1/1/2015
guest Agree with you but I still see GF as very high risk. Risk is not due to threat of new technologies, but due to heavy capital sink. If macroeconomic situation changes, this large investment may become very heavy burden for Tesla.
On the other side, that risk is exactly why I like Tesla so much, not afraid to have a go at beating the odds
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1/1/2015
guest As long as batteries continue to be composed of an annode, a cathode, and electrolyte wrapped in a shiney case, then we will be fine. If at some point someone develops power storage that amounts to something outside of that scope then I might be worried, but as far as I have seen all battery tech revolves around that basic concept since the discovery of the battery.
What you should fear is making batteries obsolete... Since that is the only way Tesla would be negatively impacted... Or potentially someone inventing a new battery and refusing to share with Tesla. These are the only two areas of concern that I might have.�
1/1/2015
guest RE: future battery tech... consider also that the current tech, lithium ion, has been studied and studied, in both manufacture and usage, and at least in the case of Tesla, a great deal of "tricks & traps" have been accumulated and learned about over the years, which is why the Model S/X battery pack is constructed the way it is, and why we see things like "do not charge the battery to full, charge it up to 90% unless you are going on a trip" and so on. There are a myriad of special things that have been learned about lithium ion batteries.
So much is known about lithium ion, that Tesla can offer their 8-year/80% replacement warranty, because they know the batteries are that good.
Any new battery tech that is, in 2014, at the white paper or one-time demonstrator stage, is years away from becoming a serious rival to the current tech.
If some boffin in a university has thought up a cool new chemical arrangement for a battery, the vagaries of mining the elements, setting up the factories, producing the batteries, finding customers (car companies) who are ready to deploy, and learning the equivalent wealth of knowledge (that there is right now about lithium ion) about living with these batteries and how they perform over multiple years, has to start at Square One. it will take years of concerted field research before the equivalent is known about the new tech.
So do not worry about any news item about new battery tech.�
1/1/2015
guest I am looking forward to any new battery tech. Hopefully it comes sooner rather than later and it does not matter that much who and where comes up with some efficiencies in energy storage and retrieval.�
1/1/2015
guest Mods: I am going to take this off topic for a second: Good (but painful) lesson about high risk/reward stock/companies. Many people on this forum, including some well know members, had quite a bit of money instock/options in GTAT. This company makes sapphire glass. It was rumored that it would be used in the new iPhone 6 and other apple products. In the big Apple iPhone 6 release it became clear they were not using GTAT products. The company filed for bankrupcy today causing a lot of financial pain.
Be careful with your investments. Do not put money into high risk/reward stocks that you can not afford to lose. If you go 'all in' on something the risk is that you will be all out.�
1/1/2015
guest Very sorry for the loses, financial pain is as bad as any other pain.
Tesla is one of those, high risk/high reward, imho.�
1/1/2015
guest Doubling times
Some readers may appreciate a tutorial on how to compute doubling times. Doubling times are a handy way to think about dramatic long term growth by understanding how many time volume must double and how long each doubling takes.
Elon Musk anticipates that Tesla will sell 500,000 cars in 2020. Tesla will sell about 35,000 in 2014. So how many times must Tesla double its volume of 35 to get to 500? This is represented by k in the following equation:
500 = 35 * 2[SUP]k
[/SUP]Dividing both sides by 35 and taking logarithms, we get:
log(500/35) = log( 2[SUP]k [/SUP]) = k * log(2)
Solving for k, the number of doublings is
k = log(500/35)/log(2) = 3.8365
Now Musk believes this can be done in 6 years or 72 months. Dividing 72 months by k doublings gives a doubling rate of 18.77 months.
To accomplish this, capacity must double on average nearly every 18 to 19 months. Thus, if 25% of maximum plant capacity is utilized, Tesla has about 37 months bring new plant capacity online or curtail growth. If 50% is currently utilized, Tesla has only 18 months to secure new plant capacity or curtail growth. A basic consequence of such aggressive growth is that at anytime, Tesla must have or be queuing up additional plant capacity that is at least four times its current operating capacity. This is why the Gigafactory is so large and why a second Gigafactory must break ground within 12 to 24 months. Remember 18 months after the first Gigafactory, Tesla needs double the Gigafactory. The scale may seem outrageous compared to current production, but since a plant of this scale takes 4.5 years (3 doubling times) to queue up we need to think about 8 to 16 times current operating scale.
And when will this doubling time let up? Unit sales should reach 500,000 by 2020 and I'd like to see it reach 10,000,000 by 2030. So now you should be able to compute for yourself that in the next decade Tesla must keep doubling every 27.77 months to reach the 10 million mark, roughly 10% market share. The way to look at Tesla's capabilities is not how many cars can it sell, but how quickly can it double and how long will it go on doubling.
Doubling times can help us think more clearly about the growth opportunities and challenges ahead for Tesla. Let me know if you appreciate this tutorial.�
1/1/2015
guest Thank you for this post. I've been trying to think of a way to explain this.
Has anybody here ever worked for a company that doubled in size every 12 - 27 months year after year after year? If you have, you know that chaos reins.
It's what I've been saying for some time. And what Elon has been consistently saying. At TESLIVE 2013 he was asked What is Tesla's biggest risk going forward? His response was "being able to ramp up fast enough." Keeping a company on the tracks when it's doubling every 18 months is crazy hard to do. If it takes 3 - 4.5 years to build a plant, as jhm pointed out, you need to build that plant 8x bigger than your current operating scale! Where do you get capital to build something 8x bigger than current size? How do you hire enough people that fast? How do you build enough service centers? And stores? Superchargers? Will we see some dilution? Yes. It's just a question of how much.
Every time I hear some dumb analyst start talking about demand I just shake my head. The waiting list for M3 will circle the earth twice. Mark my words.�
1/1/2015
guest I would be surprised if Tesla follows the path of doubling as your equation suggest.
My expectation for Tesla capacity growth is:
1. Keep adding incremental capacity to Fremont, until it hits press capacity of 500,000 cars/year. These incremental increases are fast and will not be doubling, more likely to be in the orders of magnitude of current capacity.
2. Few years before Fremont is at full speed, build a new plant or acquire some existing plant. New manufacturing plant can be done in a year, if it is a replica.
Imho capacity growth is more risky as it relates to people hiring rather than equipment capacity.
I was not that lucky to ever be a part of a growing business, but I was on many sinking ships :biggrin: Similar chaos there.
Agree with you that the growth rate is scary. My main concern is about the rate of hiring, it is unbelievable - check Tesla adds. Not sure how that influx of new people is managed.�
1/1/2015
guest The doubling time in an interesting concept, but I am thinking that each double will take much longer than the last to achieve. I am not saying they won't still fully ramp up to 10 million cars at some point, I just think 2030 might be a little too quick to hit 10M cars.
What I will add to this line of thinking for what it is worth, Tesla as a company had about 1,000 employees at the start of Model S production in June 2012. Now a little over 2 years later they are over 10,000 employees strong (can't state how I know that number... sorry). So from an employee standpoint they have doubled a little more than 3 times in the span of just 2 years.
Car production followed a similar jump. We started with 50 a week and are now at 1000 a week which is a little more than 4 doublings in 2 years. However the next doubling 800 to 1600 will likely take 6-8 months by itself, and then 1600 to 3200 will likely take about 1 year or maybe more. So the doubling times are going to take longer and longer on each stretch and this is all still just operating under the roof of Fremont and not taking any other factory builds into account. Getting to 10,000 a week (500k a year) is going to stretch all the way out to 2019 at the earliest (based on Elon's most optimistic timeline). So your doubling rate average stating 18 to 19 months is already calculating in that slide outward without even realizing it. Because going from 1k to 2k will only take about 12 months... 2k to 4k is likely to take a year and a half. 4-8k is likely to take 2 years. And so on.�
1/1/2015
guest There was a video online a few months ago (June?) where someone in the Tesla design department was speaking in LA and said they had over 8,000 employees. Since that time they have taken steps to more than double production at Fremont and announced the Gigafactory. So 10,000 isn't a huge surprise. It would be interesting to see the employee/car ratio compared to other automakers. My gues is eventually they will be lower in manufacturing, higher in R&D, and wayyyyyy higher in sales and service.�
1/1/2015
guest Remember world wide SC stores factory in Europe etc�
1/1/2015
guest Was just covering myself, since I didn't think it had been stated somewhere publicly (like in a video or some such).
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1/1/2015
guest You're absolutely right that the growth rate and doubling times will slow over time. The mathematics of such grow models become more involved. One such model worth knowing about is the logistic growth model. This model assumes that the growth rate is proportional to the untapped potential. So as Tesla realizes it potential, the unrealized potential and hence the growth rate declines. If there is interest I could do a tutorial on logistic growth.�
1/1/2015
guest Senior management is planning on 500k by 2020 and I'd be surprised if they weren't planning on 10M or more by 2030. They have doubled every year since the company was founded. Some years more than doubled. I realize it's harder when you get to the scale they're at now like you pointed out. I suspect management's biggest time sink is spent on planning and managing this ridiculous growth rate. The rate has limits. Management feels those limits will come much quicker than demand limitations (from competition, ICE, etc.). That's why they're not pursuing patent violations. I'll be surprised if they don't reach 10M by 2030.
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I'd be interested in a logistic growth model tutorial. Whenever a journalist asks Elon whether he's worried about competition (it's a frequent question when talking about making drive trains for Toyota and Daimler) Elon just says the market is so big it doesn't matter. I think that's the environment where a logistic growth model would eventually be relevant? It's complicated somewhat by the fact that Tesla may spread into other markets like energy storage.�
1/1/2015
guest Here is an interesting article evaluating the future of grid storage and its present implementation in Germany.
Fossil Fuel Generator Industry Hit Hardest By Energy Storage�
1/1/2015
guest Logistic Growth Model
Given the strong response to my last tutorial on doubling times, I'm happy to offer another tutorial on logistic growth models. The mathematics gets more involved, but I have attached an interesting worksheet to illustrate how these models work. It's not really my intention to propose a realistic model of Tesla's long-term growth, but to illustrate the mathematical modeling choices one might consider toward such an end. Moreover worksheet models can be a wonderful tool to gain insight and to understand the implictions of simple assumptions.
To gain an appreciation for the logistic growth model, we need to review the exponential or geometric growth model and recognize how unrealistic it can be. The basic idea of the exponential model is that growth is always proportional to current size and that rate of growth does not change. So let X(t) represent a quantity that grows exponentially over time. Let dX(t) represent the change in X over a short period of time, dX(t) = X(t+1) - X(t). So we can represent growth as
dX(t) = b*X(t) or equivalently dX/X = b
We note a discrete solution to this is
X(t) = X(0) * (1+b)[SUP]t
[/SUP]
And the continuous solution is
X(t) = X(0) * exp( b*t )
Such a model may be suitable for say the total number of cars sold globally each year. The global growth rate is around, say, 3%. It can vary a bit from year to year and certainly from one reagion to another, but globally over longer stretches of time its pretty reasonable. One reason why it can be reliable is that it is infact a low growth rate and is in line with real growth in the global economy. On the other hand, China has seen double divit growth in its economy and is one of the hottest auto markets. Will this be sustainable for several decades? Or is it possible the China may reach some lev of saturation and the auto market begin to slow down? So the most fundamental problem with the exponential growth model is that the growth rate is assumed to persist indefinitely. This may be reasonable for the global auto market, but it is not realistic for a market or company in unsustainably high growth.
So we turn to the logistic growth model. Here we suppose that X has a maximal growth rate X is really close to zero, but that this rate diminishes as gets closer to its maximal potential. A standard model has X take values from 0 to 1, where 1 represents it full long run magnitude. Specifically,
dX = b*X*(1 - X) or dX/X = b*(1 - X)
So we see that when X is close to 0 this is nearly the exponential model. In the initial phase of growth we see nearly exponential growth. How ever as growth accumulates 1-X becomes an increasingly small number and the growth rate declines. When X = 1/2, then the growth rate is just half of the maximal rate. This is the inflection point. Past this point the rate of growth slows down so quick that the curve begins to level out. This curve is also called an S curve. It starts out flat, curves up, curves down, then levels out.
