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Long-Term Fundamentals of Tesla Motors (TSLA)

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The attitudes are changing, quickly. What used to be cool in the past is not cool now. What is cool now will not be cool in the future.

I was thinking of some past examples of being cool, to list here to support my argument, but decided to not mention examples as mentioning past examples of being cool might be offensive now.

Future generations might look down on our current attitudes.
 
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@jhm many thanks for sharing your skilled and insightful model. It's people like you who make my nights interesting!

Like many here, my first reaction was that 2.75% general growth rate is much too high and it will actually begin to decline in a few years. There is already a trend to migrate to cities where a personal auto is a liability. My college-age kids consider cars to be a burden which is pretty much the opposite of how I felt at their age. I don't think developing countries will make up the difference because most of the population and economic growth is in cities. We'll see. In any case, playing with the General Growth Rate in the spreadsheet produces interesting consequences. If I change it to 1% which is too low for the short term, possibly too high for the long term, Tesla and EV Peak sales drop by almost half.

I don't fully understand the General Attrition Rate.
 
Viewed from a global perspective, the automotive industry growth rate is being pulled in a number of directions:
  • (+) The growth of the middle class in huge countries like Russia, China, and India will spur demand for all consumer goods, including cars
  • (-) Self-driving cars will reduce the number of cars per household as a shared-ownership model becomes more convenient when a car from the pool can pick you up
  • (+) Self-driving cars allows fractional ownership of cars, further increasing demand in places where the other option is no car at all
  • (-) Internet bandwidth reduces the need to travel for business
  • (+) EVs that are highly reliable and cheap to fuel lower total cost of ownership and increase demand
I'm sure there are more big trends, but I see lots of growth potential for smart EVs, even without stealing much of the existing market from the ICE incumbents.

(Side note: US law does not prohibit monopolies, nor does it prohibit monopoly pricing. It only prohibits unfair trade practices used to acquire or maintain a monopoly. Still, I think it very unrealistic to assume that Tesla could achieve >60% market share from a business perspective, even though there are no legal restrictions.)
 
For both an excellent example of data visualization and story telling (a subject I'm studying this term), as well as insight into the global population around number of people, income of people, and related topics, see this 1 hour video by Hans Rosling:
http://www.gapminder.org/videos/dont-panic-the-facts-about-population/#.VDoCUjbn9es

It's originally a 1 hour presentation that I believe was broadcast on BBC. I find myself going back and watching pieces of it - it's mesmerizing. And will provide a lot of perspective on the size of some of these things that are moving around. When you see how the world is becoming more wealthy, and how it's projected to change, I think you'll see things as I do right now; the world auto market may or may not keep growing, but I have a very hard time seeing it shrink to a meaningful degree. My real belief is that it's going to keep growing - the size of the world population wealthy enough to own and use a car is exploding.
 
For both an excellent example of data visualization and story telling (a subject I'm studying this term), as well as insight into the global population around number of people, income of people, and related topics, see this 1 hour video by Hans Rosling:
http://www.gapminder.org/videos/dont-panic-the-facts-about-population/#.VDoCUjbn9es

It's originally a 1 hour presentation that I believe was broadcast on BBC. I find myself going back and watching pieces of it - it's mesmerizing. And will provide a lot of perspective on the size of some of these things that are moving around. When you see how the world is becoming more wealthy, and how it's projected to change, I think you'll see things as I do right now; the world auto market may or may not keep growing, but I have a very hard time seeing it shrink to a meaningful degree. My real belief is that it's going to keep growing - the size of the world population wealthy enough to own and use a car is exploding.

Great video, thanks for posting.

It was fascinating to watch school class in Bangladesh and teacher providing convincing facts on advantages of small family size. In the past, the only options for girls in some societies were to get married young and have children. Now they are free to pursue any opportunity that they wish. Having children is just one of the many options open to girls, and that option competes with other very attractive options. That is perhaps the most dramatic change that will underpin all other changes that will follow.

