The Fractured Tipping Point Moat

[SteveG3]

I see I’ve written something more along the lines of an essay than a comment to start a thread, but, I still hope it’s useful and starts a discussion.

It appears very probable we have an enormous moat around the growth of Tesla’s vehicle business the market does not yet explicitly appreciate. The combination of critical elements that appear to be creating this massive moat may actually very well be unprecedented in business history. That likely being the case, it’s not surprising it has barely been hinted at in the financial media, despite its enormity. I believe appreciating this moat sheds considerable light on both the rarity of the long term growth opportunity Tesla has (and the investment opportunity the stock offers as long as it does not get well ahead of itself), and toward understanding the decisions Tesla and the other automakers are making today, and their unfolding decisions coming for the next decade.

I call this competitive advantage Tesla has the “fractured tipping point moat”, or, the “FTPM.” I believe the tipping point for the majority of global vehicle demand to prefer long range EVs (200+ miles) over ICE vehicles and the tipping point for the majority of global vehicle supply available to be long range EVs will be two distinct events. I believe these events will be at least a decade apart, and I believe this creates a tremendous moat for the growth of Tesla’s vehicle business. That’s what I refer to with the term FTPM, here are the details:

1 Tipping Point for the Demand for Long Range EVs Forecast: 2020-2022

I see three remaining attributes of vehicles that one could still use to make a case for ICE cars over EVs (unless stated otherwise, by EVs I refer to 200+ mile range EVs): price, recharge time, and range. Every other attribute of a car looks already to be in the favor of long range EVs. Given falling battery prices, and Tesla’s ambitions to rethink manufacturing, I think within 3-5 years, it’s probable Tesla could deliver a $35K base price Model 3 that delivers 300 miles of range with an ~85 kWh battery (in fact, it might be a Gen 4 vehicle for even less, see the clip of Elon looking forward toward a Gen 4 below in point 5a). Based on Elon’s tweet referring to 350 kW charging stations as a child’s toy, I think it’s likely the time to charge such a vehicle up to 80% will be under ten minutes by this 2020-2022 timeframe. When one considers fueling savings, such a car would be comparable in cost to a $30,000 gasoline car. The average price for a car last year was roughly $34,000 in the U.S.. I realize that is the average price, not median, but 1) it’s $4,000 more than the effective cost I’m forecasting for the Model 3, 2) as with the Model S and X, I expect the Model 3 will pull in buyers who would normally spend less for an ICE than they would a well done EV. Backing up these assertions that the Model 3 will be in reach of half the market, in the video I mentioned above (link in point 5a), Elon explicitly makes the point that the Model 3 was designed to be affordable to half of consumers. With those improvements, I see only one element remaining for this tipping point… consumer awareness. I think the launch of the Model 3 within a year and the Model Y in the next couple of years will take care of consumer awareness by 2020-2022.

2 Tipping Point for the Supply of Long Range EVs Forecast: Beyond 2030

Tesla’s mission is to move towards increasing the supply of EVs as quickly as possible. For the ICE manufacturers, it generally appears the goal is to move to EVs as slowly as possible. This is far from necessarily about burying their heads in the sand and digging their own graves with their short-sightedness. They may or may not be taking this approach because they are smart, but from a strictly bottom line perspective, moving as slowly as possible to EVs may actually be a very intelligent strategy for the ICE manufacturers (however one might feel about their doing the right thing or not).

How could kicking EVs down the road be a smart move (strictly financially) by the incumbents?

At some point, it seems very probable we will transition from ICE to EVs. For virtually every automaker other than Tesla, that transition is like being in a group of 15 on a cliff 50 feet above some rocky water. If you all jump, something like half of you will make it, something like half of you will hit the rocks and be done. The rocky water, of course, is the treacherous path of winding down your ICE business that is generating profits, while you use those collapsing profits to finance the build up of your EV business. All while having told all your potential customers that the ICE product whose sales are needed to pay for this transition is an outdated technology. When plainly obvious to the public that ICE are being phased out by the incumbents, more and more people will hold out from buying another ICE, and instead keep their old one until there’s an available EV. It’s not hard to see how uninviting it is to the ICE makers to jump into those rocky waters.

What’s possibly unprecedented here, is that those 15 or so automakers have the opportunity to say, “no, let’s table jumping off that cliff for a decade and just keep making profits selling ICE.”

But, how can they ignore Tesla’s success?

The global auto market last year was roughly 88 million vehicles. It’s quite broadly expected to grow to about 100 million by 2020. Tesla’s aim is to reach 1 million in annual vehicle sales in 2020. Thus, the rest of the automakers can grow from 88 to 99 million units essentially ignoring Tesla and continuing to build ICE almost exclusively. By 2025 perhaps Tesla gets to 3 million vehicles sold annually. Even if the market stays flat at 100 million, do you stay up on that cliff with a 97 million vehicle market to split between the group of you, or take the 50/50 chance of surviving jumping off that cliff to chase the very slim rewards of competing with Tesla and everyone else for some of that extra 3 million vehicles sold?

