Long-Term Fundamentals of Tesla Motors (TSLA)

[Robert.Boston]

I think the demographic for the two are very different. Assuming Gen IiI buyers are mostly city dwellers. The China situation might be a testbed for Gen IiI adoption in my opinion.

I'm struggling to understand why you think Model 3 is aimed at city dwellers. With a 200 mile range and Supercharger access, it will be a direct replacement for a BMW 3-series with superior driving dynamics and the operating costs of a Honda Accord. People like my sister and her husband are perfect targets: they have a BMW 325 and a Toyota Highlander. She puts about 150 miles on the BMW every day, while the Highlander sees lighter use, mostly around town or Boy Scout camping trips. The Model 3 will be perfect for her garage.

The economics of EVs are most compelling for people with long, regular commutes. City dweller like me can go days or weeks without needing to drive, or perhaps a short run to the big supermarket for heavy groceries. But if you drive 40 to 80 miles each way daily, the gas money you'll save on an EV is compelling, even at $2/gal. And there are plenty of Americans who have exactly this pattern, or perhaps shorter commutes where you burn a lot of gas sitting in congestion. (It used to take me 30 minutes to drive the 3 miles from my office to home in Boston.)

So I don't worry about demand for the Model 3 in the US, assuming that the design and execution of the vehicle is excellent.

 

[mrdoubleb]

I'm struggling to understand why you think Model 3 is aimed at city dwellers. With a 200 mile range and Supercharger access, it will be a direct replacement for a BMW 3-series with superior driving dynamics and the operating costs of a Honda Accord. People like my sister and her husband are perfect targets: they have a BMW 325 and a Toyota Highlander. She puts about 150 miles on the BMW every day, while the Highlander sees lighter use, mostly around town or Boy Scout camping trips. The Model 3 will be perfect for her garage.

The economics of EVs are most compelling for people with long, regular commutes. City dweller like me can go days or weeks without needing to drive, or perhaps a short run to the big supermarket for heavy groceries. But if you drive 40 to 80 miles each way daily, the gas money you'll save on an EV is compelling, even at $2/gal. And there are plenty of Americans who have exactly this pattern, or perhaps shorter commutes where you burn a lot of gas sitting in congestion. (It used to take me 30 minutes to drive the 3 miles from my office to home in Boston.)

So I don't worry about demand for the Model 3 in the US, assuming that the design and execution of the vehicle is excellent.

I wouldn`t entirely dismiss the point Causalien is making, Robert. I think he is bringing up what I have also been commenting on for a while now whenever this topic comes up: homes in the suburbs vs. flats.

I know there are exceptions, like in e.g. Hong Kong where even the rich live in high rises due to the lack of space/land, or people owning expensive flats in Manhattan. However, globally thinking, it would be hard to deny that there is some correlation between the income bracket you have and whether you own/rent a house or a flat. At the very least it would be a fair assumption that most high income households own a garage on their suburban property or can afford to rent one close to their high priced luxury downtown flat. On the other hand it would also be fair to say that many lower income families don`t own a house to being with and can`t afford to rent a garage.

Now whether this is already a Model 3 problem or will only become relevant when we get to a 20-25k price point for EVs, that can be up for discussion. However I bet that much more of the Model 3 owners will be parking curbside than Model S/X owners. With no judgment at all: if you can afford 100-120k for a car, I am pretty sure you can afford a garage.

Why is this important? One of the EV/Tesla arguments has been that you start your day with a full tank of "gas" and only ever need Superchargers on road trips. If you park curbside, though, that full tank in the morning is not happening - at least not until they put a 11kw+ charger by every parking spot.

 

[austinEV]

I wouldn`t entirely dismiss the point Causalien is making, Robert. I think he is bringing up what I have also been commenting on for a while now whenever this topic comes up: homes in the suburbs vs. flats.

I know there are exceptions, like in e.g. Hong Kong where even the rich live in high rises due to the lack of space/land, or people owning expensive flats in Manhattan. However, globally thinking, it would be hard to deny that there is some correlation between the income bracket you have and whether you own/rent a house or a flat. At the very least it would be a fair assumption that most high income households own a garage on their suburban property or can afford to rent one close to their high priced luxury downtown flat. On the other hand it would also be fair to say that many lower income families don`t own a house to being with and can`t afford to rent a garage.

