Why Tesla is going to dominate for the next 5yrs

[Boatguy]

Forget the autopilot, fancy doors, and whizzy features. Tesla is going to crush the competition for a mass market EV because they have built the infrastructure.

The i3, Leaf, etc. are great cars and I plan to lease another i3 when my 2014 BEV lease expires. It's a fantastic car for our local trips. With the current 80 mile range we're pretty happy, and with the projected 120 miles in 2017 it more than meets our local driving requirements when we fully charge at home each evening. With most owners averaging 12,000 miles / yr, it's obvious that very few people have a daily drive of more than 120 miles. Even driving 12,000/yr just on weekdays only produces an average of 46 miles / day.

The whole point of a longer range EV, like the Bolt or Model 3 is for longer trips. This is where BMW, Mercedes, GM, Nissan etc. have been asleep at the wheel. They are all waiting for someone else to build the infrastructure. They have been long on announcements and pilots, but very short on installations; they don't even agree on a charger standard. Just compare a Plugshare map of CCS chargers with the same map showing Tesla Superchargers. It's virtually impossible to drive long distance if you are dependent on a CCS charger. It's probably possible to get from LA to Seattle, but try Miami to New York. And forget about going east/west because there are essentially no CCS chargers for about 2,000 miles. The only way a Chevrolet Bolt is getting from Detroit to San Francisco is on a train or truck.

Then notice that most of those CCS dots on the map are a single charger, sometimes 2, never 12 or 16. And CCS chargers usually top out at 50kW, while the Tesla Superchargers are 120kW.

Mainstream cars can be driven across the country (or across Europe). Nobody except Tesla has the infrastructure to offer a car buyer a vehicle that that can confidently be driven between between essentially arbitrary locations in the US. Certainly there are some limitations, but if Tesla follows through on their pronouncement to double the number of Superchargers in the next two years (and their past performance suggests they can), those limitations are fading very fast.

The Bolt, Leaf, etc. are more likely to find success in Europe, where distances are shorter. As someone else wrote "200 years is a short time in Europe, 200 miles is a short distance in the US".

In the telecom business it's the "last mile" that is always the problem, because back hoes don't scale like semiconductors. It's the same thing with EV infrastructure. You can't roll out 10,000 CCS chargers with a press release. There are locations to find, permits to request, trenches to be dug, utility agreements to be purchased, etc. etc.

It's counter intuitive, but having a common charging standard has left them all waiting for someone else to build the chargers because GM doesn't want to build chargers for Toyota or BMW. Without the infrastructure, all the great engineering from BMW, Mercedes, Toyota, etc. will be confined to local driving.

The Model S outsold the A7/8, BMW 6/7, Mercedes S, etc. in 2015. The Model 3 will eat into the A4, 3-series, E/C class, etc. Those 250,000 Model 3 deposits represent an awful lot of owners who will not be buying a mid-range model from BMW, Lexus, Mercedes et al in 2016 and 2017.

Companies have life cycles and I believe we are watching an inflection point that begins the decline of the companies that dominated our conversation for the last 30yrs.

 

[psquare]

I think you are making some very valid points in terms of the significance of the Model 3. The model appears to have cut through.

Appears! There are obviously many other points to consider.

1. how many of those current 250,000 deposits will really go forward with their order?
2. 250,000 vehciles is still a drop in the ocean of production figures for the likes of BMW, MB, Audi, Ford, VW, Nissan etc
3. When will the customer with deposit 250,000 receive his/her car? Production starts late 2017, early deliveries won't be before Spring 2018. Vehicle 250,000 will probably be delivered by late 2018. That's over two and a half years from now.
4. How easily can Tesla adapt to produce on such a scale and with the correct amount of quality? One little safety or security quirk and many preorders are dashed and then what?
5. How will the marketplace look like by late 2017, early 2018? Leaf and i3 will have longer ranges as today, The Bolt will be out and available for about 6-8 months at that point. And PHEVs will have had an even bigger impact on EV sales. Government grants might have further come down.
6. What percentage of these deposits are net new Tesla customers? I wouldn't be surprised if 50% of preorders are Model S owners, who are looking into buying a second car or downsizing from an expensive lease or purchase. At face value, this might not be such an important point, but if their overall aim is to persuade net new customers to buy a Tesla, then that would show that they have not quite cut through and remain a nichey car maker.

But: The genius thing about the Tesla Model 3 Kickstarter campaign (that's what it is) is that they are potentially diverting customer interest and budget towards their model. Potential EV buyers are now locked in and happy to wait for their car, while other announcements about EVs are just noise.

