I understand and agree with your points. Reducing price is also reducing GM% unless BoM magic happens. Let me put some big simplifications and some big ifs on the table to try and get a grasp of the problem/opportunity here. Before I try and run a scenario in my 10-year model lets first try to agree what it might look like. Here is a first sketch as I would appreciate comment.
HISTORY
1. The relevant BEV market is split 1/3 : 1/3 : 1/3 between USA, China, and Europe. (sorry about the little'uns, but I need to simplify)
2. It was only a few years ago that Tesla really had no competition in China, and only a couple of years ago that Tesla opened the Shanghai factory.
3. During the last 2-3 years Tesla has been raising prices by $10k-$15k and in the process has gone from maybe 20% GM to maybe 30% GM.
4. During those few years Tesla BEV competition in China have gone from only being viable in non-Tesla segments to becoming viable and competitve at lower prices in Tesla-segments. So it takes 2-3 years for China to build capacity faster than Tesla does, and to play sufficient catch-up in product terms, for 1/3 of the relevant market.
5. US and European competition really aren't making a difference and so are not directly interesting to this analysis.
PROJECTION
- The Chinese continue to build capacity faster than Tesla and they progressively push harder at exports to Europe and USA. Within 2-years they either fully into Europe (or USA) or halfway into both. Within 4-years they are fully into both (i.e. they can overbuild at the rate of 1/3 in two years). Ignore incentve programs as they will come and go.
6. Competition starts to bite into Tesla margins and so Tesla cuts prices as the excess demand is run off - the GM of 30% declines to 20% over the next 5-years, and that includes income from NoA and FSD in automotive.
7. But Tesla are then able to hold BoM costs stable and to maintain a prestige brand position with GM% then steady at 20%. (so still unusually good)
8. But this also has a numerical effect on Tesla caacity build in the later years, with the max capacity build rate becoming capped at 2m/yr due to competition effects. This would mean Tesla reaches max 16m/yr in 2030, not 20m/yr, i.e. this effect starts to cut in as the GM% stabilises, likely due to internal Tesla discipline.
- One point to notice is that I assume the Chinese also in effect practice price discipline. There is however nothing to prevent them continuing to overbuild capacity and wiping out the entire market. But my guess is China would back off, likely holding about 30-40m/yr of the global market in 2030. This would leave 16m/yr for Tesla and 24m-34m/yr for everybody else (assuming constant market of 80m/yr).
- Ignore RoboTaxi completely for this examination.
Any comments on this as I might run it at the weekend to explore the share price implications. ?