But, that’s not how the free market works, you can’t put a hold on innovation, right?

In respect to this transition, the incumbent automakers effectively have the opportunity to act as an oligopoly. This is not necessarily a matter of explicit acts of collusion. Rather, the barriers of entry are so large, the number of players small enough, and the process of developing new vehicles so time and capital intensive, that all these incumbents can see what each other is doing. As long as no one else is jumping off the cliff (i.e., getting board approval to build a few gigafactories), that’s it, we’re all hanging out here up on the cliff for another few years making profits selling ICE vehicles.

What about newcomers forcing these guys to jump off the cliff?

The barriers to entry are extremely large and the timeline quite long. Had Apple or Google made a real move into EVs, it would have had an impact. The current crop of startups, however, are unlikely to sell outside of China more than 100,000 vehicles combined by 2020 and 1 million combined by 2025 assuming they grow at a rate similar to what Tesla has. I did carve out China from that last comment. Within China things may be different. With the possibility of a rapid move to EVs within China by Chinese companies, perhaps the incumbents will make EVs in considerable volumes for sale in China through their partnerships with Chinese manufacturers (a convenient cover for limiting this move to EVs to China). If so, I find it very unlikely that those incumbents change their rest of world strategy based on what they do in China. Eventually (perhaps in a decade or so), Chinese automakers may begin to gain credibility and meaningful sales in developed countries. That could be a substantial contributor to the incumbents jumping off the cliff, but I find it very improbable it would happen fast enough to push them to jump soon enough to get us to 50+% EV production before 2030.

3 Evidence we’ve already seen for the Cliff analogy

Elon recently singled out VW as the one automaker he sees as perhaps making the kind of effort to move to EVs he’d like to see (I believe this was on the last quarterly conference call). The target VW has cited is EVs making roughly 25% of their sales in 2025. That’s often misrepresented in the media as VW seeing 25% of the auto market being EVs in 2025, but it’s a VW target, not a forecast on their part about the rest of the auto market.

The rest of the automarket? Just pay attention to the details. First and foremost, pay attention to the so-called flood of Tesla killers. How many are there actually in total compared to the roughy 200 ICE models on the market? How many are priced below $40,000 (through the end of the decade perhaps we see 4 including the Bolt). Next consider the production plans. The Chevy Bolt? 20,000 to 30,000 units per year. Ford coming out with 13 electrified vehicles? Key word is electrified… the first seven have been announced and only one is an EV. Outside of the Model S/X part of the market (which I address below), we see mostly plug-in hybrids as the incumbents electrification plan.

4 A moat around a moat

Here’s the last aspect of why I see the supply not tipping to EVs before 2030- even if the automakers had the will, they don’t have the money and it is a gargantuan logistical undertaking to transition to EVs. Based on Tesla’s original plan for GF1, a $5 billion investment that would create the battery supply enabling the production of 500,000 long range EVs per year, it would take $1 trillion and 200 GFs to create the battery supply to make all new vehicle production EVs (or $500 billion to cross that tipping point). Granted, GF1 plans have changed, and it might take less money and more like 70 GFs (each triple the size of the original plan). According to Yahoo Finance, the king of the incumbents, Toyota, has $46 billion. I doubt if all totaled together the incumbents have $200 billion. By gargantuan logistical challenge I’m referring to building either 200 GFs (factories larger than any of any kind on the planet) or 70 GFs triple the size of the smaller ones. Even Elon is waiting far through the process of building GF1 before starting GF2. How probable is it that any business would take tens of billions of dollars to dive in and build 5 GFs all at once on their first attempt. Granted battery maker partners, quite possibly including Tesla, could help this process, but it will be a slow motion version of other consumer product disruption just by the nature of the massive size and cost of the automobile as a product compared to something like a cell phone. That tremendous difference in scale compared to every other consumer product applies also to making the factories that produce the product. This is a basic ingredient in the likely unprecedented nature of Tesla’s strategic position, we’ve seen disruption before, but not the slow motion this disruption will occur at even when the will to do it emerges.

5 Addressing likely objections to the FTPM

a) What about those Audis, Mercedes, BMWs, etc.? They all look to be in the Model S/X range of the market. Tesla’s putting a lot of pressure on these automakers in this part of the market. So far, nothing has been announced from any of them remotely near breaking below the $40,000 price point.

