Tesla's Growing Inventory-Problem or No?

Investment Analysis Clubs Macro Economic Trends and Risks
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We’re about in the same boat, only a '07 Civic is being gifted to our 28 yo Grandson if/when he gets his CA DL… It’s been a slow process… The Civic is in good shape, used to have an Accord, but a red light runner totaled it, sadly, that little V6 was a winner… Gone…

But the Hybrid CRV has our attention, I kinda fin it SIL’s ICE CRV leaser, it fits our limited garage space, I took 6’ off the front for a laundry room, many, many years ago, so we have keep an eye on vehicle length, CRVs ar snug, but can work…

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One of my sisters just got hers. Delivery took six months.

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No offense, but it is possible you don’t give the vibe of someone interested in software. I say this because Honda does offer software subscription services for added security features (Security package), added convenience functionality (Remote package), and even a Concierge package. Have to go for the more expensive trims though. MyGarage

Or you could try buying a Honda again in 2026 when the joint venture between Sony and Honda is supposed to be introduced. It is called for some unknown reason “Afeela”.

But Afeela also signals a kind of maturation in the EV market, with serious, real-deal companies jumping in to own the digitized future of cars defined by subscription services, data, and software-driven features

Like it or not, software-defined cars are coming.

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The automakers seem convinced people want their cars to work like their “smart” phones. Mr Softie thought people wanted their computers to work like their “smart” phones, and brought us Windows 8.

In the past, the automakers seemed convinced everyone wanted opera windows…and coach lights, and hood ornaments, and fake air vents on the sides of the front fenders, and fake front brake air ducts in the front bumper, and fake exhaust ports in the rear bumper, and fake exhaust ports in the hood, and tail fins.

Lots of automakers had lots of ideas what they thought people wanted.

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Nope. Notice the number of models on the chart has gone from around 160 to 260 - and that the chart only goes through 2019. By that time there were, at best, a dozen EVs on the market, and perhaps a few more hybrids.

The models keep multiplying because consumers have varying needs and tastes, and automakers are serving them. In the past decade three distinct segments have appeared just in the pickup market. There are the “cute” pickups, like Toyota and Honda for the suburb and homeowner market, the mid-range (where the sweet spot is right now accounting for about half the segment) and the large pickups like the F-150 and similar, good for towing, contractors, farmers, and so on. The profits in the segments were so distinct Ford announced it was leaving the midrange segment a few years ago for the high end (it has now announced it has a new entry ready for the middle).

Vans have two segments, and have had for a while: the Mommy van with lots of seats or space, and the commercial vehicles used for delivery and plumbers and electricians and the like. That’s actually a decent size market, and you’ll pass 20 Mommy vans just running to the grocery store on any given day.

There is no reason why these customer needs will disappear just because the drive train changes - and the argument is the same for all the various segments of strictly or mostly passenger cars.

A Subaru SUV is vastly different from a Yukon because there are discrete market divisions even within the SUV class.

Well, at least I’m glad you’ve accepted that all cars won’t end up looking like toasters. That’s some progress. I can’t help but notice you left out “sedan”, which happens to be the best selling car on the market today (Tesla), so you’re thinking Elon is going to abandon this segment?

(You’ve also accepted, I guess, that “hoods” won’t disappear in favor of the toaster form factor, given that they provide aerodynamic heft and a decent place to store, uh, energy or engine or something . So you’re coming along. Congrats!

Software tends to commoditize - it does the same things, just different ways. An Apple and Android perform nearly all the same functions: phone calls, games, video, music, etc. but with different execution. But with a car the primary function is: driving, (transportation). You’re thinking I’m going to buy a car based on which one brakes better because the software tells the regenerative brakes (or disk pads, or whatever hardware implementation it uses) to do it better? I don’t think so.

Self-driving might be one such feature, but then it will either work or it won’t. If KIA has it and Toyota doesn’t, that’s a clear differentiation. If they both have it they will be close to equal - and therefore not a strong point of differentiation.