Personally, a 200 mi EV is still not cutting it for me, as I can travel 150 in my i3 REx. I'm happy to wait for the next big i3 revamp and/or an i5 with REx. The latter could mean a 200 mi range EV 5 seater with REx, which would offer us great flexibility. Let's not forget, even a supercharger network means you can't travel straight from A to B for 500 miles. It might still mean you have to make a detour to get to the supercharger and top up.

Anyway - it's an exciting time and with a bit of patience (2 years, maybe more) we will see Model 3s on our streets.

 

[PhilH]

The other issue is to check the profitablity of Tesla. Huge losses. Elon Musk may be able to afford it, but it's not sustainable.

 

[Sparky]

I also think you may be underestimating the big guns that have been observing tesla for past few years. Mercedes, BMW, and Audi/VW are no strangers to electric automobiles. I'm sure they have a tesla3 ready to compete in the 2-3 year window it will take tesla to ship.
Mercedes, in fact, has just servered their relationship with tesla so they can compete in the future. Most of the swtchcraft and electronics Ina tesla model s came oem fro Mercedes. The technology in a tesla is trivial compared to the immense investment and scale required for volume auto production. The big boys already have that.

 

[jadnashuanh]

I think that there are about 115,000 gasoline stations (and probably over a million pumps) scattered around the USA, available in most any small town, and sometimes in between. It will be a VERY long time before the electric infrastructure will allow the freedom of travel, regardless of the size of the battery pack in a vehicle. The amount of hydrogen pumping stations is probably less than 100 for the entire USA, so that's not viable, either. Consider that a lot of the hydrogen is generated by stripping the carbons off of natural gas verses cracking water, and the pollution and energy required to create it (even if it is a huge supply) is not 'free' and pollution free. In the short term, the next decade or so, a series hybrid like the i3 with REx is still probably the wisest bet. Get a big enough battery, and the size of the engine isn't as big an issue. The CCS standard does allow higher curret levels, but a quality DC power supply is not cheap. Even the superchargers take a convenience hit...it still takes probably at least 10x longer to recharge or more than to fill up a fuel tank. Some people are willing to wait for that on a trip, lots more probably are not.

 

[I33t]

I've been a fan of Tesla since inception, but I have also have had concerns about the design and plans for the vehicles.

The first Tesla was a Lotus body with a Tesla drivetrain. Good Styling and effective electric drivetrain for what was clearly an experimental retail electric vehicle. Very expensive for what it was.

Then the Model S with a better package and a more reasonable price. Unique styling following the design cachet of the recent Jaguar sedans. A big car with long range but just about the lowest EV efficiency.

Followed by the Model X. Similar package and efficiency. Styling follows the S.

Now the Model 3. We don't know if it will be significantly more efficient that the Model S. Construction is mostly steel with some aluminium. It has seating for 5 adults and looks to have good legroom for all of them. Boot looks like a cubby hole, styling is at best bland compared to previous iterations. The good part is the price which raises the bar for all EV manufacturers. $US35k for a 200+ mile range and 5 adult seats.

When all is said and done, look at the cars on the road, their daily commute distances and the number of passengers. Do we really need a still substantial car with 5 seats and 200 mile range when most cars on the road are travelling way less than 100 miles per day with only one or two occupants. I think Tesla needs to make an even smaller car if they are genuine about the planet and sustainability.

It will be interesting to see how this plays out when deliveries begin. What will BMW, Nissan etc have on the market by then for the 2018 model year?

 

[Boatguy]

It takes about 10min to fill the tank at a gas station, it takes 30min to top a Tesla Model S up to 80% and about 200mi of range. Probably 20min for a Model E with a smaller battery to yield 175mi range. My wife can't go more than 3hrs without a stop, she's range limited!

Profit and loss is irrelevant in startups, it's all about cash flow.

Everyone is sidestepping the point of the original post which is infrastructure. If BMW et al had a mid-range, 200+ mile vehicle to launch in 18 months, which other than GM they don't, there would still be no place to charge it if you dared to leave the west coast or the NE (Europe is a separate issue as I mentioned in my original post). A Tesla can be driven quite widely with the existing Supercharger network (even better when you add the destination chargers).