That said, the Model 3 is very likely to put pressure on these luxury makers competing vehicles in its price segment. This is probably the most likely spot the FTPM may fall sooner than I’d otherwise think. However, one, currently these luxury makers are showing plug-in hybrids as their electrification move for this part of the market. Secondly, this price segment is a minority of the market. While Tesla is a luxury brand, I’d expect the Model 3 to draw from those who normally buy considerably less expensive vehicles, much as the S and X have. In fact, in the video below Elon literally says the Model 3 was designed to be a car half of the people can afford. Thirdly, Elon has discussed a less expensive Gen 4 model down the road, also discussed in the linked video (both points made in under a minute beginning at 12:15 into this video)

Finally, if these brands do move a little sooner, there’s still the “moat around the moat” (point 4 above). Creating battery supply for a few million Mercedes, BMWs and Audis, could be as small as a 5 year process once begun, but, creating battery supply for a 100 million vehicle market will still take us well beyond 2030.

b) But, Tony Seba said “by 2025 all new vehicles will be electric, all new buses, all new cars, all new tractors, all new vans will be electric, anything that moves on four wheels will be electric by 2025,... globally." Indeed, Seba did say this 29:17 into the video below. I’m as confident as I get about just about anything that his statement is not correct, and not even close to correct. Even if I am wrong about the first point of this post that the incumbents will move as slowly as they can to EVs, there is that “moat around the moat”, that is, no one is sitting on $1 trillion to build all the needed GFs, and the industry is not going to build 200 small size GFs or 70 large size GFs over the next 8 years. Remember each of the smaller ones is virtually larger than any other building ever built before on the planet. I don’t see any of the boards at GM, Ford, VW, or Toyota greenlighting 10 to 20 of these each over the next 8 years, let alone all of those boards agreeing to it. Seba glosses over this hole in his projection. 16 minutes into the link below, you’ll see that while his words say that multiple companies are now in the process of building battery factories at a pace matching Tesla, the data in his own accompanying chart does not back up his words. The chart only explicitly accounts for enough additional battery capacity (50 GWh combined from BYD, Foxconn, LG Chem, and Nissan) for about 800,000 more long range EVs... 1% of the current vehicle market today, let alone the 2020 market. (fwiw, while I think Seba likely is very knowledgeable, and I have nothing against the guy, his presentation has quite a lot of other quite material misstatements. I you hear something in his talk that you want to incorporate into your thinking, I would highly recommend fact checking it carefully before you do).

c) But, we are at the cusp of a major fall off in car ownership as it’s replaced with autonomous car sharing, so the market Tesla is competing for is going to shrink very substantially. Obviously, no one knows quite how the new mobility market will impact the size of the global vehicle market 10 or 15 years from now. I received this very objection to my basic thesis about Tesla’s growth opportunity in a comment I made last fall here on TMC. In response, I decided to crowdsource opinion on this question by creating a TMC thread on it. In sum, there was far more expectation that the market would be larger in 2030 than today rather than smaller. The link is below,

Will the global vehicle market (all automakers combined) be bigger or smaller in 2030 and why?

d) What if Tesla’s disruption is disrupted by an even better new drivetrain? I find it highly improbable that before 2030 this could be anything other than a new battery technology (it’s not going to be hydrogen fuel cell, and after over a century of ICE, I just don’t see something new coming out of nowhere to commercial application in under 13 years). If there’s a new battery technology, Tesla would be in a far better position to convert to it from there existing battery tech than the rest of the automakers would be to transition from ICE to any battery technology. More generally, in regard to any such technology, I think of the old joke about how to survive if a hungry bear shows up while you are camping with friends… outrun at least one of your friends. All the ICE makers are our friends, slower than us at outrunning that bear… if there was a new technology better than a Tesla quality long range EV, it would make ICE vehicles the third best drivetrain. Until all that ICE production was replaced by that new technology, the second best tech of Tesla would be in demand.

6) Happy times for TSLA when there is a tipping point of people appreciating the FTPM

For the first time, this month I’ve seen glimmers of the FTPM being discussed in the media (see comments from various industry sources in the Forbes article below, particularly Dean Dauger, and very briefly from Cathie Woods of Ark Investments at the end of the video below). At some point I think the basic advantages of the FTPM will become widely apparent. With that, so many bear arguments are laid bare as the empty false narratives they always have been.

Will Tesla's Battery Investment Win It The Inside Track Against The Germans?

Ark Invest CEO Explains Why She's Excited About Tesla

Summing up, we often see criticisms of Tesla based on the implicit false assumption that the demand for its EVs are limited to some sort of “kiddie pool” of consumers compared to the vastly larger “grown ups” real market belonging to ICE. It won’t be long before it’s widely apparent that there is one demand market and it is swiftly moving to preferring long range EVs, while ironically, there is something of a kiddie pool, the token/compliance car supply of these EVs from the incumbents, contributing to a massive moat around Tesla’s future growth opportunity.