Microsoft and OS, same but different. Android and iOS, same but different. C# and C++, same but different. Software is the invisible layer which facilitates certain options, but it doesn’t change the hardware, and hardware is what differentiates the auto market. That’s not gonna change, period, ful stop.

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I, like so many of us on here, agree that this thread has been going on for way too long, but at least speaking for myself, I can’t resist coming back to read it.

Tbh, I finding myself agreeing with both sides of the debate, as both make sense to me. Today, I was driving home in heavy traffic and this thread came into my mind again.

While the points Goofy makes above are all well thought out, and I agree with them, they will became much less relevant if FSD happens. I’m saying that today I had a debate with a colleague who relies mainly on Uber to get around whether it made financial sense and he feels that it is now cheaper to Uber than to own a car, bearing in mind that I live in a third world country. I’m going to Portugal in a week or so, and will only Uber there, so I can see if in Europe it makes sense to come to Uber vs own. I hope to retire in Europe fairly soon.

What I’m saying is that if we go the robotaxi route, then I don’t care what the hardware of the car is, and I will probably prefer to be driven around in a toaster form that offers more software options and comfort than caring about the look of the vehicle and engine size, etc.

I’m probably totally wrong and if so, apologize in advance for continuing this crazy but interesting thread.

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Nope to your nope. In 2018 there were at least 79 hybrid models because that was the number analyzed by Vincentric for cost of ownership. I can think of at least 10 BEV models in 2018. This means that virtually all the increase in models from 1997 to 2019 was due to electrification. Note that the Prius was introduced in 1997 while your chart shows a sharp increase in models shortly thereafter. 2018 U.S. Hybrid Analysis.

You make my point because that difference disappears with electrification. Removing that ICE engine makes a huge difference. The Subaru Soltera SUV (seats 5 max) is only 2.5" shorter and 1" taller than the Model Y. The huge GMC Yukon is 20 inches longer than the Model Y. Yet the Model Y seats nearly as many as the Yukon (7 vs 9), has more horsepower than the Yukon, and has comparable cargo space. With electrification, the need for multiple SUV models based on interior space and horsepower largely disappears.

I’m thinking people will buy cars based on differences in the driver-assist programs and software-based safety features. The likes of Consumer Reports will rate cars on how well their software-based proximity warning systems work and the accuracy of their automatic emergency braking. Customers will test how accurately and quickly a car can parallel park and how long and under what conditions the vehicle can self-drive before an intervention is necessary. Yeah, I think stuff like that will be important to consumers.

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There is generally good and reasonably priced public transportation in much of Europe, so the issue may not be very difficult to resolve.

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You keep missing the point. The issue isn’t whether software will be important to consumers. The issue is whether the “hardware” differences that currently lead to a wide proliferation of models will continue to be important to consumers. You haven’t made any real case that it won’t.

Consider one of the most significant reasons we have different models - the size/cost tradeoff. Toyota makes two sedans - the Camry and the Corolla - that are largely indistinguishable from each other in terms of form factor. However, the Camry is somewhat larger (but somewhat more expensive), while the Corolla is somewhat smaller (but somewhat cheaper). Yet Toyota makes literally hundreds of thousands of both models. Because consumers care about size and care about cost - so they make different trade-offs.

Electrification doesn’t change that. An SUV that is slightly larger than the Model Y will be slightly more expensive than the Model Y; an SUV that is slightly smaller than the Model Y will be slightly less expensive than the Model Y. Those alternative models will hit different points on consumers’ preferences to trade size and cost. That’s a meaningful, important thing for consumers - and it doesn’t disappear with either electrification, because even with electrification a bigger car will be more expensive than a smaller version of the same form factor.

There will be an electric Camry and an electric Corolla - one larger and more costly, one smaller and cheaper - just like there are ICE versions today. There will be EV sedans (not just SUV’s), because an EV sedan will be cheaper than an EV SUV. An EV compact sedan will be smaller and cheaper than an EV midsize sedan - so both will be made, so that consumers can continue to have that choice.

