Part 2: Why Tesla, Specifically?
All EV makers are not the same.
Pretty much every automaker produces at least one electric vehicle. They need to - not just for PR reasons, but because it gains them access or discounts in various markets, due to ZEV regulations. But there's a difference between "making an electric vehicle" and "making a serious attempt to actually switch to EVs".
Traditional automakers are
heavily invested in ICE technology. Their existing platforms are all designed around ICEs. They usually make their own engines. Indeed, these two things are the vast majority of what a traditional automaker actually owns; they outsource most of the parts that can be used in either EVs or ICEs to other suppliers. If they undercut ICEs, they devalue their billions upon billions of investments; it would ruin them. It's in their best interests to slow down the EV conversion as long as possible, so that their existing facilities can depreciate on their own and go through their normal cycle lives.
Enter the "compliance car".
Making an EV profitable is very different from simply making an EV. A manufacturer could make EVs that cost them half a million dollars each to build, sell them for $15k, and so long as the volumes are low, justify that via the PR or ZEV benefits they get for those vehicles. That doesn't make them actually "$15k cars". Manufacturers limit sales by making only small volumes available. This is achieved in various ways - for example, "
long waiting lists that don't diminish because production increases are kept slow", "
We're going to pretend that it's actually available in your market although we're not actually sending many/any", or even just "
Look, we're not even going to pretend; it's only going for sale in ZEV states where we need to move them." Oftentimes dealers are left uneducated about EVs and with financial incentive to drive EV buyers to ICE vehicles. Ads for EVs are often minimal or counterproductive or market-selective. And often the vehicles themselves are designed to only appeal to a narrow subset of buyers, such as by lacking range or true fast charging.
This is not Tesla.
Tesla, as a company, lives or dies on EVs. It has no ICE infrastructure. It
must profit healthily on EVs, and its EVs must be appealing, made widely availalble, and marketed by people who are not just going to try to push people to ICEs. And this shows. As you can see in their most recent Q3, Tesla earns over 20% margins (and growing) on its automotive business, well en route to 25+% (many automakers are happy to get 10-15%). Shorts will (rightfully) point out that this is misleading because Tesla has to pay for stores, while other automakers pass such costs off to dealerships. But this is only a small portion of Tesla's expenses. Tesla is now profitable - having a free cash flow of nearly a billion dollars last quarter - and now has the resources to direct money into pretty much whatever it sees fit. These resources will only continue to grow. Model 3 margins are far from maxed out. Q3 Model 3 volumes can double at minimal cost (no new lines) at Fremont, to an average of 7k per week on the limiting lines, and 10k per week on the non-limiting lines (the output of which can be used to speed up the start of new factories in China and Europe).
Do people actually want Teslas? Um... let's let this speak for itself:
10 Nasty Tesla Model 3 Charts | CleanTechnica
Note how obscenely Tesla is crushing its competition. This is not a coincidence.
They make great cars. Not simply fast and long range, but with a vastly superior (years ahead) charging network (one that actually enables realistic roadtrips, unlike the barely-visible "competition"), OTA updates, etc. Tesla leads every year in consumer satisfaction surveys, over 90%, versus an industry average closer to 2/3ds.
Shorts inevitably launch into the "Meh, demand will dry up soon!" argument. But of course, it's the same nonsense argument they make every time. The reality is:
- Tesla is far from selling its cheapest version yet (independent teardowns suggest that the $35k Model 3 will cost $28k to make once production volumes hit their peak). Market size grows vastly as prices drop
- Tesla is only selling to a fraction of its global market (US + Canada)
- Tesla is not yet offering leases - the way that most people buy cars
- Stores are currently spread far and wide, as Tesla has had no need to push the vehicles more
- Much of the world remains entirely untouched by Tesla.
- Tesla does not advertise at all
- Most people prefer not to buy cars in their first model year or two
- Word of mouth spreads exponentially over time as the number on the roads grows.
Even the main thing that they hold against Tesla - the notion that the US (note: just the US) tax credit will start expiring for them isn't certain.
The best way you can tell how serious an automaker is about EVs, vs. just being hype, is their secured battery capacity. As batteries are everything to EVs. Gigafactory alone makes half of the world's total battery supply.
And that fraction is growing. Add in the Panasonic 18650s that are exclusively made for Tesla and they have 60% of the world's total supply. How can you take the "competition hypothesis" seriously when one company so utterly dominates the market?
While the shorts have been out screaming "Tesla has been burning money", Tesla has been investing that money in tech and infrastructure. And it's payed off in a several year advantage over its next closest competitors. Check out the teardowns of the Model 3s; people seeing how they tick for the first time have been describing them like encountering tech from another planet. Nobody is even close. Now we keep seeing automakers targeting "where Tesla is today" with vehicles that will be out "several years from now". Except Tesla is not, and never will, just rest on its laurels; this show is only getting started. Unlike other automakers, Tesla does not pay a dividend, and will not until it's basically "taken over the world". This lets them redirect all of their profits into tech and growth.