 

[neroden]

I generally agree with your thesis, but I'll give you a twist on it: even if both of the criticisms raised by others are correct, it still gives Tesla a bigger moat. Think about the implications of passing the tipping point for demand for electric cars.

I think Tony Seba may be right about all new cars being electric by 2025. Not because there's enough supply to meet demand -- oh no! But because anyone who is sitting on an ICE car will put off buying a new car, hanging on to their old car for a few extra years, rather than buying a new ICE car which they don't really want and which will become instantly worthless.

If you notice, this scenario ends up being even more positive for Tesla. The profits for the ICE incumbents crash before the electric car market is saturated, making it harder for them to convert over, and Tesla continues to be production-constrained and able to charge premium prices during this period.

The ICE car companies may manage to sell new ICE cars by discounting them deeply but that just eats into their profits and gives them less cash to transition with.

There is also a definite possibility of a shrinking car market, due to various things, including people moving downtown and taking the subway. But how does this play out? Fewer people buy cars, but the same number buy electric cars: it plays out as a drop in demand for ICE cars. Because ICE cars are the inferior substitute which you get only if you can't afford an electric car. Again, positive for Tesla, negative for any ICE car company which hasn't managed to ramp up their electric car production already.

Summing up, we often see criticisms of Tesla based on the implicit false assumption that the demand for its EVs are limited to some sort of “kiddie pool” of consumers compared to the vastly larger “grown ups” real market belonging to ICE. It won’t be long before it’s widely apparent that there is one demand market and it is swiftly moving to preferring long range EVs,

I have stated before that I believe ICE cars are becoming an "inferior good", which people buy only if they can't afford electric cars. This dynamic simply has not been recognized by most people yet. This is the same phenomenon you are talking about.

 

[SteveG3]

I generally agree with your thesis, but I'll give you a twist on it: even if both of the criticisms raised by others are correct, it still gives Tesla a bigger moat. Think about the implications of passing the tipping point for demand for electric cars.

I think Tony Seba may be right about all new cars being electric by 2025. Not because there's enough supply to meet demand -- oh no! But because anyone who is sitting on an ICE car will put off buying a new car, hanging on to their old car for a few extra years, rather than buying a new ICE car which they don't really want and which will become instantly worthless.

If you notice, this scenario ends up being even more positive for Tesla. The profits for the ICE incumbents crash before the electric car market is saturated, making it harder for them to convert over, and Tesla continues to be production-constrained and able to charge premium prices during this period.

The ICE car companies may manage to sell new ICE cars by discounting them deeply but that just eats into their profits and gives them less cash to transition with.

There is also a definite possibility of a shrinking car market, due to various things, including people moving downtown and taking the subway. But how does this play out? Fewer people buy cars, but the same number buy electric cars: it plays out as a drop in demand for ICE cars. Because ICE cars are the inferior substitute which you get only if you can't afford an electric car. Again, positive for Tesla, negative for any ICE car company which hasn't managed to ramp up their electric car production already.

yes, neroden, that still plays out very well for Tesla.

in that thread I linked to in the first post (in point 5c), many different variables with the potential to inflate and shrink the global vehicle market were discussed, but not the one we've discussed about people just sitting on their old ICEs until a long range EV they can afford is available.

you also reminded me of another critical ingredient that makes the FTPM likely unprecedented that I forgot to slip into that first post. long range EVs would not be the first product to have demand outstripping supply... but not for very long! the profit maximizing way of handling this is to raise prices until the supply and demand are balanced. Elon being mission oriented changes that. He wants to accelerate the advent of sustainable energy and transportation, not raise prices to leverage profits from a product flying off the shelves.

 

[renim]

>SteveG3

If you go outside of the home markets, (USA for Tesla, Japan for Mitsubishi) you will find the Outlander Phev outsells the Tesla by a fairly decent multiple, perhaps 3:1 ratio. An extreme example would be the UK, were the Phev outsold the S by perhaps 10:1 EV Sales: UK

why is this relevant for electrification?

1st) Mitsubishi (and Tesla) are the 2 companies that first brought an EV to market, they are both the archetype pioneers. pick any country in the world and the first modern EV is either the roadster or the iMiev. The series run of the iMiev is probably greater than 10x the Roadster (point is, Mitsubishi was authentic in trying to promote EVs), but Mitsubishi PHEV program is far far more successful than their EV program.

