Elon and Tesla did it, they achieved volume production,
back in 2018. Still to this date no other EV manufacturer has reached volume production.
We continually hear about how Tesla has made all these absolutely incredible achievements
in their superior EV technology. But don't let the EV specifications take all the lime light,
it's also the manufacturing capabilities of this company that helped achieve this.
And Elon has gone on to state just how important manufacturing is.
Now slavery was responsible for holding back innovation so much,
technology wasn't so necessary, if you can just make a slave do it instead. It
would be a lot more motivating to innovate if you didn't have slaves to outsource to.
Just to be clear I am not meaning to call or associate Chinese as slaves, but it was a very
poor country, which had a lot of low cost labor,
eventually China joined the WTO in 2001 and became the global manufacturing powerhouse. This army
of low cost manufacturing labor has thus hindered manufacturing innovation, and for some time. FYI,
this has been responsible for getting the most people out of poverty over the last 2 decades.
But now there is a company that needs more, there is a lot of manufacturing to be done,
to transition the global energy and transport industries to become renewable. Current
manufacturing techniques are not sufficient. Tesla need to leverage more Robots and automation,
remove unnecessary processes, etc. Manufacturing now has a reason to innovate.
Anyway, when we hear Elon talk about various aspects of the car, we don't hear him say things
like "Designing an octovalve was excruciating", or making structural battery packs, or even 4680s.
Although they were by no means at all easy. In fact so much so, that no one else yet seems to
be close to anything remotely. But again we are back to talking about the EV specs themselves.
Now when it comes to manufacturing, well it was volume production that Elon said was excruciating,
at least with positive cash flow. Do you get it? All the other things that Elon is not saying are
hard, still seem to be far too hard for everyone else anyway. So just imagine how hard volume
production with positive cash flow must be, if Elon says that's not only hard, but excruciating.
Oh, and that is excruciating for Elon and all the best engineers in the world,
all rethinking manufacturing from first principles. Therefore perhaps the world we are
looking for anyone else to achieve positive cash flow volume production might be... impossible.
Then why doesn't Elon help them, wont that transition the world faster,
and be more inline with the mission? Well the world is not car manufacturing constrained,
it's battery constrained. Whether the batteries end up in a Chinese EV, Volkswagen, or energy
storage they will not be wasted. What would be wasted is other EV companies ramping up to volume
production competing for scarce resources against Tesla. Thus these other EV manufacturers make
superior less efficient EVs, over the opportunity cost of Tesla using those batteries. Therefore,
it would inline with Tesla's mission not to help, as everyone is competing for batteries.
Alright so how close are other EVs getting to volume production? So far the Chinese EVs seem
to max out at around 10,000 units a month. The BYD Dolphin just reached it recently, but the Han EV
doesn't seem to have increased any higher from 10,000 the previous month. Anyway,
it will be interesting to see if they can actually do hit volume production.
I would say the BYD Dolphin likely has the highest chance of any,
what with it being so small and basic. The Chinese EV companies are half way to
volume production already, but something tells me the next half gets a lot harder.
What does this even mean? Well if one production line is capable of producing 10,000 units a month,
and another production line is capable of 40,000 a month,
well the second is costing 1/4 the amount on capital equipment per car.
I know we think about how Tesla saves costs in the cars, by removing radars and lumbar support,
or gear levers. But the capital equipment is a cost too, its not just about parts.
If you have a factory that produces 4 times as many units on the same size production line,
or shorter even, as it is Tesla. Then you can generate significantly lower production costs
and operating expenses. And obviously there is a big difference in savings between 10,000 units
and 40,000 units. Of course we have seen Tesla hit rates of over 80,000 units a month already,
and that's not even with the new manufacturing processes. Hmm,
anyone else get the idea this 500,000 a year capacity from Berlin might be a little sandbagged?
It may not be essential for the competition to hit volume production.
It will just likely mean they will really struggle to ever undercut Tesla on price,
and let alone doing it at a profit. Some legacy autos can at least justify a higher price tag than
a Tesla through the prestige and value of their brand. For example you wouldn't expect Ferrari to
try and undercut Tesla on the price of a new EV, of course even though the Ferrari would be slower.
The Chinese brands have no class, heritage, history or prestige. Why would you pay
extra for a Chinese car over a Tesla? Well rationally you wouldn't really, unless you
wanted something different, but then you would likely choose something with more brand value.
Unless of course Tesla has a 2 year waiting list or something, and there aren't many other options.
