jhm
Well-Known Member
What you have illustrated here is a learning curve, price drops x% every time production doubles. This can be true of both the price to customers and the cost to producers. But what primarily drives the retail price down is competition or the threat of competition. Indeed one basic learning curve strategy is for a dominant producer to keep cutting prices so as to prevent other producers from gaining market share. So it is unnecessary to assume that competition comes as follow on to price declines as you suggest above. Rather just note that the steepness of price decline are in fact a product of this competition. What is really critical for Tesla as a market leader here is to continue to push down costs through both innovation and scale. To fail to scale with this emerging industry would be to cede leadership and fall behind on the learning necessary to drive down costs. A key advantage that Tesla has is that it will have broad exposure to the battery market in automotive, commercial vehicle, utility scale storage and home battery segments. They have exposure not just as the battery maker, but as the maker and marketer of final products. This positions Tesla to be an optimal learner on the learning curve. They've got scale (Gigafactories) plus depth (many products in many segments). Thus, the value of TE to Tesla is not merely the profit contribution that TE makes, but the scale and depth of learning that TE participates in.
For example, suppose as Tesla is doing basic R&D into cells or pack designs, they discover something that is particularly applicable to TE but not TM. Well, they have exposure to TE and so can exploit the value of that learn. Suppose they learn something else that advance Semis but not so much TE or autos. Well, through the TS segment they can capitalize on that learning too. But sometimes they'll get lucky and discover things that improves batteries or cuts cost across all segments. Again they are positioned to harness that learning. So scale and depth of learning interact to optimize the value of that learning. I believe this why Tesla wants to be in all these segments. It will keep them at the front edge wherever that may be happening.
Of course, this is a grand race. Other competitors will try to run in this race as well, and we can never be sure that Tesla will not be overtaken some day. But as investors the best we can do is try to put our money on the horses that are most likely to lead the race. My view is that Tesla at this moment is one of the best positioned companies to lead along battery learning curve. If not, I'd like to hear specific recommendations about which company might be better positioned.
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