2nd)Tesla model 3 will be a big leap forward, but so will be Mitsubishi next gen PHEVs, there is more room for development in the PHEV than the fairly mature EV tech. In particular the transition from 4cyl to 3cyl will be very natural for PHEVs. as is the increased power density of batteries (in addition to increase energy density), so the nature of battery technological progression is kinder to PHEVs than EVs

3rd) consumer choice, this is still a very young transition, but there is a parallel transition happening, that is from sedans/hatchs to SUV/CUV. Sedans and hatch are natural for electrification, but SUV/CUV are natural for PHEVication.

no way will Mitsubishi and Tesla be X-shopped, but the legacy manufacturers will assimilate lessons from both Mitsubishi and Tesla, A good example will is Volvo, Volvo's Future Electric Plans: 3-Cylinder PHEV In 2018, All-Electric Offerings With 100 kWh Battery In 2019

long term EVs will go to 100% market share, but in my country that won't happen until EVs can honestly do 1000kms on a single charge.(Syd to Bris, Syd to Mel) etc many cites are about 1000 km apart here. once cars get autonomous, people will want the 1000 km range. So there will be room for both versions of plugins for a long time.

 

[neroden]

I still believe a Supercharger network will be quite sufficient and very few will demand to travel with zero stops.

1000 km is only about 600 miles -- about the same as Ithaca, NY to Chicago.

 

[EinSV]

@SteveG3,

This is an incredibly thoughtful and insightful post. I generally agree with your overall thesis, although I think the timeline in which this all plays out may be accelerated by quite a bit. Here are a few reasons why:

• I believe Tesla is on a path to produce a much higher volume of vehicles in 2025 than 3M -- probably more like 6-10M, if not more if serious BEV competition does not enter the arena
  • Assuming 1M vehicles in 2020 and a 50% annual growth rate thereafter results in 7.6M vehicles in 2025
    • Assuming no meaningful competition for the reasons you discuss, 50% growth rate is likely too low (it will be much higher between now and 2020 in all likelihood and I see no reason why it would slow down as the technological advantages of BEVs over ICE continue to grow)
    • Since these vehicles are likely to be sold in the most profitable markets (high-end sedans/SUVs and pickups), this will put a tremendous amount of pressure on the incumbents who play in those markets
  • BEVs are at the beginning of their life cycle and undergoing very rapid innovation. So the advantages of BEVs over ICE that you outline are likely to become a gaping chasm by 2020 and certainly by 2025
  • I think Gigafactories will produce more battery packs and drive trains (and possibly cars) at much lower cost than people expect
    • In estimating the number of GFs and capital required to transition from ICE to BEV there is a tendency to use the current cost and capacity, but:
    • Tesla's first Gigafactory is slated to have triple the capacity that was originally forecast just a couple years ago -- a massive increase in production efficiency and capacity in a very short period of time.
    • It seems highly improbable that after such massive improvement, progress in GF production efficiency will be frozen in its tracks. To the contrary, given that only one GF has ever even been partially built, I would expect continued rapid innovation and improved production efficiency, resulting in higher capacities and lower costs.
    • Elon realized that the key to Tesla's future is to become the best manufacturing company on the planet, and Tesla will be investing enormous resources in improving the "machine that builds the machine."
    • Elon has said that manufacturing expertise will provide Tesla's main competitive advantage for the next 10 years. This is another element of the moat.
• In addition, BEV's significant cost and other advantages for autonomous vehicles may force the hand of traditional manufacturers sooner rather than later. Autonomy is coming, and it will be very hard to compete selling ICE vehicles.
• If the legacy automakers continue to stall, Elon is not one to sit around patiently and allow a slow transition.
  • As you note, Tesla already has technological superiority by most measures. Once costs drop and fast charging is in place (2-3 years) BEVs will be technologically superior across the board, and the only barrier will be capital.
  • I don't think Elon will allow capital to be a barrier for very long. If needed, Tesla will not have any trouble attracting large amounts of capital, and it should also be able to internally generate tons of cash flow that can be invested in future GFs.

Bottom line: I think your analysis is excellent. For the reasons outlined above, however, the timeline for the transition may turn out to be faster than you propose, with the same basic outcome.

Thanks again for putting this together. Very interesting to think about.

 

[RobStark]

>SteveG3

If you go outside of the home markets, (USA for Tesla, Japan for Mitsubishi) you will find the Outlander Phev outsells the Tesla by a fairly decent multiple, perhaps 3:1 ratio. An extreme example would be the UK, were the Phev outsold the S by perhaps 10:1 EV Sales: UK

.

This is more a function of the size of the home market. And the price of the vehicles that determine the addressable market.

USA 17.5M full size cars whereas Japan has 3M full size cars( plus 2M kei cars).

In reality Model S outsells Outlander PHEV 2 to 1.

In Switzerland Model S outsells Outlander PHEV 6 to 1.

