Long-Term Fundamentals of Tesla Motors (TSLA)

[Johan]

Because CPUs are an item with high cachet, brand value, unique intellectual material in every single design, etc.

And batteries, even particularly good designs of battery, are a commodity. They're much more comparable to RAM than to CPUs. The price competition in the market is much harsher; people will desert you if the competition is 10 cents cheaper. Tesla may well have the lowest production costs and best margins in the battery business, but it's not going to have the same character as the CPU business... or the luxury car business, for that matter.

Respectfully disagree, for the following reasons:

1. Tesla Energy won't sell battery cells but stationary storage solutions. Complete solutions are levels higher in the complexity hierarchy and will give room for much better margins.
2. Customers can't go to the competition of there isn't a lot of competition.
3. And even if they're will be more and more competition they won't have the first mover advantage and economics (low cost) that Tesla will have.

All in all I wouldn't be surprised if they can achieve over 30% gross margin for many many years on Tesla Energy products. In fact for the first few years it might be much higher. Recent retail pricing they have for PowerPacks certainly suggests this.

 

[neroden]

Respectfully disagree, for the following reasons:

1. Tesla Energy won't sell battery cells but stationary storage solutions. Complete solutions are levels higher in the complexity hierarchy and will give room for much better margins.

No, they're not much higher in complexity. I could assemble cells into a "complete solution" right this minute; it's *easy*.
Also, they're not selling complete solutions! They're currently not selling their own inverter, which is a key component to a "complete solution".

(If Tesla suddenly produces their own super-inverter, that would obviously change the picture. I wouldn't put it past them!)

2. Customers can't go to the competition of there isn't a lot of competition.

True, but there's *already* significant competition. This isn't like the car industry where the other automakers deliberately crushed their electric cars and then introduced "compliance cars" and tried not to sell them. There's serious effort being made here in the battery sector.

All in all I wouldn't be surprised if they can achieve over 30% gross margin for many many years on Tesla Energy products. In fact for the first few years it might be much higher. Recent retail pricing they have for PowerPacks certainly suggests this.

I seriously doubt that. They'll be able to get very high margins for a year or two as the most desperate early-adopters buy batteries, but probably not much longer than that.

 

[Johan]

@neroden: I think we're talking about different things. I'm talking about huge volumes of complete energy storage solutions. You're talking about something else that anyone can easily build, source cells for at competitive prices in huge volumes and where there's already a mature market with a lot of established competition.

 

[neroden]

@neroden: I think we're talking about different things. I'm talking about huge volumes of complete energy storage solutions. You're talking about something else that anyone can easily build, source cells for at competitive prices in huge volumes and where there's already a mature market with a lot of established competition.

OK. In that case, my point is that Tesla isn't selling complete energy storage solutions at all yet, and *doesn't even intend to*.

Tesla is selling battery packs with a certain amount of management to *third parties* like SolarCity who build the rest of the "complete energy storage solution". Or at utility scale, the utility does most of the design work, except for the batteries themselves.

 

[adiggs]

@Johan : I don't think Neroden is arguing the revenue potential of Tesla Energy. He's arguing the possibility of Intel gross margins which have been in the 55-65% range for Intel for multiple years. Even you are agreeing with him that Tesla Energy is unlikely to see gross margins like Intel has been reaching.

 

[neroden]

@Johan : I don't think Neroden is arguing the revenue potential of Tesla Energy. He's arguing the possibility of Intel gross margins which have been in the 55-65% range for Intel for multiple years. Even you are agreeing with him that Tesla Energy is unlikely to see gross margins like Intel has been reaching.

Right, correct, that's what I'm saying. Apologies for the confusion.

I think the revenues from Tesla Energy will be humungous, just being cautious about the margins!

 

[Johan]

@Johan : I don't think Neroden is arguing the revenue potential of Tesla Energy. He's arguing the possibility of Intel gross margins which have been in the 55-65% range for Intel for multiple years. Even you are agreeing with him that Tesla Energy is unlikely to see gross margins like Intel has been reaching.

He said 10% GM. I said I believe we'll see better than automotive, ball park 30%. And I think >50% gross margin could be possible at least in the time frame from say 2020-2025, just because you know Gigafactory, and I'm not seeing competing initiatives popping up.

 

[Johan]

Right, correct, that's what I'm saying. Apologies for the confusion.

I think the revenues from Tesla Energy will be humungous, just being cautious about the margins!

I've only talked about margins, no confusion on my end.

 

[neroden]

(a) I don't see how they get a better margin by selling raw batteries than by putting a car with a fancy marque on top of them. If they did, people would buy the car and strip the batteries!
(b) I am seeing competing initiatives to build out mass production of lithium-ion batteries. Particularly in China.

 

[Johan]

(a) I don't see how they get a better margin by selling raw batteries than by putting a car with a fancy marque on top of them. If they did, people would buy the car and strip the batteries!
(b) I am seeing competing initiatives to build out mass production of lithium-ion batteries. Particularly in China.

(a) they will sell Power Walls, Power Packs and probably lots of different varieties, not "raw batteries" (what gave you that idea???)

(b) anywhere near Gigafactory ambitions with regard to volume, quality and price reductions? Please share more info, very interesting.