This standard model has a nice continuous solution, the so-called logistic function:
X(t) = exp( a + b*t )/(1 + exp( a + b*t ))
This is a two parameter model. The parameter b is the maximal growth rate, and a is used to set your initial value, specifically
X(0) = exp(a)/(1+exp(a)) so a = log( X(0)/(1 - X(0) )
So if you know where your starting and the rate of growth in the expontial growth phase, you can readily use this model. Suppose your long run view is that Tesla will max out at 10million cars. It is starting at 35,000 in 2014. So our initial value is 0.0035 assuming t is the number of years past 2014. Also lets suppose the maximum growth rate is 50% per year. So,
a = log( 0.0035/ 0.9965 ) = -5.65
b = 0.50
To determine where this puts us in 2020, t=6, compute
a+bt = -5.65 + 0.5*6 = -2.65
X(6) = exp(-2.65)/(1+exp(-2.65)) = 0.0660
Thus, by 2020 this model put Tesla at 660,000 cars, 6.6% of the way to 10 million. You can easily put this formula into a spreadsheet and play around with parameters until you get to something that comes close to your expectation. Personally, I'm not buying 660,000 cars, so I'll want to play with this more.
In the attacted worksheet, I want to show how to that this modeling framework further. In particular, I am not comfortable with the assumption that the is some maximum number of cars for Tesla to grow into. Specifically, the auto market will continue to grow at a few percent each year for the forseeable future. Tesla could ultimately capture 10% market share and keep growing with the industry. So how can we integrate both a long run industry growth rate with a logistic transition into 10% market share. I propose the following logistic grow model.
dX / X = (b - g)* ( 1 - M(t)/M ) + g
Here b is my maximum growth rate for Tesla, g is the long run growth rate of the global auto maket, M is the long run market share for Tesla and M(t) is the market share at time t. So the first term of the growth model is logistic growth upto hitting the long run market share, and the second term is the long run growth rate.
In my worksheet, I assume that in 2014 the global market is 70 million cars (anyone have a better number?) and g = 3%. I assume Tesla will deliver 35k this year and will ultimatel gain 10% market share. The tricky part is getting the right value for b. I find that b = 57% gets Tesla to 505k cars in 2020 and just over 10M by 2030. Moreover, the next couple of years look about right. So if nothing else, this model basically fits my expectations for the next 20 years.
I invite you to play with the model and find scenarios you find interesting. Let me know what you find, or if you have any comments, questions or suggestions. I hope you find this modelling framework and tool useful.�
1/1/2015
guest Wow wish I could give you more rep for that post because... Wow... Thanks for that.
What I would remind you is that 500k in 2020 is sorta the internal pessimistic view of the company. JB had a presentation expecting something like 700k by 2019 and Elon recently said they could maybe do 500k by 2019. So your first hit of 660k might not be too incorrect from reality.
I think the big uncertainty is going to be when they try to build the Second factory, since their announcement of such a thing will happen WAY before they come close to capping factory 1 and people are going to yet again think they are crazy and there will be no demand for this added growth. Look how many people doubt them getting 500k by 2020. So hopefully they will be in a position to self fund from here on out and we can wade through this second auto factory announcement which I expect to happen either in 2015 or 2016.�
1/1/2015
guest Thanks, chickesevil! 700k would be awesome. I've got to crank the max growth rate up to 67% to hit 721k! You can imagine how chaotic the planning process must be. They've got to coordinate everything around an ambitious schedule like that, build in lots of contingencies and hope that 5000 little peices all show up on time.
The cool thing about models like this one is it can set a lot of little targets to coordinate activity around. Basically it's a flight plan. Once you have a trajectory like this, you can back into things like building out Gigafactories and auto facories at just the right time. You can negotiate with suppliers and hire staff at the right time. You can work out cash flow and back into any needed financing. I think Tesla is focused on self-financing through free cash flow. That's the rocket juice right there. When the market figures out that they've got enough juice to go all the way, the stock price will go way up. My thought is the way analysts should approach Tesla is to model cash flow well enough that they can see multiple self-financing paths to Tesla's objectives. It's not good enough to opinine that Tesla is going to need to raise lots of capital. They should know Tesla well enough to see how it is posible and trust that management sees that way and a couple smarter ways too.
So it's tough doing this work on the outside because you don't really know what anything costs. So my goal in modeling is plausibility. Can I see a path that is reasonable? If I worked for Tesla I could optimize it, but on the outside I must use a lot of imagination. At any rate, I worked out a cash flow model for the whole series of Gigafactories. One new Gigafactory per year gets Tesla to enough battery packs to energize half the cars sold in 2030. I'm not comfortable releasing this model, but I believe the have enough cash on hand and commitments for partners to pull off the whole damn thing. My next steps are to model the EV disruption in in the auto industry. This goes well beyond the spreadsheet I just shared to look at how quickly the industry can be disrupted and what kind of market share Tesla can walk away with. Basically that 10% market share is not something to be assumed, it is to be determined by how quickly Tesla disrupts. The faster they move the more share they can grab. So as I get a grip on how to model that, then I can back into how much Gigafactory they will need to do it. To recap, I've modeled Gigafactory cash flow to supply half the autos in 2030. That may be more batteries than are needed for major disruption. If I know the flight plan, I can work out the right amount of fuel. I guess you could say I'm trying to reverse engineer Tesla.�
1/1/2015
guest Go take a look at some of DaveT's posts he had a rough idea of how to self fund each factory and what years they would hit. Was pretty good.�
1/1/2015
guest One interesting thing to discover is what Tesla's brand loyalty is/will be compared to other car manufacturers. Right now the numbers are small, but imagine if they are still the solo, or dominant, EV producer in 10 years. They'll have a high 90%+ recapture rate when people are trading in old S, X, and 3 cars - much higher than BMW or Porsche or Mercedes, who are competing against each other and Lexus, Infiniti, Acura, etc. This is essentially because 90%+ of all people who drive electric cars swear they will NEVER go back to an ICE. I'd be in that camp. This gives them a much, much higher probability of capturing any market share they target (up to a point) than if they were simply a new start-up car company with cool products. Buckle up.�
1/1/2015
guest It isn't just brand loyalty because of EV's but brand loyalty to Tesla itself. We are quickly becoming a group of dedicated followers akin to Apple's followers. I have heard a lot of people basically say they would never buy from another brand again. That is saying a lot for cars because normally you don't have a large brand loyalty group when it comes to cars. Sure there are some, but it is a small group comparatively to other product markets.
How many people on this forum or in public could you ask if they would ever consider buying from another manufacturer even assuming they end up making a comparable car to the Tesla? I bet most of them would respond positively toward being loyal to Tesla, and that says a lot. The 99% consumer reports is a sign of that as well. Even myself, when I hear people talking about other cars and the cool things that they like about them, I can't help but come back to thinking about Tesla and how it isn't something I would ever consider doing. I have to really fight myself back on the subject just to not irritate people to death haha! And I have never been this brand loyal to... well... anything... before.�
1/1/2015
guest jhm, I followed the math OK in your tutorial while wondering the whole time how do we model the cash requirements into our TSLA "flight." I haven't read DaveT's article on how Tesla could self-fund each phase of this mind-boggling growth, but I have to admit it seems impossible at first glance. I wonder what b rate he assumed. Perhaps he expected some debt which would make sense and add value if not too high.�
1/1/2015
guest If Tesla had bought the Nummi plant and started making ICE cars, think Model S' with good engines (cars would be cheaper, 50-60k?) but with the big touch screen, over the air updates, direct sales model, white glove service etc, ICE-Tesla would still be my favorite new car company. There is plenty to not like about other car brands.�
1/1/2015
guest did anyone else see this excerpt from yesterday's interview yet and worry that not only (a) that this is a real serious threat but more importantly relevant to this TSLA investing thread that (b)Elon is growing so worried about it that he feels the need to take a leave from Tesla and SpaceX to develop a firm/group to solve this threat to humanity...he seems to feel now that this threat is more immediate than global warming or getting us onto Mars. Therefore, I could see some announcement coming of him officially taking a leave from his current companies to lead a crusade to prevent dangerous AI from developing and wiping humanity out.
Elon Musk: a Machine Tasked with Getting Rid of Spam Could End Humanity | Vanity Fair
Please watch the above and then please tell me that my worry for TSLA is irrational and that Elon will stay the course. It would be a significant stock price drop that would result I suspect (10-30%) but then we'd have a new base from there as long as the company stayed on track without Elon playing much of a role.�
1/1/2015
guest Elon is a well-read sci-fi dreamer and philosopher, like many of us (myself included). There are a million rants a day from geeks like me on Reddit that have little bearing on actual realities of the capabilities of a machine to inflict autonomous damage on humans in the near future without having been purposefully designed by humans to do that.
The difference is Elon is a billionaire genius with several world-changing companies under his belt, so when he pontificates the world listens.
While I am inclined to give him wide leeway on theories, I don't think even he feels Skynet/The Matrix is imminent. I do feel he thinks that we should practice coding and engineering with more safeguards in place to prevent catastrophe, given the pace of AI progress.
I don't think he is going to quit his "day jobs" for this just yet, no.�
1/1/2015
guest It's definitely more of a long-term concern for Elon. And so far, he's played a role by "investing" in some AI companies for the purpose of making sure they're kept on track. I don't think you have anything to be worried about regarding Elon stepping down from Tesla/SpaceX to focus on the AI threat.�
1/1/2015
guest i hope you're right and that he's not getting to too obsessed with AI wiping out humanity, unless it is a real threat I guess and our best chance of removing that threat is to have someone like Elon lead a movement to avoid that (best way to avoid it would probably be the first to develop the superior ASI that has a utility function to keep a watchful eye on all other AI developments to make sure none of them go the wrong direction into becoming a threat to humans)
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Thanks, hope you're right too. I just know he is an 'action' guy, he sees a global threat and launches a business to tackle it. Perhaps in this case he will just keep the watchful eye on them with his investments and perhaps the best way to do that is to maximize the value to TSLA in the meantime so he could use some of that capital/resources/leverage to best help keep an eye on AI getting out of control.�
1/1/2015
guest Wouldn't the imminent destruction of the human species cause TSLA to tank even more (like ~100%)? Maybe leaving Tesla to save the world would be best for TSLA. Also, as a side effect, it would save the world.
In all seriousness, though, I agree with DaveT. Elon is keeping an eye on AI, but SpaceX and Tesla are his main concern and will be for quite a while.�
1/1/2015
guest I think someone has been watching a bit too much of this show: Person of Interest - CBS.com�
1/1/2015
guest Thanks. I intend to release a model that maps out the cash flow implications. For example, if you know how many cars you want to build each year, you can figure out how GWH of battery capacity you'll need. The incremental capacity you need tells you how much equipment you need to install and how much floor space you need. So you can back into how much spending on plants and equipment this will be. Then you trace out all the other expenses and revenue, until you get to net cash flow.
Currently, I am making progress on a disruptive market share model. I hope to share it in a few days. From what I've seen Tesla capturing 10% market share is very conservative. Competitors would have to grow EVs at about 60% per year to keep Tesla's share under 12%. Even with that intensity Tesla can still hit 500k cars in 2020. I'm pretty excited.�
1/1/2015
guest Apologies if this was asked before. Many members here, including me, are "all in" as long term investors in Elon Musk through TSLA and to a smaller degree SCTY.
Musk is competing/fighting against many strong willed interest.
Tesla against
- Oil Companies
- Oil producing nations (Middle East)
- Other major auto companies
- Dealers
- Shorts
- Numerous 3rd party business like AutoService stations, gas stations etc.
SolarCity against
- Utilities
- Shorts
SpaceX against
- Boeing, Lockheed etc
- Other nation space programs, esp. Russian
I might be missing a few more.
It would be truly disheartening to see anything happening to one of the greatest visionaries of our lifetime. I'm not sure if I can afford the collateral damage on top of that.
