TMC is an independent, primarily volunteer organization that relies on ad revenue to cover its operating costs. Please consider whitelisting TMC on your ad blocker or making a Paypal contribution here: paypal.me/SupportTMC

Tesla Gigafactory Investor Thread

Discussion in 'TSLA Investor Discussions' started by teddyg, Sep 10, 2013.

  1. teddyg

    teddyg Member

    Joined:
    Dec 26, 2012
    Messages:
    54
    Location:
    New Zealand
    Just throwing an idea out there.

    The problem as I see it right now is this:

    Tesla needs "giga" battery factories to make Gen III possible. However Tesla doesn't want to commit to any one battery producer so that they can always pick and choose the best battery technology for the best price as it comes along. Fair enough.
    Panasonic (with 35% of worldwide 18650 cell production) and Samsung (with 30%) would probably love to build the giga factories for Tesla but without a serious long term supply contract how are either of these companies to commit the billions necessary to build these giga factories?

    Panasonic or Samsung (most likely Samsung as Panasonic probably couldn't afford this) could thus solve the problem themselves by buying out Tesla. Then they have the motivation for building the battery factories, as they don't have to worry about losing the Tesla contract obviously, so they can simply try to profit off the end product...Tesla cars, trucks, motorcycles, boats, trains, planes, etc (the possibilities are truly endless with a backer as big as Samsung).
    It's not like Samsung's innovation will stop. Indeed they will have the most at stake in wanting to make the next great battery as it will mean more vehicles sold. And if some other better battery is developed somewhere else they will want to sell the technology to Samsung as they will own the giga factories that can be modified to use the new technology. That or Samsung could buy the company who comes up with the "secret sauce".

    When you think about it an EV is really more related to Samsung's line of business than it is to Detroit's. We've got batteries, touchscreens, electronics, controllers, etc. Samsung could provide all these components to Tesla at cost, again aiming to profit on the end product.

    Think of the integration between the car and Samsung cellphones, tablets, etc. Selling the car could thus also be a way to sell more phones and tablets. Since Samsung uses Google Android technology this could work in nicely in future in terms of the Google self driving technology. As a battery, electronics, and computer company a Samsung acquisition does make more sense than an Apple or Google buyout as has been suggested by others in the past.

    I know Elon has said he wants to retain control until Gen III comes out but an acquisition with the potential to accelerate the Gen III program like this would be pretty hard for him to ignore and ultimately the shareholders would have to decide. Elon only has 25% of the company after all.
    It's not like anyone would want Elon to step down...indeed I am sure Samsung would put him in charge of the entire Samsung battery / Tesla division and certainly pay him a hell of a lot more than the token salary he is currently paying himself.

    Not to get ahead of ourselves here but an acquisition of SolarCity might not be a bad idea either. Provide SolarCity with cost price solar panels, backup batteries, etc and aim to profit on the leasing/ installation expertise of SolarCity and the synergies they have already developed with Tesla. Eventually you bring SpaceX into the fold as well and we get closer to that electric supersonic jet that Elon has been talking about.

    Anyway interesting to think about anyway. Cheers!
     
  2. lolachampcar

    lolachampcar Active Member

    Joined:
    Nov 26, 2012
    Messages:
    4,453
    Location:
    WPB Florida
    #2 lolachampcar, Sep 10, 2013
    Last edited: Sep 10, 2013
    Or perhaps MB or Toyota will get the idea that BEVs are real and are THE future. If you are MB or Toyota, you know you can not reinvent your culture so better to buy the existing culture and give it your supply chain management and fund the battery issue. I suspect this is a more likely scenario. Even though I believe Tesla is more tech company than auto company, I just can not see a tech company board purchasing an auto company unless the tech company is lead by a cult of personality (Google??). The hit in share price alone would stop most any board apart from an auto company from making the move. At least the auto company's board can tell shareholders it was this or we get left in the dust.


    Oh, and one additional comment on Samsung or Panasonic being willing to build capacity on the strength of long term contracts. Those contracts are based on Tesla's ability to succeed. If you are going to take that risk, you will want some sort of performance guarantee which Tesla can not provide. A more likely scenario would be for Samsung to buy a good bit of Tesla with the money going right back to Samsung to build capacity. IF Samsung is going to take the risk of building capacity, they might as well get a piece of Tesla for having taken that risk. (Sounds a bit like Toyota investing in Tesla so Tesla could buy their facility).
     
