You keep saying this, and I can’t imagine why you think it’s true. Maybe the person would have bought a RAM truck, or some model from GM. Maybe they woudn’t have bought another truck at all.
That’s the state I’m in. I drive a 25 year old Infiniti. I’m not looking for another car, although I am intrigued by the prospect of an EV… I’ve looked at three different ones, and if I do happen to find one I like - and buy it - it won’t be at the expensive of a different ICE vehicle, it will be because I found something I like, even thought I’m not looking for a new car.
There you go again. Not true.
Actually the front end of the showrooms make about 50% of the profits. As EV sales grow the business will change, but service is not going to go away. It may become a little less important, but businesses go through that sort of transition all the time.
Not even close. 30% of the country live in apartments. Less than 30% have useable garages. It will be a very long time before EVs get anywhere close to that share.
Long-term it will be. I can almost guarantee it. That’s because once you drive an EV regularly, you won’t want to drive an ICE anymore. And probably even short-term. I bought my first EV in mid 2021, drove it for a few weeks, and more importantly my family members drove it periodically. A few weeks after that we bought another EV (a less expensive used one) for the one family member that still commutes. So now we have 2 EVs and one ICE minivan, and as soon as there exists a reasonable EV replacement for the minivan, it’s gone.
And yet 40% of EV owners who trade them in buy an ICE car, according to vehicle registration turnover analyses. (A couple years ago it was 60%, but there are more options now so EV owners have other choices.)
But yes, over the long haul EVs will eat away at and eventually gobble up the gas car business. It won’t be 7 years from now (as the 2030 prediction surmises) and it won’t be a decade, but it will happen.
You’re not like most of those 40%, for a one big reason. Many of those 40% purchased an EV that they couldn’t really afford. Like a Tesla with a $1000+ monthly payment. Their spouse nagged them for a year and they finally traded it in for an ICE with a $620 monthly payment. This doesn’t apply to you at all.
Another portion of those 40% had an older EV (like a Leaf, etc) that has worn out, and may want to replace it with another EV, but EVs are very expensive right now (especially the configuration they want), so they had to settle for an ICE.
I don’t know where to find the statistics, but I strongly suspect that in the $50k+ segment, EV owners will by and large replace their EV with another EV when the time comes. Anecdotally, I don’t know a single EV owner that wants to replace their EV with an ICE.
7 or 10 years is literally impossible. It’s going to take 20+ years.
The main thing here is you did not comprehend the context of the statement. I am talking new car sales.
Now something of a rebuttal on your terms…
We have over one car per person now…or some crazy number close to that. I get trucks are vehicles to and deserve rights.
Seriously why would having no garage matter? Because charging stations can be outside. The wealth of the people in apartments will be rising. Meaning landlords in many instances will need to install charging stations.
But more importantly those who do not have cars in cities wont have EVs. I get that. But that does not change the market penetration for EVs.
The other thing about your statement as it concerns often poorer people, they buy used cars. We are not talking used car sales.
One has to approach the problem from two points of view, external, the competition, and internal, production capacity which I have not seen addressed in this thread.
Elon Musk has said repeatedly that the goal is an average of 50% unit growth through 2030 which would result in 30K production by 2030. At other times he has said, “some years more, some years less.” because people might think that 50% average is the same as 50% on the dot every year. That’s exactly what bashers spout! Bill Maurer…
o o o o o o o o o o o o o o o o o o o o o o o o o
Back on topic, the external view…
When Musk said it, I was using the older 100 million TAM which would give Tesla a 20% share which, in high tech, is easily doable. At 80 million TAM a 25% share is still doable. At 70% it’s 28.6%. Cars in the EV era are both high tech and commodities, much like smartphones. That means that to reach the 50% growth target Tesla must go down market, it’s not an option, it is an imperative,
The internal view
To believe Musk’s mantra, " Accelerating Electric Car Adoption" (8 years ago):
all you have to do is review Tesla’s history, start with the Roadster and start going down market first with the models S and X followed by models Y and 3. The most recent announcement is a new platform that would cost 50% less to produce
To get there Tesla needs more giga factories and/or higher capacity in existing sites. Texas has lots of room to grow and there are talks about Indonesia, India, Canada, and Mexico as potential sites. Tesla also needs raw materials, they are in the process of setting up a lithium refining plant in Texas and perfecting and expanding the 4680 battery cell production.