So is it possible to buy life insurance on Musk, say for next 5 years?�
1/1/2015
guest Heh. "Can I buy life insurance for someone else, that I'm not even related to?" Interesting question.�
1/1/2015
guest Yes, you can, by buying an appropriate amount of far OTM puts to protect against this or other catastrophic events.�
1/1/2015
guest From a insurance standpoint, no. Principle of insurable interest. Just like how I can't take out insurance on your house hoping it burns to the ground.�
1/1/2015
guest Autopilot will be in all future Tesla vehicles including Model 3
Betty says Musk said that. See the clip - towards the end.
Tesla's Autopilot Feature: What's It Feel Like?: Video - Bloomberg�
1/1/2015
guest Something I again find interesting is how very differently I and many here perceive what's going on with Tesla, and what media and analysts perceive (or at least say they perceive) going on.
The consistent theme I am consistently hearing in the various news reports amounts to interesting but going the wrong direction / not game changing / not really all that big of a deal / nice bragging rights. I realize that's not 100%, but there's a lot of that.
I made this comment in another thread, but thought it was worth bringing here to the long-term thread as well:
What I saw in the announcement and in the videos from the D announcement, for those that aren't watching closely, is an echo of something like Moore's Law that just struck the traditional auto manufacturing industry. Namely, Tesla took an already incredible car by many measures (not all measure and not for all people, but many), and they made it:
- LOTS faster (low 4s to low 3s 0-60 time)
- faster top end (now 155 mph)
- AND more efficient (slight improvement to overall efficiency at 65 mph due to different gearing, despite the car getting heavier by the amount of 1 motor)
One of the most efficient and usable vehicles on the road, and they made it MORE efficient and LOTS faster? Really?
Outside of hybrid technology, where car makers started incorporating regenerative braking, small batteries, and small motors; when was the last time a car improved this much from 1 version to the next? Or maybe a more accurate way to think of it - improved this much over a 2 year period (decent volume shipments in late 2012, initial shipments expected in decent volume in late 2014)?
And none of this happened due to battery chemistry changes - the primary thing that we've all been thinking about as the primary driver of performance and range improvements in the car.
And these are just the easy to measure stuff. How about the idea of all of the control interfaces in the car being digital instead of analog? Think that will prove important to other companies as they try to get auto-pilot and later autonomous driving going? I don't know, but my hypothesis / guess is that digital will prove better / faster / easier / cheaper to work with.
I saw the goal posts that the "competitors" are for the most part not even trying to reach today (based on publicly available data and interviews) move, and move a lot. And my read on the situation today is that the only company that is really trying to move things fast continues to be Tesla.
This whole experience has confirmed my long term investment hypothesis is intact. The majority of the world, and the majority of the media / analysts, continue to be on the old side of the paradigm, and continue to try and understand a paradigm shift in the context of the old paradigm. If the competition continues to be on the wrong side of the paradigm, then my investment in Tesla today feels like knowing where Apple will be trading in 2010 when it's still 1990.
It's also disappointing to me for the outlook for our species, and our move to become more renewable in our energy production and consumption.�
1/1/2015
guest Legacy automakers will at least partially electrify to meet 2025 CAFE/European Carbon Emission targets.
Tesla has just blown PHEVs out of the water in terms of performance in the premium end of the market.
Now Paulo Santos and his bear followers are saying this will force legacy automakers into BEVs.
Which will but Tesla profit margins into a vice.
Bad Tesla news is bad for Tesla and Good Tesla news is bad for Tesla.�
1/1/2015
guest Great post, adiggs. I agree. I feel the reaction to this recent event is similar to the reaction of the announcement of the SuperCharger Network and to the Gigafactory. People get stuck in that box that they know so well and sometimes just can't wrap their brains around something this huge, or simply can't believe it's possible. It takes an army to move a mountain, right? Except when you pull out that one itty, bitty rock that's holding the whole mountain up.�
1/1/2015
guest The Model III is going to stun the world from so many fronts, and that will be our iPhone moment. Model S and X are the iPods, very cool and desirable but not something literally EVERYONE MUST HAVE like the iPhone was almost immediately after launch. That is what the Model III will be to the world, and it will change things forever.
We need a lot of good Tesla owner advocacy to go on in the time leading up to Model III release so that our laws and regulations can be ready, especially regarding direct sales model, autonomous driving, and right to install chargers in multifamily dwellings.
If we do that, we help Elon succeed in changing the world.�
1/1/2015
guest Also the taxi industry. They will surely oppose laws that allow for autonomous driving since then you could summon your car to pick you up and drive you home and thus no one would need a taxi anymore.�
1/1/2015
guest Doesn't Walmart do that with their employees???�
1/1/2015
guest what's going to be really interesting at the Q3 call will be any commentary about order levels for the D. Over the longer term (2016) I think this just made 100k annual sales of the X + S a very likely - that's ~$10B in revenue alone.
Of course the real action will be with the performance / sales of an Dual Motor, Autopilot Model 3. Think about what $40-$50k will buy with the Model 3!�
1/1/2015
guest Modeling the Big Disruption
View attachment Market Share Model.xls I would like to share my disruptive market share model. This model is an extension of the logistic growth model I presented in a tutorial a few days ago. I that model I made the assumption that Tesla would ultimately gain 10% share of the global auto market, but wouldn't it be nice to have a model that anticipated how much market share Tesla could gain under certain assumptions of the competitive intensity of Tesla and the rest of the auto industry? That is exactly what I propose to do. The aim of this model is not so much to predict the future as it is to understand the implications of competitive intensity, to explore sensitivities to the strategic choices of competitors, and to consider strategic options. To that end, I post a working worksheet model for readers to play with and a sensitivity analysis table to summarize outcomes under different strategic choices. Before I discuss the model, let me summarize a few important observations from this model given Tesla's current level of competitive intensity:
1) Tesla should be able to deliver 500,000 cars in 2020 regardless how strong or savvy the competitive response may be. The industry cannot slow Tesla by competing with it.
2) Conventional ICE auto sales will peak between 2022 and 2025 after which conventional autos will go into perpetual decline. This will be a critical moment for traditional automakers.
3) At current growth rates, hybrid vehicles may never gain more than 10% market share and will likely peak between 2028 and 2031. At about the same time,
the entire fleet of conventional hybrid autos will peak and go into perpetual decline. This will be a critical event for the oil industry.
4) Tesla may well reach sales in excess of 21 million vehicles by 2030 and may ultimately gain 84%, 55%, or 25% of the global auto market depending on whether the industry pursues EV growth with low, moderate, or high intensity (30%, 40%, or 50% growth per year). The industry would actually have to sustain an EV growth rate high than what Tesla is committed to to prevent Tesla from capturing more than 12% market share.
These claims have far reaching implications. It involves the disruption of at least two major industries: traditional autos and oil. Both will peak and fall into decline within twenty years. It is critical that Tesla asserts itself to provoke this disruption. Without such provocation the peaks of these industries could be forestalled by decades. However, competitive situation is asymmetrical. The auto industry cannot compete with Tesla without hastening the end of conventional autos. Competing with Tesla cannot harm Tesla over the next ten or more years; it can only prevent Tesla from acquiring more than about 25% market share in the post-ICE auto market.
So let me set up this model. First, I segment the auto industry into four types of vehicles: Conventional (ICE), Hybrids (ICE+Batteries), EV (all electric, excluding Tesla), and Tesla. I will make the assumption that over time there will be a net market share transfer from C to H, E and T, and from H to E and T. It is important also to assume no net transfer between E and T. This allows all market share currently enjoyed by C and H to flow ultimately to either T or E. Both T and E will be absorbing states only if one assumes long-run parity , that there is no net transfer between them. I am also assuming that there can be no long-run parity between H and E. The rationale here is that battery costs will eventually decline to such a point that it is cheaper to add extra battery capacity than to add a small ICE for extended range, and other issues may obsolete all ICE even sooner.
In 2013, 82.84 million autos were sold world-wide. About 2% were Hybrids. Tesla sold 22k, and Nissan sold 90k globally. I assume that there were perhaps another 20k competitive EVs sold. So, I assign 110k initially to the E segment. This puts the industry at a 5 to 1 advantage over Tesla within the parity EV space. If both E and T were to grow at identical rates each year, this ratio of market share would hold, leaving Tesla with 1/6 of the post-ICE market. So basically the auto industry would have to be just as committed to growing EVs to retain 5/6 of the market. Even without a mathematical model, this is a pretty astounding observation. It is very hard to catch up with a competitor that is committed to doubling its business every year or two.
Disruptive Market Share Model
Let's make some formal assumptions about growth rates. First, we need some mathematical notation. Let C(t) be the number of Conventional vehicles sold in year t, and dC(t) be the change in vehicles sold from t to t+1. Apply the same notation to H, E, and T. Moreover, define the sum as N(t) = C(t) + H(t) + E(t) + T(t). Also define market share mC(t) = C(t)/N(t), similarly for the other segments.
Second, we assume that the market as a whole will grow at a small exponential rate, g, so that,
dN(t) = g*N(t), or simply, dN/N = g
I assume the rate g=2.75%. This rate is consistent with 100 million cars in 2020 starting with 82.8 million in 2013.
Next, we'll make two assumptions about segment growth that each share in general growth g in proportion to their size and that the transfer from one segment to another is in proportion to both segments. So, for example the transfer from C to H is the quantity
b_{CH}*C(t)*H(t)/N(t) = b_{CH}*C(t)*mH(t) = b_{CH}*mC(t)*H(t)
I point this out to emphasize that the quantity transferred is proportional to market share of either segments. This is a net transfer so b_{CH} = - b_{HC}. I call the coefficient b the transfer intensity.
With the above assumptions we can now derive the following growth formulas:
dC/C = g - b_{CH}*mH - b_{CE}*mE - b_{CT}*mT
dH/H = g + b_{CH}*mC - b_{HE}*mE - b_{HT}*mT
dE/E = g + b_{CE}*mC + b_{HE}*mH
dT/T = g + b_{CT}*mC + b_{HT}*mH
Note in the first formula that the growth of conventional is based on the general growth of the market minus growth that is being transferred to H, E, T. So long as the market share of these alternatives are small, then C can grow nearly at rate g. So it is that initially the incumbent technology can simply ignore challengers and focus on the bulk of the market. For example, if the intensity of transfer from C to H is 0.10 and the market
share of H is 2%, then C is only losing 0.20% in growth rate to H. That may be of concern, but EVs and Teslas are ignorable due to extremely low market share.
In the second formula, H is gaining general growth plus transfer from C, but losing share to E and T. Initially, mC is about 98%, so this growth rate is roughly g + b_{CH}. I set b_{CH} = 0.10 so that H grows at a little over 12% initially. This seems to be a comfortable rate for the industry. It's a modest amount of disruption. If the Hybrid market were to heat up and grow at 40% a year, it would grow to about 8% market share in 4 years and deprive Conventional cars about 3.20% in growth rate. This would overwhelm the general rate 2.75%, and the net result would be that C would have a negative growth rate. This would be disruption within 4 years. So long as the transfer intensity is low, it will be a long time until H disrupts C.
Finally, we turn to the two last formulas which are structurally equivalent. These segments are simply receiving market share from the other segments in addition to the general growth rate. Their growth rates differ by how competitive they are in capturing market share fro C and H. Since mH is so small initially, their growth rate is dominated by the transfer intensity from C. Tesla needs this intensity to be about 0.55 to grow from 22k in 2013 to about 500k in 2020. So this is my base case for this intensity parameter. It is difficult to know how much transfer intensity there may be from H to T. It's not exactly observable since the current market is dominated by C. It is reasonable to assume that it is a fraction of the intensity from C, since EVs and Teslas have bigger advantages over conventional cars than hybrids. So I'll simply assume half the intensity. One interpretation of this is that if the industry could switch all C into H, then the growth rates of E and T would be cut in half. It is possible that the industry may at some point respond to the Tesla threat by severely cannibalizing C with H. Even now, most of the new models touted as competitors to Tesla are in fact hybrids of one sort or another. While this strategy has the theoretical potential to slow the transition to EVs, the industry cannot or will not disrupt conventional cars fast enough. The growth rate of hybrids would need to be as fast as Tesla's growth rate. Arguably, that that effort would be better directed at growing EVs. The reason is that due to parity transfer of C to E would deprive T more growth potential than transfer to H. In any case, the disruption of C is inevitable the only question is how long it will take. So the key question is how much transfer intensity to E the industry will pursue.
