Video on solar/autonomous car disruption

Investment Analysis Clubs Saul’s Investing Discussions
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Hey Saul fans,

I watched this video a few weeks ago and have been replaying it in my mind ever since. There’s a lot of great info in here that I personally cannot find a strong rebuttal to (though perhaps some on this board can).

Its a long video (60 minutes), but well worth the time if you have it:

https://www.youtube.com/watch?v=2b3ttqYDwF0

If not, here are some of the highlights

+Tony Seba (speaker) predicted $0.035/kWh solar production cost by 2020 in a book that came out in 2009. He laughed at (at the time the cost of solar was $0.30/kWh.) We hit that number in 2016, so his “crazy” prediction came true 4 years early.

+In 2014 he predicted “several” 200+ mile plus affordable EVs on road by 2017/2018. Again, laughed at. Model 3/Bolt prove him right.

+Energy storage-as-a-Service is here. He gives the example of a company that goes to a business (hotel, retailer, convenience store) and installs a battery $0 up front. The battery charges itself at low rates, discharges itself at high rates. The business uses the exact same amount of electricity but saves a ton of money. The cost savings are divided equally between the company and battery SaaS provider . 10%-50% energy cost savings in total. I find this fascinating.

+69% of companies are actively pursuing solar projects (in discussion or projects in progress).

+solar at $0.058/kWh is competitive with oil at $10/bbl and nat gas at $5/MMBtu. (I believe he is referring to electricity production only).

+Utility scale solar is currently reaching ~$0.04/ kWh. Recent announced unsubsidized solar projects include Chile - $0.0291/kWh. Abu Dhabi - $0.0242/kWh. These prices do not include storage but are still incredible and are using currently available technology. Imagine what the numbers look like as cost/efficiency continues to improve.

+Tuscon electric recently announced solar + storage at “less than” $0.045 / kWh.

+25% of homes in Austrailia have solar (where electricity transmission costs are higher than US)

+“Peaker” utility plants are already obsolete.

+Self-driving taxi service already available in Singapore.

Predictions:
+By 2022 low-cost electric cars (~$22,000 car) cheaper than internal combustion engine.

+Storage-as-a-service battery cost brought down to $1 per day by 2020. If you only need 4-6 hours of storage time per day (to just avoid peak prices) that’s a cost of $0.25 / day for storage, or about $8/month.

+Oil usage peaks in 2020 at ~100 MM barrels day. Falls to ~70 MM barrels/day by 2030. Many investments being made today in new oil production will be abandoned.

  • Solar/storage meets 100% of world’s electricity needs by 2030. This prediction sounds particularly insane given that its 1% or so today, but Seba argues that exponential growth is on the horizon and gives many examples of this happening in history (cell phones, computers, color TV, telephone, frige, cars)

+Transportation-as-a-service (TaaS) (basically fleet of autonomous vehicles on the road that you pay to use per mile) launched by 2021. 4-10x cheaper cost than current car ownership. 95%+ of passenger miles TaaS by 2030.

+Unsubsidized cost of solar at home of $0.04/kWh by 2020. That’s less than the cost of energy transmission alone today.

+70% of non-conventional oil (deepwater oil, shale oil, oil sands) will be uneconomical and abandoned by 2030

+A few years after TaaS is launched ICE cars will have a negative resale value. You will have to pay someone to take an ICE car off your hands. (again, sounds crazy, but this is pretty much the case today for non flatscreen TVs right now).

Crazy stuff, right?

Anyway, I’ve given this video a lot of thought over the past few weeks and have started to unwind my fossil fuel based investments. I also now wouldn’t touch an automaker (not named Tesla), utility, or energy company, even with prices haven falling to where they are today.

If you have valid argument on why Seba is completely wrong I would love to hear it!

