Long-Term Fundamentals of Tesla Motors (TSLA)

[JRP3]

A cut in prices of 40% would not even make Chinese manufactures sell at a loss.

Whenever anyone talks about battery pricing without giving an actual figure you must take it with a large grain of salt. For similar quality and energy density to that of Tesla/Panasonic I'd expect all other companies are starting at a higher price point, so they'd need a price cut just to be near Tesla, and that's before the GF production cost savings take effect. Other battery manufacturers are chasing a moving target and this request from EV builders for lower pricing shows they are struggling to catch up.

 

[larmor]

Those iPhones are designed by an American company and built very closely to that company's specifications. If they aren't, Apple will find someone else to make them.

The Chinese are capable of quite high quality, but when they do make high quality products, the price difference between their manufacturing and other countries with overall higher standards is not that big. When the Chinese do undercut foreign competition on price, very frequently the quality is lacking.

China has no consumer protection so internal businesses can sell pretty much whatever they want and get away with it. I know someone who was born in China and she said people just accepted they could die brushing their teeth. Outside companies are building their designs in China and are selling to the higher tiers of the Chinese market. The bottom tiers are dominated by cheap, usually low quality cars that sell because there is nothing else to buy.

In a growing market like China, used cars are hard to find so almost everyone buys a new car, even if it's junk because a junk car beats no car. In other countries, there are plenty of used cars. The average age for cars on the US roads is 11 years. If you're looking at a new car with no options and possibly dodgy quality, you can get a car of known high quality with possibly more options for the same price if you're willing to go used.

That limits the bottom of the market for new cars. Especially in the last 10-15 years when the used car market has filled up with more and more high quality cars. 30 years ago quite a few cars were pretty much junk by 100,000 miles, but cars form the last two decades can go much further with few problems. My 1992 Buick was in great running condition when I sold it. My SO's 1996 Subaru is chugging along just fine in the hands of her ex.

We don't see cars try to break into the US market like the Yugo or the VW Bug anymore because those cars new can't compete with 10 year old Hondas.

That may change a bit when consumers start demanding EVs. The old ICEs won't cut it except as an interim car until they can get an EV. Some low price EVs might sell to consumers wanting to get into any EV, but a $20,000 EV from China is probably going to be a pale substitute for a Model 3. The used market for Leafs and other existing EVs might pick up a bit too.

Additionally the US safety rules are pretty strict as are the standards in most developed countries. What sells new in developing countries won't meet the safety standards in those countries without modifications that will add weight and reduce range. I was reading something a few months back that an Indian car maker is trying to break into the European market and going through the European crash tests and their cars are failing spectacularly.

Even if Chinese battery makers really ramp up their battery production, they have a ways to go before they can compete against auto makers in developed countries. Faraday Future and some other start ups with Chinese backing are designing their cars in California and talking about building their first factories in the western US in part because the world's most prestigious car design school is in Pasadena (my father's alma mater Art Center School of Design) and also building cars for the US market first automatically makes them legal and desirable in every other developed country (once changes are made like right hand drive in some countries). Then they can introduce it to the Chinese market as a foreign designed car built by a Chinese company.

FF is stumbling and looks like they will be out of money before reaching production. Lucid appears to still be in the running and there are some others coming along behind Lucid, one or more may survive.

It's notable though that even though Lucid should be able to get industry contacts in China, they went with Samsung for batteries. The batteries may be made in China, but they will be made to Samsung's standards and cost the same as Samsung batteries from any other country.

What it boils down to is there is no magic shortcut to really cheap li-ion batteries. There are ways to make them cheaply, but they end up being crappy batteries with low reliability and short lives. The only way to make reliable, long life li-ion batteries are using the techniques the major companies are using today. Tesla's magic bullet is to get resources cheaper, and to concentrate construction so as to reduce transport costs to the absolute minimum. Knowing something about the way Elon thinks, if there was any other way to cut costs and still get a quality product, Elon would be doing it. And Tesla isn't.

The market may be flooded with cheap Chinese batteries soon, but any car company that uses them will go broke with warranty replacements.