On pricing
As I have written before, Tesla’s pricing is not entirely dominated by the classical economics law of supply and demand that works for commodities, it also has an increasing returns component that applies to the high tech aspect of EVs. What Tesla has been doing and I expect will continue doing is to set prices so as to match demand as closely as possible to production capacity.
Recently Musk addressed the issue saying that taking market share is more important than high gross margins provided the cash flow is adequate and that is the Internal View which is less visible to outsiders.
I haven’t found the quote so this will have to do (the quote is more recent)
Did you read the linked article? It clearly states the reason why, and your conjecture is not supported.
To quote:
The major takeaway from the EV flip-flopping lands in the lap of charging – specifically at-home charging. The lack of reliable Level 2 charging at home (that’s a 240-volt plug) was a major factor leading to EV “discontinuance,” as the researchers called it.
We had a Volt when we lived in Chicago and it was a decent town car, although my wife thought it was ‘too fiddly’. Kind of like having a pet. We sold the Volt for an ICE when we moved to Wisconsin as it didn’t agree with the hills and winter.
I think because that’s not really at question any more. Tesla proved the bears wrong on that point. Their finances are solid. There’s little doubt that they are very profitable, and thus can increase their production capacity as needed.
It’s just that’s not likely to be a relevant factor. Before EV’s, in the ICE age, the world’s largest automakers never achieved 20% market share (much less 28%). Typically, whoever was biggest (often Toyota or VW) would be closer to 10%. Not because Toyota or VW lacked the financial resources to increase their production capacity. But because the global auto industry is highly competitive and fractured.
We see the same thing developing even in the nascent BEV sector. Tesla’s already lost so much market share that it’s below 20% globally. They’re at 18% - and that level is boosted by the fact that they were basically ceded the U.S. market. In the EU and China, where the domestic firms actually competed with Tesla on BEV’s, Tesla doesn’t have anywhere close to 20%. They’re not even the market leader in BEV’s in China.
Since China and Europe are far further along in BEV adoption than the US, the emerging global market is far more likely to resemble their markets - thriving domestic producers keeping Tesla to a more modest market share - than the current US market by the US domestic producers. Again, not because of any internal production limits on Tesla (I think those have been settled conclusively, just like TOY and VW before them), but because that’s what the auto markets look like.
I was not thinking about production limits but about pricing strategies to maximize the profits of the current production capacity – set the price to match demand to the current production capacity. As the low cost producer it’s the rational thing to do.
As for market share, during the ICE era there was no significant differentiation between brands to create an ‘Increasing Returns’ scenario. With all the computing software and hardware in the SmartPhones on Wheels, now there is.
I don’t think that’s really a supportable claim. No significant differentiation between brands? Really? No difference between, say, the brands of Mercedes and Honda?
You’re using a lot of capitalized terms in your post, which usually means they’re a defined term from somewhere - so I don’t know if they have some very particular meaning that you’re incorporating by reference. But I don’t think there’s any real likelihood that much of the EV market will be “SmartPhones on Wheels.” Sure, that’s where Tesla is operating now, because they’re in the high end of the market. But most EV’s aren’t SmartPhones on Wheels today, and probably won’t be in the future. Most people already own a smart phone, and will want their cars to be able to use the software in their phone - not necessarily want to (or afford to) buy a second, new software suite in the vehicle that they have to pay a premium for. If Tesla wants to get to something like 20-28% of the market, they’re going to have to expand out of the luxury segment of the market.
