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Tesla needs to break ground soon on Gigafatory 2-10 AND car factory 2?

Discussion in 'Tesla, Inc.' started by Omer, Nov 5, 2016.

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  1. Omer

    Omer Member

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    #1 Omer, Nov 5, 2016
    Last edited: Nov 5, 2016
    Obviously I'm very bullish on Tesla. I think when you look at the economics of self driving cars and price drop on batteries, as soon as ANY city makes full self driving legal, Tesla will be unable to meet demand. And odds are sometime by 2019-2020, some city / state will allow it.

    1. As soon as the Tesla Network works anywhere, everyone in that city buying a car would shift their purchasing to Tesla. The other automakers don't intend to make a similar car available for general purchase that can earn cash while the owner is doing other things until at least 2021 (probably not at scale until a few years after that). So no other car that is purchased for economic reasons can compete. Why would anyone in that theoretical town walk into a Hyundai/Toyota/VW dealership and buy a $20k car with $400/month payments when they can get a $45k Tesla for $900/month and earn back the entire car payment while they are watching TV?

    Furthermore the depreciation on an income producing asset is tied to the reduction in annual income, not to aesthetics or desire for "something newer". So long as the Model 3 earns, say $800/month, it should retain most of it's value. If it depreciated to say $20k and still earned $800/month the demand for used Model 3's to use as income generators would outstrip supply causing prices to increase. Hence with such low depreciation, the effective monthly cost of owning a Model 3 (or any Tesla) should be significantly lower than any other car that costs far less than a Tesla.

    That's why in any city that allows the Tesla Network to operate, Tesla would essentially have unlimited demand. As they try to satiate that demand, more cities will rapidly follow along at a pace that will very quickly outstrip Tesla's ability to supply. In my view, by 2020 Tesla should be able to sell as many cars as they want and will only be supply constrained. The difference then compared with now is that by being supply constrained in 2019, Tesla will be losing out on adding even more cars to the Tesla Network at a crucial time when network effects could kill off the other manufacturers chances before those other firms have a chance to ramp up. By selling fewer cars, Tesla leaves room for the other manufacturers to ramp up and catch up.

    In addition, demand for powerwall and potentially Tesla semi but certainly Tesla driverless shuttles should be huge and immediate as soon as self driving is fully implemented. It takes time to build up capacity and as ambitious as Tesla is, it just seems that the Fremont factory (even at 1MM cars/year) and the Nevada Gigafactory will be woefully inadequate to meet demand. Since we are only 3 years away and it probably takes more than 3 years to build a new car factory and additional gigafactories, they need to get started ASAP, they're probably too late already.
     
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  2. JeffK

    JeffK Well-Known Member

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    Keep in mind the best selling car in the world, the Toyota Corolla, averages only 1.1 million worldwide sales per year and is at a much lower price point.

    Tesla cannot and will not be able to supply the entire world with BEVs at every price point which is why they encourage competition to help meet the end goal of sustainable transport and sustainable energy.

    Elon has mentioned that a Chinese factory my be started in the 2019 timeframe.
     
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  3. Omer

    Omer Member

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    The concept of price points drops away when personal cars can be used for income purposes. When a car can earn money to offset it's costs it becomes a positive cash flowing asset versus a depreciating asset. At that point, it is effectively cheaper than even a free non-self driving used car. Therefore when self driving Tesla Network is operational (or any manufacturers self driving network), the self driving car will be the cheapest option to buy and by default all sales of cheaper new and used cars will cease the moment that manufacturer can produce enough cars to match demand.

    When comparing sales of M3, you shouldn't compare to a single other model like Toyota Corolla, you should compare it to the combined sales of all other similar sized cars sold in the world. Basically imagine one day you drive to the center of your city and someone is there handing out brand new cars for free. Anyone that just shows up gets a brand new Mercedes E Class for free. If you had to calculate how many E-Classes the market would demand, it wouldn't make sense to compare to the total sales of a similar model because the fact that the Mercedes is being give away for free means that it will immediately that same day displace the sale of every other car in that city. Someone considering buying a 10 year old clunker, would instead go take one of the free Mercedes. That's the impact M3 can have with Tesla Network.

    That's why I think starting a new factory in 2019 is too late because the factory then wouldn't be up and running until 2022 at the earliest and they will need all the capacity they can produce by 2020 when the network begins operations.
     
  4. electracity

    electracity Active Member

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    This is why Musk is talking about doing a million vehicles from Fremont.

    Tesla is constrained by production over the next ten years unless they license. One way to approach the mass market in Asia would be to design and license a model 2 sold under a different brand. I'm sure Musk is conflicted about what to do. Funding the growth demand today by building factories means he and his small group losses control of the board.

    Similarly, if Tesla got to level 5 significantly ahead of competitors, there would also be a need to license to exploit the lead.
     
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  5. JeffK

    JeffK Well-Known Member

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    That's just it though, these cars with self driving still have a high upfront cost, In the near term we don't even know if self driving will be enabled and when. Many owners are unwilling to allow their car to do ridesharing even for money. One would think that regulation around self-driving with a driver in the car might come sooner than self-driving with no driver in the car. There are still places around the world that do not have an adequate EV/supercharging network either.

    I think the kind of demand your think of isn't going to come for a few years at which time there will be competitors. The majority of the new car sales are going to happen in the asia/pacific region. A new factory costs money and time. Wouldn't it be easier and less costly to figure out exactly what the Model 3 ramp up is going to look like and cost with the factory they already have vs trying to set up another factory in parallel?

    The gigafactory in Nevada might be able to support 1.5 million vehicles per year if they all got 100 kWh battery packs (which they won't and some of that will be used for powerwall/powerrack).

    Point is they don't need another gigafactory as much as they'd need a new manufacturing plant. Once charging infrastructure and Tesla service gets better in China they'd see more demand, and I believe 2019/2020 timeframe is great timing already without stretching themselves too thin. They can also pay for this factory with profits generated by initial Model 3 sales.
     
  6. Mo City

    Mo City Member

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    When it comes to car sales, I agree with the consensus Tesla won't need another Gigafactory soon. The key is the energy business.

    When Tesla does announce battery Gigafactory #2, it's competitors in the auto and energy industries will take a collective gulp!
     
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  7. Brovane

    Brovane Member

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    Tesla is going to be severely Capital constrained the next 1-2 years to bring the Giga-factory full online and get the Fremont Factory to be able to produce 1M cars/year. Even then Tesla still might run out of money and the stock price could crash. They just don't have the ability to push any faster than they already are.
     
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