The Fractured Tipping Point Moat

[DaveT]

I'll add a twist to the discussion here. What if Tesla is able to achieve some kind of energy storage breakthrough... or a significant advantage in battery (or storage) technology? In this case, the whole game changes. Competing auto makers would no longer just need to invest capital to making battery factories, they need those battery factories to somehow compete in technology with a superior technology that they can't keep up with. Sounds like a losing proposition.

Now this all depends on the assumption that it's possible to create a significant advantage/moat in battery technology and maintain it. If that's possible and Tesla is able to do it (by spending billions of dollars from M3/MY gross profit into energy storage R&D), then it's no longer just a decision by auto makers to spend capital into building battery factories but since they wouldn't have the technology to compete then they would need to partner with a company that has that tech (like Tesla or a company that would compete w/Tesla in terms of battery tech).

Add into this mix, the ambition of Tesla to become the world's best manufacturer, which if Tesla achieves will lead to an increasingly difficult business arena for legacy auto makers to compete with.

 

[MitchJi]

I'll add a twist to the discussion here. What if Tesla is able to achieve some kind of energy storage breakthrough... or a significant advantage in battery (or storage) technology? In this case, the whole game changes. Competing auto makers would no longer just need to invest capital to making battery factories, they need those battery factories to somehow compete in technology with a superior technology that they can't keep up with. Sounds like a losing proposition.

Highly speculative! Might be impossible and it's unlikely if that happens that Tesla develops it. I do believe that if anyone develops superior technology that it's highly likely that Tesla jumps on it first.

Add into this mix, the ambition of Tesla to become the world's best manufacturer, which if Tesla achieves will lead to an increasingly difficult business arena for legacy auto makers to compete with.

Recently Elon said that the two biggest advantages that Tesla has are in the next two years autonomy and over the next 5-10 years alien dreadnaught production.

Nobody is really counting either of those two things that much. Autonomy will be a huge catalyst when the improved software starts rolling out.

And I believe that alien dreadnaught is a slam dunk to be huge (Elon said several times he is very confident) and once again nobody is giving it much credit. When I posted that this is going to be a huge advantage for Tesla I was ridiculed. And I got a similar reaction when I posted that they don't need Grohmann to do that. Saying that they need Grohmann is like saying that Frank Loyd Wright needed a particular builder to be successful. Nobody else is even talking about doing that. This will eventually have a huge impact on the SP. It might not sink in partially until we,get reports of M3's rolling off the line every 20-30 seconds. It probably won't sink in fuller until they ramp production to a car every five seconds. I'd love to hear what they believe that they will ultimately do with the MS-MX production rate!

Panasonic are world class experts in battery cell production and Tesla-Elon figured out how to triple their production in the same building size. Elon said that when they are producing five times the output as their competitors using the same size building that's not even competition!

It's possible that one of the best things that ever happened to Tesla is the botched MX ramp which led to Elon sleeping on the production line which led to his Production Epiphany.

IMO Tesla's main moat is Elon Musk. Elon's Production Epiphany by itself is a huge breakthrough. IMO his importance to Tesla is similar to Lebron James's importance to the Cleveland Cavaliers.

 

[kenliles]

And I believe that alien dreadnaught is a slam dunk to be huge

IMO Tesla's main moat is Elon Musk.

Two Thumbs Up on these

 

[Bangor Bob]

ANY discussion of vehicle sales volumes past 2025-ish has to consider what Level 5 autonomy and ride sharing is going to do to vehicle sales.

It isn't going to be pretty for the old-line automakers, and it probably won't be good for Tesla's vehicle division either.

 

[GoTslaGo]

I keep thinking about the Factory to make the Factory (Alien Dreadnought). If he succeeds with it I suspect it may change this narrative around:

Apple, America and a Squeezed Middle Class

Quote:

“Apple’s an example of why it’s so hard to create middle-class jobs in the U.S. now,” said Jared Bernstein, who until last year was an economic adviser to the White House.