Again, most EV’s - most BEV’s - sold today aren’t Teslas. Only about 18% of global sales of BEV’s are Teslas, and they have been losing marketshare, since other manufacturers are growing their BEV sales more quickly than Tesla right now. And nearly all of those other BEV’s aren’t really SmartPhones on Wheels (whether the Fiat 500e or the Wuling Hongguang) - they’re just ordinary cars with basic onboard infotainment systems common to their vehicle class, but that have an BEV drivetrain.
That doesn’t make sense Albaby. You agree that is where Tsla is operating so we all can agree Tesla is a smartphone on wheels. Tesla plan is to move down to the 30,000 dollar car range. So their 30,000 dollar car will be a smartphone on wheels. To make your assumption correct, either Tesla will have to make a 30,000 dumb car, which is doubtful. Car companies will have to make their cars for say 25,000 dollars, doubtful because they would lose money from their production plants. Or customers will buy a dumb car for 30,000 dollars over a smart car for 30,000 dollars from Tesla. Does that seem logical less for the same amount of money?
Also, I think we all can agree that Tesla’s production facilities are much more economical, profitable, and productive. They have put the traditional car companies in a bind because of the production facilities and business model especially with no dealerships. Would you disagree with this paragraph and why?
No, not really. Almost by definition, if Tesla’s going to start making a new model that’s 30% or more cheaper than their existing cheapest car, that new model will have different features than the current Model 3. Those differences can, and probably will, include software differences. They’ll need to protect their margins on the Model 3, after all - if you’re offering a $30K car that’s the same as your $45K car, you’re going to run into trouble. There’s an enormous amount of room between the amount of software Tesla current offers and a truly “dumb” car.
I don’t know that any of those things are true. We know Tesla has very good gross margins - but we don’t know whether that’s because their production facilities are just so awesome or because they’re able to charge premiums because of things unrelated to production (superior brand, software packages like Autopilot/FSD, or being able to charge higher prices due to lack of competition in markets like the US).
Nor do I think that their business model has yet to be shown as an advantage. Sure, you don’t need dealerships when you’ve got a wait-list a few months old. The advantages dealers offer is that you can make same-day sales, you don’t have to carry your own inventory costs, you don’t have to capitalize service centers, and you can get more granular advertising/pricing to local markets. None of that’s necessary when you’re at the very beginning of a brand new type of car and are working through a waitlist (like Ford is facing with the Lightning - dealerships are useless at this phase) - but it’s very beneficial when consumers have options.
But that phase will not last. In the intermediate term, consumers will not be lacking for options. They will be spoiled for choice among numerous BEV models that are all available for same-day purchase at local dealerships. In that kind of market, Tesla may no longer have the luxury of being able to force customers to wait for their cars to be made and delivered, but may have to carry inventory if they want to maintain their current margins.
Their no-dealer model is very well-suited to this specific phase of the BEV adoption cycle. It remains to be seen whether that is true when we leave this phase, and move to a more mature and conventional retail market for BEV’s.
Not to the point of creating ‘Increasing Returns.’
The linked article is by Brian Arthur “an economist credited with developing the modern approach to increasing returns” and published by The Harvard Business Review
Increasing Returns and the New World of Business
As this shift has occurred, the underlying mechanisms that determine economic behavior have shifted from ones of diminishing to ones of increasing returns.
In a few words, Increasing Returns is what differentiates much of high tech economics from commodity (classical) economics.
The article is discussing the 18% they observed, and said that a surprising number of them discontinued EV due to lack of charging ease. We are discussing 40% here. So, 18% is already less than half of the 40%. And of the 18%, the article says that half had ease of charging, so that leaves about 9%. Finally, the study is old (in EV and EV charging terms) since the charging landscape (especially in CA) has changed dramatically sine 2015-19. It happens to be that charging in CA is probably the easiest of any state. Even a few years ago, I saw chargers everywhere. Strip malls, supermarkets, large malls, parking lots, even at the CA Science Center. Today, there are many more.