 

[renim]

This is more a function of the size of the home market. And the price of the vehicles that determine the addressable market.....

sigh, the point I'm trying to make is that to compare technology, its good to strip away home ground effects,
so, lets compare Tesla EVs to Mitsubishi PHEVs in europe

2016 Outlander 21,318
2016 Tesla S/X 16,229
+2016 Mercedes 350e 10,125
+2016 VW GTEs 23,235

2015 Outlander 31,340
2015 Tesla S 16,455
+2015 Mercedes 350e 5,069
+2015 VW GTEs 21,968

2014 Outlander 19,980
2014 Tesla S 9,493
+2014 Mercedes 350e na
+2014 VW GTEs 534

2013 Outlander 8,440
2013 Tesla S 3,906
+2013 Mercedes 350e na
+2013 VW GTEs na

OK, so Mitsubishi PHEV outsold the Tesla S/X by about 2:1 instead of 3:1, the point remains, PHEVs are a viable proposition which will be very amendable to technological progression (more so than pure EVs for the next 1-2 decades) both with grow until combined the market is 100%.

In europe, Mitsubishi is ceding market share to other PHEVs, but the segment is still growing healthily. Other manufacturers are more willing to compete with Mitsubishi, after all, if Mitsubishi makes it, it must be profitable for a car company. Mitsubishi motors can't afford halo cars anymore.

In europe's reality, Mitsubishi PHEV outsold Tesla S/X by about 2:1
that is a statement of pricing and technology, not of branding

 

[RobStark]

sigh, the point I'm trying to make is that to compare technology, its good to strip away home ground effects,

Sigh, you are taking a 17.5M unit market away from Tesla and 3M market away from Mitsubishi to make these comparisons.

Japan represents about 20% of the Outlander PHEVs sold in the world.

USA represents about 58% of Model S sales around the world.

 

[ecarfan]

@SteveG3 thanks for your post. You have made a very important point about the ICE companies lacking the initiative to invest in their version of the GF, but I think you neglected the possibility that they could find willing partners to assist them, just as Tesla has used Panasonic to help make GF1 a reality (Tesla could not afford to build GF1 without Panasonic). If an ICE company CEO decided to go into EVs in a big way I think they could find a battery partner to assist them.

There is another issue I don't see in your analysis: auto consumer mindset. Last night I was talking to a friend of mine who is a Ph.D. chemist working for a high tech company here in Silicon Valley. Very smart guy. We started talking about Teslas (of course . He said he is "thinking" about getting an EV a few years from now but is still unsure about their long term reliability and just generally seemed uncertain about their viability. The Model S has been in volume production for over 4 years and he has such concerns? I explained the Tesla drivetrain warranty, talked about my EV experiences, the Supercharger network, the coming Model 3, etc., but he's still not sure.

I have had many similar conversations with equally smart people over the past few years. A small percentage "get it", but many do not. And this is in a part of the country where you see a Tesla on the road very few minutes! (No exaggeration) It is hard for many people to shift from the ICE mindset and the auto manufacturers know that. They are counting on it. And they are right. Change will be gradual. Most people have never heard of Tesla, or think it is just a whiz bang toy for rich people. Younger people are generally more receptive to change and I see kids get more excited about a Tesla than their parents. It is going to take a generation to fundamentally change the average auto consumer mindset.

 

[neroden]

I have had many similar conversations with equally smart people over the past few years. A small percentage "get it", but many do not. And this is in a part of the country where you see a Tesla on the road very few minutes! (No exaggeration) It is hard for many people to shift from the ICE mindset and the auto manufacturers know that. They are counting on it. And they are right. Change will be gradual. Most people have never heard of Tesla, or think it is just a whiz bang toy for rich people. Younger people are generally more receptive to change and I see kids get more excited about a Tesla than their parents. It is going to take a generation to fundamentally change the average auto consumer mindset.

You're right about this. However, I think this is largely going to be a matter of market penetration. 300 million people in the US -- when we get to 30 million electric cars on the road, everyone will know several people with electric cars and this silly mindset will evaporate. Might happen as soon as 15 million electric cars on the road.

 

[JRP3]

OK, so Mitsubishi PHEV outsold the Tesla S/X by about 2:1

You should know better than to simply compare sales volumes without even mentioning the price differential. The Outlander starts at less than half the price of the S/X, the fact that it only sold at about 2:1 volume doesn't suggest a sales advantage at all.

 

[dakh]

Batteries are not static, they improve. At some point if they're say 50% better than state of the art now (and we know it'll happen), Tesla's advantage will start to erode. Everything else is fairly easy to build. Tesla's biggest advantage at that point is probably going to be the alien dreadnought factory not the batteries or design.

That's not to say GM's and WV's aren't going to effectively die off and/or become design and marketing companies like Apple. Their moat now is in making ICE's and they won't have anything left but brand and dealer network once electric cars become stupid easy to make (and we know it'll happen).

The real question is what are the time horizons of the erosion of battery production advantage. Seems to be at least 10 years but that's if no fundamental breakthrough comes along.

