by most, but with plenty of demand fir their BEV's.

Sorry for belaboring the point, but nearly everyone here blithely forecasts global EV demand ignoring the biggest worldwide market with the only BEV builders that individually produces it's own batteries, BYD. I have posted about this before to derisive dismissal.

I have only this to say about my defense: in 1977 I was working in Kuwait, when I came upon a new car, the Hyundai Pony, that cost less than even a decent used car. Koreans built the apartment building I then lived in. Koreans had rebuilt the Morgan +8 I had pereviously in the UAE as a labor of love. I figured they might build cars. Two of my friends had bought Ponies because they were cheap enough to throw away, but they worked.

The Chinese builders are using that highly successful Korean model. Thus, please ignore them in your projections at your peril. Tesla long range threat is not the high-cost Germans, it is the endlessly improving and innovating Chinese. The market is big enough fir both, but Tesla is all but ignoring all the huge but traditionally ignored markets, because they have too little capacity. The Chinese are beginning with those and working up.

Now dispute my logic as you will.

I think dismissing the Chinese BEV manufacturers based on their current vehicles' design, quality and/or performance could turn out to be comparable to the US auto manufacturers dismissing the growing Japanese auto industry in the 1960s due to perceptions of low quality and car designs that would not be interesting to their customers.

Howerever, I tend to see the Chinese BEV manufacturers as a more immediate threat to traditional ICE manufacturers, especially those with high volume sales at lower price points. Eventually they will also try to compete head to head with Tesla at the higher end of the market, but their potential cost advantages are not as big a factor in that part of the market.

 

[GSP]

@jbcarioca,

Thanks for your informative post. I was aware of the Chinese government's aggressive support for EVs and the large number of EV cars and buses produced by Chinese companies like BYD. I was not aware of their expansion into Brazil.

Brazil has made great strides in ethanol production and use, and in off-shore oil production, to become energy independent. Add EVs (and PV power?) to the mix and Brazil will solidify their independence. I hope the US will keep up!

GSP

 

[jbcarioca]

@jbcarioca,

Thanks for your informative post. I was aware of the Chinese government's aggressive support for EVs and the large number of EV cars and buses produced by Chinese companies like BYD. I was not aware of their expansion into Brazil.

Brazil has made great strides in ethanol production and use, and in off-shore oil production, to become energy independent. Add EVs (and PV power?) to the mix and Brazil will solidify their independence. I hope the US will keep up!

GSP

BTW, Brazil is only the handiest example for me because I live in Brazil. Ethanol looks great but was a domestic political choice, better than importing oil. The offshore (pre-sal) is very, very expensive production and uneconomic at current prices. Both are deeply immersed in political corruption scandals. Frankly, despite modest advances in use of wind power (again, primarily in the Northeast) the majority of investment goes in areas more amenable to large-scale bribery, such as oil refineries, pre-sal, and hydroelectric projects. Still, Brazil in FCA's largest market other than the US, larger than Italy.

I should add that the Chinese, like the Koreans before them, go to second tier markets in second tier countries. It is not accidental that they are in Fortaleza and Recife but are not yet in Sao Paulo, Rio de Janeiro or Belo Horizonte. BYD, in particular has made entry to selected cities in North America, Europe and elsewhere, with the E-6 in rideshare and taxi and several bus models in tests. Despite their clear success, albeit unsexy and limited, they are denigrated by most of us because they're crude and use 'primitive' cheap, heavy battery technology.

 

[jbcarioca]

The key disadvantage of working up is that you're more limited by cost and the market is much more value-seeking, which limits margins.
Working from the top allows for return on R&D, which allows for greater innovation.

The danger from Chinese automotive companies isn't their approach to the market, it's that they operate in a country with a large population with rampant protectionism and favoritism, which allows them to succeed despite inferior products.

True,if you see those markets as monolithic.They do manage to penetrate more wealthy segments in those places (e.g. the apartments in the buildings immediately behind the photo I saw sell of US$1 million and up. Nobody unfamiliar understands how much wealth there is).
Their tactics are to convince the economic and political influencers first. I do not want to go OT too far but my PhD thesis was on a related topic so there is a risk when i get started.

 

[McRat]

I will agree with JB.

