The more I think about the use of LFP iron based batteries,
then the more advantages I potentially see.
Because Tesla can use LFP iron based batteries they are the winners. This
is such a big deal. It was really hard to achieve but through their efficiencies,
Tesla have done and still offered a satisfactory range with these low cost, durable,
safe batteries, and I feel like I am starting to really get my head around this more.
Tesla noticed that its a lot easier to obtain supply of iron batteries than nickel batteries.
The battery production is constrained by the rate at which they can mine more nickel
and cobalt to increase supply, whereas the iron required for LFP batteries is far more abundant.
LFP batteries are not constrained by any of that. The growth of Tesla is constrained by batteries,
yes we have component shortages, but that will likely only be short-term especially when Elon
recently told us at the Italian Tech Week, that chip shortages will likely be sorted next year,
but in the long run its going to be batteries. Which ever company has the
most batteries can win the EV game, provided that they are selling their EVs at a profit.
But what if nickel batteries, and nickel mines take too long to grow and build up,
until there is enough supply to meet the demand for all these batteries.
On top of that, at the same time this demand is also increasing dramatically. As more competitors
enter the EV game, and other EV companies ramp up their battery production, demand will be
increasing exponentially, so will the supply of nickel from these mines be able to keep up?
But for iron, well there are plenty of iron mines in the world, there is an abundant supply of iron.
On top of that Tesla already seems to be securing what nickel resources there, likely on a grand
scale, because they can handle that much supply, unlike the competition. And Tesla are so much
further ahead of everyone else, Tesla have solved so many issues and problems, that the competition
arent even close to discovering yet. Therefore with this lead, Tesla is able to secure all the
supply chains at an early stage, before any of the competition are also chasing the same resources.
Lets say its going to take years to increase the current level of nickel,
expanding mines, and exploration for more mines. Meanwhile there is still plenty of iron. And as
nickel is in more demand, well admittedly commodities are a hard game to predict,
but we would assume that the price of nickel is likely to rise. And thus increase the price
of nickel based batteries, whilst the price of iron, likely stays constant.
This is going to create a further disadvantage for anyone using nickel based batteries, namely
legacy autos. Less supply available, and at a higher price. Makes it very difficult to ramp up.
The Chinese are only able to achieve an acceptable range with LFP by using so many batteries in a car
and they still only reach around 260 miles. But the legacy autos need to have cars capable
of 300 miles, they have to offer sufficient range, as they are at a higher price point.
Also the fact that Chinese EVs accomplish this by using so many extra batteries,
well even though they are cheaper than nickel based batteries, they're still not free. It still
costs a lot more money, having to use 50% more batteries to get the same range. And it also means
the car is much heavier, handles worse, doesn't perform as well, and doesn't brake as fast.
Therefore it's not that EV producers are battery constrained,
so much as they resource constrained from mines. Perhaps that should be the correct term,
some EVs are mine constrained, there are not enough mines
out there making enough nickel and cobalt for their batteries. But there is plenty of iron.
I mean we have seen the level CATL plan on ramping up. It's an incredible level. We don't
see any nickel based manufacturers with targets as such, save Tesla of course. Not only that,
all the nickel has to be shared with all the other legacy autos who are also trying to ramp up.
So the minerals are likely becoming more scarce. Part of me thinks this is perhaps
Tesla's game theory. Make a big noise about nickel, and how important it is, then all the
legacy autos jump on that ship in search for nickel. Meanwhile it quickly becomes apparent
that there isn't enough nickel to feasibly produce EVs for the majority of EV companies,
and due to nickel potentially becoming more expensive, then it may end up just being an
element more suitable for electric aviation, where it can add more value. And then all
the nickel based battery EVs would have to start all over again, with LFP batteries,
or some other abundant alternative, and then all their cars would handle terrible and have hardly
any range or performance. As an EV manufacturer, I would not want to depend on nickel.
But there is no way legacy autos would not have enough lives to survive that mistake.
