Something within the EV industry that actually concerns me is how hard it is to get EVs ramped
and profitable, as we are seeing even the almighty legacy companies struggling so much,
let alone the likes of Lucid or even Rivian, who attempted the Tesla route in small quantities
with a higher end product, but fail on a catastrophic level.
People laugh when they hear targets from GM about becoming 50% electric by 2030 or something,
and that they will bankrupt before then as consumers wont still want to be buying ICE
cars then, but consumers will buy what they can afford, and if EVs are still costing too
much to make, then they still won't buy them.
Sure governments will help where they can, but there is a lot of work for legacy to get
their costs down still, it's not easy, its much harder for them than Tesla of course
due to the antiquated dealer network, along with labor unions, and other costs like advertising.
Not to mention cannibalizing the existing profitable ICE business, for a not so profitable
EV business.
Yes are we are all too familiar with the legacy dilemma, and people like to say they are just
going bankrupt.
But if they do, then who will make the cars that the world need?
The Chinese?
These Chinese EV companies are not profitable either.
Yes, possibly BYD, but I don't believe we have actually seen any official break down
on their actual earnings just for BEVs, unlike Ford have kindly disclosed to us, and make
us realize just how impressive a job Tesla are doing.
For me, this is one of the largest issues I still see with the industry, and potentially
by association, Tesla as well.
We want to see an aggregate economies of scale in the industry.
This is what is required.
However, we are seeing legacy pooling in perhaps in the region of a collective $200 billion
over the decade to facilitate their transition to EVs.
Hopefully, with that, Tesla, and the Chinese eventually the bandwidth does open up, and
costs do come down.
Tesla are going to extremes of new manufacturing techniques, vertical integration and massive
economies of scale with single vehicle models that sell in very high units in order to hit
economies of scale and get costs down.
Legacy will have to follow, gone will be the days of new model refreshes every 5 years,
they will have to milk the same model for longer periods, and refine it further to save
costs, like Tesla have been doing, with just minor facelifts from time to time.
Actually very similar to what Toyota do, and hence why they are also able to get a lower
cost vehicle.
However, Toyota also keep it basic.
Similar to BYD.
Whereas with a Tesla you expect a little more with the brand, of course the obvious feature
being Autopilot or FSD, along with an overall better driving experience.
Legacy need to go back to the drawing board, and look at first principles, of how they
can save money.
Third party suppliers are evolving too, like CATL are able to produce structural battery
packs now, which save in cost and weight, whether they go to the extreme of using castings
is another question.
And judging by their progress in FSD, legacy are not going to get close to an affordable
alternative to Tesla's FSD.
And if that is something that becomes essential for many drivers, they will simply have to
license from Tesla, as much as they hate it.
But Tesla are already doing what they can to facilitate legacy's transition too with
opening up the chargers, which makes a non-Tesla EV significantly more convenient.
I mean Tesla aren't being bashful about how to make an EV, they are giving everyone the
footpath on what is required in order to do this, and obviously leaving all the patents
open to everyone too.
You might say because Tesla's mission isn't to make profits, it's to make a sustainable
future, but I think either way, Tesla incentivizing and encouraging other players to enter the
EV industry is going to end up being more profitable for Tesla in the long run too.
Consumers need to be convinced still to buy an EV over an ICE vehicle.
How do I know, well people are still buying more ICE vehicles over EVs, its very simple.
And if legacy are going to make more efforts with EVs, they are essentially giving their
badge of approval that EVs are the future.
Which by association is also saying that Tesla is the future.
And a great example of this is when we see legacy advertise, particularly for the Super
Bowl, when we saw legacy advertise all their future EVs, that wont be out for another year
or 2, we end up seeing huge search volumes on Google Trends for people searching a Tesla.
EVs are still a new market, and consumers are still weary of them, and obviously there
has been a lot of negative press surrounding them and Tesla.
If consumers see the likes of Ford, GM or Volkswagen saying that EVs are the future
too, it makes them feel more comfortable in purchasing an EV.
Of course it is a lot of money too, it's a lot more than going from a flip phone to smart
phone, so consumers do see an element of risk.
And yes, of course Tesla could do something about this too with an advertising campaign.
And all those hyper bulls who say Tesla don't need to advertise, would quickly change their
tune, if Tesla did start advertising, they would suddenly start claiming its the best
3D chess move Tesla could have done, in some way they spin it.
Tesla nor Elon can do no wrong in their eyes.
And just as a side note, if I was Tesla I wouldn't be advertising now either, not until
the new Model 3 Highland was launched and the new Model Y Juniper.