The Chinese are working as fast as they can to produce EVs due to their domestic needs. At some point they will meet domestic demand and then exceed it. Then it becomes a decision for China whether to assault the foreign EV markets. Since the market is relatively small, they can afford to take losses, something that is suicidal in the mainstream auto market. You cannot butt heads with the Camry by trying to outsell Toyota at a loss. You would go BK in the process due to the magnitude of the market. Much less risky with EVs.

 

[jbcarioca]

...
Howerever, I tend to see the Chinese BEV manufacturers as a more immediate threat to traditional ICE manufacturers, especially those with high volume sales at lower price points. Eventually they will also try to compete head to head with Tesla at the higher end of the market, but their potential cost advantages are not as big a factor in that part of the market.

A quick look at ICE market share at lower price points in much of the world shows that you're 100% correct.
http://www.jato.com/wp-content/uploads/2016/06/JATO-Global-Car-Sales-2016-Q1.pdf
FWIW, the #3 worldwide seller is the Wuling Hongguang. For anybody whose never heard of it, it is sold as the Chevrolet Enjoy in India and is produced by the SAIC-GM-Wuling JV.

 

[jbcarioca]

Staying strictly OT this time:
The Tesla/Panasonic partnership by all appearances is well ahead of any other li-ion producer by several metrics. I admit to guessing based on various factors, so rather than use huge charts and sources I'll give my thoughts. Almost everybody in this thread knows gigafactory data:
1. They are sourcing rare metals mostly within NV, with some serious performance risks with emerging suppliers, mitigated, we hope, by dealing with several of these. If that sourcing works their cost of Lithium, Cobalt and Nickel will be lower than anybody else.
2. They have what is surely the most automated battery plant in existence, which cuts costs, yes, but improves quality, thus reducing rejects, probably the the highest cost in cell production.
3. They have an in-house recycling plant, which must be far cheaper and more reliable than mining and refining.
4. They are producing packs in the factory reducing transportation costs.
5. They're recycling water, a big cost savings, probably.
6. Almost all the power is solar so has high capital, infinitesimal marginal, costs.

So, among the Germans, or anybody else, how long will it take to beat those factors. Money can certainly help, but much of this process has taken a decade to work out. Assume somebody else knows all this (e.g. LG, Samsung, Siemens) and think about how long it will actually take to do anything about it. Is Tesla/Panasonic standing still to let it happen?

In the meantime, with Tesla free patents the only problem is figuring out how to apply them. Can anybody do that quickly enough?

Then the subject will change to charging speed and infrastructure. That is less an impediment, IMHO, because the utilities of the world are waking up so ubiquitous fast charging is on the way globally. On that point, being a fan of Douglas Adams, it takes the Infinite Improbability Principle to explain why there is Free EV Charging in my local Supermarket in Rio de Janeiro when there are fewer than 10 BEV's on the road here and about a dozen PHEV's?

 

[wdolson]

@jbcarioca you make some good points about the Chinese. The Chinese approach is bottom up and the Tesla approach is top down. Both are probably the best approaches for their home markets. In China car ownership is growing at a fantastic rate and owning a car, any car, is a big status symbol. Because there are fewer young women, they can afford to be picky in choosing their mate and a guy owning his own car is a big plus. China has a big market for inexpensive cars and they don't even need to be that good. India has a similar market.

In developed countries car ownership rates are pretty flat. Most new car sales are replacing older cars. Car buyers tend to be more choosy and conservative in their choices. The place to sell a totally new idea for a car first is to the richest segment of the market who can afford to have several cars. Many of the buyers of unusual and uncommon cars are collectors who have an oversized garage full of cars. Tesla sold many of it's first cars to enthusiasts, then word started getting around and now they have a long waiting list for their next, cheaper car.

BYD and some other Chinese car companies are making small forays into foreign markets, but their domestic market is so strong right now they are mostly just laying groundwork for the future. Getting small quantities of their cars in the hands of westerners educates them on the differences between the Chinese market and what westerners expect. They can slowly work those ideas into their cars while making their bread and butter on car sales at home.

Tesla and Chinese car makers will probably eventually end up as competitors, but it will be a while. Tesla may end up the dominant player in the upper half of the global market and, at least initially, the Chinese car makers may end up the bargain car makers at the bottom.

I think when the dust settles after the shake up, the world's car industry may look very different. I think LG is thinking about getting into the car market and they are learning how to do it on GM's dime with the Bolt. People have talked about Apple becoming a car maker and other American tech companies have played with the idea, but what if Apple just sits back and waits for GM, Ford, or Chrysler to get weak enough, then swoop in and buy them? They could afford to buy a weakened major auto maker, then rebuild the company into an EV maker.