It's going to make it very difficult for them all to try and secure their supplies at the same time.
Ford and GM have already partnered with LG and SK Innovation to make
their nickel batteries for them, they are even building plants for them. They are locked in
with nickel batteries. Similar for Volkswagen. It's a good point really, legacy have to realize
this is not at all their industry at all. Their brands simply may pass over into the industry,
but very little other than that. But if they make massive investments, like billions of dollars into
capital equipment that make products, that may very well become obsolete, its just an example of
how fragile these companies are. They cannot make one pivotal mistake like that, or they are gone.
Except this is still the beginning, and its going to cost a fortune,
and there is going to be so much investment they need to do, but none of that investment can go
wrong either. Like investing in factories that will end up making obsolete batteries.
Or batteries that use materials that are simply not cheap or abundant enough.
Yet there are going to be a lot of major decisions like this that will crop up for legacy autos.
Legacy autos are forcing growth, they are not growing naturally. They are building products
at a loss and advertising them extensively. This is not how Tesla was grown. The same is
true for the other start ups like Rivian and Lucid. They have significant capital, they can
afford to make a few mistakes, unlike Tesla back in the day, that was often close to bankruptcy.
These start ups are being built from the ground up at least, with a big piggy bank.
Legacy autos are trying to run before they can walk. Which makes it much easier to trip over.
Legacy autos have not naturally grown into the EV industry, they have forced their way into it.
The market has decided that about a minimum of 250 miles of range is required for an EV.
So you have to deliver sufficient range by any means necessary.
If it means your batteries end up costing twice as much, then you need to be able
to pass that cost on to the customer, if you can't, then you dont make a profit. Oh right,
none of these EV companies make a profit yet, except for Tesla.
At the end of the day, Tesla is not going to be constrained by nickel mines.
Tesla is not going to have to worry about finding enough batteries for their cars.
Tesla will make cars around what batteries are available. The legacy autos are making cars
that they hope people will buy, and batteries are an after thought. Whereas Tesla work out
what elements are available for mass scale EV production, and then make cars around the
available ingredients. Therefore Tesla are able to keep their prices down, and their growth high.
Iron battery production is increasing faster than Tesla is building factories.
Do you see? The cliche of battery constrained will not exist for Tesla.
And the fact that the component shortage should soon sort itself out is major too. As Tesla have
a significant amount of ramping up to do next year to get those new factories at capacity.
So despite we are being told that legacy autos, or Chinese companies are catching up to Tesla,
well that was old Tesla. Tesla are about to become a significantly larger auto make though. Possibly
this year Tesla will be at a capacity of 4 million vehicles a year. That is a huge jump from just
half a million last year. And it wont take much more until they are up around 6 or 7 million,
putting them close to the same number of deliveries as Toyota.
Yet unlike Toyota, Tesla will still have significant growth remaining.
And just imagine how much profit Tesla will be taking in with that many sales,
and how that will be invested in growing the company further. No other auto maker
is dealing with levels of capital and cash flow that Tesla will soon have. Not even close.
I think its going to be very hard for VW to continue their EV growth. Yes VW did grow
165% year-over-year, the first half of this year, from the first half of 2020. But its
a lot easier to grow when you make fewer cars. It will be interesting to see how VW grow next year.
Most of this year’ growth is attributed to the new ID3 and ID4. Well what new EV is VW launching
next year to further increase their growth? There is the ID Buzz that has been mentioned, the
hideous camper van, that ended up looking nothing like the prototype. There are talks of an ID8 too,
a larger electric SUV, presumably to compete with a Model X, except likely more expensive with less
range. Not the way to enter the market, especially with an inferior brand. And then the ID Life,
VW's compact EV expected for 2025. So yea, really, where will VW's growth
come from next year? I think they may struggle to even achieve 50% growth in 2022 from 2021.
Meanwhile, have I mentioned that Tesla are about to increase their capacity by 300%?
Thanks