Discussion
Tesla seems committed to an intensity of 55%, maybe as much as 65% or as little as 45%. Meanwhile, it is hard to imagine the industry mustering an EV intensity greater than Tesla. In my sensitivity analysis, we consider industry competitive intensities from 20% to 70%. Intensity of 20% would be a disaster for the industry, as T would walk away with around 95% ultimate market share. So while there may be such a low response initially, eventually the existential threat will motivate a higher response. That threat may become apparent when conventional auto sales begin to stall and decline irrevocably. The time of peak C will likely come by 2025 according to this model, but may come as early as 2022. Ironically, the higher the competitive intensity is, the sooner will come the peak. There may be some comfort in collective inaction, but there will also be really opportunities for those competitors that take up the challenge. The companies that establish strong market share within the EV space stand to capture a lasting hold on market share.
The disruptive market share model generates scenarios of how this could play out. I encourage readers to play with the worksheet and get a feel for the dynamics. I find it particularly challenging to come up with a realistic scenario that is favorable for traditional automakers. Conversely for Tesla, the strategic path is pretty clear. Tesla needs to grow by 45% or more per year, and it can walk away with 25% of the market. Actually, the longer it takes for the market to disrupt, the bigger its share. If the industry does turn up the intensity, then Tesla will likely be able to turn up its intensity as well. So Tesla is in the enviable position. It remains to be seen who may join them. A co-disruptor will need to come from outside of the industry or be willing to divest itself of its ICE business.
So have fun with the worksheet model, and let me know what you think. In future posts, I'll discuss model limitations and potential extensions.
View attachment 61227�
1/1/2015
guest For various political reasons no one company will ever achieve 84% automobile market share much less the 95% discussed later in the post.
Anti-monopolistic legislation in North America, the EU,Australia New Zealand.
Protectionist mercantilist policies in Asia, Latin America and Africa.
65% North American market share and 25% global market share IMO is extreme hyper bullish scenario.
To paraphrase Engine Charlie Wilson in this scenario
What is good for America is good for Tesla
And what is good for Tesla is good for the country.�
1/1/2015
guest @jhm: this is positively one of the best posts I've read so far anywhere on this forum. The logical flow is impeccable and makes for a crystal-clear explanation, one which I could pretty much absorb in a single, continuous read from top to bottom. Brilliant. It also reminded me immediately by a related argument you've made before about the inevitability of the race to build the first Gigafactories.
I'm almost certain you've done this before, so could you kindly disclose, promptly, any and all books, papers, and/or blogs which you've authored, 'cause I sense a veritable fountain of knowledge here that makes me feel really thirsty.
I think this is the key observation, which qualitatively captures the essence of your analysis: that the incumbents have to start running as fast as Tesla right now, in order to preserve their current share. Anything less, and they'll condemn themselves to a slow and inexorable death.
Based on all the precedent I'm aware of from every other industry that ever went through such a transformation, it is inconceivable to me that today's mainstream manufacturers can match Tesla's intensity for the foreseeable future. As I've said elsewhere, in order to transform themselves, they have to kill themselves. In fact, it's not even a matter of "can they do it": so far, they don't seem to realize they have to. Your model should be on the desks of Mary Barra and friends right now, in order for the dinosaurs they watch after to hope to see another day. ICE is done. Dead. Deader than dead.
In fact, the more I contemplate your model, the more likely it seems to me that the domination of the new car universe will be split between Tesla on the one hand, and an "Android platform for cars" that is yet to emerge on the other. Only by pooling their efforts will the remaining EV contenders (most of which have yet to appear on the firmament) be able to keep up with the savage pace of technological advancement imposed by Tesla. Whoever chooses to run alone will either have to join the Androids, or will succumb.
One thing is certain: whoever didn't hear the starting gun fired by Tesla on Thursday night, is done. Dead. Deader than dead.�
1/1/2015
guest Rhino, thanks for your high praise. I think this model just puts into mathematical expression what many have known here for quite some time. Regarding other things I have written, I am reluctant to reveal my identity in this forum for professional reasons. I do have a PhD in statistics, but most of my other writting is actually unrelated to Tesla so it probably would not be of much interest here anyway. I'm happy to carry on discussion here or to collaborate offline. Thanks, again.
I think you may be right about the Android analogy. Could LG be at the center of that ecosystem? In any case it is mostly the battery capacity that has to scale at a P85D pace. As Tesla has shown us again with the range gain due to the D, its not just about battery price. It's also about engineering the best performance out of batteries.�
1/1/2015
guest jhm intresting point of view.
But you ignore the very possible disruption of the Personal Automobile itself.
In my opinion the future of the Car Industry will be Google Self Driving Fleet, the Cars drive totaly autonomous from place to place and pick up and transport the users, with an Uber like App.
870-1300Billion USD/ year savings just in the US alone
Must read for everyone Morgan Stanley Research Report:
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CB0QFjAA&url=http%3A%2F%2Fwww.wisburg.com%2Fwp-content%2Fuploads%2F2014%2F09%2F%25EF%25BC%2588109-pages-2014%25EF%25BC%2589MORGAN-STANLEY-BLUE-PAPER-AUTONOMOUS-CARS%25EF%25BC%259A-SELF-DRIVING-THE-NEW-AUTO-INDUSTRY-PARADIGM.pdf&ei=SZ85VOL_NYnnaI7ZgdgG&usg=AFQjCNFq848rA74T8EODFoVvUBgAiLjYmg&sig2=mBIHyYB4UG6V9KXLmKav9g&bvm=bv.77161500,d.ZWU
I think this is the major disruption in the auto industry, those fleets will certainly be EVs but I dont expect an increase in marketshare after 2020, or when the Level 4 SDC comes out and the first Fleet is deployed.
A fleet could have a hyperfast growth in marketshare. Since 1 Fleet car could replace 6-7 conventional cars.
I also see this as the major concern for the TSLA future evaluation, having a company in a shrinking market is not a good scenario.
Sure there will still be people that prefer to own their own Car, but that number will shrink. The customers of low price Cars will tend to use SDC much more likely and that is the majority marketshare of the Car Industry.�
1/1/2015
guest Of course the market that prefers a personal car will shrink because that is virtually the entire market save for people that prefer public transportation. And it will include many people who prefer small efficient city cars now.
But IMO that market is small and mainly concentrated in densely populated cities.
Going anywhere you want, at any given moment, and doing so anonymously will remain a big plus.
Then there is the safety of lil google type cars.
I don't see people that prefer Pickups, SUV,Crossovers,Mid-Full size sedans preferring these little automated units.
If the current choices in transportation tell us anything is that transportation choices are not made from a completely rational self maximizer POV. People tend not to choose the most cost efficient way to get from point A to point B.�
1/1/2015
guest Future transportation, better than present
Jhm, thank you for your post, a lot of thinking and work went into it.
I have doubts that the market will grow at the assumed growth rate of 2.75%. My expectation for that rate is to be positive for say next decade. The growth is likely to be driven by increased wealth in developing world. After a decade or so, hard to say, my expectation for growth is to gradually reverse and become negative, ie market might shrink rather than grow.
The world and humanity are changing at a rapid rate due to world population instant connectivity and increasing transparency. My expectation for car ownership is to start declining due to changes in societal attitudes and technological developments.
Cars are often used for work commute now. If that need is eliminated by new technologies, then cars will be used for pleasure only. There are far better ways to address such need than expensive car ownership. Lease has many advantages over ownership - just check the thread of disappointed owners who missed on the latest improvements. Shared lease, ownership or hire may become more common. Business models based on share are thriving.
I am already seeing far less work related travel due to improved connectivity. Who would want to spend long unproductive hours on airports, freeways, etc if the connectivity is at fingertips. My children and their generation consider car ownership a chore and adjust their life around not owning a car as a preferred choice.
Online goods sales and delivery eliminate need for traditional shopping complexes that require a car to visit.
Here is the transport mode that I see growing and competing with car market, maybe not yet but certainly in the future:
�
1/1/2015
guest You're right. As a limitation of this model, it does not contemplate regulatory or other constraints on growth. But there are other ways to interpret this model that can get around the issues you raise. Basically, we can think of T as representing more than just a single entity named Tesla Motors Company. Rather it could be an alliance of Tesla and clones. Musk may have already anticipated this with open sourcing Tesla's patents. He is inviting others to join them in doing what Tesla is doing. So consistent with this model is a whole Tesla open source ecosystem that collectively controls 95% of the future market. This may seem like a semantic sleight of hand, but the mathematics makes no necessary distinction and the strategic issues around cultivating an ecosystem are quite real.
Certainly before anyone plugs this model into DCF model for Tesla, they should consider ecosystem question. This is also how you would want to think about the Gigafactories as well. Some fraction of GF output will go into cars of other makes. A robust Tesla ecosystem would be the logical market for GF products.
If anyone does attempt to use this model in a DCF, please keep me posted. I'd be very intersted in how it goes. In fact, that is a big part of what motivates me to post my models. Consider it open source.�
1/1/2015
guest It's true the main ideas were discussed before, but I reacted enthusiastically to the support provided by the quantitative approach, which makes their inevitability so much more apparent and harder to reject. A mathematical model illuminates ideas in a way that mere pontification on the subject cannot match. An equation is worth a thousand pictures and all that.
Of course, and I shouldn't have asked (I also prefer to stay anon.) I'll PM if needed.
In fairness, the smartphone industry has two characteristics that make platform consolidation inevitable, which don't have (yet) a direct equivalent in the auto industry. First, smartphone makers are dependent on a strong army of third-party developers in order to create a compelling application ecosystem for users. This allows for only a very small number of platforms, since developers won't generally have the resources to commit to more than two, and many are happy to stay with only one. Today, those platforms are iOS and Android, plus HTML5 to a certain extent (Blackberry and Windows are still alive, but their future is far from assured.) Second, smartphone users don't like too many competing platforms either, since there is a cost in learning how to use them, plus there is the lock-in effect of the investment in apps and various services (for digital media storage, collaboration, etc.)
When it comes to EVs, the market will not support more than a few charging standards even at the beginning, and in the long run they will most likely converge towards a universal standard. It's possible that two equally entrenched networks survive (like CDMA vs. GSM), but I think that's less likely. So, that's one source of platform consolidation pressure.
The other is that cars are now defined more and more by their software rather than their hardware, as DaveT already pointed out in his thread. Tesla's technological lead is as decisive in software as it is in hardware and manufacturing, and I actually think it will be harder to match. Software platforms of this magnitude are very hard and expensive to develop, and the talent pool is extremely limited. That's why I would expect technological convergence a la Android to happen. (One could argue that this scenario has already happened in the fighter jet industry, leading to the push to replace a large variety of designs with variants of a single platform, the F-35, and to industry consolidation. Indeed, Boeing might end up leaving that market altogether.)�
1/1/2015
guest Thanks, TD1. I'll have to give that more thought. From a modeling point of view, the easiest way to approach that is simply to assume that the global growth rate will not remain constant at g = 2.75%. If one had a scenario for how fleet cars would depress global growth over time that could easily be brought into this model. But I think the fleet car disruption runs deeper than just the global growth rate. We need to think about how it will impact C, H, E, and T distinctly. My suspicion is that the impact will be much more severe on analog cars than digital cars. So C may be disrupted more quickly.
One thing to bear in mind is that even if 1 fleet car can relace 6 personal cars. That does not mean that demand for cars will drop by 5/6. What drives most of new car sales is replacement. If the average personal car is puts on say 10k miles per year, then the average fleet car displacing those 6 cars should put about 60k miles per year. So these fleet cars will need to be replaced in just a few years. Also fleet operators may be willing to pay a premium for cars that have higher life mileage. I think Tesla has the potential to build cars that will run well for 500k miles. The TCO perspective makes Tesla attractive. It could be that IC engines that are only good for 200k miles just won't cut it.�
1/1/2015
guest Auzie and TD1: interesting observations. It is indeed possible that the new car market will differ from the old market not just in the type of propulsion technology, but also in other very significant ways brought about by the new sharing trend.