Now whether this is already a Model 3 problem or will only become relevant when we get to a 20-25k price point for EVs, that can be up for discussion. However I bet that much more of the Model 3 owners will be parking curbside than Model S/X owners. With no judgment at all: if you can afford 100-120k for a car, I am pretty sure you can afford a garage.

Why is this important? One of the EV/Tesla arguments has been that you start your day with a full tank of "gas" and only ever need Superchargers on road trips. If you park curbside, though, that full tank in the morning is not happening - at least not until they put a 11kw+ charger by every parking spot.

Even if you think that half of the market for cars in the 30-50k range are parking curbside, that is still a vast addressable market. TM and even the other makers would be sold out addressing this market for 10-15 years....

In Texas, or in any of the big spread out states even poor people have garages or driveways. I don't think it is half.

 

[FANGO]

I'm struggling to understand why you think Model 3 is aimed at city dwellers. With a 200 mile range and Supercharger access, it will be a direct replacement for a BMW 3-series with superior driving dynamics and the operating costs of a Honda Accord. People like my sister and her husband are perfect targets: they have a BMW 325 and a Toyota Highlander. She puts about 150 miles on the BMW every day, while the Highlander sees lighter use, mostly around town or Boy Scout camping trips. The Model 3 will be perfect for her garage.

The economics of EVs are most compelling for people with long, regular commutes. City dweller like me can go days or weeks without needing to drive, or perhaps a short run to the big supermarket for heavy groceries. But if you drive 40 to 80 miles each way daily, the gas money you'll save on an EV is compelling, even at $2/gal. And there are plenty of Americans who have exactly this pattern, or perhaps shorter commutes where you burn a lot of gas sitting in congestion. (It used to take me 30 minutes to drive the 3 miles from my office to home in Boston.)

So I don't worry about demand for the Model 3 in the US, assuming that the design and execution of the vehicle is excellent.

Perhaps what he meant by "city dwellers," and this is what I took from that comment given his mentions about Chinese charging stuff, is "people who do not own a house with an attached garage." As we go downmarket we'll get more and more people who live in apartments, townhouses, who have communal parking, who do not have assigned parking, who park on the street, etc., because they can't afford parking or a house with a garage or they live in a city or whatever else. And as we want to raise volume, we need to address those people's needs.

But yes, I've said for a long time that EVs are great for people who drive a lot of miles and great for people who drive few miles. People who drive a lot of miles regularly save money on gas, and people who drive few miles have a car they can fill at home and is always ready and they don't have to worry about taking it to a gas station or the battery dying after a week of not being used or any number of other silly problems that happen to gas cars that don't get used often enough. You're right about the ideal customer, but the point is: how many of those ideal customers who are buying a car in the ~35k range have garages? If we're looking for young people, are they going to be able to charge the car? This is definitely something that EVs need to get around to addressing. EVs are already perfect for people with garages and there's no good excuse for a person like that not to have one as their primary car, but the question of how apartment-dwellers can make EV use as easy as home-dwellers is a question that still needs to be answered.

Now, maybe there's still plenty of market to sell 500k cars to people with houses by 2020, especially at the rate EV sales are growing. But it can only help to have apartments onboard as well.

Also, 150 miles *a day*? Thats 55k a year...or 39k if you only count weekdays. With mileage like that she needs to get into an EV right now because she'd be saving like 10 grand a year on gasoline....

 

[CatB]

Plus, milennials don't want to own cars at all, so the market will shrink overall, leaving a larger portion of drivers with garage access.

 

[anticitizen13.7]

Plus, milennials don't want to own cars at all, so the market will shrink overall, leaving a larger portion of drivers with garage access.

Yes and no. I wrote about this extensively in another thread concerning threats to Tesla.

My observation is that many Millennials initially prefer not to own a car if they live in a city, but as they get older and have children, this changes.

A high percentage move to the suburbs when their children reach elementary school age, because they want their children to attend good public schools. Only a minority stay in the cities, either because they can afford private school or are adventurous gentrifiers.

The net result in the near term is that the car market won't disappear anytime soon, because in most of suburban America, a car is still a necessity.

The long-term question is whether those who stay in cities as gentrifiers will be able to improve urban public schools to the point of general acceptance. I don't think we'll know the answer to this for 25-30 years.