Software may be something that consumers care about (I doubt it, but let’s posit that this is the case). But software can’t eliminate this aspect of the form factor. With phones, the development of cost-effective touch-screens meant that all the physical keys and buttons and d-pads could “migrate” into the software, eliminating the need and utility of different form factors. But size can’t migrate into software - and while firms can charge more or less for different software packages, they can’t eliminate the cost difference that comes from larger vs. smaller vehicles.

The argument is that the things that cause different models to exist today - physical differences in the size and layout of vehicles - are not eliminated by electrification and cannot be eliminated by software. Because different size electric vehicles will have different costs, there will continue to be loads and loads of different electric vehicle models, so that manufacturers will continue to be able to offer the Corolla/Camry option that has been so successful for Toyota.

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My case is being made by what people in the auto industry are saying, as well as prominent industry consulting groups like Deloitte, McKinsey, and BCG.

Jim Farley, Ford CEO:

“These EVs will be fully software updatable; that means a brand-new electric architecture,” Farley clarified, noting the software architecture not to be confused with the comprehensive vehicle platforms also being developed. “And they are going to be radically simplified: imagine three body styles, each with volume potential of up to one million units, and just a handful of orderable combinations.”…“On the category side, we do not want to have too many top hats, because that costs a lot to engineer,” Farley said, referring to the upper portion of the vehicle that’s designed to fit over a platform. “We want to have minimum choice for customers.” https://www.greencarreports.com/news/1138654_ford-ceo-future-evs-radically-simplified-smaller-batteries

The Boston Consulting Group (BCG) notes that more than 90% of automotive innovation now comes via software and makes the argument for the simplification of model hardware offerings:

Options span the powertrain, wheelbase, body, roof, electronics such as exterior and interior lighting, screen size, acoustics, seats, design elements, and colors. This variety carries high costs that arise from supplier fragmentation, cumbersome logistics and production, an elaborate aftersales parts industry, and more. It lowers the return on R&D on most sophisticated features, which will often reach fewer than 1% of cars. In terms of electronics, variety leads to complex branching of hardware and software platforms, compatibility management, testing, and expensive modular wiring to cater to all of the potential options. It also slows innovation. Above all, complex products present challenges for prospective buyers, who must grapple with the many minute choices to be made regarding a standard product. This is not convenient. Chasing the Software-Defined Dream Car | BCG

According to J.D.Power, in 2019 there were over 605,000 different vehicle configurations with 98% of configurations selling less than 50 vehicles each! This means that 2% of configurations accounted for 74% of all sales. The current OEM business model of many vehicle types with many trims creates a whole lot of production inefficiencies. It simply isn’t competitive with the much leaner Tesla who provides fewer hardware options, but in return will give you a better car for the price. Too Many Unwanted Vehicle ‘Unicorns’ Killing Profits, New Study Shows

The long-term strategy to cut the number of models and options began in 2019 with the major OEMs.

In a company announcement on future business plans, Honda CEO Takahiro Hachigo mirrored VW’s strategy on reducing model complexity, saying, “we recognize that the number of models and variations at the trim and option level have increased and our efficiency has declined.” Honda Set To Reduce Model Lineup | CarBuzz

This will only accelerate going forward as BEVs and software become increasingly dominant.

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There is a huge difference between Ford saying that they’re going to stop making sedans and saying that no one is going to make sedans. Or between consulting groups saying that manufacturers are trying to reduce the several hundred thousand model and trim combinations, and saying that where they’ll reduce it to is only two.

Tesla is literally about to introduce a new model, smaller than any of its existing five, in order to go after the small car market. The most electrified, most software forward manufacturer - and they’re expanding their model base, not shrinking it, because they have to have a small car in order to get the global volumes they want. With the model that they also expect to be fully autonomous, and it’s a small car. And of course, the fastest growing segment of the electric car industry - the Chinese market - is dominated by small sedans. Not the SUV/van (in only two sizes!) you’re predicting will happen in 10-20 years.

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Some companies are not selling enough mid sized cars to pay for their assembly lines. That is the only real reason some companies have left those market segments.

