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Why Tesla could become the Microsoft of the auto industry

Discussion in 'TSLA Investor Discussions' started by vin5xxx, Jan 15, 2014.

  1. vin5xxx

    vin5xxx Member

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    I posted this in the TM forums as well under my other screen name:

    Microsoft got into the computing business so early that they were able to establish their operating system as the de facto OS for all PC’s. As a result, they command very large profits to this day. Tesla has a similar opportunity with battery electric vehicles. Their drivetrain is so far ahead of everyone else’s. I think it’s possible that they will maintain their technological lead in batteries for a very long time. If so, it’s conceivable that the other automakers will have to license Tesla’s technology for their own cars in order to compete. Also, Tesla’s supercharging network has a chance to become the de facto fast-charge network for long distance travel. Setting the standard by which others may need to adopt their technology.


    Let’s start by agreeing that a BEV drivetrain is the best drivetrain design available for a car. The skateboard design by Tesla yields so many advantages over ICE platforms and even more so over hybrid drivetrains. The drivetrain makes the Model S:


    - * The safest car on the road – front crumple zone, solid battery pack chassis does not crumple on side-impact crashes

    - * Lowest maintenance needs of any car – 1,000 fewer moving parts = no oil changes, filters or belts to replace. Brake pads last twice as long due to regenerative braking

    - * Cheapest to operate – electricity is far cheaper than gasoline

    - * Most spacious sedan money can buy – front and rear trunks, 7 passengers

    - * Most aerodynamic car in production – no front grill, smooth underbody

    - * Superior handling characteristics – low center of gravity, torsional rigidity

    - * Better driving experience - instant torque, no shifting and quieter ride. Battery pack is a shield under the cabin deflecting road noise


    Eventually the world will wake up and realize these advantages and thus consumers will demand skateboard BEV drivetrains. The other automakers will be able to put a battery in the chassis and emulate most of these characteristics in their cars. However, I would argue that they may not be able to match Tesla’s range and cost for the batteries and possibly not the efficiencies of the electric motor/AC inductor.


    Battery pack cost is measured as cost per kilo-watt hour or $/kWh. Tesla executives and Tesla’s investor presentation state that their $/kWh is about 1/3 of their competitors. That is a major difference. Given how slow battery advancement happens it would take the rest of the industry a very long time to catch Tesla. The reason for this is that their competitors use purpose-built lithium ion batteries that are built from scratch at very expensive costs. Tesla instead uses a commodity battery. It’s the 18650 lithium ion battery that is used mainly for laptop computers. Billions of these batteries are made every year. They are very cheap. Tesla uses up to 7,000 of them in each Model S battery pack. Further, Tesla has spent over 10 years refining the 18650 battery to make it more efficient and cheaper for use in a battery pack for an electric vehicle. And Tesla has patented the changes they have made to the 18650. They have also taken out defensive patents on designs that were good but not quite as good as their final solutions. So Tesla’s competitors are years behind in $/kWh. Tesla is likely to keep its battery technology lead because it’s the main focus of the company. Additionally, Tesla is collecting data from all of its cars on the road to enhance their performance and this data is proprietary.


    This leads to the main point of my argument: The other automakers can copy the 18650 skateboard design but they won’t be nearly as efficient as the Tesla. It’s my belief that they will likely be forced to license Tesla’s designs for use in their own cars in order to match Tesla’s performance. This will happen because consumers will not buy their cars if they can’t match Tesla’s range and cost. The scenario could play out as follows:


    Currently both Mercedes Benz and Toyota buy battery packs and electric motors from Tesla to put into their own electric cars. However, this is done in small production numbers. The success of the Tesla Gen III car dubbed the Model E will drive someone to sell a car that can compete with Tesla. The Model E should be in production in 2017. It will have a range of over 200 miles and will start in the $35,000 range. It will have all of the superior attributes of the skateboard chassis. My guess is Mercedes, who owns 5% of Tesla’s outstanding shares, will be the first automaker to design a mass market car using Tesla’s 18650 battery packs. BMW will be forced to offer a competing product but due to their higher $/kWh their car will have less range or cost more than the Mercedes/Tesla. The BMW will fail miserably. If the Mercedes/Tesla vehicle can go 250 miles for $35k and the BMW can only go 150 miles (just a random guess) for $35k then who is going to buy the BMW? They will eventually have to emulate Mercedes and purchase Tesla’s battery designs for use in their own BEV’s. These cars will prove to be wildly successful and eventually they will have to use Tesla’s drivetrain for their entire line-up of cars. This process will occur with the Japanese and U.S. automakers as well. 1 manufacturer will start with 1 car while their competitors scoff and then offer an inferior product. They will eventually come around and expand the Tesla drivetrain to their entire lineup. This could possibly happen within 5 years of the Model E introduction.


    Another supporting point is the Tesla Supercharger network. In 2018 if someone wants to sell a car to compete with Tesla they will need a Supercharger network. Will they have the technology for Supercharging? Will they create their own network? I don’t believe that is likely. First of all it will take them a few years to actually build it out. Secondly the best locations will already be taken by Tesla. So it’s likely they pay Tesla so that their customers can charge at the Tesla station.


    What about battery supply? Let’s say a carmaker figures out how to match Tesla’s $/kWh using 18650 batteries. In 2018 they decide to start selling a Tesla competitor. Where are they going to get the batteries? Elon Musk has already stated that the number of batteries needed to supply the Model E far exceeds the current global production of 18650 batteries. So they will need to build a giga-factory like Tesla to supply their own production. Yet another barrier to entry.


    So how big is the auto market? In 2012 80 million new cars were sold worldwide. Let’s imagine that Tesla could get Microsoft-like market share of 90% of all new autos sold. I’m pulling a number out of the air but let’s say average sales price for a Tesla drivetrain is $10,000 and let’s say it has 20% margin. That equates to $720 billion in revenue and $144 billion in profit. Wow! That doesn’t include Supercharger revenue or revenue from selling their own cars. Even if Tesla only gets 50% market share the numbers are still out of this world.


    For those of you who believe the other auto makers can match Tesla’s battery prowess, consider where they are now. Mercedes has been working on BEV’s for quite a while. This year they begin selling the SLS EV. It’s a BEV version of their top-of-the-line SLS super car. It only has a range of 120 miles and it will cost $550,000. The regular gas powered SLS sells for $200,000! That’s right, the BEV version of the same car is $350,000 more expensive and will only go 120 miles on a full charge. This is the state of Mercedes’ current battery technology. BMW has spent a billion dollars developing their new electric cars and all they could come up with is the i3 and the i8. These cars have very limited range of about 100 miles. The rest of the world is so far behind Tesla and Tesla is making improvements every year. I believe they will keep their lead for 10 years or more. If so, almost every car sold will have Tesla inside.
     
  2. MikeL

    MikeL some guy

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    Very interesting. The wild card in the EV takeover timeline is public mass awareness/acceptance. The tipping point could come sooner, could be later. Tesla is positioned to lead, no doubt. This is why I can't believe so many people want to compare Tesla to GM or Ford in 2013. I mean, they make cars, right? They SHOULD be comparing Tesla to Ford in 1908 !! Poised to change the world. ML
     
  3. TSLA Siempre

    TSLA Siempre Member

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    tesla poised to change the world, yes, but have microsoft level market share? i'm not so sure. would love to be proven wrong. they would have to produce *several* giga-factories to get that market share.

    agree that giga-factory is a barrier to entry, but if car makers (finally) realize that EV's are the future, they have the resources to build one i would think. tesla would have the most advanced expertise in building a giga-factory which is a nice advantage and could probably use that to their benefit.
     
  4. austinEV

    austinEV Active Member

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    It isn't that other car companies couldn't copy the 18650 skateboard model; they could. They just *won't*. They don't want to design an ev from the ground up. They want to leverage their existing capital and designs, and convert an existing car into an EV.
     