  3. 30seconds

    30seconds Active Member

    Joined:
    Feb 28, 2013
    Messages:
    1,142
    Location:
    SF
    I'm going to disagree with the upside guarantee need for Samsung or Panasonic to invest here. Panasonic doesn't have a lot of options to return 10+% IRR on its investments without taking a huge amount of risk and trying something entirely new. What they do have is money and the current expertise/ capacity for 18650 cells. I don't remember any contract manufacturer getting a piece of Qualcomm (when they were small & expanding), Apple (when they were sucking wind in the 90s), AMD, etc..

    Of course no analogy is perfect, but every business (save Wall St.) takes significant risk on its expansion opportunities. Getting enough of a piece of Tesla to make up for the battery plant investment (remember under the fail scenario TSLA won't be worth as much) is also a function of leverage that the suppliers have. In this case you have two large companies competing against each other plus it is important not to count out the numerous Chinese companies that can also make these cells. Upgrading their quality will be much, much cheaper to Telsa than giving up a large stake in the business.
     
  4. SteveG3

    SteveG3 Active Member

    Joined:
    Sep 21, 2012
    Messages:
    1,677
    Location:
    US
    Teddy, while some more battery production coming online will be necessary for a full Gen III rollout, there's a misconception created in how Elon's actual "Giga" factory remarks were reported by the media. Musk used the term "Giga" factory in the context of his vision of over half of all new cars manufactured in the mid to late 2020s being EVs (i.e. approaching 50 million vehicles per year). I've never once heard him say there was a need for a "Giga" factory for Gen III (perhaps bringing Tesla's production accross all vehicles to 500,000 range). I do think there is indeed some nearer term challenge with Gen III hitting full stride, perhaps requiring a joint venture for a typical size plant or two, but nothing of a massive scale.

    Certainly, taking reporting of Musk's comments at face value, one would come to the conclusion you had. Unfortunately, I've come to see how little of "jounalism" we can take at face value today.
     
  5. lolachampcar

    lolachampcar Active Member

    Joined:
    Nov 26, 2012
    Messages:
    4,453
    Location:
    WPB Florida
    I'd have to go back and listen to the exact wording in the last earnings call but I came away with the impression that G3 @ 500K per year would require about double the world's existing capacity (with MS currently consuming roughly 20%??). I believe Elon was talking about needing a lot more capacity simply to realize his requirements for G3.
     
  6. SteveG3

    SteveG3 Active Member

    Joined:
    Sep 21, 2012
    Messages:
    1,677
    Location:
    US
    I listened to Teslive, conference call, and his interview with Phil Lebau (CNBC) multiple times in one sitting a few weeks ago. I don't believe he ever said anything specific about added capacity for Gen III required, but what I have a high level of confidence in is that any comments of "Giga" factory/staggering new amount of supply were in the context of EVs being half of global car production, not Gen III bringing Tesla up to 500K cars.
     
  7. lolachampcar

    lolachampcar Active Member

    Joined:
    Nov 26, 2012
    Messages:
    4,453
    Location:
    WPB Florida
    Steve,

    I'm not concerned about "Giga" words from Elon.

    As an old operations guy, I was caught by what Elon said right about 11:17 into the Q2 earnings call. It went something like 1/2M vehicles a year will consume more than the world's current laptop production..... I then looked at the idea of a G3 @ 4K cells/car (over 200 mile range with improvements in capacity between now and 2017) and compared that to what MS production consumes today. My back of the napkin assessment was double the current world wide production of cylindrical cells. Now we can shoot that number all to hell but then we would miss an opportunity to discuss the really important point and that is where is money going to come from to generate the capacity that Tesla will need if you take them at their word and they build 500K G3s a year? We can talk about ways that cash demand will be reduced (ramped production, not 500K on year one and the like) but capacity will be needed and someone will need to fund that capacity. If that capacity is needed for car production in 2017 then someone needs to be raising it today.