Regarding factory capacity, read the stock analyst's reports in Bloomberg: http://www.bloomberg.com/news/articles/2016-03-14/wall-street-tours-the-tesla-factory-and-loves-what-it-sees

If you review "S" curves of companies, you'll see that they don't die because the customers all went away, it's because new companies take their growth and capture their most profitable products, leaving them with high volume, low margin products. They stagnate and slowly fade. Tesla has already done this to the others most profitable product lines (see http://cleantechnica.com/2016/01/15/1-large-luxury-car-in-us-tesla-model-s-2015-sales-comparison/).

Now the Model 3 is going to eat into their mid-range luxury models. BMW sold fewer 3-series (94,527) in than it did in 2012, 2013 or 2014. Audi had their worst year of sales for the A4 (29,013) since 2002. I predict they will have a worse year in 2016 because a bunch of their potential customers just put a deposit on a Model 3.

I'm not a Tesla shareholder, I don't have a horse in this race. I love my i3 did not put a deposit on the Model 3 (though you owe it to yourself to watch the videos,they broke some new ground for 4 door vehicle design). These are just my observations.

 

[jadnashuanh]

FWIW, I can go over 500-miles on my ICE on a trip on one tank, and at least on that vehicle, takes far less than 10-minutes to refuel it! If I want to stop for some other reason, I often can still get moving again in less than 10-minutes, and don't have to stop at certain prescribed locations...I can stop anywhere it is convenient. I do like my i3, and use it for local travel...reserving my ICE for longer distances. If a vehicle comes out that can serve both purposes with the same convenience, I will consider trading both for a new, single vehicle, but I've not found one yet that qualifies for my needs. Maybe the i5, hard to say, since nobody in the public actually knows what or when it will arrive and its capabilities. Tesla is not it.

 

[I33t]

It takes about 10min to fill the tank at a gas station, it takes 30min to top a Tesla Model S up to 80% and about 200mi of range. Probably 20min for a Model E with a smaller battery to yield 175mi range. My wife can't go more than 3hrs without a stop, she's range limited!

Stuck in the fossil fuel world?

It takes one minute to charge my electric car. When I fill a fossil fuel car, I have to stand by it holding the pipe. On an electric car, you just plug it in and walk away.

Unless the fossil fuel station is on your route, you have to break your commute, navigate to the station, maybe queue up, fill up the car, go and pay, get back in the car and renavigate to your chosen route. All to feed the fossil fuel empire.

The vast majority of US commuters would be just fine with a limited range electric vehicle. It's hype that prevents them from changing.

http://www.statisticbrain.com/commute-statistics/

Also supported here: http://www.prb.org/Publications/Articles/2014/us-commuting.aspx

A very small percentage need a greater range than the i3 or similar. Why build a long range electric car that covers 10% of the population and sell it to the 90% who really don't need it? Aren't we trying to be more sustainable and use less of the planet's resources?

 

[jadnashuanh]

95% of my driving is done with my i3...but, even if I had chosen the REx, it would not make the somewhat infrequent, but still regular 400+ one-way trips I take without severe inconvenience. Certainly, I could probably rent something, and I'd sort of like to use the train, but their schedule is horrible for my needs and limited to one opportunity per day unless I want to take a four-hour detour to NYC to get where I want. There are fuel stations along my route, typically I-90, so I do not have to exit and search for a fueling station. At least for now, there are NO EVSE or CCS units (or superchargers) on that road, so I'd have to stop and interrupt my trip for that. None near where I'm typically going, so would be limited to an overnight charge...not very conducive to spur of the moment outings...sorry, I have to wait 10-hours for my car to recharge!

Something a little bigger than the i3 with a larger generator would be able to let me be all electric most of the time, but still have the flexibility of just getting in and driving, should I want. Doesn't exist in a form I want, yet.

 

[Stevei3]

Hi guys,

firstly: I have always lauded Tesla for making the electric car desirable. What they did right was pioneering new technology in a market sector where money is less of an issue. Much like Mercedes is always introducing new features in the S class, trickling down the range over the years. Good strategic planning.
Now, it will be very interesting to see if they can keep up the relatively expensive support structure (service (above average so I hear) and supercharger network) as well as building a car of adequate quality for the ‘commodity market sector’.

I seriously hope they are around long enough to reap what they have sowed. The model 3 seems to be a nice concept, bar a few excenticities, but its parent is still bleeding money at a serious rate. ~ 1.2 billion a year, with 1.2 billion in cash, do the math. I'm sure they'll be looking to source more money on the wave of >275k pre-orders soon.
They claim that they are the underdog here because they have to spend so much on R&D, but if you get the figures out, Tesla spends ‘only’ 700 mil/year, where BMW and Mercedes easily spend more than 5 billion a year. The i3 alone did cost ~3b to develop. Even when adding a 1b gigafactory, Tesla only needs to reap in less than half the R&D revenue of BMW, if you catch my drift.