“If it’s the pinnacle of capitalism, we should be worried.”

Apple executives say that going overseas, at this point, is their only option. One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight.

A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.

“The speed and flexibility is breathtaking,” the executive said. “There’s no American plant that can match that.”

End quote.

Please note this is an older article (2012 and it was a meeting with Obama), but I still remember a video of Jobs talking about this, and the awe he had about this experience was palpable in his description.

 

[SebastianR]

Hi all, great discussion and great thinking. I would like to add a few more thoughts regarding the FTPM:

- Not too long ago a drop of only about 15% (? anyone has the good source for this - I only found all kinds of less known articles claiming number around that figure) caused the big three serious issues with GM and Chrysler going bust.

- China will be mandating aggressive electrification quotas as of 2018.

If you add electrification, car sharing, and most importantly autonomous driving to the mix, I think the picture of the group of friends standing on top of the cliff being worried about jumping should be amended by "afraid of jumping with a whole horde of hungry wolfs chasing up to them".

The point of this thread is the market position of Tesla vs. the rest of the car industry. And here I see massive risks for the car industry. With or without Tesla, the car industry is not in a good shape. Yes, the market overall is still expanding but the writing of disruption is on the wall. And similar to the oil industry - which is trying to enjoy the party while it lasts - I see the car industry milk every dollar and then suddenly contract quite a bit in the developed world. I expect electric cars, autonomous cars + ride sharing to wreck havoc. There are enough cars on the plant to make 50% of the yearly new car purchases "optional". And if sentiment swings, only a 15% drop might be enough to send a few car makers into bankruptcy - especially if that happens in the higher end of the market.

 

[neroden]

I keep thinking about the Factory to make the Factory (Alien Dreadnought). If he succeeds with it I suspect it may change this narrative around:

Apple, America and a Squeezed Middle Class

Quote:

“Apple’s an example of why it’s so hard to create middle-class jobs in the U.S. now,” said Jared Bernstein, who until last year was an economic adviser to the White House.

“If it’s the pinnacle of capitalism, we should be worried.”

Apple executives say that going overseas, at this point, is their only option. One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight.

A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.

“The speed and flexibility is breathtaking,” the executive said. “There’s no American plant that can match that.”

Well, American companies won't build dormitories any more.

Given Silicon Valley housing prices, I suspect many employees would be quite pleased with dormitory accomodations as part of their pay. But US companies stopped doing that a very long time ago.

 

[Dwdnjck]

Warren Buffett wrote in his annual report published today:

"I’m not aware of any enticing project that in recent years has died for lack of capital. (Call us if you have a candidate.)"

The way I look at it is the world is flush with trillions of dollars of money in search of good investment opportunities. The scarcity isn't the capital, it's the good investment opportunities.

This makes worries about Tesla capital raises much less worrisome.

 

[GoTslaGo]

I keep thinking about the Factory to make the Factory (Alien Dreadnought). If he succeeds with it I suspect it may change this narrative around:

Apple, America and a Squeezed Middle Class

Quote:

“Apple’s an example of why it’s so hard to create middle-class jobs in the U.S. now,” said Jared Bernstein, who until last year was an economic adviser to the White House.

“If it’s the pinnacle of capitalism, we should be worried.”

Apple executives say that going overseas, at this point, is their only option. One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight.

A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.

“The speed and flexibility is breathtaking,” the executive said. “There’s no American plant that can match that.”

End quote.

Please note this is an older article (2012 and it was a meeting with Obama), but I still remember a video of Jobs talking about this, and the awe he had about this experience was palpable in his description.

Sorry if I didn't expand on this example to clarify my point. If Elon succeeds with the Alien Dreadnought Factory with at least 5 x the capacity of current factories, this would imply that there could be excess capacity and potential flexibility of the factory in the future.

If all the capacity is not used to make cars, then theoretically any excess capacity could be rapidly rotated to make other products. Possibly even non-Tesla products.

