Norse
Active Member
And you can add to the fact that only strong governments with healthy economics can give incentives to the green revolution.
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Citizen-T
Active Member
So, I had this thought during the hangout today, as sleepyhead was discussing the potential of Tesla to get the battery costs down to $150/kWh. We have all considered the impact that will have on the Gen III car. But, I'm now wondering, what happens to Model S/X when the pack cost drops that low. I mean, I've always had this model of the future where Model S/X hit a combined run rate of 100k units and a steady margin of ~30%. Now it occurs to me that, when this factory is online and they are able to produce packs at such a low rate...these benefits should be applicable to Model S/X as well.
Model S is already mopping the floor with the luxury competition today (at comparable price points). If they are able to drop the cost of the battery pack by that much, they could either let all that fall straight down to the bottom line, or they could undercut the ICE competitors on cost (generating more demand). In either case, this really screws up my expectations for the portion of TSLA's earnings that come from the S/X platform (in a good way).
I haven't really put hard numbers to this idea yet. Before I did that, I was hoping you guys could vet it. Have we, in our excitement for Gen III, overlooked the impact that the Gigafactory will have on S/X?
Model S is already mopping the floor with the luxury competition today (at comparable price points). If they are able to drop the cost of the battery pack by that much, they could either let all that fall straight down to the bottom line, or they could undercut the ICE competitors on cost (generating more demand). In either case, this really screws up my expectations for the portion of TSLA's earnings that come from the S/X platform (in a good way).
I haven't really put hard numbers to this idea yet. Before I did that, I was hoping you guys could vet it. Have we, in our excitement for Gen III, overlooked the impact that the Gigafactory will have on S/X?
Gigafactory will definitely help S/X. Elon mentioned they need the gigafactory to achieve a 30-40% drop in battery prices to make Gen3 happen. Those prices will apply to S/X but I think they'll be realized mostly with greater range. In 3 years I imagine the 85kwh battery will be take the place of the 60kwh as the entry-level base model at $70k, which should stir demand. And Tesla will likely get close to 35% GM as well on the S/X, thanks in part to the gigafactory. In 2017-2018 I can see the Model S selling 80k (and possibly up to 100k) a year, and the Model X doing the same.
Citizen-T
Active Member
I'm not so sure about the greater range part. I think that larger batteries will become available, but I also think that as the average consumer gets more comfortable with the EV lifestyle and the Supercharger and other charging networks get built out, they will demand less range. What I'm saying is that, when you go to buy your second Tesla, you will have a much better idea of what kind of range you need and might buy something smaller and more appropriate.
I don't think that battery range is comparable to flash storage. In a mobile device, you expect that as prices in flash memory deflate, you'll be able to buy more and more memory in each generation without the cost of the phone/tablet going up. While Tesla could follow a similar strategy with batteries, I don't think the take rate would be the same. The reason is that in each generation of a mobile device, you need more and more storage as apps get more complicated (bigger) and cameras get more powerful (photo/video size goes up) and so on. You don't drive more and more each year as a side affect of your car getting incrementally better.
So, while I expect that Tesla will offer larger battery packs in the future, I also expect they will be extremely high margin. As long as Tesla is production constrained (which will be for some time) they will probably prefer to put those additional cells towards a new car rather than have them sit idling in a Model S most of the year. If you want the luxury of having far more cells that you actually need, I think you are going to pay a premium for it.
Just to clarify, I agree Tesla will offer larger battery packs and they'll be high margin. I'm just adding another option to your two options you mention about what lower battery costs could lead to. You mentioned 1) higher margin and 2) lower sticker price. I think 3) higher range is a possibility as well.
I used to think they would lower the sticker price over time but had a few things convince me otherwise. One was I've met several Tesla employees who have told me the Model S won't be going down in price, ever. Rather that range and other features will be added. Also, some smart people here (ie., bonnie) have also collaborated with this that the Model S price tag likely won't be going down.
So, that leaves higher margin and higher range as the other two options. With higher margin, I don't think they need massively lower battery prices to get super high margins. I think they're already on track to get 30%+ gross margin next year. So, I think they'll mostly use lower battery costs to add range and then also add some to gross margin. In 3-4 years it'd be nice to choose from a 85kwh battery and a 120kwh battery (rather than a 60kwh and a 85kwh like we do currently).
CapitalistOppressor
Active Member
In theory it could, but a 30GWh plant is only enough to build ~400k Model E cars (it actually can range from 300-500k depending on your model). In the conference call their expectation seemed to be that the giga-factory would only be capable of supplying the Model E, and I think that is the case if you assume it is unlikely that they will bring the plant online at full capacity right at the start of Model E production. It seems more likely they will scale it.
If so, then the Model S will likely have to continue to rely on its existing suppliers in the near term. Long term, the giga-factory is going to be the first of many, and is only designed to get Tesla through the period when their production is solely coming out of Freemont.
Once they outgrow Freemont they will need to build new giga-factories in conjunction with new automotive factories. In that longer term (starting around 2019) Tesla will likely have enough capacity to supply the S platform from their own factories. Whenever that occurs (near or medium term) they will realize substantial savings.
If anyone wants to model it, it seems likely that the S platform will need ~10GWh/yr worth of batteries (depending on your assumptions), with a cost per car (at the cell level, not total pack) of ~$17.5k using current arrangements, and potentially ~$11.9k if supplied by Tesla.
Or the per cell cost basis (which probably wont change much as chemistries improve) is currently ~$2.5/cell and should be able to be cut to ~$1.7/cell.
