Is Tesla accelerating and decelerating transition to renewables?

[Buckminster]

I have had these controversial thoughts for a while. `Yes VW and others are stepping up with big plans now which they wouldn't have without Tesla showing the way.
However, if you were a CEO of a trucking company, would you consider competing with Tesla at $150k? I would cash cow the ICE business and start making ice cream.
Audi's e-Tron is going to be $100k and do 200 miles. Who will buy that? I think a lot of buyers will kick the can down the road waiting for a car that suits their needs. People have huge egos and do not want some upstart telling them that a Tesla is half the price of their new Audi and drives itself.
I hope I am wrong.. even if it is a slam-dunk for TSLA.

 

[wgood33]

All tangible evidence (where future investment is going) points to Tesla accelerating the transition. The issues you listed don't bother me as much as charging station issues. I have read there is (non-Tesla) investment going on there also. I sure hope our superchargers remain exclusive to Tesla. It will get crowded quick.

 

[Heimdallr]

Decelerating the transition to renewables? Nonsense. I have a hard time thinking of any stronger force to accelerate the transition than competitive pressure from innovators like Tesla apart from hard government regulations like outright bans of ICE vehicles. It's adapt or die for the incumbents.

 

[BrianZ]

I can think of a different reason on how Tesla could decelerate the transition, but not what you'd think.

Tesla could become so competitive that competitors cannot possibly catch up, and legacy carmakers end up going bankrupt due to plummeting ICE sales but does not have the resources to transition to EV. Legacy carmakers going bankrupt slows down the transition to EV since Tesla cannot hope to fulfill all the EV demand in the world. It needs other companies. But Tesla's product superiority is quickly at a point where it would be extremely difficult for others to match.

 

[dhrivnak]

Tesla is absolutely accelerating the transition. Look at all the Tesla owners also installing solar. Driving on Sunshine

 

[jhm]

I do think there is a risk that Tesla could bring down prices so fast that it both inhibits competitors from entering a market and that it does not leave Tesla with enough margin to scale quickly. Profit margins need to be fat to attract investment. This is one reason why it is good that Tesla targets a high gross margin. Lower margins will come as competition heats up. But pursuing low margins too early can drive away investment.

 

[EinSV]

I do think there is a risk that Tesla could bring down prices so fast that it both inhibits competitors from entering a market and that it does not leave Tesla with enough margin to scale quickly. Profit margins need to be fat to attract investment. This is one reason why it is good that Tesla targets a high gross margin. Lower margins will come as competition heats up. But pursuing low margins to early can drive away investment.

I agree that high profit margins should attract competition and also allow room for competition to move in. I don't think it is fully appreciated yet but Tesla's automotive business is already making extremely high operating margins (not just gross margins).

For example, using luvb2b's estimates Tesla auto appears to have earned about an 11% operating margin in Q3 -- better than all of the major oems and far better than most:

@luvb2b using your estimate for auto R&D and SG&A I calculate Q3 automotive operating margins at 10.8%.

6,098,766 (auto rev)
(4,525,202) (auto COGs)
(315,848) (auto R&D)
(599,876) (auto SG&A)
=657,840 (auto operating profit)

10.8% auto operating margin

And I think it is likely that operating margins will increase over the next year as production scales up. Although margins for the auto business as a whole may temporarily drop as Tesla brings new projects like China, Semi and Model Y online, gross and operating margins for Tesla's mature products should remain very high.

Tesla's high margins could attract competition from legacy oems. But I think it is more likely that space will be filled by the Chinese EV makers who are already scaling up. I think they will likely follow the path of Japanese automakers in the 1970s-1980s and and Korean automakers in the 2000s-2010s and begin building quality cars that appeal to consumers in North America and the EU.

Bottom line: I don't think Tesla's success will hold back progress on EVs -- just the opposite. Tesla's sales are eating away at the ICE sales of legacy oems and its high profit margins should attract EV competition. If the legacy automakers don't transition fast enough to EVs, they will be replaced by a combination of Tesla and the Chinese EV makers and maybe a start-up or two. Like Geely-owned Volvo and Tata-owned Jaguar, Chinese companies can just buy what's left of the legacy oems for branding. And to the extent there is a lack of competition in some areas, that will just encourage Tesla to expand even faster.

 

[jhm]

I agree that high profit margins should attract competition and also allow room for competition to move in. I don't think it is fully appreciated yet but Tesla's automotive business is already making extremely high operating margins (not just gross margins).

For example, using luvb2b's estimates Tesla auto appears to have earned about an 11% operating margin in Q3 -- better than all of the major oems and far better than most:



And I think it is likely that operating margins will increase over the next year as production scales up. Although margins for the auto business as a whole may temporarily drop as Tesla brings new projects like China, Semi and Model Y online, gross and operating margins for Tesla's mature products should remain very high.