So if Elon succeeds with redesigning the factory and makes it flexible enough, maybe in the future we could be seeing IPhone 10+s manufactured by Tesla Manufacturing...

 

[GoTslaGo]

Well, American companies won't build dormitories any more.

Given Silicon Valley housing prices, I suspect many employees would be quite pleased with dormitory accomodations as part of their pay. But US companies stopped doing that a very long time ago.

Yes, interesting Wikipedia reference to this:

Company town - Wikipedia

 

[neroden]

This makes worries about Tesla capital raises much less worrisome.

So, subtle point here. There's lots of capital sloshing around, but way too much of it is chasing *very conservative* returns. Unwilling to invest in stuff which requires a paradigm shift, unwilling to take risks on a startup with a different business model (rather than another copycat).

Tesla had this same problem early on -- electric cars were thought to be a pipe dream. But they've passed that valley of death, thanks mostly to Musk's personal funding and the funding he raised in the early rounds. Now they are established enough that there a lot of people who control a lot of capital who consider Tesla "good enough".

I mean, honestly, suppose Tesla decided to raise capital by issuing *preemptive rights* (this is very unlikely nowadays, but it used to be a standard way to issue capital). Every existing stockholder, for each 20 shares they had, would be given a warrant to buy 1 additional share, at $250/share. (They could sell the warrants on the open market if they didn't want to execute them.)

How many existing stockholders would simply pony up and buy the extra shares? I bet nearly everyone who could afford it.
So Tesla will have no trouble raising capital.

 

[renim]

Chart: China Leading the Charge for Lithium-Ion Megafactories


there is much missing from the above, specifically in regards to China and Japan

Just a quick spot test, it totally ignores this months Chinese car Li Ion winner's (BAIC) supplier.
My guess it that this misses about half of China's automotive li ion public plans.
Further, Chinese public plans generally intentionally understate design capacity by about 20%.

As far as Japan, Mitsubishi and Toyota are to my knowledge the only 2 automakers who have actually secured ownership financing of lithium mine production. Their intent is also missing from that graphic.

 

[SteveG3]

@ecarfan you wrote:

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.

Sounds like you agree that we may be seeing, and continuing to see for many years, something of an in effect oligopoly "kicking down the road jumping off of a 50 foot cliff over rocky water" scenario I suggested in parts 2 & 3 of my first post.

You then raise the question of other battery makers playing the role of Panasonic in terms of assistance (funds and expertise I imagine) for incumbent(s) once they actually decide to jump off that cliff.

I only touched on this briefly (at the end of point 4 of the original post), but I agree this is worth looking at in more detail, and keeping an eye on.

Here's a little bit of research I did as to the scale of financial help battery makers may offer. Other than Panasonic, the largest battery makers (not including those in China, a country which I've said I think will be its own essentially self-contained case for at least another 5-10 years, notwithstanding potentially very strong growth within China), are LG Chem and Samsung SDI. If the data I found in my brief google search is reliable, LG Chem has roughly $2.5 billion in cash on hand, with a little bit more debt than that. Samsung as a whole had roughly $60 billion in cash as of two years ago. I didn't readily see any numbers for Samsung SGI cash, and I don't know how freely cash can move within the company to Samsung SGI, or how compelling investing in the battery business would be vs. other aspects of Samsung's business.

Those were the two that stood out to me from this list of "EV battery makers." Samsung potentially could have a material impact in moving things faster, up to ~10% of the cash needed to get to the supply tipping point, half of the total needed battery supply.

I think it's worth noting, that if one or more incumbent automakers comes knocking on Samsung's door because they've decided to jump off "the 50 foot cliff", Samsung is going to size up how likely the potential partner is to hit the rocks rather than the water when determining what if any money they want to contribute to building battery plants with such an automaker.

If anyone has thoughts about any other companies from the list I linked, or otherwise, that may have substantial cash to help in the massive scale up of batteries needed, please chime in.

you continued,

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.