No one will accept a subpar product, it doesn't matter where you are from or where it was made. Overall consumers, worldwide are not stupid.

An aside regarding chinese made products: I have a chinese made vacuum robot, with a battery, works fine. It only communicates with warnings in chinese (mandarin?) It is far superior and far cheaper than any other robotic vacuum available here. MI from xiaomi at gearbest- maps your house, cleans only 50 sq feet sections at a time, when its battery runs low, it returns to the base station itself, recharges, and then continues cleaning. It alerts you when its tray is full of dirt. Roomba/dyson way too expensive.

A second aside regarding china: second hand reports from a close relative and his nephew, who are from the US, and only have high end products, houses, etc. For the cities they visited, China was way advanced from a technical standpoint, and US is really in the dust.

Back to autos: what is the middle class size of China? 100 million, 200 million? Mix in another 100 million middle classers from indo/pak. That is a large market, that will not accept a sub par product. In the current political climate (no pun intended) raising tarriffs and guiding US autos back to ICE has really dug their own auto grave (another pun, sorry).

So now the runway is clear, China and Europe have been given a gift- the loss of US auto manufacturers to compete with EV developments, where their own political climate is based on a reality of worsening smog and congestion and ever decreasing price of electronics and hence EVs.

For tesla, the runway has also been cleared, as major US manufacturers will no longer compete with tesla.

So much winning, unfortunately, not enough winning for the 'shuttered' factories when they unshutter have no one left to buy their canyoneros...

 

[MitchJi]

Wow. I'm using WAY more pessimistic assumptions than yours (pack $133, inverter $25, install &c $75)... and I still find a massively profitable energy business which nobody else can compete with. Your estimates will give Tesla enormous profit margins until they stop being able to find mines to contract with!

I'm not including the inverter cost or the installation costs.

What it boils down to is there is no magic shortcut to really cheap li-ion batteries. There are ways to make them cheaply, but they end up being crappy batteries with low reliability and short lives. The only way to make reliable, long life li-ion batteries are using the techniques the major companies are using today. Tesla's magic bullet is to get resources cheaper, and to concentrate construction so as to reduce transport costs to the absolute minimum. Knowing something about the way Elon thinks, if there was any other way to cut costs and still get a quality product, Elon would be doing it. And Tesla isn't.

The main advantage of scale, according to Elon and JB is the customized cell manufacturing equipment.

Plus Tesla's production optimization obtaining 3x the original plans.

 

[dakh]

At a risk of stating the obvious, here's how I see the balance of forces going forward.

Battery's value is in storing energy. Battery is raw materials plus the cost of transforming those into a battery.

Tesla is attacking the problem on both fronts. If someone can produce a 10% better energy storage using the same amount of raw materials, they're effectively getting a 10% raw materials discount over competition. If someone can produce the same battery 10% cheaper than competition, again not much competition can do since it's a commodity market.

Now there's an extra twist that specifically for automotive applications the 10% better energy density is translating to possibly more than 10% overall vehicle performance or price advantage over competition. This doesn't hold true for stationary storage, but for automotive applications battery size, weight and capacity has "leveraged" influence on the overall vehicle.

Stationary storage, even though energy and specific density of the battery isn't so important, Tesla+SolarCity has another competitive advantage in this field: they have an integrated solution, including a sophisticate software package, solar, inverters, etc.

So from what I can tell, for competitors to take Tesla on:

- in the stationary storage commodity market (when it matures) they'll have to match Tesla's manufacturing efficiency (scale+optimized production), and product integration.
- in automotive, they'll have to match Tesla's manufacturing efficiency AND Tesla's pack-level volumetric and density parameters.


My personal opinion on the subject is that I don't see an organization that can do this. Elon and JB's INTJ character and engineering talent creates an integrated approach that can't be matched by a traditional hierarchical org structure with a professional manager at the helm. The fusion of car design and factory design is a prime example: a traditional org would never do that since that would jeopardize established areas of influence and challenge status quo of major stakeholders.