Regarding the growth in auto market, I do not see the wealth as the main growth driver. The affordability may become a given.

My expectation is that attitudes towards car ownership may change in significant ways. These attitudes are already changing. If everyone is wealthy enough, competition to own anything becomes meaningless and 'not cool'.

Future people will still compete, but in very different way and for different prizes, less selfish ones I hope.
 
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Regarding the growth in auto market, I do not see the wealth as the main growth driver. The affordability may become a given.

My expectation is that attitudes towards car ownership may change in significant ways. These attitudes are already changing. If everyone is wealthy enough, competition to own anything becomes meaningless and 'not cool'.

Future people will still compete, but in very different way and for different prizes, less selfish ones I hope.

I see your expectation Auzie as also being an internally consistent and reasonable explanation of future behavior. The only conclusion that I draw today is that neither of us know what will actually happen. In fact, I believe what we'll see happen over the coming few decades is a mix. There will be lots of people that do exactly what you describe - they put their energy and newfound wealth (wealth is being used in the context of the video - the vast majority of the new middle class won't be wealthy in the sense that we in the most well off billion use the term) into some other expression (such as education for the next generation!), and avoid acquiring a personal auto. I expect this will be especially popular in densely populated cities, and less popular where people are more spread out.

I also expect that for many people, a personal auto is deeply aspirational, and as they move into a better and better living situation, they will express that by eventually bringing home a family auto (somewhat analogous to the family that brings home the bicycle in the video).

Within the overall situation, the dynamic that looks the most influential to me is the sheer size of the overall population and the related size of the population that is moving into the income range where a personal auto enters the picture.
 
Very poor people need fleet car like hen house car, It will replace bus and taxi, but if you have enough money to buy car you don't want to share a car with strangers. It's human nature. People want to take their own driveless cars. Car is not just transporter. It's your face and pride. I don't think car market will shrink. It is your illusion.

I think you are the one here with the illusion that the future will be the same as the past.
Those are the same arguments that ICE heads use to dismiss EVs, it only shows the ignorance towards the discussed topic

Rich people Use Hotels, Fly Commercial Airplanes, Rent big holiday homes.

And believe it or not but 90% of the population is not rich.
-Rich poor gap is widening again.
-Using a car as an Avatar to show your wealth/style/personality is getting less popular.

Just look at Silicon Valley, all those people would have the money to drive in S-Classes, but the Prius is the most popular, or the success of Uber.


Again we are talking about the overall market, So even if there are 20% of die hard personal car owners thats still 80% of the market that will get disrupted.

Remember using a Google Fleet SDC on daily basis, to commute, do grocery shopping etc. Will be CHEAPER than owning a car and more convenient of corse. No need for financing, no need to come up with a big sum of money, instead just subscribing to the Google Fleet.
 
Well off nations do not have wars on their territory.

Sure they do. Civil War anyone? Indeed, having and retaining money and power is one of those reasons near the top of the list that people will fight to keep. Bringing it on topic, there's a war going on right now between Tesla and a number of states, NADA etc..., which is entirely about money and power. Just because neither side has pulled out machine guns and rocket launchers (literally), doesn't mean it's not happening.

Well off people simply have far better options at their disposal than to fight. Too much to loose by pointless barbaric fighting.

Poppycock. You need look no further than this board since the D and something else was revealed to know that's not true. Well-off people can embrace pettiness, triviality, jealousy, envy, childishness, entitlement, and a host of other less than attractive attributes as easily as someone from a much lower socio-economic level. In fact, when you have something to lose (perceived value of an expensive car in this instance), you're much more likely to fight to keep it than if you had absolutely nothing at all.
 