I did give my take on this this briefly at the end of point 1, but there is no magic formula for determining how and when consumer awareness will flourish. I'm curious to hear what everyone else thinks about this.

I basically think the reality of the couple of million more Tesla's on the road by 2020-2022, 10X today's volume, and almost all representing vehicles (3 & Y) Elon thinks half of consumers can afford, will get the dominoes falling regarding consumer awareness.

I'm not a fan of phrases like "the Iphone of cars", but I think by the early 2020s, like the Iphone a decade ago, there is going to be quite widespread buzz that ICE vehicles simply do not compare to a Tesla quality EV. Remember, I picked the early 2020s based on Tesla pretty much matching or beating ICE on every metric in the car shopping equation... I didn't mention it would also save roughly $500 year in fuel costs even if oil prices stay flat. A better vehicle in every metric with a cutting edge tech aura for the same price as an ICE, saving $500/year (and quite possibly the lead in autonomous tech)... I think we'll see some substantial Iphone-like buzz, but again, there's no formula for figuring out how far reaching this will be and I'm wondering what other people here think about this one.

 

[SteveG3]

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.

dakh, not clear how this comment relates to the "50 foot cliff" analogy I suggested in points 2 & 3 of the first post, or the "Moat around the Moat" I described in point 4.

 

[SteveG3]

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.

I agree that China may move very vigorously to EVs (I discussed my take on this some in the last paragraph of point 2 of the first post).

That said, I've not seen evidence of a strong move by Chinese automakers into established markets outside of China. If you've seen something I missed, please get me up to speed.

As to automakers outside China moving to long range EVs, Elon's summation of their efforts, paraphrasing, <quite deflating other than the possible exception of VW with its aspiration of 25% of its vehicles being EVs by 2025>, put the exclamation point on my own observations over the last few years that they are doing near the minimum possible on this front.

 

[dhanson865]

ANY discussion of vehicle sales volumes past 2025-ish has to consider what Level 5 autonomy and ride sharing is going to do to vehicle sales.

It isn't going to be pretty for the old-line automakers, and it probably won't be good for Tesla's vehicle division either.

The replacement cycle is too long to catch TSLA out of step on that. I don't think there is any room for "won't be good" for them until all cars are fully autonomous EVs.

 

[SteveG3]

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.

I agree as to not ignoring BYD. Here's my take again on the Chinese vehicle makers,

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.

 

[jbcarioca]

I agree as to not ignoring BYD. Here's my take again on the Chinese vehicle makers,

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.

If, and only if, several major countries join in an EV mandate due to domestic pressure, we could actually see the 50% or so by 2030. That means in practice that Germany, China and one or two of the other major motor vehicle markets would make such a mandate. Germany just might. China is reacting with alacrity now to accelerate EV adoption in major cities. it could happen. I doubt that it will but it could. I'd add that if the US dismantling of environmental protections has immediate visible deleterious effect (e.g. the return of smog in LA, NYC and other major urban areas) then the US could take action following China, Germany et al. This may not be the most likely outcome but it is very possible.

 

[dakh]

dakh, not clear how this comment relates to the "50 foot cliff" analogy I suggested in points 2 & 3 of the first post, or the "Moat around the Moat" I described in point 4.

Look at it from a more global perspective: if there's money to be made in making EVs, there will be an inflow of capital to make it happen. And if making EVs is more profitable than making ICEVs, it'll happen quickly. We don't need Toyota to pony up the cash. Once it becomes clear that EVs are better than ICEVs, if Toyota isn't looking like it's making good enough progress in that direction, its valuation will go drastically down and capital will flow to whoever has what it takes to grab the market share. Toyota still has valuable core competencies like being able to engineer and make vehicle shells that conform to crash test and other regulations, but the ICE design and production part of their competency goes to zero and capital goes somewhere else.

If batteries are 50% more energy dense with roughly the same raw material input, that would mean cutting the cost of transitioning the world to EVs about in half.