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This is not accurate. A majority of model Ys seat 5 people. Some model Ys seat 7 people (if 2 of them are small people like children) All Yukons seat between 7 and 9 people and they can all be adult sized. You are comparing a “small SUV” with a “full-size SUV”, two different vehicles, each with their own usage patterns. Have you ever been in a Yukon or a model Y??? The difference did not disappear.

You seem really wedded to the theory of everything merging into one vehicle type. It doesn’t seem at all likely to me. If you moderated the statement and said that automakers will tend toward fewer platforms and to fewer models built on those platforms, that would be an entirely reasonable statement. But it doesn’t seem at all likely that there will not be different classes of vehicles based on the desired usage for those vehicles. There will be smaller “econoboxes”, there will be “medium size few people transporters”, there will be “larger size people and their luggage transporters”, and there will probably* still be “fun to drive roadsters”, etc.

* Unless at some point in the distant future, human driving is prohibited. Then “fun to drive roadsters” will be limited to private tracks/roadways that are probably paid for by the hour.

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Only sometimes. Most of the time I am wedded to a small number of vehicle types. Having lots of models makes sense with ICEs because different size cars require different size engines. Sports cars required a different type of engine than cars designed for high MPG. Small SUVs used a different size engine than big SUVs. The Corolla has a different engine than the Camry. This difference in engine type accounts for a big chunk of the cost differences. That isn’t necessary with BEVs. The same hardware can potentially be programmed to perform like a Corvette or a Corolla.

And sure, right now size is a differentiator. But eliminating that big gas engine frees up a lot of room, and as batteries improve the need for cutting-edge aerodynamics to milk every last inch of range will disappear. When batteries have 600 mile range, charging stations become ubiquitous, and most driving is done autonomously at Level 4 or higher I think you will see the box on wheels becoming the standard form factor. People will value the interior space more than anything else. So when tech advances eliminate range anxiety, BEVs will be designed with the physical footprint of a Model Y but with the interior space of a minivan. If you have a vehicle like that, how many other models do you need?

Sounds good to me, with the exceptions that I think the viability of the econoboxes will depend on whether there are cheap robotaxis and those “fun to drive roadsters” will be niche companies. The great majority of personal vehicles will either be pickup trucks or medium sized boxes on wheels with 3D sound, flexible seating, and connectivity. And maybe one of those Tesla robots making smoothies.

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That’s not true now, so it’s unlikely to be true in the future. People like interior space, to be sure. But they balance that against other factors - especially (but not exclusively) cost. Bigger cars are more expensive than smaller cars. This is certainly going to continue to be true even with electric vehicles. Bigger cars need bigger batteries and motors - which is why Tesla’s Model X has a larger battery and larger motor than the smaller Model Y. Big SUV’s are going to have different hardware than small SUV’s, even in an electric world.

You keep intimating that a big reason for the variety of models in ICE cars is due to having a variety different engine sizes…but the causation works the other way. We have lots of different ICE engines because consumers have a wide variety of exogenous preferences for body types, and different body types need different engines. Electrifying the powertrain doesn’t change the preference for different body types, and thus different models.

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Is this going to happen before or after we get our flying cars?

Mike

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What helps some companies is having operations in the EU, Asia, or South America, where smaller models sell. The added volume helps amortize the development costs, tooling costs too, if production is consolidated. Would GM offer the Chevy Trax and Buick Encore in the US, if they could not design and build them in Korea? Ford severed it’s ties with Mazda, declined to buy Kia, when that company was BK, and abandoned South America and India. Only small vehicle market Ford still participates in is the EU. Probably only a matter of time before Ford abandons that market, as GM did. Ford has a losing track record in the EU too, with market share falling from 11% in the 90s, to under 5% now. GM sold Opel and abandoned the EU in 2017, when market share was down to 6%, also down from the 11-12% range in the 90s.

Steve

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The current CEO and board of Ford are smarter. The move to use Tesla charging stations proves that. Ford is now considered a major EV player.