For both an excellent example of data visualization and story telling (a subject I'm studying this term), as well as insight into the global population around number of people, income of people, and related topics, see this 1 hour video by Hans Rosling:
http://www.gapminder.org/videos/dont-panic-the-facts-about-population/#.VDoCUjbn9es

It's originally a 1 hour presentation that I believe was broadcast on BBC. I find myself going back and watching pieces of it - it's mesmerizing. And will provide a lot of perspective on the size of some of these things that are moving around. When you see how the world is becoming more wealthy, and how it's projected to change, I think you'll see things as I do right now; the world auto market may or may not keep growing, but I have a very hard time seeing it shrink to a meaningful degree. My real belief is that it's going to keep growing - the size of the world population wealthy enough to own and use a car is exploding.

Yes, ISTR that Hans Rosling MD won some prize for his visualization program? Very fascinating the presentations are. Brilliant guy.

Funny thing is, when I was a mere we bairn someone actually suggested I ought to change my (rather pedestrian) last name to Rossling (means deathly wheeze, in our vernacular); she thought it had a certain ring to it. To this very day, I am in two minds whether that would have been good or bad. :confused:

Dr Rosling is reported to have been deeply shaken by the horrible outbreak of ebola in West Africa. "The worst I've ever seen."
 
Poppycock. You need look no further than this board since the D and something else was revealed to know that's not true. Well-off people can embrace pettiness, triviality, jealousy, envy, childishness, entitlement, and a host of other less than attractive attributes as easily as someone from a much lower socio-economic level. In fact, when you have something to lose (perceived value of an expensive car in this instance), you're much more likely to fight to keep it than if you had absolutely nothing at all.

Well there really is nothing to lose by arguing on the internet, other than time. I don't think you can really equate that to physical warfare.
 
Civil War anyone? Indeed, having and retaining money and power is one of those reasons near the top of the list that people will fight to keep. Bringing it on topic, there's a war going on right now between Tesla and a number of states, NADA etc..., which is entirely about money and power. Just because neither side has pulled out machine guns and rocket launchers (literally), doesn't mean it's not happening.



Poppycock. You need look no further than this board since the D and something else was revealed to know that's not true. Well-off people can embrace pettiness, triviality, jealousy, envy, childishness, entitlement, and a host of other less than attractive attributes as easily as someone from a much lower socio-economic level. In fact, when you have something to lose (perceived value of an expensive car in this instance), you're much more likely to fight to keep it than if you had absolutely nothing at all.

Civil war in America was generations ago. Today's US is highly unlikely to instigate a war on its own territory. Society and attitudes are very different now. Even laws are different, reflecting different attitudes.

Dispute between Tesla and some unlucky buyers is a minor issue, it will not cause a war.

Wars are sparked by various disputes. To keep people engaged in killing each other on a long-term basis, socio-economic conditions have to be right.

Fighters with viable options in life other than war are likely to choose other options.
 
Civil war in America was generations ago.

History has a way of repeating itself. People do not change. They are motivated today by the same things that they were ages ago. There doesn't have to be guns and tanks and bombs used to have a war. You're talking quite literally and I understand that, but it can be far more subtle and have nothing to do with socio-economical level.

It's good you have so much faith in mankind going forward. Someone has to.
 
History has a way of repeating itself. People do not change.
It's good you have so much faith in mankind going forward. Someone has to.

My expectations are based on historical data. This world used to be quite awful place in the past. We made great leaps in many respects. Progress is unstoppable, nothing to do with faith.

911 was an act of war, 8 of the 25 combatants were engineers, in general the cohort were

highly educated.
financially well off.
young with good prospects for life.

These were nut cases, outliers.
 
History has a way of repeating itself. People do not change. They are motivated today by the same things that they were ages ago. There doesn't have to be guns and tanks and bombs used to have a war. You're talking quite literally and I understand that, but it can be far more subtle and have nothing to do with socio-economical level.

It's good you have so much faith in mankind going forward. Someone has to.