    I was just amazed that the "analysts" just let Elon's comments slide on by. To me, this is the single largest business issue that Tesla faces. Their execution on this one will come to define the long term viability/success of Tesla as a mid-sized auto manufacturer.
     
  8. SteveG3

    SteveG3 Active Member

    Joined:
    Sep 21, 2012
    Messages:
    1,677
    Location:
    US
    lolac, I agree that this is the biggest challenge facing Tesla, the near term of supply of batteries for 500k cars, and the longer term challenge of turning the corner of EVs as the majority of new cars manufactured. Indeed Elon has pretty much said that. I just wanted to distinguish between the near term challenge and the longer term challenge where Elon has used some very striking language.

    I also agree that it is reasonably likely, and very much worth our discussion to consider that Tesla will be putting skin in the game.

    However, I see Tesla earning something on the order of $1 billion plus through the end of 2016 (roughly $1, $3, and $7/share for the next three years). So even if they have to pay part of the cost of adding supply via new plants, I don't think it's life or death for Tesla... I think they'll have money for this, and I do not think they have to do another capital raise, although they might decide it makes sense.

    I also agree with your surprise that the analysts let that comment go. I'll add, I'm surprised how long it took the shorts to sniff out an issue where there really is a challenge to Tesla worth thinking through rather than their typical gibberish.
     
  9. hershey101

    hershey101 Member

    Joined:
    Jan 22, 2013
    Messages:
    767
    Location:
    New York, New York, United States
    I posted about this in the other thread. I don't think Panasonic or Samsung are going to do anything about building more factories unless they get pushed by TSLA or TSLA enters into some sort of huge large-term contract with them. Of course TSLA could just build a factory itself. Either way, we should except 2 more rounds of secondary offerings in the next 3-5 years. Probably $1B in late 2014 or early 2015 for R&D costs for GEN III and then another $1B in 2016 for factory costs to ramp up production by 2019.
     
  10. teddyg

    teddyg Member

    Joined:
    Dec 26, 2012
    Messages:
    54
    Location:
    New Zealand
    #10 teddyg, Sep 10, 2013
    Last edited: Sep 10, 2013
    Hi G3,
    Well let's crunch some numbers based on John Petersen's most recent article (yeah I don't like the guy either but he has access to some pretty interesting battery statistics thanks to his connections within the industry).

    The claim is that there are currently around 2.6 billion 18650 cells manufactured IN TOTAL every year.

    43% are supplied to the computer industry (laptops)
    10% for household items (flashlights, etc)
    7% for power tools
    7% for ebikes (mostly China)
    1-2% miscellaneous

    That leaves roughly 30% of excess capacity currently not being used which Tesla is rapidly filling. This may be the reason Tesla can currently get 18650 cells so cheap from quality manufacturers like Panasonic and Samsung.

    Panasonic (35%), Samsung (30%), LG (8%), and Sony (7%) together control around 80% of the total 18650 market so that's around 2 billion cells per year that MIGHT fit automotive quality standards for customers like Tesla.

    Taking the same breakdown of demand for the remaining 80% of cells we get (at 30% excess capacity currently) about 600 million cells available for Tesla and other EV producers (at best).

    Tesla alone will require around 175 million cells this year so yes there is some room for Tesla to grow (depending upon how quickly other automakers go down the 18650 route - I believe Ford is now using Panasonic 18650's in their EV program).
    Thankfully most other automakers have gone down the prismatic (large cell) route so aren't currently taking 18650 supply away from Tesla...yet.

    Fastforward to 2017 when Tesla is hoping to produce 200,000 Gen III and let's say 125,000 Model S + X
    at an average of 6,000 cells per vehicle that would be a requirement of nearly 2 billion cells per year for Tesla ALONE or nearly the entire size of the current worldwide 18650 cell production that might be of high enough quality for automotive use. Of course one would have to imagine big auto will be into the game by then as well and demanding similar numbers as Tesla if not much more.

    One good thing is that I see the biggest current demand for 18650's (43% for laptops) being cut at least in half by 2017, as more and more people switch to slim tablet like devices and smart phones for their portable computing needs (these can't use the bulkier 18650 cell). Although there could be explosive growth in ebike requirements and increased demand for powertools, flashlights, ect.

