Hey, I’m Steven and this is Solving The Money Problem.
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In March 2019, the Model Y was unveiled to little fanfare -- despite its colossal potential.
In the months following, Tesla stock fell close to 40% and hardly a peep was heard about
Model Y.
Meanwhile, the investor in me was salivating.
So, why did everyone ignore Model Y?
I think the answer is simple: Model 3 stole its thunder.
Model 3 was Tesla’s make-or-break, bet-the-company, mass-market electric vehicle -- the ultimate
goal of their 2006 Secret Master Plan.
A revolution in transportation and Tesla’s crown-jewel.
So when Model Y was revealed 3 years later, sharing 75% of its parts in common with Model
3 and thus looking starkly similar, no one seemed to care.
They’d seen it all before. It was boring.
And that’s the point.
Nearly everyone is sleeping on Model Y’s potential.
It’s not flashy, it’s not controversial, it’s not ground-breaking, it’s not Cybertruck.
It’s just a fantastic SUV.
So let’s dive in and explore why I believe Model Y Will Make Tesla Billions.
There’s a Colossal Existing Market
The global SUV market is GIGANTIC at 30 million new SUVs sold every year and it’s growing
rapidly in major markets like the US, China and Europe.
30 million is a large number.
It means a new SUV is sold approximately once every second.
Let that sink in.
Globally, Toyota, Nissan, Honda, Jeep, Hyundai, Ford, Volkswagen and Kia ALL sell north of
1 million SUVs annually.
Is it unreasonable to imagine Tesla can capture a few percent of the market?
I don't believe so.
After all, Model 3 sales are absolutely DOMINATING every vehicle in its class -- capturing up
to a quarter of ALL small and mid-sized luxury car sales in the US.
Tesla can’t build Model 3s fast enough to keep up with demand.
Model Y will be no different. The fact that it’s electric doesn't matter. The fact that
it is unequivocally better in every area of importance to most consumers DOES matter.
Elon Musk has stated that he believes Model Y demand will exceed the total demand for
S, 3 and X combined.
Tesla is expected to deliver over 360,000 vehicles in 2019 and thanks to the Shanghai
Gigafactory, will reach combined S, 3 & X production capacity of 590,000 in 2020.
If Model Y does the same total of 590,000 at an average selling price of $50,000 (which
is super conservative), we’re talking $29.5 billion in revenue -- JUST from the Model
Y.
This is not an incremental increase.
It’s a quantum leap!
Tesla’s combined automotive revenue from 2017 AND 2018 was less, at $28.5 billion.
But Tesla isn’t stopping there. We already know Tesla’s gigafactories are built with
future expansion in mind. I suspect that when the Shanghai and Berlin Gigafactories are
fully ramped, we’ll see Tesla producing in excess of 350,000 Model Ys per year from
each factory, just as we see 350,000 Model 3s coming out of Fremont.
That’s 1,050,000 Model Ys year.
We’re talking $52 billion in revenue.
How long will it take Tesla to ramp to such production volumes?
I don’t know.
But we have seen Tesla increase annual deliveries more than 10 fold in just the last 5 years.
They’re scaling incredibly fast.
It won’t be long.
In short, the market for Model Y is colossal.
Fat Margins and Parts In Common
Tesla is an optimization machine.
At every level of the business, from corporate structure to the machine that builds the machine,
Tesla is constantly looking for ways to remove complexity, save time and save money.
Model 3 taught Tesla a LOT and those valuable lessons have gone into the Model Y.
Model Y shares about ¾ of its parts in common with Model 3.
This isn’t an accident. Tesla thought long and hard about how to make the best product
possible, as efficiently as possible.
[It’s a lot of little things like, looking at each little tiny part, each process--say
“Is the process necessary?”. Because the best part is no part, the best process is
no process”] - Elon Musk
What better way to save enormous capital expenditures than to share parts?
Doing so means far less new equipment is required and there’s a much lower learning curve
for workers and robots who are already familiar with most parts and processes.
But Tesla didn’t stop there.
Tesla filed a patent in 2019 for a gigantic die-casting machine. Its purpose? To turn
70 separate parts into 1 -- assembling the entire Model Y frame as a unibody -- in ONE
process.
This change alone will save an absurd amount of time and complexity, greatly helping margins.
But Tesla didn’t stop there.
One of the most exciting patents filed by Tesla is for a new vehicle wiring system.
Yeah, sounds riveting Steven. Please, tell us more about this exciting wiring system.
I’m glad you asked.
Let’s watch this clip:
Like general assembly is the one I was talking about as being really well suited to people.
Because you’ve got a lot of weird things that you’ve got to put together.
For parts that are complicated and fiddly, like--wiring harnesses are especially difficult.
You see how like the wiring harness kinda needs to snake through the car? It’s literally
like winding a snake through the car. You’ve gotta like poke it through holes and do various
things. That’s SUPER difficult for a robot.
Did you catch that? Wiring a car is a fiddly, cumbersome, time-consuming pain in the ass
that must be performed by humans.
Well, Tesla’s new wiring system adds a little stiffness to the mix, creating rigid cables
that can easily be manipulated by robots.