 

[MitchJi]

Stationary storage, even though energy and specific density of the battery isn't so important, Tesla+SolarCity has another competitive advantage in this field: they have an integrated solution, including a sophisticate software package, solar, inverters, etc.

The energy density has a huge impact on the pack costs.

Ten percent greater energy density equals ten percent less cells and the pack costs are reduced proportionately as well.

 

[dakh]

The energy density has a huge impact on the pack costs.

Ten percent greater energy density equals ten percent less cells and the pack costs are reduced proportionately as well.

This one I'm not so sure I understand well. It could be that there's a possibility to make cheaper packs with less refined and cheaper materials that are overall cheaper from the energy storage perspective. I'm not even convinced that for stationary storage small cylindrical cells are where it's at since requirements are so different from automotive. But maybe what you're saying is correct, it's just about how much capacity you can get from the same raw materials and that's that.

Another thing I wanted to communicate is for automotive the pack is very important since it's a hard problem. I'm going to venture a guess that for stationary pack design isn't such a huge problem due to much more lax space and heat management complexity so Tesla's edge in that area probably isn't as critical.

 

[JRP3]

Ten percent greater energy density equals ten percent less cells and the pack costs are reduced proportionately as well.

Not if the more energy dense chemistry uses 20% more expensive materials and/or processes.

 

[larmor]

Bigger longer term picture now: Recently i was reading 'age of edison' book, about how advancements in electricity and the light bulb led to progress in lighting-first order, and promoted a culture of innovation-second order.

Now we have a tech company making an EV, and the first order process is a vertically integrated auto EV company with energy solution. And the second order is data mining and collection for shared experience, and improvement on safety. Third order would then be machine learning for improvements in this space and extension to other fields.

(Of course fourth order would be complete machine autonomy, where the machines learn to trade, then within a few microseconds to seconds, machines have complete ownership of all money in the erth and we are left to subcontract out from the machine overlords).

 

[dakh]

I think the second order is going to be a total overhaul of the social contract since this will for the most part conclude the usefulness of capitalism. The problem of production would be solved and we'd have to start to value something else.

 

[Intl Professor]

I think the second order is going to be a total overhaul of the social contract since this will for the most part conclude the usefulness of capitalism. The problem of production would be solved and we'd have to start to value something else.

Art, education, rhetoric, maintenance, acting, etc. After all, the machines must be amused too. Massage! You must try a Thai foot massage. After the pain is over, walking is like on springs!

 

[wdolson]

At a risk of stating the obvious, here's how I see the balance of forces going forward.

Battery's value is in storing energy. Battery is raw materials plus the cost of transforming those into a battery.

Tesla is attacking the problem on both fronts. If someone can produce a 10% better energy storage using the same amount of raw materials, they're effectively getting a 10% raw materials discount over competition. If someone can produce the same battery 10% cheaper than competition, again not much competition can do since it's a commodity market.

Now there's an extra twist that specifically for automotive applications the 10% better energy density is translating to possibly more than 10% overall vehicle performance or price advantage over competition. This doesn't hold true for stationary storage, but for automotive applications battery size, weight and capacity has "leveraged" influence on the overall vehicle.

In an interview a couple of years back Elon was asked about the almost weekly announcements of battery tech breakthroughs and how we seem to never hear about them again. Elon said that if someone comes up with a better battery, they'd love to know about it and they'd buy more of them than anyone, but Tesla is using the best battery chemistry available for the application. When something better comes along, they will switch to it as soon as it proves viable.

People got used to electronics evolving at the pace of Moore's Law. It's tapered off now, but Moore's Law held for most of the lifetimes of the people on this forum. (Moore's Law was stated by one of the founders of Intel Gordon Moore who predicted that the density of what could be put on silicon could double every two years and the price to do it would be cut in half.) People kind of expect all electronic innovation to follow Moore's Law, but most things don't work that way.

Battery tech has been frustratingly slow to evolve. For rechargeable batteries all we had for most of a century were lead acid cells. NiCad came along in the 70s and it was an amazing innovation. Li-ion was discovered by accident and is more a class of battery chemistries than any one chemistry, but there are about 7 different variables that need to be balanced for any battery chemistry and finding anything that is an improvement on what we have today is very difficult.

