Think about the factory capacity Tesla already has in the works for model Y (~250k Fremont + 250k China + 500k Austin + 500k Berlin = 1.5m already in the works) and this is excluding any new manufacturing efficiency, which Tesla increases frequently. Model 3 already has around 500k production between Fremont and China. So Tesla would only need to add capacity for another million by 2026 to meet @The Accountant's product split. Europe can take 500k M3 from the next phase of GigaBerlin, and incremental factory improvements should make up the remaining 500k - quite a plausible path to ~1/2 of Tesla's production being 3/Y in 2026. Add in S/X/Cybertruck/Semi and you've got 500k-1m more high value vehicles being sold. That leaves c.2m-2.5m vehicles potentially for cheaper models (excluding any other high value vehicles Tesla might produce - e.g. Vans, minibus, box trucks, blah, blah)I do think Tesla will hit 5-6 million units annually by 2025 or 2026, but wouldn't the vast majority of those sales be with the lower-priced $25K sedan?
I'm not even sure if they would be able to maintain their 30% auto margins if they were selling mostly high-volume, low-priced vehicle (High worker wages in the west acts as floor for production costs), so there would be further downward pressure on their operating income and net income.
I disagree that Tesla will have margin compression selling more vehicles in the short term for too many reasons to mention, but here are some key points:
EV Demand/Sale Prices:
- Tesla has increased sales prices across the board every few weeks/months and they are still basically sold out until next year - there is clearly pent up demand for Tesla's products.
- EV Sales beget EV sales as people see their neighbours using EVs and enjoying them - a large drive of consumer demand
- Virtually every major company has plans to electrify their fleets as soon as they can for ESG and operating cost reasons - A massive driver of demand
- Supercharging networks continue to improve - further improving functionality and removing one of the fears of ownership for the ill informed
- Globally, government support for EV's continues to increase (e.g., 0 benefit in kind tax for business vehicles in the UK, tax credits in China, much of Europe, Australia, and potentially the US) meaning that Tesla can charge comparatively more than ICE manufacturers for their vehicles while consumers see savings
- Large cities are bringing in low emission zones - e.g. London will charge $17/day for cars and $136/day for trucks and busses - that's an extra $3,400yr cost on top of already substantially higher operating and maintenance costs for ICE vehicles if you drive to work 5 days a week - From that perspective alone a $35k EV is half paid for in 5 years just by avoiding fines.
- There are bans on ICE vehicles starting as early as 2025 in some countries/cities and many more by 2030-35. Who would buy an ICE vehicle if new sales would be banned a few years later?
- There will be a tipping point as EV's start to reach a more mainstream level where no-one will want to purchase ICE vehicles because they will realise their resale value will depreciate quickly - some members on this board believe it is already starting to happen.
- This surge in demand reduces the need to cut sale prices unless a credible competitor arrives - and that doesn't appear likely in the short term.
- There is a known battery shortage that will last years, limiting supply of new EV's (especially compared to the increased demand) and again reducing the likelihood of any drop in prices as the supply/demand balance remains out of equilibrium. Tesla is at the forefront in securing new battery capacity as it comes online.
- Everything I read is pointing to Tesla having a genuine lead in manufacturing cost compared to legacy automakers. More scale will just continue to improve that. See recent comments from VW.
- Battery Day showed a credible path to halve the cost per KWh for Tesla's batteries (the largest cost in an EV) compared to today. That means that should Tesla need to cut the sales price for existing models (unlikely to be substantial reductions as per above) there is plenty of room to maintain margins.
- Tesla is clearly the leader in innovation (e.g. octovalve, gigacasting) for price reduction in manufacturing. When Tesla has the innovation lead the gap to other automakers will increase rather than decrease.
- People are already prepared to pay for FSD for personal use at its current level. As it continues to improve, the percentage of people who see it as good value will increase. Tesla also has plans to increase the price of FSD as the system matures. It is clearly improving rapidly as the infinite supply of YouTube videos show.
- Tesla sells after-market software upgrades from time to time which is basically pure profit - widening margins on vehicles even after they are sold
- Entertainment and connection subscription revenue will increase as the system gains more functionality (continuous profit increase for every vehicle sold)
- Service revenue of the existing fleet will increase as the fleet ages (again another revenue stream as the fleet size increases)