Some other tech companies have enough capital to be able to do something similar, though Apple has the most cash.

Instead of GM, Ford, and Chrysler, they could emerge from the crisis as Apple, Microsoft, and Google. Or Amazon, or some other tech company.

They may retain some of the old nameplates, but the parent corporation would be different.

I'm not sure things would play out the same in many other countries. Governments would probably step in to marge and support the home companies. So Nissan, Toyota, and other Japanese car makers might survive as their own companies, but who knows, we might see Sony-Nissan or something.

I do think at least some of the bigger car brands in a decade from now will probably be companies we haven't heard of today, or they aren't in the car business today.

 

[jbcarioca]

...
In developed countries car ownership rates are pretty flat. Most new car sales are replacing older cars. Car buyers tend to be more choosy and conservative in their choices. The place to sell a totally new idea for a car first is to the richest segment of the market who can afford to have several cars. Many of the buyers of unusual and uncommon cars are collectors who have an oversized garage full of cars. Tesla sold many of it's first cars to enthusiasts, then word started getting around and now they have a long waiting list for their next, cheaper car...

This is a crucial point. It's odd that Germany has one of the highest penetrations of luxury cars, followed closely by Russia.
Both markets demonstrate your point- Germany luxury cars are dominated by BMW 7, MB S, Audi 8 and so on. Russia is dominated by those to some extent but has astounding high penetration of Maserati, Ferrari, Lamborghini, Bentley, Aston-Martin (I remember the stand-alone Aston-Martin dealership, quite neat the Bugatti one). However in Russia the big numbers are for cheap cars, where Lada and Moskvich once were.

... I think LG is thinking about getting into the car market and they are learning how to do it on GM's dime with the Bolt... .

This is not idle speculation. Samsung, LG's rival, started a car company and LG was pretty jealous at the time. Samsung had bad timing:
[URL='https://en.wikipedia.org/wiki/Renault_Samsung_Motors']Renault Samsung Motors - Wikipedia[/URL]
Today when the two of them are, as usual, bitter rivals, LG has gone the US route and has designed the entire Bolt drivetrain. Samsung no longer can do that since Carlos Ghosn calls the shots and he's still not decided how to proceed (money losing Leaf aside, he hasn't thought BEV's were a good idea. He's not really a fan of the Twizy or the Zoe, either.

So, LG has designed something that seems to be pretty good. How good? We'll find out, but LG is in a much better position to grow in BEV's than is GM because they understand them, designed them and produced the batteries too. They've gone the exact opposite of Hyundai and Samsung with cars, instead of licensing they built it from scratch. We'll hear more soon.

[QUOTE="wdolson, post: 1917673, member: 37864"][USER=32196]
I'm not sure things would play out the same in many other countries. Governments would probably step in to marge and support the home companies. So Nissan, Toyota, and other Japanese car makers might survive as their own companies, but who knows, we might see Sony-Nissan or something...
.[/QUOTE]

Nissan actually nearly went bankrupt and controlling interest went to Renault, the only bidder, even though it was French-government owned. It suprised the world when Carlos Ghosn (a Lebanese heritage Brazilian, turned Frenchman who'd become famed for cost-cuttting turnarounds). he even had manga written about him.

The upheavals that will happen if BEV's actually gain force will be unprecedented. I predict the emergence of utility controlled builders/suppliers of vehicles, especially delivery vans, garbage trucks and the like. The transformation of municpal transport including school busses is happening now. The US and EU have fancy ones, BYD already supplies the low end.

I cannot wait to see what will happen. I wonder how much of the current developments would have happened were it not for Elon Musk? I think he spawned a global revolution in thought about urban mobility.[/user]

 

[McRat]

... LG has gone the US route and has designed the entire Bolt drivetrain. ...[/user][/user]

Are you sure about that? That LG engineered all the components and holds the IP rights?

Everybody insisted the exact same thing about GM's diesel which was a joint US/Japan project; that the engineering was Japanese. They were wrong all along, which became clear when Japan dropped out, and major engineering improvements continued unabated at even a faster rate.