Tesla's high margins could attract competition from legacy oems. But I think it is more likely that space will be filled by the Chinese EV makers who are already scaling up. I think they will likely follow the path of Japanese automakers in the 1970s-1980s and and Korean automakers in the 2000s-2010s and begin building quality cars that appeal to consumers in North America and the EU.

Bottom line: I don't think Tesla's success will hold back progress on EVs -- just the opposite. Tesla's sales are eating away at the ICE sales of legacy oems and its high profit margins should attract EV competition. If the legacy automakers don't transition fast enough to EVs, they will be replaced by a combination of Tesla and the Chinese EV makers and maybe a start-up or two. Like Geely-owned Volvo and Tata-owned Jaguar, Chinese companies can just buy what's left of the legacy oems for branding. And to the extent there is a lack of competition in some areas, that will just encourage Tesla to expand even faster.

Yeah, I think Tesla is getting about right. I forgot to mention the flips side to margins. If the margins are too high, then you've got a consumer demand uptake problem. So prices and margins need to be high enough that it sustains investment, but not so high that consumer uptake is slowed down. You want to maximized the growth of both supply and demand at the same time. So it is a balancing act.

 

[EinSV]

Yeah, I think Tesla is getting about right. I forgot to mention the flips side to margins. If the margins are too high, then you've got a consumer demand uptake problem. So prices and margins need to be high enough that it sustains investment, but not so high that consumer uptake is slowed down. You want to maximized the growth of both supply and demand at the same time. So it is a balancing act.

Good point. There is a delicate balance of increasing cash flow, while growing supply and demand.

Given its mission of accelerating the transition to sustainable energy, I think Tesla will err on the side of
using the increased profitability/cash flow to accelerate growth, rather than maximize short-term profits.

More gigafactories faster. A virtuous cycle.

 

[Evbwcaer]

EV's could help accelerate renewables by being able to suck the juice when renewables are producing in excess of base grid demand.

If renewables were producing surplus power nobody could use, or shutting down in high wind, their value proposition would be a lot less. Someday, when we have millions of EV on smart chargers, much like air conditioners where I live, the cars will start charging when renewables are "over producing."

This will help accelerate renewables, because every kWh they produce will have an immediate buyer.

Maybe someday the weatherman will say, "Hold off on charging today because it looks like electricity prices will really tank tomorrow...bright sun and high winds."

 

[electracity]

However, if you were a CEO of a trucking company, would you consider competing with Tesla at $150k? I would cash cow the ICE business and start making ice cream.

I don't understand what you are saying. There are two major components to large trucks: 1) Operating cost and 2) Large corporate buyers/users going green. If Tesla hits the projected price/performance for the semi it will be cheaper to operate than diesel.

As far as cars, in addition to VW there is Hyundai and the Nissan EV that follows the Leaf. The high end probably doesn't matter much once the market starts buying sub $50K EV in quantity. I agree that the speed and range of the etron is disappointingly unimpressive for the price.

 

[Buckminster]

I don't understand what you are saying. There are two major components to large trucks: 1) Operating cost and 2) Large corporate buyers/users going green. If Tesla hits the projected price/performance for the semi it will be cheaper to operate than diesel.

As far as cars, in addition to VW there is Hyundai and the Nissan EV that follows the Leaf. The high end probably doesn't matter much once the market starts buying sub $50K EV in quantity. I agree that the speed and range of the etron is disappointingly unimpressive for the price.

Sorry - I mean't a truck manufacturing company. I am concerned that few companies will wholeheartedly invest in an Elec semi design given that they cannot compete at that price point. Mercedes are sticking a battery in an existing ICE design. Nikola are talking down the Tesla Semi because they cannot compete either.

 

[TheTalkingMule]

It hurts my brain to know this question is being asked. SolarCity(Tesla) pushed the entire US residential solar market forward by 18-36 months and neutralized fossil corruption that could have set the market back an equal amount. That's just as important as any progress that's been made in the EV market, EVs are just more fun to talk about.

 

[Vitold]

Tesla is still inefficient and lower cost vehicles are up for grabs so there is plenty for competition to focus on, if they wanted to.

Just until recently instead of taking Tesla head on legacy automakers were waiting for solid state battery miracle to outcompete Tesla.

Market is too complecent and Tesla is certainly making them
take notice invest in R&D more. Battery contract announcements are a good dicator of it.

Tesla semi is cheap because Tesla is not established and proven truck manufacturer. Since trucking industry values experience and perceived reliability, established players can charge more for their entries...for at least few years.