Brian

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Wow, those are some pretty far out predictions which would have a lot of implication for investments if they come true. (Especially for investments to avoid. It’s not evident that the commodity solar energy would make you a lot of money as an investor).
Thanks for the post,
Saul

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If you are a Stock Advisor subscriber, go to the Kinder Morgan page and look for post 3051, posted on 8-20-17. This video was discussed and some good points were brought up, particularly by Jim Mueler.

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I also now wouldn’t touch an automaker (not named Tesla)

Why?

Almost every automaker has an EV offering and have indicated that they plan to expand those offerings.

Most other automakers have a stronger distributor and repair network.

Tesla has a name, a good story teller, and massive amounts of debt and unique market cap when cash burn and earnings are considered.

I do not see where Tesla has a significant design or technological advantage over other auto manufacturers in the EV marketplace. I think that there is reasonable indications that Tesla does not necessarily have the best autonomous driving tech out there either.

If there is a progression from ICE to EV, do you really think that Ford, BMW, Daimler, and all the rest are just going to sit on their hands? Do you really think that they are so incredibly far behind the curve that suddenly Tesla will dominate market share because the others can not compete?

I am not promoting an investment in any automaker. I am simply asking why Tesla is worthy of investment at this point over other manufacturers. This is not a shift from the horse and buggy to the horseless carriage. But I get the impression that people think that Tesla can be the only winner in the EV marketplace just because they have made the most noise.

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If there is a progression from ICE to EV, do you really think that Ford, BMW, Daimler, and all the rest are just going to sit on their hands?

That mostly seems to be the pattern so far. At best, there are a few not very interesting offerings which are weakly pushed. And, no apparent efforts other than the questionable and forced one by Volkswagen to deal with the supercharger network issue.

Do you really think that they are so incredibly far behind the curve that suddenly Tesla will dominate market share because the others can not compete?

Tesla can make a big mark for itself as a company and as an investment without “dominating” market share. Which said, they make very desirable automobiles, so at this point I would be surprised if they didn’t grow to meaningful market share.

And, there is no one anywhere close on superchargers.

And, they make more than cars.

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Interesting post, Brian. I’ve not yet watched the video, but I will. I am heavily invested in solar, mainly as a consequence of a ginormous investment in Enphase (ENPH). The company has gone through hell and back, but my trading profits in ENPH alone paid for more than half my living expenses this year. I believe we are still in the early stages of a technological revolution that melds solar power + battery storage and EV’s to transform our daily lives.

I appreciate the fact that Elon Musk and Tesla have captured the imaginations of many. I hope investors keep their eyes open to a multitude of opportunities. For example, I believe too few know that the Nissan Leaf has had outstanding sales (in the EV market), and will be joined by many other competitors. It’s an exciting sector, but it demands careful study and attention.

https://cleantechnica.com/2017/07/07/nissan-threatened-buoye…

Nissan is like a fast runner with a gold medal in hand but Usain Bolt on its tail. It has been able to say for a long time that it offers the world’s top-selling electric car (in history), but 400,000 or so reservations for the Tesla Model 3 put that title into threat.

Indeed. The Nissan LEAF may lose its title, but it is the reigning champion and growing awareness of Tesla & demand for Tesla’s vehicles also brings awareness to electric cars on the whole, and when you start to learn about electric cars, you quickly learn about the Nissan LEAF and Nissan’s long leadership in this space.

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Most other automakers have a stronger distributor and repair network.

Tesla’s direct to consumer sales network actually brings down the cost of the vehicle and improves Tesla’s profit position. Several states still have laws which prohibit automakers from direct sales to consumers. You can’t buy a new Tesla in those states, but eventually those laws will change (except maybe in Michigan). Essentially, the dealership networks are a burden to the automakers, not an enhancement with respect to revenue and profit.

The automakers make $0 from the dealer repair network, so it’s not a factor. OEM spare parts are available to every legitimate repair shop whether or not they are attached to a dealership.

I don’t own Tesla stock and I have no intention of buying any. Kind of makes me think of the ill-fated Delorean in a remote sort of way, which I’m sure most folks have forgotten unless you recently watched a rerun of “Back to the Future.”