Exiting times though. With or without Tesla in the future: I really hope that Elons master plan of scaring the auto-establishment into making good electric cars that people actually want works out!

FYI: I’ve dug up an interesting article in ‘The Daily Beast’ about the more worrying aspects of Tesla’s future, sourcing of raw materials for the gigafactory included: http://www.thedailybeast.com/articles/2016/03/31/tesla-s-model-3-could-destroy-elon-musk-s-company.html

Regards, Steven

PS: English is not my native language. No offence of any kind is intended. And please, do correct me if I’m wrong!

 

[TomMoloughney]

I think that there are about 115,000 gasoline stations (and probably over a million pumps) scattered around the USA, available in most any small town, and sometimes in between. It will be a VERY long time before the electric infrastructure will allow the freedom of travel, regardless of the size of the battery pack in a vehicle. The amount of hydrogen pumping stations is probably less than 100 for the entire USA, so that's not viable, either. Consider that a lot of the hydrogen is generated by stripping the carbons off of natural gas verses cracking water, and the pollution and energy required to create it (even if it is a huge supply) is not 'free' and pollution free. In the short term, the next decade or so, a series hybrid like the i3 with REx is still probably the wisest bet. Get a big enough battery, and the size of the engine isn't as big an issue. The CCS standard does allow higher curret levels, but a quality DC power supply is not cheap. Even the superchargers take a convenience hit...it still takes probably at least 10x longer to recharge or more than to fill up a fuel tank. Some people are willing to wait for that on a trip, lots more probably are not.

Yes, less than 100 - way less in fact. There are currently 23 Hydrogen fueling stations in the US and 20 of them are in California!

 

[Boatguy]

There is no question that Tesla is going to need some cash, either through a secondary stock sale, or borrowing. But BMW has $47B of debt on $92B of annual sales, and took on an additional $5B of debt last year, while consuming $1.6B of cash. Tesla has only $633M of debt on $4B of sales, so they can do a lot of borrowing before they are as proportionately indebted as BMW.

If we're talking about finances, let's look at the difference in the business model between BMW, Mercedes et al who sell through dealers, versus Tesla that sell direct. Two things jump out.

1) Tesla has no finished goods inventory. Every other manufacturer has cars spread all over the planet which they hope someone will buy. Inevitably the manufacturer offers rebates or some other promotional tool to move the inventory since they can never perfectly match production to demand. Tesla builds to order. There is no cost incurred with finished goods inventory sitting on a dock, on a ship or in a storage facility waiting to be purchased. No inventory cost means less interest expense on short term debt and less drag on gross margins.

2) Tesla keeps the profit that others give to the dealers. Let's assume that Tesla can operate a store at the same cost as Auto Nation or Penske, while in reality it is probably far cheaper since the Tesla store has no inventory and takes much less real estate with fewer employees. But let's assume it still costs them the same as AN and PAG to operate a store.

BMW's gross margin is 18%. Auto Nation and Penske have gross margins of about 15%.

BMW builds a car for $100 and sells it for $118 to a dealer. The dealer then sells it to you and I for $139.

Tesla keeps more than twice as much of the purchase price as other manufacturers, or uses it to sell the product at lower price.

In the long run, Tesla has a significant financial advantage by building to order and selling direct.

 

[psquare]

In the long run, Tesla has a significant financial advantage by building to order and selling direct.

I used to think the same, but as manufacturing ramps up, producing to order will become tougher, as they have to even out fluctuations in demand. Not everyone wants to order a car and then wait 6 months. Especially in the US there is a large part of customers who expect to turn up at a dealer and literally drive away with a new motor 2-3h later. Also, I'm not telling you anything new by saying that car making is not a high-margin business.

As far as dealerships are concerned, I think Tesla's centralistic model will have to give at some point, because you want the company to focus on the core (design and car manufacturing). I know Apple is an over-used comparison when it comes to Tesla, but even they have started to outsource some of their servicing and sales to partners and franchisees. I took my broken Macbook into a London Apple Store the other day for a warranty repair and was directed to a little non-Apple workshop partner about 10 min walk from the store.