 

[electracity]

Sorry - I mean't a truck manufacturing company. I am concerned that few companies will wholeheartedly invest in an Elec semi design given that they cannot compete at that price point. Mercedes are sticking a battery in an existing ICE design. Nikola are talking down the Tesla Semi because they cannot compete either.

Capitalism is remarkably good at manufacturing goods to meet demand. If the market wants electric semis the market will get electric semis. If some existing manufacturers incorrectly predict future demand for electric trucks they will go out of business. Trucking is cleaner than cars because purchase decisions are based on the spreadsheet and corporate policy. Whereas in the consumer space there is no objective way to prove that a Tesla model 3 is worth 3X the Mazda 3.

 

[Buckminster]

Just posted on the main thread - received 9 likes and counting:

I keep thinking the following:

1. The more Wall St and the media has this misguided impression that Tesla is failing,
2. The more established automakers believe Tesla is not worth chasing because they'll die,
3. The more they refuse to budge from their existing ICE model,
4. The further ahead Tesla gets from the competition.
5. The higher TSLA goes longer term.

Bad for the future of our world, but ultimately good for my pocketbook. I will then spend those TSLA profits on more Teslas, which is then good for the world. Therefore, it's a win-win. Unless you're an established automaker, in which case you're doomed.

 

[MC3OZ]

Just posted on the main thread - received 9 likes and counting:

Essentially I see things the same way, if other automakers are tardy in moving to EVs, Tesla (and others) grab more market share we then see a panicked rush to EVs by all players and rapid transition, so it appears slower for a while then takes off.

With things like Megapack and the Solar roof Tesla is also accelerating the transition, even more so if they achieve 2 TWh of annual cell production.

Finally Supercharger will increasingly have Solar and Batteries and I expect this even more so at Megachargers. Which brings us to the Tesla Semi which will also accelerate the transition.

There is also considerable synergy between Tesla and Boring Co and I expect Boring Co to also make a difference.

Fundamentally Solar makes a lot of sense, and is a very competitive way of making electricity, again there is a strong synergy there, Tesla can leverage Solar to make fast charging cheaper, and home charging with Solar a reality.

 

[Buckminster]

From main thread:

Or could be that LG chem is giving Tesla priority. Remember that Tesla was bottom tier when trying to get parts from OEMs which forced them to vertically integrate or die(according to Elon on third row podcast). Now in the EV world, Tesla is top dog.

If you look at the numbers, is it a coincidence that all these manufacturers are suddenly announcing battery shortage without any major signs of these EVs selling more (and in some circumstances, decreasing in sales especially in the US) Right after Tesla signed with LG to provide cells for Giga Shanghai?

 

[Doggydogworld]

without any major signs of these EVs selling more

Singuy needs to pay attention to Europe's numbers.

 

[Buckminster]

From main thread:

I completely agree with this.
I really think over the past 2 years Tesla's mission statement has changed from "accelerate the world's transition to sustainable energy" to "transition the world to sustainable energy". Elon got tired of the incompetence and foot dragging shown by large corporations and governments around the world.

There are many reasons why Tesla going alone is the fastest route to transition the world:
1: Tesla's vertical integration, superior tech and better product means it will make more cash flow per EV.
2: More cash flow means more money available to invest in R&D and capex for faster expansion.
3: Elon knows Tesla's R&D and capex efficiency is far higher than anyone else.
4: Elon knows Tesla can build EV and cell capacity much faster than anyone else.
5: Elon knows Tesla will spend 100% of available cash flow on accelerating the world's transition to Clean Energy - while other Auto OEMs will spend cash on dividends, share buybacks, emissions fines, legal fees, ICE advertising & R&D, ICE recalls, legacy ICE pension/lease fleet liabilities, anti-clean energy lobbying etc. Tesla will spend excess cash on new EV and cell capacity, solar, stationary storage (& maybe even wind) installations, self driving EV fleets etc.
6: Elon knows Tesla actually cares about sustainability and are not just acting to avoid emissions fines. He can't trust other companies not to try to cheat the system or to clean up their supply chains.
7: Tesla has best access to the capital markets to raise additional funds to accelerate growth where possible.
8: Elon knows Tesla is structured to accelerate learning rates and experience curves and will make the most use out of its cumulative EV production experience. Therefore an EV produced by Tesla will move the EV and battery cost curve further than an EV produced by anyone else.

I wish all companies well in their Clean Energy efforts, but ICE OEMs are going to have to work to save themselves because Tesla's energy, capital and competitive lead is best spent directly on its own EVs & Clean Energy rather than bailing out other companies.

Not exactly the same angle as this thread but original and the same outcome. OEMs are totally screwed.