And the Chinese are not the leaders in any area of fundamental research. They are decent engineers, but most Chinese scientists who want to innovate find more freedom to do so in other countries. The Chinese are good at capturing ideas spawned in other countries that didn't go anywhere for one reason or another and making them happen. But they are not leaders in battery chemistry. Most of that work is being done in Europe, North America, and some in Japan and South Korea.

With battery chemistry breakthroughs there is at least one western company: Tesla who will actively go for any advancements in chemistry that works for their applications, so the Chinese are not going to get a jump on the west the next time there is a battery chemistry breakthrough. The only situation where the Chinese might get a jump is if the discoverer of a new chemistry goes to the Chinese first, but that's probably unlikely.

Battery tech evolves very slowly. There are billions being poured into the next generation of battery chemistry, but we have had very little advancement in chemistries best for EVs over the last 10 years. Tesla started adding a little silicon, but that's about the only change from the original 18650s Tesla used for the Roadster. There are rumors the 2170 will use a new chemistry, but I haven't seen any confirmation of that.

The batteries have become cheaper to manufacture in small increments, but rather than the 50% reduction per 2 years with Moore's Law, it's only a few percent a year.

The only way anybody beats Tesla at this point is Tesla makes some huge mistake, or rests on their laurels. Neither of which are likely.

Stationary storage, even though energy and specific density of the battery isn't so important, Tesla+SolarCity has another competitive advantage in this field: they have an integrated solution, including a sophisticate software package, solar, inverters, etc.

So from what I can tell, for competitors to take Tesla on:

- in the stationary storage commodity market (when it matures) they'll have to match Tesla's manufacturing efficiency (scale+optimized production), and product integration.
- in automotive, they'll have to match Tesla's manufacturing efficiency AND Tesla's pack-level volumetric and density parameters.

Tesla has some edges here, but probably less than they do with car tech. With stationary storage, there isn't as much of a space concern and lower density, cheaper batteries may make a decent alternative. Though for home use, compact is often better. A power station can use up a half acre with batteries, but the home user isn't going to go for a battery that requires losing a parking space in their garage, or equivalent.

We may see the stationary storage go like calculators back in the 1980s. If you wanted the best bar none, you bought an HP, but they were also expensive. Most people went for something cheaper, but wanted an HP.

My personal opinion on the subject is that I don't see an organization that can do this. Elon and JB's INTJ character and engineering talent creates an integrated approach that can't be matched by a traditional hierarchical org structure with a professional manager at the helm. The fusion of car design and factory design is a prime example: a traditional org would never do that since that would jeopardize established areas of influence and challenge status quo of major stakeholders.

I haven't seen anyone else reference Myers Briggs here. When I did a while back I got scoffed at. I'm not sure about JB's type, but from Elon's biography I think it is likely he is an INTJ, though only he could say for sure.

 

[MitchJi]

Statement of a fact:
The energy density has a huge impact on the pack costs.

An example:
Ten percent greater energy density equals ten percent less cells...

Realated fact:
And the pack costs are reduced proportionately as well.

You guys can argue about that if you want, but it's a statement of two basic facts, with an example which is obviously not exactly completely true.

 

[Dwdnjck]

Alternate facts?

 

[dc_h]

Alternate facts?

This alternate facts meme is gonna be huuuuge!

 

[dennis]

This alternate facts meme is gonna be huuuuge!

She said "alternative facts" not "alternate facts".

 

[schonelucht]

You guys can argue about that if you want, but it's a statement of two basic facts, with an example which is obviously not exactly completely true.

Except that a less energy dense cell necessarily has a larger surface making it technically easier to evacuate heath, potentially making the construction of the pack easier again. Likely not to the point to completely mitigate the disadvantage, but I don't think the relationship is as straightforward as you put it.

 

[neroden]

Elon and JB's INTJ character

I'm also INTJ on that test. So that personality type "feels" normal to me but apparently the stats say it's highly unusual.