This will save a gargantuan amount of time, and thus cost.
But wait, there’s more.
Not only is the writing system now a “drop in place” delight rather than a floppy,
flaccid mess to install, but Tesla’s innovation has allowed them to remove an absolute s**tload
of waste, weight and cost.
Model S has about 3km of wiring harnesses.
Model 3 has about half that at 1.5km.
Model Y has about 100m of wiring which is roughly 6% of the Model 3 and 3% of the Model
S.
This saves material costs but far more importantly, weight.
The lighter the vehicle, the more range its battery will provide on a charge and the better
value it is to consumers.
The Model Y will cost about the same to produce as a Model 3. Yes, it’s a little bigger
and there’s a tiny bit more material involved, but I expect the new manufacturing efficiencies
will even things out.
Tesla is selling Model Y for about $3,000 more than the Model 3.
Most of this is pure profit.
This matters.
There’s No Compelling Competition
Tesla’s lack of competition is embarrassing and depressing. The Model S, 3 and X are each
in a class of one.
This could change. This should change. I hope this changes, but as it stands today, there
is nothing that comes CLOSE to matching Model Y on any meaningful metric.
Range? Even if we reach up into the luxury SUV no one is close, except Tesla’s Model
X. Audi’s e-tron taps out at just 204 miles. Jaguar’s i-Pace at 234 miles.
With their Mustang Mach E, Ford claim to be targeting the same EPA range of 300 miles
that Tesla are with the Model Y, and I really hope they succeed.
But I have my doubts.
So far, the trend from legacy automakers has been to make big claims about range, only
to let everyone down with the final result. Tesla has done the opposite, delivering on
their promises and then even INCREASING range further, with over-the-air updates.
Infotainment? No one is close.
Safety? Well, we’ll have to wait and see but Model 3 is the safest vehicle ever tested.
S and X are #2 and #3.
I don’t want to be presumptuous but...
Actually
f**k it,
I DO want to be presumptuous.
Model Y will be either the safest vehicle ever tested by NHTSA or the second safest.
Charging infrastructure? No one is close.
Over-the-air-updates? No one is close.
Storage? No one is close.
Cost of ownership? No one is close.
Value? Nothing comes close.
You get the point, right?
Tesla is running circles around everyone on everything that matters.
Model Y will be the best SUV in its price range by a ridiculous margin.
And SUVs are the most popular vehicle on planet earth, accounting for a third of all new vehicle
sales. And this market is GROWING.
The option for 7-seats expands Model Y’s market further.
Consumers who know about the Model Y, and care about rational things -- which I admit,
isn’t everyone -- will find it very compelling.
It won’t suit everyone but it will suit plenty of the 30 million people buying SUVs
annually.
It’s WAY Ahead of Schedule
We were originally told to expect Model Y production in late 2020.
Then, as Tesla reported their Q3 2019 results, we learned that the Model Y production ramp
was 6 months ahead of schedule, with production expected to begin by mid 2020.
Following that, a rumour leaked that Model Y production would start as early as Q1 2020
and soon after that, a Taiwanese website reported that Tesla suppliers has been told to expedite
Model Y parts delivery by a further 6 months putting Model Y production at late 2019 or
early 2020.
Why does being almost a year ahead of schedule matter?
Because it means billions in revenue will arrive early and more importantly, Tesla can
begin dominating the SUV market sooner by getting a head start.
Tesla does not advertise its vehicles.
They don’t need to.
The cars are so good they sell themselves.
When a new owner takes delivery of a Tesla, their friends and family suddenly get exposed
to a Tesla.
And as we know, once someone experiences a Tesla, they tend to want one and if they have
the financial means, they tend to buy one.
More sales equals more sales.
PLUS, each new vehicle Tesla puts on roads is a mobile data center, feeding its self
driving AI to become even better and moving us closer to full self driving.
When the “fleet awakens” it’s game over.
I really need to stress this point.
The single most important thing for Tesla to do right now is put more vehicles on roads
to collect more data for full self driving.
If they solve FSD first, it is game over.
While other companies are paying engineers and drivers to collect data to train their
AI, Tesla’s customers are paying Tesla for the privilege of collecting and GIVING them
valuable data. Think about that for a moment.
To sum it up, the market for Model Y is absolutely gigantic and Tesla looks poised to take a
very healthy slice, just as its Model 3 has done in the sedan market.
After all, Model Y is just a bigger Model 3 with more storage and slightly less range.
With a massive market, low capex, a short learning curve, high margins, production ramping
almost a year ahead of schedule and no noteworthy competition, Model Y looks poised to make
Tesla tens of billions in revenue and dominate for years.
In my opinion, Model Y alone will account for more of Tesla’s revenue within a few
years, than their entire business generates today.
That’s food for thought.
I’m Steven Mark Ryan, this is Solving The Money Problem, and I love you all.
Thanks so much for watching.
Let me know your thoughts in the comments below.
Do you see Model Y becoming Tesla’s best selling vehicles?
Will you buy one?
Do you agree or disagree with anything I said?
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