 

[austinEV]

Yeah I cringe when people say "millenials don't drive cars". What this means is that instead of 95% car ownership they are like 90% car ownership. (made up numbers) Lets not lose perspective.

 

[Causalien]

Yeah I cringe when people say "millenials don't drive cars". What this means is that instead of 95% car ownership they are like 90% car ownership. (made up numbers) Lets not lose perspective.

The mission for "Mass Market" is to drive EV adiption to eventually replace gasoline. If Tesla cannot prove that an economic model for city dwellers will work, then it is up to apple to take up the mission. Someone will take it up because there's a rich consumer base living there. In between rich house owners with a garage and poor condo renters in the city are the rich condo owners in city. Dwellers who chose that life instrad of suburban life. In North America, it might not make sense as space is not an issue. Not the same in Europe and in Asia.

My argument is still the same, someone will use this argument as a weapon against TSLA eventually like they did with China. What is our response besides saying: the demand will be there? The demand is there in China, how did we botch it up so badly?

 

[anticitizen13.7]

The mission for "Mass Market" is to drive EV adiption to eventually replace gasoline. If Tesla cannot prove that an economic model for city dwellers will work, then it is up to apple to take up the mission. Someone will take it up because there's a rich consumer base living there. In between rich house owners with a garage and poor condo renters in the city are the rich condo owners in city. Dwellers who chose that life instrad of suburban life.

Many apartment buildings in cities do have their own underground parking garages. My observation is that this seems to mostly be upscale housing.

The parking/charging issue comes up for apartment buildings without dedicated parking, and for rowhomes with street parking only. I do know some city dwellers in the rowhome situation, but it seems like they don't drive their car more than once every 2-3 weeks. One person remarked to me that they had to remember to check to see if their car was still where they parked it.

The rise of sharing services like ZipCar reflects the reality that many city dwellers simply do not need to own a car. My suspicion is that the subscription/pay-as-you-go model is the future norm for those who seldom drive but occasionally need easy access to a car. How does this work for Tesla? Autopilot is the key. Tesla could establish a subscription service and have racks of EVs in a building near a service center. Someone pays a set monthly access fee, plus a cost per mile or km driven. When a car is ordered, it drives itself to pick up the subscriber. The cars charge on the racks when not in use (or could act as load levelers for utility company). Tesla would need to hire some human staff to check that returning cars are working and clean.

I think that the people who want to own their own Tesla will, in the near term, be people who can also afford housing that has available parking.

The subscription model works better for people on a budget or those who don't want the hassle of ownership.

 

[jhm]

I think the simple solution for urban dweller how lack parking with charging is the Supercharger network. Recently Tesla has placed a ten stall station at an urban shopping center called Atlantic Station in Midtown Atlanta. This area is surrounded by high rise condos and appartments. In the time it takes to do your weekly grocery shopping or work out at the gym, your Model S can load up over 200 miles range, which is more than adequate for weekly driving for someone who lives in Midtown. Additionally, destination chargers are going up all over the place.

I consider the urban EV problem technically solved. The rest is just rolling out infrastructure which Tesla is eager to do because it sells cars.

 

[kenliles]

Recently Tesla has placed a ten stall station at an urban shopping center called Atlantic Station in Midtown Atlanta. This area is surrounded by high rise condos and appartments.

I consider the urban EV problem technically solved. The rest is just rolling out infrastructure which Tesla is eager to do because it sells cars.

+1 on this.

 

[mrdoubleb]

+1 on this.

Yep, i think malls are a good solution. They have to place urban chargers at places you normally spend a lot of time anyway. They could also deploy HPWCs at these sites at a fraction of the cost- it's like 200-250 HPWCs for the price of 1 SC. When you go shopping or watch a movie, the car is sitting idle for hozta anyway.

 

[jhm]

Customer Rewards Charging

I believe that EV charging will be free, fast and ubiquitous. Here's how.

Shopping mall charging plus 200+ range vehicles can solve the problem of getting a charge. Three things are needed: parking space, charging equipment, and power. The crucial question is who pays for what. With the typical Supercharger set up Tesla bears the greatest financial responsibility. They pay the full cost of equipment and power, even if they are leasing space at below market prices. They are able to get favorable leasing terms bcause they parking lot owner believes that increased foot traffic and visability will enhance sales at nearby stores and restaurants. With destination charging, Tesla pays for the equipment and the land owner provides space, installation and power. Again the land owner is willing to do this because they believe it is in their economic interest to attract patrons. In many cases, the relative slowness of a HPWC compared to a SC works to the advantage of the participating land owner. They desire the patron to remain for a long charge, several hours, and do not want to pay for too much power. In all these situations there is a combination of marketing benefit and cost controls. Businesses will participate when they perceive that there are adequate controls are in place to assure that marketing cost/benefit tradeoff is favorable.