 

[neroden]

The real question is what are the time horizons of the erosion of battery production advantage. Seems to be at least 10 years but that's if no fundamental breakthrough comes along.

I think it takes 5 years *minimum* to commercialize and mass produce any breakthrough, so call it a minimum of 5 years.

 

[RobStark]

I think it takes 5 years *minimum* to commercialize and mass produce any breakthrough, so call it a minimum of 5 years.

I think a startup BEV maker might be willing to take the risk of going from breakthrough to installing in cars within five years.

Legacy automakers will want to do 10 years of testing. Liability, loss of reputation etc is too great to take the chance.

 

[jbcarioca]

It is surpassing strange for me to find myself defending traditional motor vehicle builders, but here goes:


1. Most fo this thread is very Tesla-centric in thought. No surprise, we all are, considering where we are posting, but Tesla is not even the builder of teh largest number of BEV's, BYD is. Thus;
2. One the the most influential factors in BEV adoption is governmental policies because both infrastructure build and direct incentives are crucial factors in reaching a pitting point, so;
3. Allowing BEV's to avoid congestion charges/restrictions in Shanghai, Beijing, London etc can be more influential that financial incentives and;
4. Major investments in charging infrastructure (local/regional/national/supranational) are happening in many areas of the world. These will drive adoption of BEV everywhere those networks appear;
5. Today a wide array of BEV's are already being built and deployed. A few examples:
5.1 municipal busses- today they are economical and practical and are appearing in many places around the world;
5.2 urban personal mobility- from many sources hourly rentals are appearing in many cities worldwide. Mostly the cars are Chinese;
5.3 urban commercial vehicles- in Europe and many parts of Asia urban delivery vans and utility vehicles are spawning rapidly. Check out the variety only from Renault.
5.4 Daimler-Benz have already begun converting a major German engine plant to production of electric motors, they are developing a wide array of BEV's at every level of their range;
5.5 Supercars, Ferrari, McLaren, Porsche all have hybrids now and BEV's on the way. If they can do it, the halo effect will be tangible;
5.6 Hyundai. Seriously folks, when Hyundai makes a commitment toi series production of BEV's the train has already left the station. They are superb at adopting trends just as they are growing most quickly, but they never, ever position themselves as first movers.
5.7 Don't forget EU emissions rules. BMW, DB, VW group aren't moving because of the US, they're moving because of home market forces. The NA markets are well behind Europe/China in the move to BEV.

I do not argue that Tesla is behind, far from it. I do argue that the vision Elon described a few years ago is happening. We will have massive market shifts to BEV's beginning in 2020 and thereafter, and Tesla will benefit, but with rapidly shrinking market share, by definition. I think the opportunity for Tesla is outstanding, primarily because their education role will rapidly diminish. The major advantages Tesla will continue to have stem from:
1. the architecture based on computer science;
2. the factories based on "the machine building the machine";
3. The lead in mobile energy storage;
4. the integration of stationary and mobile energy storage production;
5. Their lead in inverters, BMS and other technical aspects of BEV deployment;
6. The huge established database of real world semi-autonomous vehicle operation.

All those things make me long Tesla. They do not make me think Tesla will end out as a threat to Toyota and GM as the #1 global motor vehicle producer by numbers. Tesla will not reach 5,000,000 vehicles per annum anytime soon. They might well be the most profitable and might well be the most respected, maybe still with highest owner loyalty. They just will not dominate the world. They will have materially changed the world and provided a major impetus to advancing sustainable transportation.

These are my views and I'm sticking with them.

Added predictions: Much of GM will disappear. PSA, even with electric Opel will not survive independently, FiatChrysler will fail. Others will quickly fall during the next decade, but most of the brand names will survive. For reference: think BMC.

 

[RobStark]

but Tesla is not even the builder of teh largest number of BEV's, BYD is.

1) By the admission of the Chinese government, Chinese "new energy vehicle" statistics are unreliable. Virtually all BYD unit sales are in China and evidently are not very confident they have a competitive enough vehicle to enter Western markets, the Buses not withstanding.

2) Tesla is getting ready to attack the upper half of the mass market and therefore just starting to ramp up. BYD is already there.

 

[jbcarioca]

1) By the admission of the Chinese government, Chinese "new energy vehicle" statistics are unreliable. Virtually all BYD unit sales are in China and evidently are not very confident they have a competitive enough vehicle to enter Western markets, the Buses not withstanding.

2) Tesla is getting ready to attack the upper half of the mass market and therefore just starting to ramp up. BYD is already there.

BYD sales are in a number of non-Chinese markets. The E6 is the primary model so far for export, but spec's vary by market
BYD e6 Review (2017) | Autocar
I have driven one for a few hours and find it to be adequate but uninspiring. Autocar tested a different version than the one I drove, which clearly has improved a bit. I do not argue that BYD is a Tesla competitor. I do argue that they're improving rapidly. BTW, the recent panning of some false claims by some of the plethora of Chinese builders did not include BYD. Obviously their sales are mostly in China but they are investing globally. It would be a major error to ignore them because of their present weaknesses.