Krugerrand - you might find the perspective provided in "Don't Panic" interesting: http://www.gapminder.org/videos/dont.../#.VDoCUjbn9es

It doesn't suggest a fundamental change in human motivation for the human situation to improve. In a very very short time (small number of decades), the species as a whole has moved from poor health and wealth, to everybody is in better health and mostly more wealthy (mostly being 90% plus of the entire planet). Poor today is much, much better off than 200 years ago, and improving quickly.

Over the last 50 or 60 years, we've moved from a species where 2 adults routinely have 6 children and see 2 of them live to adulthood; to a species where 2 adults have 5 children and 4 live to adulthood; to today where 2 adults have 2 children that live to adulthood. Thousands of years of 2 adults, 6 children, 2 live to become adults themselves, and in 50 years the routinely available health care has improved to the point that we routinely survive child birth, and the children routinely grow up and become adults themselves.


It's not a competitive perspective to the one you're articulating - it's an incremental perspective that focuses on something we're getting right; regardless of religion, political system, or other cultural factors. And astoundingly, we're getting it right, and we're doing it FAST. Years and decades, rather than centuries or millennia.
 
Well off nations do not have wars on their territory. People that willingly go to wars from well off nations tend to be from lower socio economic levels in their societies. Well off people simply have far better options at their disposal than to fight. Too much to loose by pointless barbaric fighting.

I mean, look at Hong Kong. Not exactly what I would consider super "well off" but they wouldn't be considered poor either. And their protests are about the extreme that I would expect any nation to push into. Noone is going to pick up a gun, rally an army, and cause real insurrection in a nation like the US, China, Japan, etc... because those who would have the money to fund such an act would have to be pushed out to a far extreme that if that happens I think we have a much larger problem on our hands. So I would agree, I wouldn't expect any major player to stake their massive amounts of money on some risky gamble as overthrowing a government or some such.
 
Just read the Morgan Stanley report from Friday. I think they did a good job at encapsulating the Long Term view -
"We believe Tesla's skillset in machine learning and autonomous driving could be far more differentiated than their powertrain. The combination of software, computing power and a network of connected cars constantly under analysis and testing is unlike anything else in the auto industry... And whether the X arrives in 2Q or 3Q doesn't really matter at all to us. It's coming. And, in our opinion, it should easily rival the competition in the full sized premium SUV market."

Basically Elon is right on track with master plan. Any increase in margin (i.e., the D) drops straight to bottom line which will help finance Gigafactory #1, #2, #3, etc., which will directly impact ability to supply Model 3 on global scale. The "D" also shows how much more advanced and efficient AWD EV is vs. any other option. It is right in front of us - a Honda Accord sized car with a 188hp EV and a ~50KWh battery pack for around
`$40k will be a compelling option vs. an actual Honda Accord. The same car with dual 188hp and ~85KWh pack for ~$50k will demolish a BMW 335 / Audi S4.

And at same time SCTY is targeting fossil fuel pricing parity by 2017.
 
I took a day off from posting on TMC to read Morgan Stanley's green paper on autonomous vehicles. It's good infotainment, but I think a good dose of skepticism is in order. I won't attempt a thorough critique, it is much too massive for that. But I will offer a few observations.

In general, I think MS is much too focused on a utopian state wherein all cars are autonomus, than in the more interesting questions of how we get there, where is the motivation coming from, and how big the pay offs will be at each intermediate state. They offer four phases. The first three are essentially advances in autopilot technology, to use Musk's distinction between autopilot and autonomous. These three phases should roll out over the next six years. The fourth phase, a utopia of autonomous vehicles will have to wait another 20 years. And yet the $1.3T payoff they envision only makes sense in this utopian state. They make no assessment of what benefit may accrue by 2020. This is problematic because the gains made by 2020 may be so great and the problems posed by forcing somebodies idea of a utopia may become visible enough that the utopia is laughed off in due course.