If ride sharing and autonomous driving become mainstream by 2025, we won't need to make as many EVs to begin with.

EVs will last quite a bit longer than cars today so we won't need as many for that reason as well.

Your calculation of 70GFs doesn't take any of these parameters in account. If by 2025 the "alien dreadnought" GF is say 2x more efficient than current GF (which is probably a very conservative estimate), batteries themselves are 2x better, and we only need half the cars produced today due to sharing and improved durability, only single digit count of GF or their equivalent from other players would be enough.

 

[SteveG3]

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.

Yes, the staggering wealth amassed from the oil business is an important consideration of potential future funding for the ramp up of battery supply (discussed more in an earlier reply).

I think you have another helpful point here as well by mentioning the build up of battery capacity for other applications, i.e., energy storage and buses. The fact that a likely booming battery energy storage market would inherently mean there will be large amounts of capital invested and experience developed building massive battery factories will very likely make the ramp up for consumer vehicles easier when the incumbent manufacturers jump into the water. In other words, if there's an energy storage boom in the next several years, an automaker wanting to make a material move to EVs will have more options than Tesla/Panasonic to request GFs worth of battery supply within a few years of the request. That said, depending on how large a gap Tesla does or does not succeed to create in making itself the "world's best manufacturer," other suppliers attractiveness to partner with will vary.

I do agree about those two points JHM, but I still see two very large lags to such a potential ramp up in EVs by the automakers. First, they have to "jump off the 50 foot cliff", that is, they have to decide the time has come to roll the dice on transitioning from selling ICE to selling EVs, quite possibly going bankrupt in the process, rather than milk a few more years of selling ICE profitably while talking about a hydrogen fuel cell future or solid state batteries coming down the road. Beyond a logical calculation of the optimal timing to take the plunge (which is probably not until at least 2025), companies are helmed by people, and jumping off a cliff and long-term thinking is not the most natural choice for career management of public companies rated quarterly by the market. For most automakers I don't think we see meaningful acknowledgement that they are transitioning to BEVs, i.e. plans to build millions per year, and plans to secure battery supply for such numbers until at least 2025. I agree with you that there will likely be more GF building suppliers available than Tesla... but, I find it extremely improbable they are going to build GFs worth of supply on the possibility the incumbents will jump in... rather, I see them waiting until they are approached by such an incumbent that has set its course for EVs.

The second lag? Let's say it's 2025, and Tesla, and possibly one or two other automakers alone have already committed to EVs. Incumbent X is now ready to take the plunge and join in on large scale EV production. If you are Samsung, or some emerging battery producing powerhouse from the oil industry, just how excited are you to partner with Incumbent X when it wants you to pour $20 billion to help it scale up to a few million EVs/year? How many of those incumbents are going to survive the transition? My seat of the pants figure is half. Remember, when they take the plunge, they start the process of destructing their ICE profit making business as they need those very profits to scale up their EV business. They are not completely without any influence on how this winding down happens, but they are far from "in control" of it. As others have mentioned here, when it's clearly game on for EVs, but the supply is not yet there, consumer behavior will change. There will be some shifting to holding onto your ICE longer, or trading your used ICE for a better used ICE. That would of course make for a downdraft in ICE pricing power and sales. The deconstruction of the incumbent ICE business and its profits will not be a very hospitable process. If you are the battery supplier, do you want to drop $20 billion for a potential partner ICE maker that has something like a 50/50 chance of going bankrupt in this transition? There are some mitigating factors to this... if the energy storage boom is still going, you could try to build flexibility to your GF to produce for energy storage if your automaker partner goes bust. If incumbent automaker A and B goes bust, maybe you also have partnerships with automaker C and D, and eventually they'll be ready to soak up that supply... but what if all your automaker partners are among those that go under?

finally, while there is massive wealth in the oil producers pockets, $1 trillion is by no means insurmountable, but, I don't think the term peanuts applies to that figure even for these folks, lols.