This is significant because LG has been working with GM a very long time now, but does not make an EV themselves. Chassis are easy to purchase or contract out. With EV's it's the electronics. LG could have had a top rung entry level EV for Asia in 2013 with no problem.

 

[jbcarioca]

Are you sure about that? That LG engineered all the components and holds the IP rights?

Everybody insisted the exact same thing about GM's diesel which was a joint US/Japan project; that the engineering was Japanese. They were wrong all along, which became clear when Japan dropped out, and major engineering improvements continued unabated at even a faster rate.

No, I am not sure. But, here is my logic:
Bolt EV Powertrain: How Did GM And LG Collaborate On Design, Production?
Then there is LG Chem CEO Denise Gray. She is a GM lifer, a graduate of Kettering University (Formerly GM Tech) and did graduate work at RPI.
After that she worked in transmission controls, energy storage systems, powertrain software and electrical-mechanical systems.
That is a GM lifer on the engineering side suddenly dropping her safe, stellar rise and suddenly changing horses to go first to Lucid Motors parent for a couple years, then to AVL, a German consulting company where she worked on vehicle electrification technology to to become CEO of LG Chem. Her presence in Troy MI is very convenient with her background and GM's change in needs. In the meantime LG Chem had been investing in every aspect of electrified transport, or so it seems.

Automotive News
which makes it clear what GM was buying when they made what they called an "unprecedented partnership" when they made their deal with LG Chem in the Bolt. You see, Ms. Gray was in charge of battery development for the Volt. No other GM staffer was anywhere near her capabilities.

So, my conclusion squares with industry reports that LG Chem has gone far beyond typical Tier one cooperation with the Bolt.
As for IP I haven't a clue. I suspect it is mostly GM because the nominal responsibility for powertrain integration was GM's.

My guess is that the team was pretty deeply integrated under Ms. Gray with some nominal GM official also. Really, The Bolt EV platform was the work of the LG Chem CEO and the staff were subordinate to her GM and LG Chem.

That is why she is there.

Does that make sense to you?

 

[ItsNotAboutTheMoney]

True,if you see those markets as monolithic.They do manage to penetrate more wealthy segments in those places (e.g. the apartments in the buildings immediately behind the photo I saw sell of US$1 million and up. Nobody unfamiliar understands how much wealth there is).
Their tactics are to convince the economic and political influencers first. I do not want to go OT too far but my PhD thesis was on a related topic so there is a risk when i get started.

There are differences between markets that mean that certain products work there and not elsewhere, but in terms of the Chinese manufacturers in EV, it's really driven by the Chinese government protectionism which has both high import tariffs and large subsidies for domestic manufacturers.

There are now two key new tactics the Chinese are using or threatening:
- Battery licensing: the cost advantage of the battery tech that the Chinese have been using is being eroded, so as Korean cell and battery manufacturers are expanding and seeking to access the market, China can deny them licenses to freeze them out.
- EV Mandates: a percentage of sales needing to be plug-ins has been mooted. This puts foreign manufacturers in a bind, because not only do the import tariffs make their cars more expensive, the domestic competition has subsidies. So, they're faced with either the IP-sharing trap or losing margin through taking losses on PEVs.

I really hope that Tesla's succeeds, because it's a company that is doing what it can to minimize its dependency on China.

 

[jbcarioca]

There are differences between markets that mean that certain products work there and not elsewhere, but in terms of the Chinese manufacturers in EV, it's really driven by the Chinese government protectionism which has both high import tariffs and large subsidies for domestic manufacturers.

There are now two key new tactics the Chinese are using or threatening:
- Battery licensing: the cost advantage of the battery tech that the Chinese have been using is being eroded, so as Korean cell and battery manufacturers are expanding and seeking to access the market, China can deny them licenses to freeze them out.
- EV Mandates: a percentage of sales needing to be plug-ins has been mooted. This puts foreign manufacturers in a bind, because not only do the import tariffs make their cars more expensive, the domestic competition has subsidies. So, they're faced with either the IP-sharing trap or losing margin through taking losses on PEVs.

I really hope that Tesla's succeeds, because it's a company that is doing what it can to minimize its dependency on China.

However, Tesla is now included on the approved list allowing unfettered licensing and driving in most cities. Shenzen has a lottery but there is plenty of space so even there is no problem. Tesla will ned to directly produce and they've allegedly been given permission to do so.
This is a really crucial series of tests. once wonders what the impact of President Trump might be.