    So let's say 20% of reduced demand for the phasing out of 18650's in laptops frees up another 400 million cells per year. That takes us to about 1 billion cells of current excess capacity for the entire industry in 2017.

    Considering Tesla alone will need 2 billion cells per year by then and God knows what the rest of big auto will require I would say that Tesla should be fine for the next 2-3 years with Model S and X production, however they will require a considerable build out of new 18650 production by the time Gen III rolls around. Probably another 2 billion cells will be required on top of all this so worldwide 18650 cell production would need to roughly double to approximately 5 billion cells by 2017 to accommodate worldwide demand.

    As I said a motivating factor for battery companies to do this might be to take a significant or controlling stake in Tesla and other EV makers, provide them with cost price cells, and aim to profit on the end product (the vehicles as a whole).

    I think Samsung would be a great partner as a leading battery, touch screen, computer, and electronics builder...they seem to be a better fit for a partnership with Tesla than almost any other company I can think of and more importantly they have enough cash and clout to pull this off.

    Just some rough numbers...let me know what you guys think.

    Cheers
     
  11. hershey101

    hershey101 Member

    Joined:
    Jan 22, 2013
    Messages:
    767
    Location:
    New York, New York, United States
    Thanks for the great analysis. Now lets hope some of the stupid analysts realize this problem and bring up the issue during the Q3 CC so we can hear more about it. The more I think about it, the more it seems like all the analysts are wrong (even the ones with high price targets like Barclay's that are starting to understand the business).
    I'm starting to think their EPS going into 2016-2017 are way too high, TSLA will require hundreds of millions in order to successfully do R&D and produce Gen III. Add to that this whole problem with battery supply issues, and I think TSLA might start burning through cash again. Hopefully analysts realize this is all good for the longer term, but considering how wrong they have been in the past, I'm not counting on this. It's starting to seem like we will probably have a small run up and then test the $110-$120 range again pretty soon. There are a lot of problems that need to be solved before TSLA becomes worthy of its $20B market cap. If they come out in Q4 or Q1 next year and say they are solving supplier problems, and starting to think about ramp production and looking into the battery supply problems for GEN III, then I'll be a happy buyer. But for now, I'm nervously monitoring my positions.
     
  12. SteveG3

    SteveG3 Active Member

    Joined:
    Sep 21, 2012
    Messages:
    1,677
    Location:
    US
    Teddy, thanks for bringing in all of these numbers... it may be the rare instance where JP has provided some worthwhile data.

    As you concluded based on unused demand, and some laptop demand falloff coming to Tesla, perhaps 1 billion cells available to Tesla without any added capacity. This could accommodate the roughly 130,000 Model S/X I see them selling annually worldwide by 2016-17, right where you see that capacity. Those kinds of sales to me equate to about $1.3 billion in earnings for Tesla per year (roughly $10k/per vehicle).

    The additional 400K gen III will need about 2.6 billion more cells. From the other battery thread, I understand based on recent factories coming online that will cost about $2.5-3 billion.

    So here's where I can see things coming together... each year Tesla can sell 130K S/X, they take in $1.3 billion. WORST case, if Tesla had to completely fund additional battery supply, one year delay in Gen III pays for battery supply increase for 200K Gen III cars. So perhaps they do GenIII car, start it slowly in 2017, ramp up production in 2018, and then follow the car with Gen III SUV starting in 2019. They'd have another $1.3 billion in earnings from 2018 if Model S/X sales hold up to pay for another 200K cars worth of battery supply added for Gen III SUV circa 2019 (again worst case, if they have to go it alone)... not even factoring in any Gen III car earnings.

    I get that things don't always work according to projections on paper... it's just that I think the battery situation is a challenge not a dire situation where Tesla needs to be bought out by a battery supplier.

    for all we know, Gen III being pushed out to 2017 from 2015 may have been more about the company building up this war chest to deal with potential spend on batteries than a tech issue (Elon recently said tech for $35K car is here now).

    one last point... I don't think the other automakers will be buying these cells anytime soon, leaving it available to Tesla. Yet if they were to start building cars with these cells, I think it would be a boon to Tesla as it would be more a benefit of incentivizing increased production than hurting Tesla as competition for supply.
     