Consider that my local supermarket, Kroger, has a customer loyalty program called KrogerPlus. When my family shops at Kroger, we earn reward points that are redeemable as discounts on gasoline. Depending on how much we shop week can get a discount from $0.05 to $0.70 per gallon. So for a week's worth of shopping I might typically get a reward of $0.20/gallon on 15 gallons, a benefit of about $3 for say $200 worth of grocery sales. This is about a 1.5% reward which is substanial for a low margin business like groceries. Kroger is willing to subsize my weekly gas bill because they believe it motivaes sales and loyalty and because they've got tight controls in place, the KrogerPlus card, to assure that the reward and sales are linked and in balance. Suppose for sake of arguement Kroger thought they could achieve the same marketing outcomes without the overhead of the KrogerPlus card. That is, suppose they just gave everyone a low price on gas under the hopes that customers would stick around and buy their groceries from Kroger. It that situation, Kroger is potentially subsizing lots of gas for customers who never buy anything else from the supermarket. Without direct linkage they simply cannot afford to offer much of a fuel subsidy. Maybe they could offer fuel at cost, but not much lower. So it is that customer reward programs provide the direct linkage and program controls that assure a business will get a favorable return on their marketing dollar.

The logical next step in the evolution of charging infrastructure is to support customer reward programs with all the controls that marketers require. Tesla or a third party could operate a custmer rewards program that businesses as different as supermarket and credit card issuer could participate in. Imagine as a consumer, you have an app on your phone or car that links up with all your customer rewards programs that participate in the charging rewards program. So you've got some reward points from your grocery market, pharmacy, online retailer, credit card, hotel chain, etc. You pull up to a RewardsCharger at a convenient location. The app allows you to access the charger for free. You redeem reward charge points for each kWh or minute of charge. While you charge, the app tells you which loyalty program is providing you with power, how much. The program is also able to reinforce their marketing return by sending you messages, video and audio while you charge. Yes, there is even an opportunity to pay for your free charge by simply being exposed ads. So while I am redeeming my KrogerPlus point, Kroger gets to tell me about wonderful things they have in store for me or they could simply thank me for being a valued KrogerPlus customer and wish me a nice day. Most consumers don't really like being bombarded with advertising media, but it pays the bills. This is what makes TV, radio, and many online services free to access. Loyalty programs are more compelling than simply selling ad space because there is much stronger customer engagement. The reward charging program would harness marketing dollars from a wide slectrum of businesses to provide free, fast charging everywhere. It basically answers the question of who pays and assures marketing controls such that participants can get a positive marketing ROI while subsidizing charging for everyone, everywhere.

Relative to gasoline, I think that electricity is cheap enough that customer loyalty programs should suffice to cover the full cost. This is important to consider in light of recent downturn in gas prices. One thing that's always better than cheap gas is free, fast charging.

My belief is that this sort of rewards charging program is inevitable. A company like Google could make it happen in a heartbeat once they perceive the opportunity. And such a program would definitely accelerate the transition to sustainable transport regardless how cheap gas might become. So it remains to be seen if Tesla will want to lead in this direction or wait for Google or someone else to beat them to it and define the parameters of the program.

 

[ItsNotAboutTheMoney]

The mission for "Mass Market" is to drive EV adiption to eventually replace gasoline. If Tesla cannot prove that an economic model for city dwellers will work, then it is up to apple to take up the mission. Someone will take it up because there's a rich consumer base living there. In between rich house owners with a garage and poor condo renters in the city are the rich condo owners in city. Dwellers who chose that life instrad of suburban life. In North America, it might not make sense as space is not an issue. Not the same in Europe and in Asia.

My argument is still the same, someone will use this argument as a weapon against TSLA eventually like they did with China. What is our response besides saying: the demand will be there? The demand is there in China, how did we botch it up so badly?