But regardless of the usage patterns that the new global car fleet will exhibit, the fact remains that the new fleet must be built by somebody, and it won't be ICE-based. And if indeed the emergence of automated driving technology leads us into a Minority Report-style future, whoever has the best automated driving technology wins the biggest share of the new pie. Yes, the new pie may be smaller under certain assumptions, but even then, Tesla's future won't be dependent on the size of the pie, but on its own ability to build the right car, and I think it is currently unmatched in that ability.�
1/1/2015
guest Then for the purposes of evaluating TSLA it becomes necessary to distinguish between Tesla market share and clone market share.
Tesla and clones will be indirect competitors and collaborators.
And perhaps direct competitors and collaborators.
So clone market share is relevant to the TSLA investor but so is distinguishing between the two.
BTW
Getting people to make small lifestyle changes that increases a personal burden in some way for very large societal benefits have been tough.
Basing your retirement fund on global attitude changes from personal betterment to global betterment is dicey at best.
In a utopian/dsytopian world, depending on your POV, where personal cars have virtually eliminated and replaced by taxi fleet of autonomous pods then Tesla would still have an advantage in building those pods IMO. But the monetary value of the addressable market shrinks significantly. Tesla perhaps pivots to a clean energy management company that also makes these pods as side business.
And I guess in this future larger autonomous pods bring your stuff from Home Depot and Costco.
And all blue collar work is eliminated by telecommuting white collar workers. All stuff is made/grown by robots.
I just find it difficult to imagine this this global society in world where European borders are being changed by tanks not ballot boxes and where the most reactionary of forces are running rampant across several international borders in the heart of the Middle East.�
1/1/2015
guest jhm - you identify points for peak conventional auto and peak hybrid auto. I realize now that this wasn't clear - I assume the approximate years you identified represent the years where the measurable growth in sales/registrations manifests as the peak; is that correct?
I ask because part of the nature of the auto industry is there is something like 3-5 years between the start of research and design, and the delivery of a buyable vehicle. If 2020 marks peak conventional auto in your model, then assuming a 5 year lead time for introduction of a competing vehicle, the conventional auto makers have to be doing the research and design in this new drive train, starting approximately now, with the idea that what they produce 5 years from now will be competitive with what Tesla is delivering 5 years from now. (EDIT: actually, the delivery in 5 years just needs to be usable in a conventional sense, and modestly profitable, and doesn't actually need to be competitive; 200 mile range at least gets people to the table, and if they have capacity to build and deliver, then they'll have buyers).
Except there isn't anybody with an obviously competitive platform to use as a starting point and to evolve over these coming years. I'm about 1 short sliver of a step away from saying that outside of a BMW / Toyota / VW coming out approximately immediately with their plans for outbuilding Tesla on the GF front, and making it clear that they are going to push the EV transition even more aggressively than Tesla, then the race is already over. It's just going to take several years for that to manifest.
- - - Updated - - -
Rob's got a good point here, and one that I believe Elon understands deeply and well. The path to a sustainable future (energy and carbon mostly I'm thinking of) isn't going to come from society wide choice to dramatically reduce energy consumption and take back on discomfort and inconvenience. Who knows - maybe that'd actually work, but there's little evidence of mass adoption of that approach, and lots of counter-examples.
The future comes from, for example, providing personal transportation that is better at the purpose of personal transportation than what we have today AND can be powered sustainably without generating carbon. We create the future by figuring out how to make everything better. (Or we have some really obvious, in-our-face evidence that our species is about to be massively inconvenienced or made extinct, like the world's oceans rising enough the current shoreline cities become uninhabitable; that'd get some action and sacrifice going).
Or to put as clear a point on it as possible - my family investments will be on make it better AND sustainable AND low carbon, rather than sacrifice.
For the self-driving vehicles, I don't think we have enough data or experience with how we would shift away from personal ownership, to conclude what impact this will have on personal ownership in the future. There's the mileage argument provided earlier - fewer cars, but just as many miles (good one!). We here are part of the rich 1-2B people in the world. The other 10B people that the planet will have as we reach peak population in 50ish years. As more and more of the next 9-10B people achieve adequate wealth, a personal auto is a manifestation of that wealth that will be aspirational. That's an argument for continued growth and even acceleration of the larger market.
I'm also thinking that self-driving cars sounds like a harsh competitor to the taxi market (but that's small in absolute people miles moved) and mass transit. What if the future of mass transit (buses, subways, etc..) is in self-driving autos instead? Keep the trains and buses on the really high volume routes, and all of the other side trips and inconvenient routing turns into a self-driving car. Is this an argument for self-driving cars and shifting away from personal auto ownership that is in favor of the market growing again?
My real point is that the technology isn't well enough baked, to start projecting today it's impact on the market. I'm investing as if there is zero impact, and when we see it real and 100's or 1000's of trips a day being done that way (in an open market that anybody can partake in - not POC / pilot / feasibility studies), then we have Innovators using the product and we can start assessing how that paradigm shift will really change things.
Last point - this hit me personally a couple of years ago. I'm of the belief (applied personally) that if you have the financial wherewithal to drive electric, generate your own electricity, and otherwise support the move to sustainable and low carbon transportation, then in fact you have a moral imperative to do so. It's a personal belief and I hope it's one you all share. That was what I concluded for myself anyway. There are some big problems I can't solve, but at least I can stop contributing to those big problems. The more of us there are that make a point of driving electric and generating our own electricity at the high end of the market, the sooner the volume will appear that will create the mid and lower end markets at volume that we actually need. (And it sure is a lot of fun obeying this moral imperative!)�
1/1/2015
guest That is a incorrect assumption.
You assume that Fleet Cars will be the Avg. EV+Tons of Sensors.
The current design and engineering have a lot of planned obsolescence or are at least not designed for a heavy Fleet use.
A big Fleet player could design and engineer their own cars. With parts that are trimmed for long lasting.
Its a complete new way of designing Cars. For the first time their would be a Company who actually truly pursuits a high reliability and low service and maintenance.
I addition to that is the very "smooth" riding ability of an SDC, it always accelerates and brakes smooth, which will put much less strain on the chassy, brakes and tires.
E.g. The new London Tube is designed to last 40 years. And it has far heavier use than a car. since it literately runs 24/7.�
1/1/2015
guest I don't think so. We have a group of people here well-off enough to buy a Model S and still we find plenty to fight about.�
1/1/2015
guest Well off nations do not have wars on their territory. People that willingly go to wars from well off nations tend to be from lower socio economic levels in their societies. Well off people simply have far better options at their disposal than to fight. Too much to loose by pointless barbaric fighting.�
1/1/2015
guest Very poor people need fleet car like hen house car, It will replace bus and taxi, but if you have enough money to buy car you don't want to share a car with strangers. It's human nature. People want to take their own driveless cars. Car is not just transporter. It's your face and pride. I don't think car market will shrink. It is your illusion.�
1/1/2015
guest The attitudes are changing, quickly. What used to be cool in the past is not cool now. What is cool now will not be cool in the future.
I was thinking of some past examples of being cool, to list here to support my argument, but decided to not mention examples as mentioning past examples of being cool might be offensive now.
Future generations might look down on our current attitudes.�
1/1/2015
guest @jhm many thanks for sharing your skilled and insightful model. It's people like you who make my nights interesting!
Like many here, my first reaction was that 2.75% general growth rate is much too high and it will actually begin to decline in a few years. There is already a trend to migrate to cities where a personal auto is a liability. My college-age kids consider cars to be a burden which is pretty much the opposite of how I felt at their age. I don't think developing countries will make up the difference because most of the population and economic growth is in cities. We'll see. In any case, playing with the General Growth Rate in the spreadsheet produces interesting consequences. If I change it to 1% which is too low for the short term, possibly too high for the long term, Tesla and EV Peak sales drop by almost half.
I don't fully understand the General Attrition Rate.�
1/1/2015
guest Viewed from a global perspective, the automotive industry growth rate is being pulled in a number of directions:
I'm sure there are more big trends, but I see lots of growth potential for smart EVs, even without stealing much of the existing market from the ICE incumbents.
- (+) The growth of the middle class in huge countries like Russia, China, and India will spur demand for all consumer goods, including cars
- (-) Self-driving cars will reduce the number of cars per household as a shared-ownership model becomes more convenient when a car from the pool can pick you up
- (+) Self-driving cars allows fractional ownership of cars, further increasing demand in places where the other option is no car at all
- (-) Internet bandwidth reduces the need to travel for business
- (+) EVs that are highly reliable and cheap to fuel lower total cost of ownership and increase demand
(Side note: US law does not prohibit monopolies, nor does it prohibit monopoly pricing. It only prohibits unfair trade practices used to acquire or maintain a monopoly. Still, I think it very unrealistic to assume that Tesla could achieve >60% market share from a business perspective, even though there are no legal restrictions.)�
1/1/2015
guest For both an excellent example of data visualization and story telling (a subject I'm studying this term), as well as insight into the global population around number of people, income of people, and related topics, see this 1 hour video by Hans Rosling:
http://www.gapminder.org/videos/dont-panic-the-facts-about-population/#.VDoCUjbn9es
It's originally a 1 hour presentation that I believe was broadcast on BBC. I find myself going back and watching pieces of it - it's mesmerizing. And will provide a lot of perspective on the size of some of these things that are moving around. When you see how the world is becoming more wealthy, and how it's projected to change, I think you'll see things as I do right now; the world auto market may or may not keep growing, but I have a very hard time seeing it shrink to a meaningful degree. My real belief is that it's going to keep growing - the size of the world population wealthy enough to own and use a car is exploding.�
1/1/2015
guest Great video, thanks for posting.
It was fascinating to watch school class in Bangladesh and teacher providing convincing facts on advantages of small family size. In the past, the only options for girls in some societies were to get married young and have children. Now they are free to pursue any opportunity that they wish. Having children is just one of the many options open to girls, and that option competes with other very attractive options. That is perhaps the most dramatic change that will underpin all other changes that will follow.
Regarding the growth in auto market, I do not see the wealth as the main growth driver. The affordability may become a given.
My expectation is that attitudes towards car ownership may change in significant ways. These attitudes are already changing. If everyone is wealthy enough, competition to own anything becomes meaningless and 'not cool'.
Future people will still compete, but in very different way and for different prizes, less selfish ones I hope.�
1/1/2015
guest I see your expectation Auzie as also being an internally consistent and reasonable explanation of future behavior. The only conclusion that I draw today is that neither of us know what will actually happen. In fact, I believe what we'll see happen over the coming few decades is a mix. There will be lots of people that do exactly what you describe - they put their energy and newfound wealth (wealth is being used in the context of the video - the vast majority of the new middle class won't be wealthy in the sense that we in the most well off billion use the term) into some other expression (such as education for the next generation!), and avoid acquiring a personal auto. I expect this will be especially popular in densely populated cities, and less popular where people are more spread out.
I also expect that for many people, a personal auto is deeply aspirational, and as they move into a better and better living situation, they will express that by eventually bringing home a family auto (somewhat analogous to the family that brings home the bicycle in the video).
Within the overall situation, the dynamic that looks the most influential to me is the sheer size of the overall population and the related size of the population that is moving into the income range where a personal auto enters the picture.�
1/1/2015
guest I think you are the one here with the illusion that the future will be the same as the past.
Those are the same arguments that ICE heads use to dismiss EVs, it only shows the ignorance towards the discussed topic
Rich people Use Hotels, Fly Commercial Airplanes, Rent big holiday homes.
And believe it or not but 90% of the population is not rich.
-Rich poor gap is widening again.
-Using a car as an Avatar to show your wealth/style/personality is getting less popular.