  5. AMPd

    AMPd Active Member

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    I dont know if other car companies are going to allow Tesla to gain such a huge market share.
    Like austinEV points out its not that they CANT create a great EV, its that they dont WANT to, not at this time at least. But once they see that Tesla is taking a significant market share away from them they will finally crack open those piggy banks and create an alternative ev to the Tesla EVs.
    Of course by then Tesla will be miles ahead with the supercharger network and its own battery plant among other things that might be coming in the future, but still im sure other automakers will bring some competitive EVs to the market, creating more options like with have today with ICE cars.
     
  6. peet365

    peet365 Member

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    It is almost funny but it probably will be exactly as Elon said - they want to accelerate adoption of EVs and he also said it will be probably by 5 years. In 10 years batteries will be so capable that it will make sense for all car producers to get into EV business. But if Tesla succeeds with III generation in 3-4 years, all of them will have to wake up and will have to put the highest priority to EV. Until now they were acting like - shows us what your battery can do for our car and we will let you know if it is enough. Now they will have to look at it the same way as Tesla did - let see what is available on the market today and what will be available within 2-3 years and lets think together how to build best EV we can make. I am sure that big guys will find a way around Tesla´s patents, but by the time they will be able to compete with Tesla head to head, Tesla might be bigger than BMW.
    It looks like 50kWh is minimum for compelling EV. It will be hard to get bellow 5000 USD for that battery pack in next 8-10 years, which makes it hard to compete in the low end of the market. So ICE cars are here to stay for at least 10-15. I don´t think Tesla will have anything close to 90% share of the market but if in 10 years their cars and drivetrains will be in 5% of all new cars it would be incredible success and sure it would speed up adoption of EVs.
     
  7. uselesslogin

    uselesslogin Enthusiast

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    Yes and no. Electric motors are cheaper to manufacture and they have simpler single-speed transmissions. Also, at least right now, you can save that much in gas alone over the life of the car. That being said I would expect that by the end of the 20s we will only be seeing electric cars as the majority of *new* cars being produced so the old gas cars will still be running around even into the 40s. I think at that point the mass adoption of EVs will cause gas/oil prices to plummet so old gas cars will still be economical for some.
     
  8. DriverOne

    DriverOne Member

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    The claim that other companies won't build their own network because "the best locations will already be taken by Tesla" is tenuous. There are millions of great locations for chargers, as can be seen by the number of gas stations.
     
  9. Robert.Boston

    Robert.Boston Model S VIN P01536

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    What will finally kill the ICE is the closure of gas stations. With fewer people buying gasoline, the distribution channels will start drying up.

    That said, I suspect that it will be a long time before EVs completely displace gas/diesel. The US and Canada have vast chunks of geography, lightly populated, where people routinely drive very long distances. The high energy density of gasoline/diesel fuel will not be surpassed by batteries in my lifetime. (If only we could get the batteries out of the light sabers....)

    Of course, not every personal computer runs Windows or has Microsoft software on it. EVs don't have to completely displace gasoline in order to become the dominant technology. The title of "Top EV Company" is Tesla's to lose.

    One important thing to consider: What sets BMW/Audi/Daimler/etc. apart from their competitors is, first and foremost, their motor/drivetrain technologies. For example, Audi's Quattro system revolutionized AWD systems and remains the best system (at least until we have Tesla's). What scares the bejeesus out these companies is that their key differentiating technology is what is under assault. Anyone can make a pretty car with gorgeous interiors (Exhibit A: Fisker Motors).
     
  10. stopcrazypp

    stopcrazypp Well-Known Member

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    I don't think that's the reason, it's more that:
    1) Tesla has patents on this
    2) Most automakers prefer to use a larger format cell with more stable chemistry
    3) They are banking on the costs of such larger format cells to drop to below the cost of building 18650 modules.
     
  11. vin5xxx

    vin5xxx Member

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    @ MikeL - your analogy that Tesla's p/e should be compared to Ford's in 1908 (Model T introduction) is brilliant! I couldn't agree more.

    @austinEV - I don't think the big automakers are anti-EV, I just think they never figured out how to make it profitable and so therefore shunned it. At the end of the day, they just want to make money. Now that Tesla is showing them how to make money with EV they will follow very quickly. Consumer demand for a better car will force them into the BEV world.