Then hopefully offering the latest in technology with Hardware 4, which may hopefully be very
impressive indeed.
There are a few legacy EV players, like Hyundai, Ford, Volkswagen, Mercedes, who are trying.
I would say GM, and despite how many models they have announced, or are attempting, their
performance says else wise.
I mean is it just hyperbole?
Are they just making regulation vehicles, with no real intention of actually doubling
down on EVs eventually, and just trying to look good for the shareholders, that they
are taking it seriously.
Some of you may recall that Volkswagen meeting that the executives ran, in how to essentially
copy Tesla.
It would appear that they are taking it serious, but are struggling so much.
Of course the enormous battery factories they are building are real too, and so is the associated
cost.
Which in turn will provide a lot more economies of scale, and vertical integration that they
will start saving a lot of cost, and this will be starting from around next year.
After that they have the rest of decade to trying and reduce costs, and hope the industry
also helps.
And Wrights law of course gets thrown around a lot, and hopefully is prevalent in the EV
industry.
However, they will never be able to compete on cost with Tesla, nor obviously price point,
unless they wanted to lose a lot of money.
Why?
Well the main reason is the Model Y is pretty much the best selling vehicle in the world,
you can't compete with that sort of economies of scale.
And then it is now at the lowest price point like for like, undercutting the Ford Mach
E already, which is losing a fortune on each sale.
So Ford will never be able to compete with a Model Y.
I mean just do the economics.
Ford would need to hit more economies of scale in order to reduce cost, which means they
would have to offer a more compelling vehicle, at a lower price point.
They can't even manufacturer enough of them in the first place, then like we always say
the unions and dealerships.
A Ford will always be more expensive than a Tesla, but a rational consumer will buy
the Tesla.
Perhaps the likes of Mercedes, BMW, Porsche can get away with higher prices than a Tesla
due to their brand, and may be profitable despite selling fewer cars than Tesla.
And maybe they can hit economies of scale in other ways, like battery packs, or what
people used to call the skateboard, or base of the EV, that can be built on with various
models.
The other alternative, is just to just cut range.
Offer vehicles with 150 to 200 miles of range instead, and perhaps that saves enough on
the battery costs, that there some profit, yet it would still be tough to be competitive
with Tesla on price.
I can't see many legacy manufacturers making it successfully or profitably into the EV
market, aside from the more prestigious brands.
Now what will that say about the EV industry, well it would mean that EVs are perhaps perceived
as a prestigious car, Porsche and Mercedes make them, they are top brands, and Tesla
make them too, so by association Tesla is also a prestigious brand, because they make
EVs.
Well possibly, but then there are all the Chinese.
Now the Chinese are doing better than legacy when it comes to profits.
However, I think we can attribute a lot of those costs savings from the fact that they
are made in China, and Elon even said that Shanghai makes the lowest costs Teslas.
China has a lot of competitive advantage in manufacturing.
But then any nation with a domestic auto market, is going to protect that market religiously,
as it's often their largest industry, look at Japan, Germany or even the US.
Massive industries that support a lot of jobs.
So protectionism will be used in order to keep the Chinese out.
Besides the Chinese vehicles that are affordable, are not great cars.
But some are getting very low cost, and may even be suitable for consumers who couldn't
before afford a brand new ICE car.
It really is difficult to tell how this industry will go.
But one thing is for certain, is that Tesla is determined to continue to grow, and every
time Tesla sell another car, thats a customer that Ford, GM or someone else just lost, and
likely won't get back.
Which will only further encourage them to fight fire with fire, or EVs with EVs, which
will likely mean further losses, and further cannibalization of their ICE business.
Each time Tesla sell more vehicles, or even the Chinese EVs, then there are fewer legacy
sales, and fewer ICE legacy sales.
Then each time legacy make more EV sales, then there are also fewer ICE sales, likely
them further cannibalizing their own ICE business, whilst also approving of Tesla's electric
business, which is a downward spiral.
And makes you wonder how long these sorts of financials can go on, and how much the
governments will be willing to help.
However, if governments are helping, then it likely will be to grow EVs not prop up
ICE.
I mean it's hardly a price war, when Tesla are still making a profit, and have already
undercut legacy on prices, and legacy are losing about as much as the EV is selling
for.
So I don't think its a race to zero either.
At the same time, if legacy did actually go under, then there wouldn't enough vehicles
for all the consumers whether ICE or electric.
I think this needs further thought, so let me know your opinions too in the comments.