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Almost every automaker has an EV offering and have indicated that they plan to expand those offerings.

Not a single one has been serious so far. They are structurally incapable of getting serious, as it will mean cannibalizing their own profitable ICE vehicles. Dealerships can’t make the transition (EVs require relatively little service). I’m guessing that at most 25% of the existing auto industry can survive the transition. It’s going to be a bloodbath.

What year does the resale value of an ICE car that can’t do full self driving go to zero? I believe it will be less than ten years from now. It could well be less.

-IGU-
(way long TSLA)

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jhawkerv45 read Innovator’s Dilemma and similar books for possible answers

http://www.squeezedbooks.com/articles/the-innovators-dilemma…
look at excavator example. Are BEV more like switch from steam to gas or from cables to hydraulics? To be determined
Tesla does not need to take the whole 100 million/year car market. 5% or 6% would be a huge success . My guess is around 8 to 10%.

As a TSLA stockholder it only matters if TSLA is a winner, not which others win too.
Win place or show will all pay off , many of the “also rans” will go bankrupt.

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If you have valid argument on why Seba is completely wrong I would love to hear it!

Just hum Dylan’s “The times they are a changin’” to yourself.

The writing is on the wall and the only real question is why so many people at so many companies don’t see it. Saudi Arabia sees it, which is why they’re creating what they call the “Public Investment Fund” that will have $2 Trillion, coming from the IPO of Aramco, which is Saudi Arabia’s state owned oil company. This is money to keep the country going when oil isn’t so profitable for them anymore.

Remember, the stone age didn’t end because we ran out of stones, but because we found something better. Similarly, it’s not that we’re running out of oil (despite previous concerns), but that we’re find something better.

About 1/3 of all energy consumed is used for transportation, with the vast majority of that going into personal and light-duty vehicles. As those become electrified, the demand for oil is going to decline enough to wreak havoc with companies dependent on an oil economy. Sure, oil use is not going to zero, but it’s going to go from fairly steady yearly increases to much faster yearly decreases. Projects at the edges of affordability or quality will be the ones to be abandoned first, and those parent companies affected the most.

The KMI defense reference is, IMO, worse than the previous WPRT defense some years ago. The low price of oil and gas hurt KMI’s profitability a few years ago. They cut their dividend and are now surviving by selling itself off piece by piece, which is clearly unsustainable. That KMI still pays a dividend is shocking from a business survival standpoint, but Wall St. would kill it if the dividend went away completely.

The political thrashing over the new pipelines being built is going to seem silly someday, as I expect some of those new pipelines to go idle long before they pay back on the investment. Oil from tar sands is low quality, so the pipelines from Canada may be the first to be abandoned as better and cheaper oil is fracked locally in the US.

As with coal being abandoned despite political rhetoric, the oil pipelines will suffer a similar fate for the same reason: economics. As a country, we went from mostly coal to mostly gas for electricity in a very short time not because of pollution or land destruction or worker health or global warming, but because of economics.

When the TCO for BEVs is obviously cheaper than ICE vehicles, the change will be quicker than most realize. Last year I got out of the few oil and gas related investments I had acquired through TMF recommendations, and can’t believe anyone would want to attempt LTBH on them today. There seem to be people who can see the short term oil and gas trends coming and can profit from short term plays, but I’m not one of them. And the trend is not only down, but down and out.

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As a TSLA stockholder it only matters if TSLA is a winner, not which others win too.
Win place or show will all pay off , many of the “also rans” will go bankrupt.

Let’s say that Tesla will be one of the winners (assuming that they can survive long enough). Are they priced just to be one of the winners and is there still upside? They have 0.2% market share of cars right now. I agree that this will grow. But it appears to me that they are priced such that any future share appreciation requires almost domination in the market.

I think that Tesla makes a great product. I think that Musk is a visionary. But where is there moat? What are they really doing that other automakers cannot do?

