A lot has been happening lately, what with various global events, like inflation and gas prices,
and Tesla appear to be pivoting. I just wanted to update where I see legacy autos fitting in the
EV industry, since everything that is happened, and how I think legacy autos might play out now.
Firstly,
I will need to clarify my definition of legacy autos. This may not be the actual
legacy companies that we know of today. It looks like the Ford executives have
been sneaky enough to find some parachutes, and abandon Ford Blue, and jump ship to Ford
Model E. I believe this will be an electric division that may not use the dealer network,
and may not even used unionized labor, but not sure, but it doesn't matter as I will explain.
One way or another legacy are going to try and make EVs, they are going to build their
own battery factories, they are going to bring out new electric models and manufacturer them,
probably in some new facilities too. They are going to do everything they can to get
their costs down, and they are copying it all from Tesla. They will support
these investments with the profit that is still coming from their ICE business.
Now it seems inevitable that these ICE businesses will go under,
at least the divisions that actually make the vehicles and engines. The parts business may
still remain profitable, but it might not be enough to keep the companies solvent,
especially depending on how all the financed legacy vehicles go, as legacy has a ton of debt,
and the collateral are their customers vehicles, and it is dependent on their customers to keep
making payments on their potentially heavily depreciating ICE vehicles.
I think most likely they will go into chapter 11
and then the various parts of the business will sold. If they have managed to separate the EV
business before then, then those who absconded from the sinking ship, could do very well,
and we could see insane valuations from these separate sham legacy EV businesses.
Anyway, I am not entirely sure this wouldn't end up in some major lawsuit of Ford destroying
all the existing shareholders equity in the company, but I am sure there'll give it a shot,
and may end up with just a big fine, but what will be potentially an $100 billion plus company.
But there is
not far off about a $10,000 cost for legacy just for car dealers and unions,
and some of those battery packs are about $20,000. When we have Tesla down probably
as low as $6 to 7,000 for their standard range batteries. In other words, there is some low
hanging fruit of cost savings for legacy, if they can transition out of their prior commitments.
Legacy claim that they can get their battery cost down to $100 kWh,
pre-inflation prices. I find this unlikely, but possibly about $150.
Either way, I think they can do enough, including improving efficiencies, to probably get that cost
down to $10,000 for a battery pack, that is offering a reasonable range, around 300 miles.
Of course inflation has just made this all a lot tougher for legacy autos,
although I expect that a new market clearing price, that won't be quite as excessive,
will be found when things calm down a bit over time, especially when supply chains are rectified.
Now I am referring to the legacy brand,
not the companies, and the companies may have gone bankrupt. If that is the case,
I think the logical solution would be for the battery company to vertically integrate,
and purchase the legacy's battery factories and EV production fabs.
If they battery companies don't then there are plenty of others that will see the opportunity.
The point is that there is a very established brand, that can make batteries, and EVs.
This could be purchased, and these extra costs that legacy face today,
can be mitigated. Thus massively reducing costs.
Yes, its great having an EV company with a massive
valuation, but what is also important, is profit. There are two ways to increase profit margin,
reduce costs, which is what we have been talking about, and then to raise prices.
Or produce EVs at a higher price point. Now how do you convince consumers to spend more on your EV,
well for legacy you have the brand. People see value in brand.
Some legacy brands are obviously more valuable than others. But now that the
way to power an EV is somewhat equal, you just need more batteries, and an electric motor,
compared to the complexity of a Ferrari V12 engine over a 2 liter Toyota Camry.
The cost of the batteries and motors will be somewhat equal for Ford as it would be Ferrari.
i.e. there is a fixed cost of an electric vehicle, like for like.
And even if you are Skoda, you still can't get around that, without sacrificing range.
But if you have a brand that people are willing to pay more for, like Porsche,
and your cost is about the same as Ford, then there is a huge difference.
For example an electric Ford may cost $45,000, and a Porsche might cost $60,000
as you would expect a higher quality vehicle. But Porsche and justify a much higher price tag,
because it's Porsche, despite a cost not too dissimilar.
This is gross profit, so it is likely that Ford can't run the company at a net profit.
Whereas Porsche should be fine. However, there will be a limited market for consumers in
that price point. There's a reason Porsche make something like a 50% margin on a 911.
A brand like Mercedes might be a better fit.
It might have enough prestige to get that extra price tag.
And maybe one day Jim Farley at Ford
might Google LFP batteries, and realize there is a better alternative for them, and perhaps they just
offer low range vehicles, at a lower cost, except they invested billions into nickel batteries.
Also they all need to rethink financing, in a
way to convince people to buy their cars, perhaps 10 yrs financing, if they are not depreciating
so much, and to help people understand the cost savings of gas and maintenance.
Tesla cannot make
enough EVs for the market, especially when a large percentage of consumers have decided to electric,
and thus the ICE industry becomes insolvent that much quicker. Tesla looks like it will
have that 2 year waiting list I was warning people about. But if you can spend a bit more,
you can get a legacy auto much sooner. I think there will be demand for legacy autos.
Again, I think it unlikely they will be owned and operated by the same companies, or the traditional
legacy industry, now it has been disrupted and shown a more profitable way of selling cars.
There is a lot
of demand for EVs. Tesla will carry the main load, but there will be plenty of space of
others to come into the market. But I think it will be tough for legacy to produce much
more than about 10 million electric vehicles a year collectively, and maybe that's about 2030.
I continually say I want competition too. This industry and movement is bigger than just Tesla.
Don't worry Tesla will have large enough share of the market, for most of you never to have
to worry about money again. But competition is important. I don't want Tesla to be a monopoly.
Legacy autos can make all the refined products for people who need
something that much more specialized to their needs, applications or lifestyles.
I think Tesla is going to focus mostly on Robotaxis. When you study the financials,
it makes sense to be focused on that more than anything.
For the legacy
brands to survive, any non-prestige brand has to resort to LFP batteries,
and only offer 200 to 250 miles of range. Ford using nickel based batteries in their EVs,
is the equivalent of using a V12 in their ICE vehicles. They got this majorly wrong.
The charging infrastructure will improve enough for vehicles with these ranges. Then Ford can
potentially price themselves around similar to Tesla's price points. And the likes of Mercedes
can price themselves above Tesla. Offering more refinement for the typical Mercedes driver.
Not everyone wants a Tesla,
not everyone likes a Tesla. Also some people apparently don't do their research when buying
a new car, or don't care about how well the car drives, or it being as safe. I am not joking,
they really don't. Some consumers are brand loyal to the end, and only buy Mercedes. Legacy autos
realize there is so much money to be made in the EV and AV industry, they need to do everything
within their power to try and transition. But if they go bankrupt trying, the EV business can
be sold to someone who knows what it takes to make it profitable. Also I don't want a world
where every vehicle is a Tesla. Competition is the most important part of capitalism. The pie
is big enough. Also I know we didn't touch on the Chinese EVs, but that needs a video of its own.