Interesting, but I don’t see how it’s at all relevant.
These products don’t seem to fall within the category of things he’s describing as susceptible to Increasing Returns. They don’t have network effects. They don’t have customer groove-in. They are not “light on resources” to manufacture. Other than automated driving, the software packages involved are going to be a relatively trivial part of the consumer differentiation, because you don’t really use the “smartphone” aspect of the car very much in any ways that materially affect the user experience: it’s just music, calls, and navigation aids.
What am I missing? How is this theory of Increased Returns at all applicable to EV’s?
But they plan on doing that with a new production line that is more productive. That is their plan to get it down to 30 thousand dollars.
Maybe you need to look further into their production process compared to the Old process of building a car. Gross margins have nothing to do with premiums. While Premiums give them more Revenue, it is not calculated into cogs. A company with high premiums can still have terrible gross margins.
I am really curious how you saw Tsla when they first started out. I suspect you were arguing that they were going to go bankrupt. I also suspect that you are very surprised that they have done as well as they have. I think they have proven that the mature and conventional retail market has been a drag on the old, conventional, automobile companies.
Al one small point…well maybe not so small. Tesla wont offer different software in all likelihood. There are safety issues in that the company does not need. It is less cost to offer the same software.
The difference will be the materials that make the car, the size of the car and the battery technology coming down in price. Meaning in larger part all Teslas may come down in price as well. There also may be changes in cost of computer hardware and drive chain hardware and chips that Tesla can benefit from to drive costs down.
RRE might not be used in chip building and other electronics two or three years from now.
Is it really? I’d love to see a link. My understanding was that Tesla was planning on introducing a new model, one that would be priced more reasonably - not that they were going to reduce the price of the Model 3 down to $30K through cheaper production.
Okay, you’ve got me really confused. Gross margins are basically the difference between sales revenue and COGS. Because gross margins are affected by both price (revenue) and cost (production cost), simply having higher gross margins compared to a competitor doesn’t necessarily mean you’re producing more efficiently than the competitor - it might simply mean that you’re able to charge a higher price than your competitor.
Quick example - my nine year old boy has a bunch of action figures. The action figure for Iron Man costs more than the action figure for Generic Action Hero Man. Gross margins on the Iron Man figure will be vastly higher than for Generic Action Hero Man. Not because the company producing the Iron Man figure is vastly more efficient in producing it. They’re both just cheap plastic. But because the IP of Iron Man allows them to charge a higher price. If you can charge a higher price because of branding, or short-term monopoly, or because you are bundling a software package with a super-high margin, you can get higher gross margins than others in your industry without necessarily being any more efficient at producing cars than they are.
If customers are paying a premium for the brand, it will show up in your gross margins.
I was always fairly agnostic about how they would do as a business; but I have always been skeptical of Musk’s claims that he had somehow managed to figure out some magic sauce for auto manufacturing that had eluded everyone else. I’m still rather skeptical, since (as I alluded above) I don’t know whether Tesla has great manufacturing kung foo* or whether they’re just really good at getting people to buy the Autopilot upcharge.
Again, though, that doesn’t really substantively address my point - namely, that lacking dealers is nothing but gain for Tesla during this phase of the BEV adoption cycle. When supplies are short, there’s a waiting list a mile long, and there are few (if any) competing alternatives available right away, the things a dealer network gives you aren’t useful at all. But once the market matures a bit, and you actually reach the point where folks who don’t want to wait a week or two for a car have the option of heading down the street and buying a competitor’s offering out of existing inventory, then there’s advantages to having your own dealer. Then you actually start leaving money on the table if you can’t do same-day sales, and start having to trade off those costs against the savings of not having dealers.
Albaby
*yes, I know. You can’t use the actual proper spelling of kung f_, because TMF thinks it’s a dirty word.