I agree with Robert's key point that at the Model 3/Y's price point and practicality it'll be hitting suburban commuters where the low cost of operation, ownership exoerience and driving characteristics will have great appeal. I know that I'm hoping that it'll come in on target.
(I'm not suburban, but I'm an intercity commuter.)

Ultimately, yes, if they want to go beyond 500k per year they'll want to resolve the multi-unit dwelling problem, but that it is not really a major technical obstacle (although I think Tesla should tackle it). The next generation of PEVs will raise awareness and demand and then market pressure will get landlords and management on board and there could then be a rapid rollout.

It's on-street parking that's the real challenge, but I think that'll be overcome with a structured, government and utility-supported appraoch. By the time that's a limit on growth Tesla will either be gone or have a Chinese partner that'll be heavily supported by the Chinese government.

 

[Robert.Boston]

Paris (France) already has street charging for EVs. They look something like parking meters, very simple. Parking at those spots is limited to EVs while charging. If these spots were ubiquitous, it would open EV ownership to those who rely on street parking. Charging in parking structures is already well on its way, and NYC now requires newly created spots to be set up for future installation of EVSE.

@jhm, interesting ideas re loyalty points. While this could be one viable model, it can't be the only one. Real city dwellers don't shop reliably at one or two big stores, but instead patronize lots of little shops. I don't think free charging is essential to the success of EVs, though; it's charging everywhere​ that's essential. And by "everywhere" I mean places that one is likely to spend an hour or more.

 

[AudubonB]

But Rob't, isn't Jim's Rewards idea, taken in concert with your concerns, exactly the answer? That is, any merchant can provide its own Rewards card that then could be redeemed for its value - say, $3.00 for this week's purchases at that particular vendor - at the local charging station. If a consumer has three or four vendors' cards to agglomerate, that's a very significant amount of charging under almost all circumstances.

I think it's a spectacular answer to the urban EV owner's dilemma.

 

[jhm]

Paris (France) already has street charging for EVs. They look something like parking meters, very simple. Parking at those spots is limited to EVs while charging. If these spots were ubiquitous, it would open EV ownership to those who rely on street parking. Charging in parking structures is already well on its way, and NYC now requires newly created spots to be set up for future installation of EVSE.

@jhm, interesting ideas re loyalty points. While this could be one viable model, it can't be the only one. Real city dwellers don't shop reliably at one or two big stores, but instead patronize lots of little shops. I don't think free charging is essential to the success of EVs, though; it's charging everywhere​ that's essential. And by "everywhere" I mean places that one is likely to spend an hour or more.

The idea I am proposing would work in all settings, not just big box stores. This is the point about being able to redeem points from any kind of business. For example you get points from using your credit card, you can use these points at any charger in the network, say, at your favorite independent cafe where you can charge at 120kW while you get your daily jolt. We certainly agree on ubiquity. What I question is whether any charging network will be able to get cutomers to pay per charge. If we look at gasoline sales, it's at best a break even product. It's the convenience shop at the gas station that makes the profit. I do not see how anyone can make money selling EV charges. The marketing opportunities are more valuable. When charging is ubiquitous, people will choose free charging over pay-per-charge. Before charging become ubiquitous, people may be willing to pay for convenience or out of necessity. I think Tesla is right on target to work out free charging as a marketing play. So we'll have to see how this plays out, but in ten years I do not think we'll see any viable pay-per-charge business even with millions of EVs on the road.

 

[Robert.Boston]

Good points, both, and I think I'm convinced. As I think about it, the local (small) merchants here in central Portland have a program to pay for up to two hours of parking. I'm not sure exactly how the cost is allocated, but I'm sure they'd all prefer a system that was exactly proportional to purchases, such as the RewardsCard.

I also think about the generally failed attempts to charge for WiFi in public locations. Starbucks initially rolled out a pay-to-play plan, but competition from free WiFi forced them to open their networks. So by analogy, free charging may be way to draw a key demographic to your business at low cost.

 

[JRP3]

Of course once charging is ubiquitous no one business has any advantage by offering it. In fact nearby businesses that don't offer it get the advantage of charging without any expense.

 

[Crowded Mind]

Perhaps that would be the case in malls, but the cost would be shared by all tenants in that situation. Standalone businesses would likely limit parking to customers of their business only, something that is fairly common even today. Enforcement is the obvious challenge, of course.

Perhaps it would be similar to wifi, where passwords protect the chargers and can update daily.