 

[wdolson]

I would think Tesla Energy will have pretty good margins at the start as they have very little competition and there is a massive potential market. Unlike Tesla cars, the tech in the stationary storage isn't that complex. I'm sure Tesla is leveraging their expertise in battery charging from the cars which will make their stationary batteries last longer and probably a bit more efficient, but overall the tech isn't all that complex and I expect battery companies will be jumping into that market as soon as Tesla pioneers it. In a couple of years we will likely see Samsung and LG powerwalls. The various Chinese battery companies will likely see it as a gateway into the US market and we will see some brands we haven't seen much in the west too.

Tesla will probably be the Cadillac of stationary storage like HP was with printers in the 1990s. There were a lot of brands of printers, but HPs carried a premium because they really were better.

The upside is stationary storage is mostly an appliance selling business. Tesla doesn't need an extensive service network and they will likely just work with little attention for years. Once up and running the TE side will probably help expand the car side of the business.

 

[electracity]

There's a lot of competition for Tesla in stationary storage, including from Panasonic.

 

[Krugerrand]

Queue the Tesla Energy killers.

 

[Johan]

Queue the Tesla Energy killers.

Apparently Neroden is seeing several emerging from China and I'm patiently waiting with a high level of interest to find out more about these.

 

[Krugerrand]

Apparently Neroden is seeing several emerging from China and I'm patiently waiting with a high level of interest to find out more about these.

Yes, I gathered that from his post/s. Maybe Elon, J.B. and Co. got it wrong this time? They aren't onto something unique, better, more attractive and of increased value/dollar than what anyone else is currently offering, can offer in the same time frame, or will offer in the future. They aren't seeing a bigger picture or ahead of the curve. And they'll lose money on every unit. But I'm not betting on it.

I'm waiting for the - because I know it's coming - 'there's no way that Tesla can come up with a better, more efficient car factory/car manufacturing (battery factory?!) set up than what all other OEM's are doing and have been doing for a century. It's not possible. It's hogwash. Talking out their butts. Etc... Not betting on that either.

Let there be no confusion. As humans they are not perfect but quite fallible as they've proven, but they are so ahead of 'everyone' and their intentions are always for 'our' benefit, that you have to be a fool or an arrogant twit (take your pick) to not believe in what they are capable of and not get behind them.

 

[SW2Fiddler]

"Tesla Inside"
♫♫

 

[neroden]

Geez, guys. I'm bullish. I think they'll sell huge volumes at *decent* profit margins (10% - 25%) for years to come. I just don't think they've got the ability to retain super-high profit margins on a commodity business which is already seeing lots of competition.

China’s Lithium-Ion Battery Production Tripled In 2015

I agree with everything wdolson says:

I would think Tesla Energy will have pretty good margins at the start as they have very little competition and there is a massive potential market. Unlike Tesla cars, the tech in the stationary storage isn't that complex. I'm sure Tesla is leveraging their expertise in battery charging from the cars which will make their stationary batteries last longer and probably a bit more efficient, but overall the tech isn't all that complex and I expect battery companies will be jumping into that market as soon as Tesla pioneers it. In a couple of years we will likely see Samsung and LG powerwalls. The various Chinese battery companies will likely see it as a gateway into the US market and we will see some brands we haven't seen much in the west too.

Tesla will probably be the Cadillac of stationary storage like HP was with printers in the 1990s. There were a lot of brands of printers, but HPs carried a premium because they really were better.

The upside is stationary storage is mostly an appliance selling business. Tesla doesn't need an extensive service network and they will likely just work with little attention for years. Once up and running the TE side will probably help expand the car side of the business.

 

[GoTslaGo]

This is where Elon's vision of a newer production model will be validated.

TE/TA allows Tesla to remain profitable by allowing them to shift resources to whichever segment is doing well and where-ever the demand is (gosh darn I said it). If the factory(s) have hyper efficient (or even reasonably efficient based on Elon's thesis) production capability then maybe it would also allow for greater flexibility in product manufacture.

I couldn't help notice during the meeting Elon pausing over the electric airplane bit at the beginning. If the factory(s) can be made to be flexible and efficient, then once the competition thinks they caught up, Tesla would just be able to develop new products and technology to maintain its edge and push sustainability.

 

[MitchJi]

I would think Tesla Energy will have pretty good margins at the start as they have very little competition and there is a massive potential market. Unlike Tesla cars, the tech in the stationary storage isn't that complex. I'm sure Tesla is leveraging their expertise in battery charging from the cars which will make their stationary batteries last longer and probably a bit more efficient, but overall the tech isn't all that complex and I expect battery companies will be jumping into that market as soon as Tesla pioneers it. In a couple of years we will likely see Samsung and LG powerwalls.

LG is suposed to have the cheapest high quality battery packs available and they are selling packs to GM for $225 per kWh. GM is buying a big volume to get that price. Tesla's costs will be under ~$125 per kWh by 2017. How is that competition?

 

[Johan]

LG is suposed to have the cheapest high quality battery packs available and they are selling packs to GM for $225 per kWh. GM is buying a big volume to get that price. Tesla's costs will be under ~$125 per kWh by 2017. How is that competition?

In addition there has been a lot of discussion and analysis that strongly suggests that LG (I assume that what you meant to write - damn you auto correct) labelling their price for the battery at $225 to GM on a slide that perhaps was never meant to be public may or may not be solid price information, seeing how LG is supplying a full solution to GM (drive train, battery, much of the vehicle technology) and not just batteries. So it becomes more of a theoretical price than an actual price, since it's baked in to a bigger solution. In addition it could be inferred that one of the reasons why LG might sell batteries to GM with relaitvely low margins could be that GM is effectively financing LG's development of a future LG car (EV) platform.