Just look at Silicon Valley, all those people would have the money to drive in S-Classes, but the Prius is the most popular, or the success of Uber.
Again we are talking about the overall market, So even if there are 20% of die hard personal car owners thats still 80% of the market that will get disrupted.
Remember using a Google Fleet SDC on daily basis, to commute, do grocery shopping etc. Will be CHEAPER than owning a car and more convenient of corse. No need for financing, no need to come up with a big sum of money, instead just subscribing to the Google Fleet.�
1/1/2015
guest Sure they do. Civil War anyone? Indeed, having and retaining money and power is one of those reasons near the top of the list that people will fight to keep. Bringing it on topic, there's a war going on right now between Tesla and a number of states, NADA etc..., which is entirely about money and power. Just because neither side has pulled out machine guns and rocket launchers (literally), doesn't mean it's not happening.
Poppycock. You need look no further than this board since the D and something else was revealed to know that's not true. Well-off people can embrace pettiness, triviality, jealousy, envy, childishness, entitlement, and a host of other less than attractive attributes as easily as someone from a much lower socio-economic level. In fact, when you have something to lose (perceived value of an expensive car in this instance), you're much more likely to fight to keep it than if you had absolutely nothing at all.�
1/1/2015
guest Yes, ISTR that Hans Rosling MD won some prize for his visualization program? Very fascinating the presentations are. Brilliant guy.
Funny thing is, when I was a mere we bairn someone actually suggested I ought to change my (rather pedestrian) last name to Rossling (means deathly wheeze, in our vernacular); she thought it had a certain ring to it. To this very day, I am in two minds whether that would have been good or bad.
Dr Rosling is reported to have been deeply shaken by the horrible outbreak of ebola in West Africa. "The worst I've ever seen."�
1/1/2015
guest Well there really is nothing to lose by arguing on the internet, other than time. I don't think you can really equate that to physical warfare.�
1/1/2015
guest Civil war in America was generations ago. Today's US is highly unlikely to instigate a war on its own territory. Society and attitudes are very different now. Even laws are different, reflecting different attitudes.
Dispute between Tesla and some unlucky buyers is a minor issue, it will not cause a war.
Wars are sparked by various disputes. To keep people engaged in killing each other on a long-term basis, socio-economic conditions have to be right.
Fighters with viable options in life other than war are likely to choose other options.�
1/1/2015
guest History has a way of repeating itself. People do not change. They are motivated today by the same things that they were ages ago. There doesn't have to be guns and tanks and bombs used to have a war. You're talking quite literally and I understand that, but it can be far more subtle and have nothing to do with socio-economical level.
It's good you have so much faith in mankind going forward. Someone has to.�
1/1/2015
guest 911 was an act of war, 8 of the 25 combatants were engineers, in general the cohort were
highly educated.
financially well off.
young with good prospects for life.�
1/1/2015
guest My expectations are based on historical data. This world used to be quite awful place in the past. We made great leaps in many respects. Progress is unstoppable, nothing to do with faith.
These were nut cases, outliers.�
1/1/2015
guest coming back on topic.. read this article: How to sneak a Tesla into Russia for just 6.5 million rubles | The Verge
how would you rate Tesla's oppertunity in Russia, and when will they start selling there?�
1/1/2015
guest Krugerrand - you might find the perspective provided in "Don't Panic" interesting: http://www.gapminder.org/videos/dont.../#.VDoCUjbn9es
It doesn't suggest a fundamental change in human motivation for the human situation to improve. In a very very short time (small number of decades), the species as a whole has moved from poor health and wealth, to everybody is in better health and mostly more wealthy (mostly being 90% plus of the entire planet). Poor today is much, much better off than 200 years ago, and improving quickly.
Over the last 50 or 60 years, we've moved from a species where 2 adults routinely have 6 children and see 2 of them live to adulthood; to a species where 2 adults have 5 children and 4 live to adulthood; to today where 2 adults have 2 children that live to adulthood. Thousands of years of 2 adults, 6 children, 2 live to become adults themselves, and in 50 years the routinely available health care has improved to the point that we routinely survive child birth, and the children routinely grow up and become adults themselves.
It's not a competitive perspective to the one you're articulating - it's an incremental perspective that focuses on something we're getting right; regardless of religion, political system, or other cultural factors. And astoundingly, we're getting it right, and we're doing it FAST. Years and decades, rather than centuries or millennia.�
1/1/2015
guest I mean, look at Hong Kong. Not exactly what I would consider super "well off" but they wouldn't be considered poor either. And their protests are about the extreme that I would expect any nation to push into. Noone is going to pick up a gun, rally an army, and cause real insurrection in a nation like the US, China, Japan, etc... because those who would have the money to fund such an act would have to be pushed out to a far extreme that if that happens I think we have a much larger problem on our hands. So I would agree, I wouldn't expect any major player to stake their massive amounts of money on some risky gamble as overthrowing a government or some such.�
1/1/2015
guest yes I agree.
now maybe back to Long Term Fundamentals of Tesla Motors?�
1/1/2015
guest Just read the Morgan Stanley report from Friday. I think they did a good job at encapsulating the Long Term view -
"We believe Tesla's skillset in machine learning and autonomous driving could be far more differentiated than their powertrain. The combination of software, computing power and a network of connected cars constantly under analysis and testing is unlike anything else in the auto industry... And whether the X arrives in 2Q or 3Q doesn't really matter at all to us. It's coming. And, in our opinion, it should easily rival the competition in the full sized premium SUV market."
Basically Elon is right on track with master plan. Any increase in margin (i.e., the D) drops straight to bottom line which will help finance Gigafactory #1, #2, #3, etc., which will directly impact ability to supply Model 3 on global scale. The "D" also shows how much more advanced and efficient AWD EV is vs. any other option. It is right in front of us - a Honda Accord sized car with a 188hp EV and a ~50KWh battery pack for around
`$40k will be a compelling option vs. an actual Honda Accord. The same car with dual 188hp and ~85KWh pack for ~$50k will demolish a BMW 335 / Audi S4.
And at same time SCTY is targeting fossil fuel pricing parity by 2017.�
1/1/2015
guest I took a day off from posting on TMC to read Morgan Stanley's green paper on autonomous vehicles. It's good infotainment, but I think a good dose of skepticism is in order. I won't attempt a thorough critique, it is much too massive for that. But I will offer a few observations.
In general, I think MS is much too focused on a utopian state wherein all cars are autonomus, than in the more interesting questions of how we get there, where is the motivation coming from, and how big the pay offs will be at each intermediate state. They offer four phases. The first three are essentially advances in autopilot technology, to use Musk's distinction between autopilot and autonomous. These three phases should roll out over the next six years. The fourth phase, a utopia of autonomous vehicles will have to wait another 20 years. And yet the $1.3T payoff they envision only makes sense in this utopian state. They make no assessment of what benefit may accrue by 2020. This is problematic because the gains made by 2020 may be so great and the problems posed by forcing somebodies idea of a utopia may become visible enough that the utopia is laughed off in due course.
It is also curious that this paper takes such a dim view of EV prospects and substantially overlooks Tesla's potential in this space. They contemplate Google entering this space as Silicon Valley tech with no exposure to auto manufacturing, but ignore Tesla which even when this was written was clearly both Silicon Valley and an auto maker. Perhaps they gnored it because Tesla had not yet pushed any agenda toward autonomous vehicles, but that misses a very fundamental point about what Tesla is upto. Tesla is building a completely programmable car, a digital car, from the ground up. This is exactly the kind of transformation of the car that is needed on the path to full autonomy. Every aspect of the car must be within the awareness of and under the control of an integrated computing system. It's all about a platform for digital control. So reading the paper in this light reveals that Tesla has incredible potential to play multiple roles from hardware to softare, to interior experience integrator. The operating system that Tesla is building out could well lead to a service Tesla provides to other OEMs. If MS is correct that in the future the car value will be 40% hardware, 40% software, and 20% content, user experience, then what Tesla is developing on the software side may be just as valuable as say, the Gigafactory. This is astounding.
But I would argue that the software value and other other value that Tesla is creating along this path to auonomy does not require the utopian world they imagine. Consider what we have recently learned of Tesla's advances with autopilot and dual motors. In 12 months Tesla has leapfrogged over phase 1, well into phase 2. With lane change, summon and parking capabilities it is getting into phase 3. I suspect that they may actually be well into all phase 3 capabilities at this point, but simply need to to more reliability testing and refinement. I strongly suspect that they already have test vehicles that can navigate themselves to any preselected address. They are able to make so much progress within 12 months, not just because they've got great programmers and engineers, but because the programmers have a great platform to work with, a highly programmable architecture.
Consider this, the Model S already has a software layer between the driver and the mechnical systems of the car. The driver is only manipulating a controller, and software already transforms that input into action. This digital control affords much more that merely adding on safety features. Every aspect of performance can be modified through programming. So for example, dual motors, we now know, can be digitally controlled in such a way that 10 to 30 extra miles of range can be obtained. This involves having an algorithm to optimize the distribution of power from front to back. This algorithm could take in as inputs the current speed, the desired acceleration (from the driver), the angle of the steering wheel (also fro the driver), the curvature of thebroad ahead (from radar, camera and gps), the grade and slope of the road (precice maps and sensors), slippage in the wheels (from sensors), even weather conditions. All this can potentially be taken in to optimize power sent to fron and back motors. Now suppose programmers have just a simple model to work with. They program that up and tweak it until it works great. Future research perhapsnbased on real world data from customer carsnon the road may lead to formulating better models for integrating so many variable and deriving an optimal power assignment. No problem. Programmers gonto work on coding up the new model. It gets tested, and if it delivers better performance, it gets pushed out in a software upgrade. So now any Model S owners with sufficient hardware ge a performace upgrade over the air. This is much more than just delivering a certain safety feature or autopilot capability, this is about delivering high performance. Drivers will want Tesla's autopilot technology not because it lets them go to sleep at the wheel, but because it enhances their driving experience. Imagine being able to drive with the precision of highly skilled professional driver through a winding mountain road. You take each cure with confidence, you accelerate and brake in perfect coordination to make the most of every curve. You have incredible control the the whole way. The car responds impeccably to your slightes suggestion. All the while, it is the software that is intepreting your instruction, road and vehicle conditions and transforming it into something amazing. The potential of the digital car is not only to enhance the performance of the car, but the performance of the driver too. You will want to drive this car because it will feel amazing to be the driver. The P85D is amazing not because some professional driver can make it do 0-60 in 3.2 seconds, but because you can make it do 0-60 in 3.2 seconds.
So what I am talking about is what Tesla is delivering this this decade. The saftey gains from autopilot can be enormous. It shoul not depend on getting to some utopia to kick in. Two years ago a new model S driver fell asleep at the wheel, crossed over the opposite lane and struck a bicyclist. The bicyclist, a librarian at UCSC, died. This is exactly the sort of thing autopilot should be able to prevent now.
I've got more to say, but am running out of time. Next time.�
1/1/2015
guest There are still plenty of places in this world that are awful, some located smack dab in the middle of those great leaps.
No argument that progress continues. It doesn't, however, ensure a good outcome. History has shown us that too.
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Thank you. I'll check it out.
- - - Updated - - -
Nothing has changed. They've stayed the course. Perhaps accelerated it a bit in a couple of areas. All good. Hold. :wink:�
1/1/2015
guest What's more is that they will / could have access to real time data from the universe of local tesla's to inform real time traffic / road conditions, weather, etc. When going blue sky on autonomous driving I think a network of real time nodes will be more powerful than a collection of independent autonomous vehicles.
probably why elon's so interested in AI - if they got control of Tesla and SpaceX we would all be in trouble :wink:�
1/1/2015
guest I find it interesting to contrast how Tesla and Google approached automated driving.
Google is building a "big data/cloud computing" model, consistent with its core expertise. As I understand it, Google's system relies heavily on centralized databases that contain every detail of the road, augmented by on-the-ground observations such as location of pedestrians. There's an implication of enormous bandwidth between car and servers, big servers, and huge (and up-to-date) databases.