It is also curious that this paper takes such a dim view of EV prospects and substantially overlooks Tesla's potential in this space. They contemplate Google entering this space as Silicon Valley tech with no exposure to auto manufacturing, but ignore Tesla which even when this was written was clearly both Silicon Valley and an auto maker. Perhaps they gnored it because Tesla had not yet pushed any agenda toward autonomous vehicles, but that misses a very fundamental point about what Tesla is upto. Tesla is building a completely programmable car, a digital car, from the ground up. This is exactly the kind of transformation of the car that is needed on the path to full autonomy. Every aspect of the car must be within the awareness of and under the control of an integrated computing system. It's all about a platform for digital control. So reading the paper in this light reveals that Tesla has incredible potential to play multiple roles from hardware to softare, to interior experience integrator. The operating system that Tesla is building out could well lead to a service Tesla provides to other OEMs. If MS is correct that in the future the car value will be 40% hardware, 40% software, and 20% content, user experience, then what Tesla is developing on the software side may be just as valuable as say, the Gigafactory. This is astounding.

But I would argue that the software value and other other value that Tesla is creating along this path to auonomy does not require the utopian world they imagine. Consider what we have recently learned of Tesla's advances with autopilot and dual motors. In 12 months Tesla has leapfrogged over phase 1, well into phase 2. With lane change, summon and parking capabilities it is getting into phase 3. I suspect that they may actually be well into all phase 3 capabilities at this point, but simply need to to more reliability testing and refinement. I strongly suspect that they already have test vehicles that can navigate themselves to any preselected address. They are able to make so much progress within 12 months, not just because they've got great programmers and engineers, but because the programmers have a great platform to work with, a highly programmable architecture.

Consider this, the Model S already has a software layer between the driver and the mechnical systems of the car. The driver is only manipulating a controller, and software already transforms that input into action. This digital control affords much more that merely adding on safety features. Every aspect of performance can be modified through programming. So for example, dual motors, we now know, can be digitally controlled in such a way that 10 to 30 extra miles of range can be obtained. This involves having an algorithm to optimize the distribution of power from front to back. This algorithm could take in as inputs the current speed, the desired acceleration (from the driver), the angle of the steering wheel (also fro the driver), the curvature of thebroad ahead (from radar, camera and gps), the grade and slope of the road (precice maps and sensors), slippage in the wheels (from sensors), even weather conditions. All this can potentially be taken in to optimize power sent to fron and back motors. Now suppose programmers have just a simple model to work with. They program that up and tweak it until it works great. Future research perhapsnbased on real world data from customer carsnon the road may lead to formulating better models for integrating so many variable and deriving an optimal power assignment. No problem. Programmers gonto work on coding up the new model. It gets tested, and if it delivers better performance, it gets pushed out in a software upgrade. So now any Model S owners with sufficient hardware ge a performace upgrade over the air. This is much more than just delivering a certain safety feature or autopilot capability, this is about delivering high performance. Drivers will want Tesla's autopilot technology not because it lets them go to sleep at the wheel, but because it enhances their driving experience. Imagine being able to drive with the precision of highly skilled professional driver through a winding mountain road. You take each cure with confidence, you accelerate and brake in perfect coordination to make the most of every curve. You have incredible control the the whole way. The car responds impeccably to your slightes suggestion. All the while, it is the software that is intepreting your instruction, road and vehicle conditions and transforming it into something amazing. The potential of the digital car is not only to enhance the performance of the car, but the performance of the driver too. You will want to drive this car because it will feel amazing to be the driver. The P85D is amazing not because some professional driver can make it do 0-60 in 3.2 seconds, but because you can make it do 0-60 in 3.2 seconds.

So what I am talking about is what Tesla is delivering this this decade. The saftey gains from autopilot can be enormous. It shoul not depend on getting to some utopia to kick in. Two years ago a new model S driver fell asleep at the wheel, crossed over the opposite lane and struck a bicyclist. The bicyclist, a librarian at UCSC, died. This is exactly the sort of thing autopilot should be able to prevent now.

I've got more to say, but am running out of time. Next time.