The Chinese are at a dilemma, they need to cut costs much more to make a profit, as their price
point is below Tesla. They will never be able to come close to Tesla on the cost of an EV,
like for like. Which makes it really tough. There is really only a chance of a slim net
profit these Chinese EV companies can make. And that's per vehicle,
they would still need to sell millions of these vehicles, to make decent profits. And even then,
they probably still don't fit into their current market capitlization.
As we are saying for legacy though, at least some of the brands,
can justify higher price points than Tesla, to possibly generate profits.
But again the whole volume production thing does make it hard. What if they can only produce 10,000
a month per production line. That's just over 100,000 vehicles a year. Just think
how many production lines they would need. And don't think in terms of giga factories either.
The largest car-making manufacturing plant in the world, with a floor area of 70 million
square feet, is Volkswagen's Wolsburg plant, and manufacturers around 1 million a year. Now that
doesn't really mean a lot to most of you probably, so let's compare. As far as I can tell 70m sq ft
is 6.5 km2. Now the foot print of giga texas is 0.4 km2, even if that factory was 3 full stories,
then that would be floor space of 1.2 km2. Still 1/5 the floor space of giga Texas.
Now if Texas was able to hit 2 million/yr run rate, then that would make texas around 10 times
more efficient per sq ft than Volkswagen, remember it's not just the speed of the production line,
but the size of it too, gigapresses save 600 robots. Those numbers are a little rough, sure,
and there are lots of other things to factor in, but I think you get the point.
If other EV companies want to deliver a serious number of EVs, they will require huge factories.
But actually legacy auto already have these factories, and perhaps a lot of the capital
equipment. They may be able to recycle a lot of what they were already using.
Except this capital equipment are now the likes of old robots now,
Tesla have just bought all the latest robots, and the ones designed specifically
to the task at hand. Old factories, with old technologies designed around different products,
in different industries, will just mean more reasons legacy continue to fall behind.
Right, this whole volume production thing, really makes other EV companies hit a brick wall.
How do they get past this? I don't hear too many people even mention this either,
as one of Tesla's competitive advantage. It goes further than the actual product offering,
which Tesla absolutely destroys in. We are just inundated with Tesla out performing on range,
super charger networks and FSD. These are more competitive advantages in owning the
actual product rather than the business itself. Volume production is a huge competitive advantage.
Even if BMW made a more appealing EV than Tesla, BMW still couldn't come
close to making enough. Of course BMW would lose a fortune on each car too.
We need a lot of EVs to replace the global fleet. Tesla are the only ones showing
signs of making a dent. Last year Tesla had about 25-30% of the global battery supply.
Next year it could be as high as 50%. Of course Tesla's batteries will make more
EVs than the competition's, so 50% EV battery supply would equate to more than 50% of EVs.
Except of course the cheap Chinese EVs with small batteries that skew the figures.
Perhaps the competition's hope is that the entire ICE and gasoline industries completely crumble,
and there won't be enough EVs available for everyone, so people will end up buying their EVs,
even if they raise the prices to make a profit. And loosely speaking
there will be some element of truth there potentially.
Buy I envision their hope is that battery prices will come down
over time. This is a much bigger deal for legacy compared to most of the
Chinese though. The Chinese batteries are already significantly lower cost,
due to using LFP batteries. Legacy auto's batteries costs have a long way to go still.
As for positive cash flow for Chinese EVs, I would have thought eventually their batteries
alone should reduce even a further $3,000 still. They just need to improve efficiencies,
like power trains, and reduce weight, and perhaps over time they can achieve better ranges. Just a
10% increase from where they are now would make a huge difference. Most of the Chinese EVs have
about enough capital remaining to last about 2 to 3 years at their current burn rates,
BYD can last longer, as it is funded by it's profitable hybrid business.
So they have until that time to turn a profit.
As for the other non-Chinese EVs, well they have marketed themselves differently. The Chinese just
went to straight to head with Tesla and tried to beat them on price. The US EV start ups have
positioned themselves, like Lucid as the luxurious EV. Perhaps that will mean they can charge a
higher price and get away with it, and perhaps don't need to achieve more than 10,000 run rate
to achieve profitability, or else it wouldn't be easy at their burn rate.
Just to re-iterate, Tesla hit volume production in Fremont, four years ago, in a factory that was
not purpose built, without using manufacturing techniques like diecast molds. Tesla had very
little experience all around in making cars even at that stage, yet they hit volume production.