By contrast, Tesla relies primarily on "on the ground" data. What can the car see (in one spectrum or another) dictates how it behaves. The GPS link appears to provide only speed limit data. EM didn't mention the 3G connection as part of the system (although we know that the nav system uses information from other Model Ss about traffic conditions).
For my money, Tesla's approach makes much more sense, at least to achieve the somewhat more limited objectives of "autopilot" rather than "autonomous." First, it's clear that Tesla was able to make huge strides quickly, while Google has spent years with only limited results. Second, there is no cost to maintain huge server farms and the comm links between these farms and cars. Third, it's scalable: the car can function pretty much anywhere, whether or not someone has put that geography into its databases, and isn't subject to flaws when on-the-ground changes outdate the central servers.
People drive every day without accessing the master database of all roads; surely a good AI can do likewise.�
1/1/2015
guest When EM mentioned on the last conference call that they had significant R&D expenses on 'cards that they were not showing' is it safe to conclude that it was the DA features in the new model S, and the upcoming model X or something else??? My opinion is that it was the DA but am open to other conjecture that might serve TSLA well long term.�
1/1/2015
guest Everybody know they were working on AWD and Autopilot. I don't think it would be that.�
1/1/2015
guest I agree that logistic growth is the correct model. It very well described the transition for horse to car. It currently seems to be describing the transition from oil to electricity for cars.
I disagree that logistic growth is the correct model for plugin hybrid / electric vehicle analysis, Historically the early EV,ICE and steam automobiles had differing market shares based more on other factors - quality of execution?
2013 global plugin vehicle sales were 210,000 EV Sales: January 2014
2014 global plugin vehicle sales to August are 192,000. So the year could end with around 330,000 plugin vehicles sold. So an annual 60% growth rate for the industry seems OK.
With the assumption of 100% marketshare for plugin vehicles (BEVs and PHEVs) vs ICE (Hybrids and plain), Tesla is currently looking around the 10% figure.
Mitsubishi was a pioneer in EVs, akin to Tesla Roadster in timing but 10x more production (due to assembly run continuing) but
Mitsubishi is far more successful in PHEVs than EVs
why, because with PHEV Mitsubishi was able to price their PHEV variant to compete well vs the AWD Diesel equivalent.
remember
battery tech is improving, so both EVs and PHEVs are improving
but
EVs benefit from cumulative improvement in infrastructure deployment.
PHEVs benefit from faster improvement in power and longevity that Li ion enjoys compared to energy improvements.�
1/1/2015
guest Renim, thanks for looking at this.
I agree there are fits and starts with this. We could even go back to GM's EV1 and see that didn't lead into persistent growth. So there is a bit of a challenge knowing when something has enough critical mass to take off. It think one of the basic probles is that most efforts to make EVs have simply been for regulatory and PR motives. So there has been no serious strategic commitment to them and they have not been designed to make money on their own without regulary incentives. Naturally those sorts efforts are not likely to be sustained. My view is that the Nissan Leaf has some staying power, but the only company with real strategic commitment to EVs is Tesla. So that is basically my starting point. But who knows, Nissan could pull the plug on the Leaf tomorrow or when the Model 3 comes out. I do think that PHEV are promissing in that they indicate consumer demand for a car that can source power from something other than a gas motor. But again at what point do we cross the line from a halfhearted compliance car to something that really wants to compete in the marketplace.
I don't really see this as a modeling problem for the logistic model. It's more of a problem with initial conditions. It is really hard to be sure that appart from Tesla, EVs have truly begun to compete. One variation of this model would be to build separate models for different kinds of vehicles. For example, we could have a model just for sedans, one for SUVs and another for trucks. We've got initial conditions for sedans, but so far Tesla has no SUV and I don't think there are any EV trucks out there. So these to other models are just going to have to wait before there are initial conditions adequate for logistic growth to commence.
Of course you are also correct that developments in battery tech are fundamental to this transition. It seems that for the most part the auto industry is content to wait for someone else to solve the battery problem for them; whereas, Tesla has been willing to take stuff pretty much off the shelf and make it work. In principle any car maker could do what Tesla is doing; they have even openned up the patents to remove any excuse. From the modeling side it could be interesting to formulate a transition model that based on batteries. One of the special challenges PHEV and small BEV makers may have is trying to increase battery sizes without sacrificing unit sales. If you're growing unit sales by 30% and battery sizes by 20%, then you've got to grow battery capacity by 56%. Tesla is coming in from the other angle. It's leading with big batteries. It does not have increase battery pack size to compete for more unit sales.
In any case the market share model is still useful in that it shows what can happen if there is poor comptitive intensity. If Nissan and others are not really competing for EV market share, the industry is even in a worse situation than I'd give them credit for.
BTW, in my set up I include PHEV with other hybrids. I do not see PHEV as being an aborbing state. If I were to have a separate segment just for PHEV I would still want to assume some net transfer of market share from them to Tesla. Have you played around with what happens if you assume a smaller transfer intensity from H (including PHEV) to E and T? You should be able to make H persist a little longer. Admittedly, I am at a loss at this point to find a reasonble way to calibrate those parameters. We ay get a feel for it when the Model 3 comes out. If the growth of PHEVs slows down at that time, we'll know there is a lack of parity. Another way you could use my model as is, is to go ahead and assume PHEVs are included in E and adjust the initial E level, but set the transfer parameter from E to T to something like 10% or 5%. This way you can see how strong the parity assumption is over the long run.�
1/1/2015
guest Actually I wouldn't put it past them that this was most of the money they were spending. This isn't just two motors and a couple sensors. Making it this far, this fast on the autopilot is better than most imagined... We weren't supposed to get this until the end of next year... Talk about one year ahead of schedule.
And the two motors thing is more than just that. They changed the breaks, they changed the seats, and they also managed to tune the car to hit 3.2 seconds... This takes a lot of work to hit those numbers shaving off a full second off their posted time on the old Performance model.
We know they are working the X and they are very much likely working on the 3. So if they are also working on something else that they haven't mentioned then I wouldnt have a clue where to start guessing.
People have thrown out crazy things in the past, but serious claims toward what they could be working on extra would maybe fall under the relm of a yet unspoken fourth model... But I really think it is too early for that.�
1/1/2015
guest Right if you reduce the general growth rates to 1%, the total number of cars sold in 2050 is about half. But note that the share of EV and Tesla do not change. The general growth rate does not impact market share, just the size of the maket.
For projecting changes to the fleet or parc, I have to account for cars taken off the roads (attrition) and sales. So the change in fleet is new cars minus cars taken out of service. I'm assuming that attrition is 6% per year. This is consistent with an average useful life of 16.67 years (=1/0.06). And at 12k miles/year, this is also consistent with a 200k mile life per car.
Thanks for playing with the model!�
1/1/2015
guest Tesla has been very cagey about their future battery technology. Given the importance of batteries, and the amount of money they are spending on building them, I'm willing to bet that what Tesla reveals for future products and refreshes is going to be a lot more impressive than most will expect.�
1/1/2015
guest Great article on the ongoing IHS teardown of a Model S. It really shows that Tesla had a very deep role in the design and production of all the components (so far), which is unlike traditional automakers. I think this has given the company a number of long-term advantage over legacy automakers such as - 1. rapid iteration & production roll out, 2. diagnosis and problem solving 3. systems integration & control software 4. (my favorite) no way for automakers to cross shop Tesla components.
For example since automakers have basically stopped designing transmissions the ZF variants are now used across brands. What was once a competitive differentiator in the industry is now more of a commodity. The easiest example is that Tesla batteries are completely controlled by tesla and not available to other automakers, but the same can be said for the invertor, motor, display systems, cooling system, superchargers, etc. Of course some components are sourced from the same third party vendors (electric steering I believe), but overall this is a Tesla effort. This becomes even more important when you consider how Tesla has been able to integrate the entire car via their software layers.
http://www.streetinsider.com/SI+Newswire/Is+it+a+Car+or+an+iPad%3F+/9906767.html�
1/1/2015
guest Here's an excellent article on Forbes about the shift towards autonomous vehicles in the coming years, and Tesla's likely role in being at the forefront because of its pace of innovation. Much less outlandish tone than Adam Jonas (Morgan Stanley).
Driving Disruption: Tesla is Building Cars Out of Software - Forbes�
1/1/2015
guest Yes. Tesla's autopilot also is quite capable of turning off -- saying "I'm confused by this road suddenly turning into an unmarked dirt road covered in traffic cones, driver needs to take over" -- just like the autopilots in airplanes to. And I think this will continue to be necessary in cars pretty much forever. Google is fantasizing about fully autonomous cars, which will never happen, because there is simply too much variation in conditions -- the whole advantage of cars over trains is that they can be driven through these random conditions (I park on grass fields fairly regularly). Tesla is implementing what can actually be implemented now, not fantasizing about automation.
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Well, they're also definitely working on battery process improvements and the Gigafactory. And although they've talked about the location of the Gigafactory, they've been quite cagey about the design manufacturing changes planned for the Gigafactory. They're also planning to source the minerals from North America using ecologically sound methods, and frankly I think R&D is going to be required in order to do *that* cost-effectively. The pickup truck was casually mentioned once as well (and it would be a coup to be able to send the rangers out in Tesla trucks). They could also be keeping a new convertible design under wraps (they mentioned this before but then went quiet about it). They could be doing R&D on *car factory processes*, which they had quite a struggle with at first; that could cost huge amounts of money. And there's also Supercharger R&D; there are probably improvements to be gotten out of that. And the battery-swap operations, which they've also mentioned. Those are just things they've *mentioned*.
Then there's the delivery system for the cars; currently it is not even as efficient as the standard automakers' and a lot of R&D could be spent on process efficiency. They have to throw money into license compliance for their software whether they like it or not, which is going to be listed under R&D.
I don't think I've been very speculative here, but that's a hell of a lot of things to burn R&D money on.�
1/1/2015
guest I think society will meet automated cars halfway. If you talked to someone in 1920 and said "I think someday urban streets will have cars driving 40-50 mph", they might have said "that's impossible. what if a pedestrian, child, or horse stepped into the roadway? That speed wouldn't allow you to stop in time." The cars didn't change, everything else did. We just understand from a young age that roadways have high speed vehicles moving on them and we cannot go there. We move pretty quickly to remove road debris for the same reason. Roads became these high-speed corridors that are for 50mph cars and for nothing else. In the future this trend will continue. Road crews won't just put out cones and assume things will be ok. They will file a plan with some mapping clearing house so that the computers know to look for the change, and then the cones may not even be necessary (or they would be designed such that cars' vision systems can pick them up and drivers can quickly see that they are the right such cones). Similarly if you leave an urban area there would just be a clear demarcation of where you need to drive. Your car would say "autopilot ending in one mile" and force you to drive before that happened.
In other words, we will make the roadways match the new cars. The cars won't have to figure out everything.�
1/1/2015
guest Yes. Furthermore no need to solve 100% of driving problem right away. Even if self driving car would be able to drive around Mountain View only - it will have it use cases. Add new cities - even more use cases for autonomous driving.
No need to create car that would drive in any season/weather condition and on every road possible anywhere in the world. Start with one small city, daytime in good weather driving. It would be useful as is. And from that point add new cities, highway driving, nighttime one. Then add winter/snow condition, rain etc.�
1/1/2015
guest The problem with Google's self driving car approach is they've targeted all or nothing. Tesla has done this right, introduce the parts that work as you have them, and don't worry about the others until the technology gets there.�
1/1/2015
guest +1 It's as if what they are really after are spy drones that cruise around your neighborhood collecting data. Their vision is too much about putting everything on the internet rather than truly autonomous solutions. That is they want cars and everything else fully dependent on what they provide through the internet. A truly autonomous vehicle would not need to be in constant contact with the Internet to get from point A to point B. It would have localized intelligence and not need anything from Google.�
1/1/2015
guest Just saw this article come out about Porsche building an electric car to compete with Tesla. In the medium term, I think it's good more traditional auto companies are hopping on the EV bandwagon as we'll get to critical mass for the ICE car death spiral sooner. Maybe it's headline reaction causing the price drop.