I am probably predisposed to think the learning curve for BYD and others will be very steep. After all, my first trip to China was in 1978. Seeing all that has happened since then makes me very, very cautious about the risk of underestimating that learning curve.

 

[jhm]

I don't view scaling up to 10 TWh of annual battery production capacity by 2030 as insurmountable. If we suppose that capacity doubles every 2 years through the 2020s, the we need 312.5 GWh capacity in 2020 to reach 10,000 GWh in 2030. So is 312.5 GWh out of reach in 2020? Well, Tesla should have nearly half of that and LG Chem could come close to matching Tesla. Plus many others.

We have several key markets beyond auto EVs which are simulating this. Electic buses have captured about 20% of the new bus market in China and look to hit 90% by 2020. BYD is big in this segment (buses have 325 kWh packs) and anticipate all EVs doubling annually for the next three years.

Second market is for grid batteries which is poised for explosive growth over the next few years.

So buses, grids, and perhaps other heavy vehicles look to grow rapidly in the near term and need quite substantial battery supplies. What is more helpful is that these batteries will be cycled heavily. Some buses get over 2 full cycles per day. So this will really stress test the heck out of these competing batteries, which will help mature the technology rapidly. Additionally, eBuses are challenging charging infrastructure, motivating a lot of innovation and testing. Advances here support opening up markets for all sorts of commercial and municipal fleet operations.

As for the $1T price tag on 10 TWh of Gigafactory capacity, this is peanuts compared with what the oil industry spends just to maintain the supply of oil. For example, the exploration cost to replace barrels of reserve lost to production is about $10/b or $350B per year. Thus in 3 years the oil industry spends more that $1T just looking for new places to drill. Building out 10TWh by 2030 pretty much means the oil industry never needs to look for reserve replacements again. Indeed it is a bad investment to do so. So channeling just a portion of what would have been investedited in oil to battery capacity and mining for battery precursors will be sufficient and prudent. Oil producing countries like Saudi Arabia and the UAE are quite eager to diversify their economies and hedge their dependency on oil exports. Pouring a fraction of their sovereign wealth into Gigafactories would give them a critical hedge against the disruption that most threatens their oil based economies. In short, as EVs of all sorts prove their potential to threaten oil, capital will rapidly flow into building up the battery supply chain. $1T is peanuts in comparison to the scale of what is being replaced.

Finally, this analysis shows just how insightful the view of Gigafactory as product is. The ultimate size of the market for Gigafactories is 13,000 to 20,000 GWh. If Tesla can build and replicate the best damn Gigafactories anywhere in the world, then Tesla stands to earn alot of the investment dollars flowing into this space. This is comparable to engineering companies that build power plants. For example about 6 GW of new gas peaker plants are built out each year, so there are a group of companies that compete to build out these plants as a product. So let's go back to the idea that GF capacity doubles every 2 years next decade. So in 2021-22, another 312.5 GWh of capacity must be produced. Buyers will stream into the Gigafactory 1 to see what Tesla can package. From these tours deals are made to replicate this all over the world. This is why Tesla wants to be absolute leading edge on this.

So the moat is not that others will struggle to build out battery supply. The moat is that Tesla will have the leading edge solution to build out the supply across the industry. Operating a Gigafactory is a commodity business, but designing and engineering Gigafactories is not.

 

[gavine]

>SteveG3

1st) Mitsubishi (and Tesla) are the 2 companies that first brought an EV to market, they are both the archetype pioneers. pick any country in the world and the first modern EV is either the roadster or the iMiev. The series run of the iMiev is probably greater than 10x the Roadster (point is, Mitsubishi was authentic in trying to promote EVs), but Mitsubishi PHEV program is far far more successful than their EV program.

2nd)Tesla model 3 will be a big leap forward, but so will be Mitsubishi next gen PHEVs, there is more room for development in the PHEV than the fairly mature EV tech. In particular the transition from 4cyl to 3cyl will be very natural for PHEVs. as is the increased power density of batteries (in addition to increase energy density), so the nature of battery technological progression is kinder to PHEVs than EVs

PHEVs make sense when batteries are expensive. It allows manufacturers to keep the cost of the car relatively low (smaller battery) while still giving adequate range to the vehicle. Once batteries get cheap-enough, the concept of PHEVs becomes less and less relevant.

Also, it is widely mentioned that PHEV owners graduate to BEVs once they understand.

So, I think PHEVs will be a dying breed as batteries continue to improve and get cheaper. I would venture to presume that the Bolt will outsell the Volt.....