    I agree that a 90% market share seems outlandish. But it is possible if they continue to have the best technology. Even if they get 50% market share that would be a major conquest like nothing the automotive industry has ever seen.
     
  12. kenliles

    kenliles Active Member

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    I agree that's a great analogy. You can add to that though this 'Ford' will be making a portion of the 'fuel' (storage systems and gigafactory) and the fueling station network (SC and home). I think these and the technological (software control etc) make the multiple even higher than the old Ford, but regardless that's a much better analogy - great point MikeL!
     
  13. rage_777

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    This is the part I disagree with. That's like saying if a Mercedes E class cost $35k and can go 30mpg and a BMW 330 cost $35k and gets 25mpg, who would buy the BMW. But we all know that is not the whole equation. Some people just like BMW or some like the styling of the Mercedes. There is more to car buying than just dollars and distance. If the BMW can hold 7 passengers and the Mercedes one can only hold 4 (cough cough Volt), then I am going with the BMW because I have more than 4 people in my family.
     
  14. ecarfan

    ecarfan Well-Known Member

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    Yes but I think with EVs the range capability is a major influence on the purchase decision. Not the only influence of course but certainly a major one.
     
  15. Discoducky

    Discoducky Active Member

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    Microsoft did take a few years to dominate. Let's give Tesla at least 5 with Model E which lines up pretty well with the 100 year anniversary of Ford's Model T




    windows market share historical.PNG


    http://en.wikipedia.org/wiki/Ford_Model_T#Mass_production
     
  16. Robert.Boston

    Robert.Boston Model S VIN P01536

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    Key question: is Tesla going to follow the Microsoft curve or the Commodore 64 pattern? There's a big difference between making a successful product and launching a successful company.
     
  17. vin5xxx

    vin5xxx Member

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    @ kenliles: Great follow-on point! Extra streams of revenue that Ford did not have.

    @ ecarfan: I agree with you. Range is one of the biggest obstacles to BEV ownership. If the BMW has markedly less range and no Supercharger access then that is a big deal.

    @Robert.Boston: Microsoft. Elon's track record is too strong to bet against.
     
  18. SebastianR

    SebastianR Member

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    #18 SebastianR, Jan 16, 2014
    Last edited: Jan 17, 2014
    Agree. In some ways, however, I think that the Supercharger network will be a bit like iTunes: at first it's just a tool to use the product (I remember the time when people didn't use an iPod since it was much easier to just pop a CD into a discman - so Apple had to find a way to make sure that the shiny iPod was usable).
    Then the "sync tool" turned into a multi-billion USD business. If Tesla has a Supercharger network on every continent and keeps investing in it at the current rate, I don't see any other company even getting close for a while: Just like for iTunes, that used to be a thing to 'tolerate', as you wanted that iPod, the supercharger network right now is required to do long-mile trips. In a little while, however it just might turn into the reason people buy a Tesla car - just like I have many friends who stick with Apple since they have all their Apps & content there.
     
  19. IMBigg

    IMBigg Member

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    As a Tesla shareholder and soon to be MS owner (delivery scheduled for February), I'm long on Tesla. While I do agree that the Big Three have tons of resources compared to Tesla, their strength is also their weakness. I compare them to Blackberry. At one point Blackberry dominated the smartphone market. The iPhone came along and they poo-pooed it. Could be that they were too dense to see the future. Just as likely is that they saw the iPhone as a threat but were making so much money selling their Blackberries that they were afraid to make any major changes. After all, if they came out with a revolutionary new product to compete with the iPhone they risk alienating their large user base. Instead of trying to win by beating Apple, they were waiting for Apple to fail. The same thing is happening in the auto industry. Everyone is waiting for Tesla to become the next Fisker. By the time they come around to making decent EV's, Tesla will have left them in the dust.
     
  20. SebastianR

    SebastianR Member

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    In many ways I agree with that analysis. However, I also want to point out that just like Google in the case of Apple, Samsung (and possibly other big players) could develop to be a serious competition to Tesla.

    So maybe we in this forum are also way too focused on the "traditional" competition when we should watch out for Tata, Hyundai & Co. Frankly, I don't see the big three or the Germans do anything relevant in the coming years.
     

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