 

[wdolson]

I'm also INTJ on that test. So that personality type "feels" normal to me but apparently the stats say it's highly unusual.

Ni dominants (INTJ and INFJ) are rare, though still 2-5% of the population depending on which study you want to believe. 2% is 1 in 50 and 5% is 1 in 20. That's rare, but statistically most people would still know a number of them.

But they are more common in some places that concentrate some types. Ns tend to do better in school and are more likely to get advanced educations. They are also frequently drawn to new ideas and new technology, so a group of early adopters probably have a bit more Ns than the general population. (No group is monolithic, any person of a given type can be found in any demographic. Just talking about the trends in the data compared to the general population.)

I'm INFJ here, though with 7 years of engineering training and nearly 30 years as an engineer as well as growing up with an INTJ sister and INTP father, The Thinking way of making decisions comes easy to me also. (Type is about what you most prefer rather than what you can do.) I became certified to give the MBTI back in the 90s.

I'm nowhere as brilliant as Elon Musk, nor do I have his insane drive to innovate, but I can grok his overall thought patterns. At least follow the steps after he made them. Predicting what someone like Elon will do next is very difficult because he is not tied to past decisions and past patterns. He is always re-evaluating the core principles of everything. If he sees a better way, he will abandon what he's done so far and charge after the better way.

I think that was a contributing factor to the problems with the Model X. He let the perfect become the enemy of the good and kept chasing the better way, even when it led to something that was virtually impossible to make. He learned his lesson however and now he's charging full tilt at perfecting the manufacturing process to make cars as cheaply and perfectly as possible.

Those who keep making predictions about Elon based on past mistakes don't realize he has absolutely no ego investment in the way he's done things before. If he realizes he's made a mistake, it doesn't matter what it is, he'll make sure to correct it going forward. The biggest flaw with the Model X is that it's one of the most difficult cars to build and that has led to a lot of problems. The critics expect the Model 3 to suffer from the same problems, but whatever the Model 3's problems, it will probably have none of the problems the X had.

Another issue is Tesla has always been late to deliver a new car. Everyone gave Tesla a pass with the Model S, but were much more critical with the Model X being late. Elon has learned that lesson too. I expect the Model 3 will be built in decent quantities pretty close to the time frame Elon has announced.

From comments he's made, I think he's spent a lot of time becoming an expert in manufacturing engineering since the launch of the Model X. He's figured out why the Model X was late and is determined not to repeat any of those mistakes. A lot of logistics goes into making a car. From the start of the Model S production Tesla has been better at logistics than a lot of car start ups, which has contributed to its survival. But they have still fumbled a bit compared to the major car makers who have been at it for a century or more.

Elon has set out to fix all the logistical problems for the Model 3 and make sure every step of the process is working perfectly. Because they are dependent on outside suppliers he's hedged his bets and said he doesn't expect to meet the July 1 start of production date, but they are fully prepared to do a work around anywhere they need to so as to get the car into mass production by late this year. It's possible multiple suppliers may flake out and the logistics of working around all of them might cause delays into next year, but that's the worst case scenario IMO.

This is just what I've picked up from watching the guy. He has surprised me before. Usually doing things more boldly than I expected.

 

[dakh]

Yep, that's right -- an INTJ that gets to call the shots end to end and is well clear of the ignorance of the ego can and will go very far. They also make for very cold-blooded (but very effective) bosses that are perceived by other types as lacking people skills/compassion, which Elon's history confirms. I bet this forum has an unusually high concentration of INTJs. Actually Andrea James might be one of those mega rare INTJ women and that's why she's been so capable in groking what's going on with Tesla.

 

[ggr]

I think "grokking" has two "k"s. Google agrees:

grok
ɡräk/
verb
USinformal
gerund or present participle: grokking

1. understand (something) intuitively or by empathy.
   "because of all the commercials, children grok things immediately"
   • empathize or communicate sympathetically; establish a rapport.

I know, shouldn't be in this thread, I just thought it was unusual enough to comment.