I expect the S platform to retain 7,000 cells in this near future (5,000 for 60kWh), with chemistry improvements being translated directly into increased range (lower cost/kWh), while the Model E will likely use 4,000 cells (for the longer range model), with a targeted range in 2017 equivalent to the current Model S (265ish). There will also be a car with a 200 mile range with fewer cells, which is the one that will be priced in the ~$35k range, but I expect the market to gravitate towards the larger battery, just as it has with the S.
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I largely agree with the bulk of your post. The only area I disagree is with the timeline. EV customers in this decade will only be an edge case, and ranges using the current number of cells in the Model S are unlikely to climb above 400 miles for the top end model. Virtually all of these customers will be purchasing an EV for the first time, and will not be persuaded that they can get by with 100 mile city cars.
And as a practical matter there are real advantages to battery durability (and thus customer value) by having a large battery. I don't see any reason not to think that in the U.S. (at least) cars with 300 miles of range will be the norm for the foreseeable future.
But whether that settles there, or at 150 or 200 miles, we wont know what the bulk of experienced EV owners will accept until well into the next decade.
Whatever range it settles at, I fully expect the market to develop from that point onwards exactly as you said. My guess though is that even jaded consumers will want 300 mile ranges.
CyberDutchie
Active Member
Well done DaveT and company! I was glued to the iPad, loved the discussion.
I actually proposed a breakout session like this at TESLIVE last summer to most of these guys. The idea was the same, group discussion with the big brains of TMC investor thread about TSLA investment logic, short and long term. At the time, most of you declined as you didn't want to share their opinions in front of a live audience. I guess it's different with an online audience ;-)
InTheShadows
Active Member
I think a major reason that Tesla wants to get moving on the gifafactory right away is they want to get the kinks worked out of their processes and their supply chains. If they can get the factory up and running in 2 years and have all the kinks worked out a year after they come online then they should be primed and ready for when the gen III is ready to start being produced.
That lines up with my logic (or illogic as the case may be). Note another little piece, Elon said they will have a good solution to city dweller charging. Coupled with SC network I'm guessing the effective comfort range(5 year horizon) will be around 180(maybe less), with a single option for doubling to 360. The market proportions are just undeniable graphically depicted here:
The incredible GDP map that shows half of U.S. output is generated by a few cities - Capitol Report - MarketWatch
Citizen-T
Active Member
OK. Thanks for the clarification. It actually sounds like we agree then.
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To be fair, my reasoning was that I couldn't make it to TESLIVE at all because of prior commitments.
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Agree with this. But there is no way they are going to pay one price for Model E cells and a much higher price for Model S/X cells. The presence of the gigafactory in the marketplace should drive down the cost of all cells. Now, given the supply constraint, I don't expect that all cells will get down to gigafactory levels (they wouldn't be profitable, probably) but I do expect those prices to be under significant pressure. Yes?
I wonder what the Giga Factory cost advantage will produce proportionally between cells and pack, coupled with the current proportion of cost between the two, then layer that with chemistry gains between now and 3 years. It might form a matrix that allows some of the cost gains to be realized in the current S/X battery plant while not inducing production requirements from the GigaFactory
We did end up having a lunch time breakout on investment; in fact it was so popular it had to be split between two places, which is a pity. Nevertheless very valuable I thought.
I'm looking forward to the next google+ hangout. I've invited CapitalOppressor as the special guest to share his thoughts on the gigafactory. I plan to wait until after Tesla announces the gigafactory conference call date and then schedule the hangout for the evening of the conference call or the next day so we have a lot of topics to talk about.
mitch672
Active Member
The Model S and Model X will benefit from lower battery costs because of the gigafactory, but because of the "RVG" on the leases, the pricing will not be lowered on the Model S/X until those leases have been paid off or the cars returned. Tesla is acutely aware of the aftermarket, and even the number of cars under the RVG for each quarter (it's listed in the 4th quarter share holder report) so they have no incentive to lower the new pricing of the Model S/X, until those expire. They will certainly have better margins though, and the newer cars will probably get more "standard" equipment.. The pricing however, will not change.
Btw, nice hangout last night
Btw, nice hangout last night
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Ubbe
Member
I believe that is an important point to make, -that besides range, a larger battery gives you the possibility of even better battery care and management (keeping it at the midrange SOC most of the time).
Sometimes when battery sizes is discussed there is a bit too much focus is on range. Forgetting that the battery is energy storage and that the energy is used for things like Climate Control, battery heating, sound, user interface et c as well as for driving the car forward (i e range).
A bigger battery can also enable faster (super) charging, perhaps not dramatically so, but it can shave off a couple of minutes here and there.
So even if Tesla have been pretty clear about that their cars will not get a range much more than the distance between two Superchargers (and rightly so), that does not rule out a larger capacity battery pack than the current one for reasons other than range. The question is of course how much more is practical and economical.
We should think about whether we can do a hangout at TMC Connect this July. The lunch sessions were nice but too short and split. The addition of adult beverages would have been an improvement, too.
We are in a great location this year, so I hope many of you will attend.
We are in a great location this year, so I hope many of you will attend.
So what is Sleepy's big story (per the Hangout)? I'm going to kick off the speculation because, well, its fun! And with TSLA soaring there's no harm in being just a bit off topic and silly.
1) Sleepy's Mega Options Win War Story
2) Sleepy is starting a "TMC Friend & Family" Investment Fund
3) Sleepy is starting his own Investing Site
4) Sleep is buying Texas with his TSLA investment gains and plans to settle the Dealer dispute once and for all.
1) Sleepy's Mega Options Win War Story
2) Sleepy is starting a "TMC Friend & Family" Investment Fund
3) Sleepy is starting his own Investing Site
4) Sleep is buying Texas with his TSLA investment gains and plans to settle the Dealer dispute once and for all.
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