The key point is that the Model 3 won't be hitting anyone's front drive until at least spring 2018, maybe even later in 2018/early 2019. The market will look very different then.

 

[Stevei3]

But BMW has $47B of debt [...] Tesla has only $633M of debt

Hi Boatguy, thanks for the info. I'm not a financial buff, so I've got some trouble wrapping my head around it, and it's a little off-topic perhaps, but isn't it so that Tesla has ~2.5b debt and BMW ~85b, if the numbers of the Financial Times are anything to go by ? Is this real debt or just 'book-keeping' ?
Debt/equity seems to be on par for both firms though, around 2.2-2.5

Regards, Steven

 

[Schnort]

turn up at a dealer and literally drive away with a new motor 2-3h later.

I wish. I've never gotten out of a dealership in under 3 hours, even when we've totally agreed upon everything and I tell them "I want to come in, sign the papers, and walk out".

Somehow it still takes forever.

 

[kzod]

You guys are missing the point. For most people it's not about the most efficient car. If that was the case the i3 would be sprouting like prius's all over the place. What Tesla has done is build a great car first and foremost. It has unprecedented range and a great supercharging network to back it up. In other words you can have it all with a Tesla. No more gas stations and no range anxiety. You can take a long'ish trip with limited inconvenience.

I really like the i3, but the real world range was just a little too low for comfort. And I hated the idea of buying a REX and carrying around 600 lbs of a gas engine that would rarely be used. Obviously the new i3 should help with those issues. I'm discouraged from buying new since the resale is so bad already and I expect resale values to drop much more when the next generation of BEV's come out. Would buy a used one if I could find one at a fair price (I'm in Toronto, and very few come up yet.) The few used ones that I see are priced close to what I could buy a new one for after all rebates and discounts. So, with that in mind I stood in line to pre-order the Model 3. Might still grab an i3 if I found the right opportunity.

 

[OWG]

I too plunked down a deposit on the Model 3. I am still leaning to the i3 due to the Rex though. I like the range of the Tesla and they do back that up with the Supercharger network, but the Rex is just a smart option when you need the added range in a pinch. I am thinking not of cross country trips, but the periodic 400km days that do happen. I put the deposit on the Tesla in the event BMW do something stupid with the price of the 2017 model. I am looking forward to hopefully picking up a 2017 i3 REX in Aug/Sept/Oct time frame.

Something I read recently regarding Tesla stood out. The comment was made that they treat their cars more like devices. The article stated that you could buy a 2012 Mercedes and in 2015 it would still be a 2012 Mercedes. But...you could buy a 2012 Model S and in 2015 it has all of the features and tech (that the 2012 hardware can support) as the latest 2015 models. They are constantly innovating, developing new functionality, and pushing those changes out to the cars while they charge at night. Where they can support a hardware upgrade to older models, they offer it. Hardware upgrades are not cheap, but they are an option. These aren't difficult things to deliver, but it takes a certain mindset within the organization, and i find it refreshing to see. It is also one of the things I love about Apple, their support for older devices for as long as they possibly can.

No matter what, I hope Tesla are supremely successful. Their success will drive adoption, promote competition; it will only be good for all advocates of a sustainable future.

 

[jadnashuanh]

FWIW, while BMW doesn't do s/w updates that readily on their other cars, at least so far on the i3, they have offered s/w updates and, as far as I know, there are no differences in features on a 2014 model verses 2016, assuming the hardware is compatible. There was an initial issue about unlocking the charge plug on the earlier production models, but they figured a way around that with the existing hardware on the next update. One big difference between Tesla and BMW is how the s/w updates are applied. Tesla does the vast majority (all?) of them OTA, while BMW requires a trip to the dealer, so they tend to get bundled into larger sets verses the (?) incremental ones that Tesla does. I think I'd rather know an update was applied, rather than it showing up.

It really depends on where you live and drive whether the TEsla Supercharger network is useful to you...in my case, it's not...maybe coming, but then, I don't really like the look of the vehicle, either.

 

[OWG]

I have read through these forums about the BMW updates, agreed, they are doing a fairly good job with somewhat regular updates. They seem to be all fixes though, correct? No new functionality? Personally, I tend to slot the dealer somewhere between dentist and bank...would prefer not to visit unless I absolutely have to. I really hope BMW move to a remote update process, at least for those that have the connectivity in the car. Users could still be prompted to apply the update and review the list of changes coming, I just don't see why customers need to bring a car to a dealer just so that they can connect a cable to load the update, especially with the i dealers being few and far between.