Porsche to take on Tesla with electric version of all-new model | Autocar�
1/1/2015
guest In my experience, individual investors almost always end up holding the bag when it comes to the short term game. Between attempts of larger players to manipulate the system, the unpredictable results of bot bashes, and sheer irrationality, the short term game is a lot like gambling.
I say trust your instincts and don't play their game.�
1/1/2015
guest I suspect people nervous with high fliers net flix and Amazon drops. I do not link tesla to either of these but people get nervous�
1/1/2015
guest Ford is dragging down the automaker sector following its earnings report. During its conference call Ford said it had broken down a Model S and could build one if it wanted, but has no current plans to do so. Also today, Porsche indicated it is in the formulation stage of developing a competitor to the Model S.
Of course Elon said he would welcome the other automakers getting serious about electric cars. It would inspire more consumer interest in electric cars and validate Tesla's position.
Meanwhile, how would these other manufacturers obtain sufficient numbers of battery packs? The Tesla Gigafactory?�
1/1/2015
guest This is interesting news. Major points from the article:
- secret five-door is planned to form part of a new dedicated fifth model range set to slot into the German car maker�s line-up beneath the Panamera,
- While conventional combustion engine versions of the new mid-sized Porsche model are set to take on established luxury class rivals such as the BMW 5-series, an advanced battery-powered variant is tasked with challenging the Model S on both performance and range
If this vehicle is in the initial stages of planning as stated in the article, it could be 3-5 years before it goes on sale.
The fact that this vehicle is apparently designed around an internal combustion engine means that it likely won't be optimized for an electric powertrain. If a car is designed to accommodate a gasoline engine, fuel tank, exhaust system, and transmission, that is going to affect the internal configuration. Trying to shoehorn a battery pack and electric motor into the car after the fact results in compromises.
Battery costs and lack of a Supercharger network are hurdles for Porche, just as they are for Ford (mentioned in another thread that Ford claimed it could build a competitor to the Model S).
It's one thing to design a car. It's quite another thing to get the ecosystem in place to support that car.�
1/1/2015
guest Yes. I think the 'big boys' are starting to show a little fear of TM. It is easy to talk about a car rivaling the S and quite another thing to come out with one. The EV revolution vs ICE is just getting started.�
1/1/2015
guest I just looked at Porche's monthly sales in North America, and I can understand why they might be very concerned:
http://press.porsche.com/news/release.php?id=883
Porche sold 450 Panameras, and 1196 Cayenne SUVs this past September. The lower volume, high cost car manufacturers are the first ones who are going to see (or already are seeing) their marketshare captured by Tesla. The entry level Panamera starts at around 78k, right in Tesla territory.
If a company like BMW loses a lot of 6 and 7 series sales, it probably doesn't hurt their bottom line nearly as much, because the 1, 3, 5 and related coupes sell in huge numbers. For Porche, the defection of buyers to Tesla could pose an immediate existential threat.�
1/1/2015
guest If companies are only *just now* starting to be concerned with Tesla then it is already too late for them. Consider this, it took Tesla 4 years to show a prototype car that was shoehorned in from an "ICE" platform, and another 2 years to make it reality. Then it took 4 years to build a car from the ground up into the Model S. If the competition is only just now realizing that they need to do something re:Model S.... then they are anywhere from 4 years to 10 years from bringing that car to market... even at that, I doubt they will be able to compete with Tesla's price, like we are seeing with the new i8 Concept (and that isn't even full electric).
I am still not worried... if Tesla was standing still then we might have an issue. But I suspect that by the time 4 years rolls around and they release their "200 mile car" Tesla will be releasing a 400+ mile car for the same (if not better) price.
My estimation is that Tesla will be able to hold their lead over the competition for *at least* another 10-15 years.�
1/1/2015
guest Porsche has sold 35366 cars YTD. Tesla won't sell more cars that Porsche this year, but will pass them in 2015. And once the MX is available . . .�
1/1/2015
guest Remember you're comparing Porsche North America vs. Tesla global. Tesla won't pass Porsche in 2015 for North American deliveries.�
1/1/2015
guest Even more telling, considering that they are proclaiming the goal of taking on Models S, to look at Panamera sales in US. In the first full year of production for Model S (2013) Panamera sales plummeted from 7614 to 5421 - an almost 30% drop (Porsche Panamera Sales Figures - GOOD CAR BAD CAR). The same year Model S sold 22,442 cars outselling Panamera more than 4 to 1, while being in approximately the same price range. Pathetic showing for storied German brand IMO.
Their problem is that they are incapable of thinking in NOT in an ICE company terms. The engineering success of Model S was defined by starting from clean sheet of paper and optimizing car architecture to take full advantage of EV platform. This was highly necessary approach, as battery technology was merely advanced to make it into the compelling EV with compelling range. The adoption of an ICE platform just would not have cut it. Enter strategic geniuses from Porsche - they are planning to take Model S head on by coming up with a car that would have a shared platform between an electric and ICE variants! The sea will part to let another amphibian out! The truth is, in order to compete with Model S they will need to shed ALL hints of an ICE thinking and go all in with an "A" engineering team focused on optimizing the platform around purely electric car. Anything else is destined for a spectacular failure.
Interestingly, Autocar article about Porsche challenge to Model S, made reference to partnership with Audi, which is "in the throes of finalizing its first ever electric car, the R8 e-Tron". We are hearing about R8 e-thron, another half-baked effort based on an ICE car, for many years. According to the same Autocar, it was originally to be four motor all-wheel drive weighting 1600kg, then two motor rear wheel drive with weight going up to 1780kg, with 0 to 60 in 4.2 sec, priced above Audi R8 ICE variant. No wonder we still do not see R8 e-Tron sports coupe on sale on the floor of your friendly Audi neighborhood dealership - looks like that this sports coup was crashed even before entering market - by a 5-7 people five door family car, that matches this sports car performance, while costing less, and being actually useful as an everyday car. Oh wait, while Audi still "finalizes" the sports coup design, Tesla just put out a "D" variant of a family electric car that makes performance of the e-tron sports coup look like chopped liver, to borrow a phrase from well known around here but somewhat idiosyncratic analyst.
The truth is, anybody who is trying to make tentative entry into EV space using ICE shared platform should not have even remote hopes to compete head to head with Model S. They can only HOPE to compete with Model S if they put an "A" engineering team, backed by huge investment and set a goal to desighn pure electric car, with the whole architecture optimized for electric platform. On a face of it, Porsche is not doing this, so they might take on BMW 5 series, NOT a Model S.�
1/1/2015
guest Was the 22,442 Model S sold in 2013 a global sales number or a US sales number? IIRC, it was global. Do you have access to the Panamera global sales for that year? I'm not disputing your premise...I agree with it 100%; I just want to make sure it's a true apples to apples comparison.�
1/1/2015
guest Agreed, @green1 and @jhm. I think Tesla's on the right track here, but then again I don't really like "cloud computing". Centralizing everything isn't scalable; not even Google has, or can plausible supply, enough computing capacity to run every car on the US roads. And, as soon as there is any road construction, accident, or other event, the car has to have enough internal capacity to cope with the unexpected condition by itself (or fall back to the driver, but that's not part of Google's vision). Why not simply use this "local smarts" all the time?
Tesla is being sensitive to its customer base, too. I think few Tesla owners would be happy being unable to control the car (as Google had originally proposed). Instead, providing an option for the car to manage itself under many (but not all) circumstances meets a lot of our needs, at very low cost and without having to give up anything.�
1/1/2015
guest Here's the key phrase that tells me that this will end badly for Porsche:
The Model S is great in no small part because it was built from the ground up as an EV. If Porsche is building a car with an EV drivetrain as an option, it loses all those engineering advantages because the ICE variant has to be able to work. And I'm betting that, even if they do release this EV, that the dealers will mostly steer people to the ICE variant, with its higher long-term potential for repair dollars. "Oh, but you might run out of charge!"
Regardless, with the benefit of hindsight, the mid-day dip appears to have been a passing fad. Basically a flat day for TSLA, even while the overall market did pretty well.�
1/1/2015
guest Global 2013 Model S 22,442 Porsche Panamera 22,032
Porsche has a slightly wider distribution network. :wink:
Record-breaking unit sales boost profit, but are exclusivity and technology leadership at risk?�
1/1/2015
guest Thanks for that link Rob. That puts things into a lot more perspective. So globally...Model S sold at almost a 1:1 ratio to the Panamera last year. It's definitely worth noting that Panamera sales were down 24% (29,030 -> 22,032) from the year before; I'm pretty sure that I'm not alone in thinking that Model S had a lot to do with that decline. I would expect the ratio this year to be more like 3:2 in favor of the S.
The article talks about the Porsche goal of selling 200,000 total units globally by 2018, and that they are ahead of schedule to reach that goal. IIRC, Elon mentioned something on the order of 150-200k combined units of Model S/X around the same timeline (prior to Gigafactory and Model 3 ramp up where we go to 500k units by 2020).
As an aside, just this morning I was next to a brand new Panamera e-hybrid on the freeway. It was so new it still had the temp tags instead of a license plate. I really wanted to flag the driver down and ask what their motivations were to purchase that vehicle. A 60D or and S85 has equal/better performance, and if comparing options, would almost always be cheaper, or at least equal in price (but far less expensive to fuel). On the island of Oahu, a 60 is more than enough range for any conceivable trip you could want to make.
Coincidentally, there was a Sig S about 5 cars in ahead on the freeway. Symbolic, that was :wink:.�
1/1/2015
guest Telling statistics from Porche. Worldwide, their Cayenne is outselling Panamera by a ratio of 3.8 to 1. Looking in my own neighbourhood this seems about right, close to four SUVs for every sedan. At current estimated 2014 Model S deliveries of 35k, this puts potential Model X demand at 134k, right now, let's not even talk about next year.�
1/1/2015
guest The over/under is a fall of 25% for Cayenne sales in 2016 from 2014. :tongue:�
1/1/2015
guest You are right, the 22,442 included sales in NA and Europe; you are also right to agree with my premise 100% :smile:.
As for the numbers to compare, the Panamera global sales should NOT be compared to Model S global sales in 2013, as Model S started delivering in Europe only in August, did not deliver any cars in Asia. In a word, it was not an established global player in 2013.
The proper sales number to consider is NA sales.
So to adjust 5,421 Panameras sold in US, add 328 units sold in Canada, for a total of 5,749.
The European sales for Model D, August through December of 2013 were 240, 1102, 208, 1133, 1263 respectively, for a total of 3,946 units in Europe. So Model S NA 2013 sales were 22,442-3,946 = 18,496. EV Sales: Europe December 2013
So, my apologies for loose treatment of numbers, the MS to Panamera sales in NA should be not 4 to 1, but 3.2 to 1.
In fact, this ratio, IMO, is consistent with what can be expect after Tesla matures into all the world automobile markets by the end of 2015 . We can expect around 60,000 MS sold globally, vs 22,032 for Panamera. So the approximately 3 to 1 ratio will likely hold for global sales as well.
- - - Updated - - -
That is why comparing Global 2013 sales of MS and Panamera is apples to oranges... One needs to look at NA sales for both cars for 2013.�
1/1/2015
guest You would expect Tesla to have the home court or home highway advantage in North America.
Well save for Texas, Michigan, Arizona, Colorado etc
And Porsche to have the home highway advantage in Germany and Austria if not all of Europe.
In China and Japan Tesla & Porsche will go toe to toe on a neutral field.
BTW Australians may have a little of the Elonmania bug :smile:�
1/1/2015
guest I would agree only if Model S would not have been a brand new car in 2013, the first full year of its sales. So i do not believe that Model S had any home turf advantage over Panamera in 2013.�
1/1/2015
guest Porsche sales exactly matched its demand for the year.
Tesla sales did not come close to matching its demand for the year.
Comparing sales is meaningless without taking that into context. If both companies were able to make as many cars as it wanted, Tesla would blow Porsche away (just like it would on a highway).�
1/1/2015
guest And...that's roads just in the USA! Petabytes ain't in it....�
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