Now I realize the economy is somewhat delicate right now to put it lightly.
There's a real chance that all these interest rate hikes the reserve banks are doing, are
going too far, and going to have dire consequences, where a lot more people lose their jobs, houses,
and really cant afford new cars.
I am not trying to ignore any of this, but no one knows how this will land.
We have to hope they didn't down tune the economy too much, that it means the economies
really start to struggle.
At the same time, in order to stop the inflation, or reduce it to the levels they are aiming,
they likely need to break parts of the economy.
As to how much is another question, and like I said, they have to make sure they don't
go too far.
Or can perhaps at least hold out until other global pressures relieve the situation, like
war.
I think it may even sound like the FED are starting to realize this now, and actually
don't want to totally destroy the economy.
But it's hard to assess the future damage of their actions.
Anyway, I am not putting my head in the sand and ignoring all these, we simply don't know
the extent as to which this will leave us all.
But that may be the scare, that Tesla possibly end up struggling to sell all the cars they
make, because so many people can no longer afford one, and consumer confidence is at
lows.
So, how about we do explore this scenario.
PRICE So what are we ultimately talking about here.
Tesla will lose demand, and how do you fix that, you either reduce supply, or reduce
prices.
Pretty much the entire auto industry has to do the former, whereas Tesla can do the latter.
Again Tesla have their margin buffer, and if they reduce prices, they end up becoming
relatively lower cost to what the competition is offering, thus likely taking orders from
them, rather than reducing their own supply.
But this is Elon, who hopefully is as smart as we wall think, and has thought this through
already, or perhaps a long time ago, and has contingencies.
The margins only reduce, if the costs of the goods sold remains the same.
But what if Tesla can get their costs down, along with the prices of the cars?
What if Tesla can offer a low cost variant during the down market in order to hold up
supply and profit?
MODEL 3 I have been thinking more about this revamped
Model 3, and reading all your comments in regards to the recent video I made about it.
Now I am sure many of you have heard people in the past say the Model 2, or lower cost
Tesla, or even $25,000 Tesla, is going to be the Model 3.
Elon also recently said he knows how to build electric cars for about half the price of
the Model 3.
And some of you put this all together and think that this lower cost Tesla will be this
new Model 3.
Personally I think we need some extreme manufacturing and design changes to get a platform that
low a cost, I'm thinking more like a compact version of the Cybertruck.
Although I am more than happy to be wrong.
I mean even we know Tesla can drop the cost of a Model 3 dramatically with changes like
structural battery pack, front and rear castings.
Or moving from 12v to 48v and reducing the required cabling.
And it sounds like there are a plethora of other things that can be changed too.
This would reduce costs and increase production speed, and reduce the production space required.
All things we like to hear.
We know this is possible, and will just require the lines being down for possibly a few months,
whilst they are upgraded.
REDUCED PRICE However, once ramped up, then we should see
a low cost Model 3.
I would say it highly likely that the Model 3 already costs under $30,000 in Shanghai,
possibly even around $28,000.
And that is with the current exchange rate where the dollar is stronger than it used
to be.
However, China also offers low cost advantages.
But we are talking about new manufacturing techniques that are more automated.
And again, remember this is with a strong dollar.
So I am going to speculate that Tesla could get a Model 3 down to perhaps $25,000.
Which would mean they can sell them for $35,000 and nearly get 30% gross margin still.
Possibly even lower cost again in Shanghai as they are already sell for only $38,000
there.
Except then there is a likely chance the Fremont versions will get a further $7,500 off with
tax credits, which would effectively make them $27,500, for a brand new Tesla.
Of course that's at a price of 30% margin, I don't think Tesla would need to go that
low, even in this economy.
PRODUCTION The Shanghai Model 3 factory could be in excess
of one million units a year.
The Model Y factory capacity is 750,000 and its a smaller factory, making a bigger car,
and doesn't have front castings.
Sounds hard to believe, but at the same sounds totally possible.
BATTERIES It's great tesla can manufacturer more cars,
but remember, the entire EV industry has this massive bottle neck called battery supply.
Where will they get the extra batteries from, we are talking about potentially a massive
extra amount.
Well that's funny, as we are seeing this enormous new CATL factory being built currently, supposedly
with a capacity of 80 GWh a year capacity according to Ningde Times Shanghai, and supposedly
for Tesla.
I mean who else could take enough cells to build over a million extra vehicles a year,
so it is obviously going to be for Tesla.
Now I have been wondering where all these cells will be going.
We were actually told that Tesla would build a new factory in Shanghai, however we expected
them to start that earlier this year, and there appear to be no signs of yet.
This however would make sense as to where these cells are earmarked.
I often try and look for coincidences, as I find they often help make sense.
Have we been so distracted with Tesla's growth with 4680 cells, that we have forgotten about
LFP?
Despite Elon telling us things like 2/3 of Teslas will have iron cathodes in the future?
Sure, 4680s are lower cost, and get US subsidies, but LFP is still a low cost cell, especially
at this scale.
And this is highly possible that this is CATL's new M3P cell which has higher energy density.
Tesla are focusing on 4680 cells at the moment, and don't have time to start their own LFP
production line, as they have barely gotten very far with the 4680 ramp as it is, one
thing at a time.
And 4680 cells are vastly more profitable, as they can go into long range vehicles which
sell for my higher prices, and the cost of Tesla's 4680 cells are already low enough.
And Elon keeps saying to all the battery suppliers, he wants them to keep ramping and he will
buy all their cells and batteries.
MODEL Y Therefore Tesla can potentially offer a lower
cost Model 3, and I would say still generating the same gross profit as they do now, I said
same gross profit, not same gross profit margin.
In other words, Tesla reduce the cost of building a Model 3 by perhaps $5,000, then if they
reduce the price by $5,000, the gross profit per vehicle would remain the same.
All that would change is the demand for a lower cost Model 3 would increase.
And we have the Model Y, with 4680 cells, we already saw them being sold for $60,000,
so possibly the price will be around that too.
Meaning Tesla can offer lower priced variants to not only weather the storm, but potentially
see tremendous growth.
The future of this industry is more cell production, at lower cost and higher energy density.
Similar to how microchips are, they keep getting better, sure not quite at Moores Law.
NEW DESIGN Also it wont just be the lower cost that increases
supply an updated design too, just like how the S and X refresh increased demand.
And it if it has a structural battery pack, then it should handle better, and be lighter.
It should simply be a better car all around.
Even if production reached one million in Shanghai, then they could likely still sell
every car they make.
Although I think Tesla will need to work more on logistics here, as the China domestic market
won't be big enough.
And maybe that is the actual bottle neck here, and perhaps Berlin will have a new Model 3
factory too.
We are hearing about shipping prices reducing though, and thus export costs reducing for
Tesla.
We are still suffering from COVID related supply chain issues, and China lock downs,
but we would expect this to eventually come to an end, and logistics becoming less of
a limiting factor for Tesla.
SUMMARY I know its not as easy to get excited in these
times, just remember this is Tesla, and anything can happen out of the blue, we don't get told
a lot of their plans.
They just happen.
Tesla dont try and sell us on their future to pump the stock, we don't get told how amazing
they are going to be for the company or profits, we have to work it all out for ourselves.
There is always hope for this company, even in a down market.
And if Tesla can start making lower cost vehicles with all the associated savings over an ICE
car, then they could still do very well during these potential economic times.
I am not saying the stock price will bounce back to all time highs, I am saying Tesla
could still potentially have a strong business even during the bad times.
It's about getting through these kind of times to make it big.
All I am saying is the is still hope.