  13. lolachampcar

    lolachampcar Active Member

    Joined:
    Nov 26, 2012
    Messages:
    4,453
    Location:
    WPB Florida
    Hershey,

    Back to the napkin, your current world's capacity or there abouts for 200K G3 plus S&X would make double the world's capacity for S&X plus 500K G3. I personally think G3 demand will be there and in spades. Being production limited on the introduction of a game changing technology (Model S) is acceptable. Having a two year wait for G3 would not. Sure, you can argue that Tesla can survive it but I would not want them to try.

    That brings us back to the need for massive capacity (I'll avoid Giga) in but a few years time. I guessing $10B to solve the capacity problem. Sure, it is not needed on day one but that kind of fund raising/problem solving takes some time thus my interest in how that problem is being solved today.

    I like your idea of the analysts picking up the ball on the Q3 call. I'll be listening :) Actually, I think lowly shareholders can ask questions on the call.....



    On a different but related topic, is it my imagination or has pure genius been at work here to balance production and demand? Tesla is ramping up production in a nice orderly fashion and still delivering in four to five weeks. How da do dat?
     
  14. mountaineer

    mountaineer Member

    Joined:
    May 8, 2013
    Messages:
    53
    Location:
    Dallas
    #14 mountaineer, Sep 10, 2013
    Last edited: Sep 11, 2013
    The most important part of the Panasonic turn-around strategy is to dominate the battery market for the autos. That's why they spent multi billion $$$ to acquire Sanyo. Now Tesla is the runaway leader in EV and the biggest boy in town. Obviously,Tesla and Panasonic will likely to find a way to work this out. Panasonic may need $500million to $1 billion investment from Tesla for the new factory. If so, TSLA can simply issue more shares and the problem is solved. The ROE will justify the investment. Note that the Gen III doesn't need to start at $35K. At $40K, a Gen III performs better than a Bimmer 3XX will sell like hot cakes since it will save lots of $$$ in gas and maintenance cost. The actually cost of a Gen III will be close to a Accord/Camry instead of a Bimmer.

    By the way, Samsung is slashing 18650 price like crazy in China. Their price is lower than $1 per cell whole sale, which is lower than the 2nd/3rd tier producers in China. Guess Samsung wants to dominate this business?
     
  15. lolachampcar

    lolachampcar Active Member

    Joined:
    Nov 26, 2012
    Messages:
    4,453
    Location:
    WPB Florida
    wow, a price war with increasing demand...

    I disagree on G3 pricing only because Elon continues to set the bar at $35K with no federal tax incentives.
     
  16. pGo

    pGo Member

    Joined:
    Jun 8, 2013
    Messages:
    767
    Location:
    US
  17. lolachampcar

    lolachampcar Active Member

    Joined:
    Nov 26, 2012
    Messages:
    4,453
    Location:
    WPB Florida
    If I had a $ for every company with a fancy new battery technology.......
     
  18. mountaineer

    mountaineer Member

    Joined:
    May 8, 2013
    Messages:
    53
    Location:
    Dallas
    sure, $35K is nice but $40K with better equipment and interior could be better for most people:)

     
  19. 30seconds

    30seconds Active Member

    Joined:
    Feb 28, 2013
    Messages:
    1,142
    Location:
    SF
    a couple of thoughts.
    1. no reason that the the flashlight / other 18650 (non laptop) users switch to a different form factor once TSLA locks in supply agreements with the factories. As far as I can tell they probably have more design flexibility and less purchasing power.
    2. you need to consider increases in energy density - 6000 cells in GENIII car would be equiv to 75kWh with today's density. Seems like overkill for 35k car let alone with expected technology increase
    3. anyone know what other battery factories can be converted to 18650 or expanded to add 18650 production? no reason why they have to be built from scratch. If I owned a non 18650 plant I would be trying to figure out really, really fast how to expand in this direction.
     
  20. lolachampcar

    lolachampcar Active Member

    Joined:
    Nov 26, 2012
    Messages:
    4,453
    Location:
    WPB Florida
    I am assuming increases in capacity combined with Tesla's target range for G3 will take the car to the "optimum" 4000ish cell count Elon has mentioned. This is what I based my back of the napkin cell/capacity requirement on.
     

Share This Page