The idea that will end up sitting well above the fray in 10 years seems questionable to me. What can they do that no other automaker can? The Leaf is still the top selling EV model in the world. Will the Model 3 supplant the Leaf? Maybe, but I do not see hard evidence of that happening in 2018. I think that Nissan has more capacity at this point, especially with the UK plant coming online later this year.

I think that electric vehicles are the future. I am just not sure that Tesla is worthy of its current valuation, let alone would give me continued growth at this point, just because they are a “pure” EV play and they shout the loudest.

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Not a single one has been serious so far.

You are welcome to that opinion, but I disagree. I think that both Nissan and BMW have been serious for some time. I think that there are many that are scrambling to become serious and that many of them have the resources to remain player in the EV market.

They are structurally incapable of getting serious, as it will mean cannibalizing their own profitable ICE vehicles

Really? It is impossible for them to change and adjust? I guess that I will just go out and crank the manual starter on my Model T and just drive off into the sunset.

Look, if ICE is going the way of the dodo, of course they are going to shift production from ICE to EV. It isn’t cannibalism, it is survival. And why can their EV offerings not be profitable, too? Just because Tesla can’t turn a profit yet it doesn’t mean that someone else won’t. And the automakers already have much of the infrastructure and distribution to do it. Saying that they are structurally incapable is hyperbole at best. What, the Leaf will stop production in the next 3 years? BMW is already scrapping the i3? What makes you think this? (I am ignoring the Bolt and e-Up on purpose.) Frankly, I kinda like the looks of the I-Pace.

I do not think that EV can replace ICE until they get range and refueling to be as convenient as it is for ICE. I realize that for those on the coasts that may not drive long distances, this seems odd. But for a lot of drivers, it is an issue. It will happen. But the transition is going to be slow enough that other automakers can adjust if they are intelligent about it. I do not see a moat for Tesla.

By the way, I really like what BMW is doing with their range extender concept. This is what they should be doing for hybrids instead. A one minute stop can get you 100 extra miles. There still needs to be some bugs worked out and some optimization (and yes, I realize that it is not truly 100% green - but nothing really is), but I like the concept. It isn’t the most efficient, but it adds a lot of convenience that I think the average buyer would like to have. Hopefully there will be some improvements soon.

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Just because Tesla can’t turn a profit

Bzzzt! Tesla has a nice profit on its cars, better than industry norms. That may not get to the bottom line because they are investing in future growth, e.g., the gigafactory, but that is a different issue altogether.

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So fine don’t buy TSLA. Maybe you should buy some Nissan stock.

Turning away from one possible winner is fine as long as you replace it with another even better stock.
I have a dozen stocks, if I was sure about any of them it would be the only one I owned. Many years ago I owned only two stocks, INTC and MSFT. But I have never been that sure about anything since.

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Not sure if anyone posted this piece about Volvo abandoning conventional ICE by 2019. That’s right around the corner.

https://mobile.nytimes.com/2017/07/05/business/energy-enviro…

They waffle a little but still pretty gutsy.

“Volvo’s transition will be gradual. It plans to still produce existing models with conventional engines after 2019, but it will no longer introduce new models with the older technology. Depending on demand, Volvo will completely phase out cars powered solely by gasoline or diesel by around 2024.”

“While Volvo’s strategy has risks, Mr. Samuelsson acknowledged, ‘a much bigger risk would be to stick with internal combustion engines.’”

David

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Hi hjawker85,

Tesla is just about the most polarizing stock out there and I agree with you 100% that its current financial statements(and valuation) do not justify an investment. However, I’ve drank the Elon Musk Kool-aid (for better or worse…though its been for better so far) and still plan on holding indefinitely.

As to the “why”, I wrote the following article for Fool.com that was my best attempt to quantify the company’s moat and reasons why I still continue to hold.

https://www.fool.com/investing/2017/06/11/10-reasons-to-buy-…

Here’s the TL;DR version (which stands for “too long, didn’t read”. Took me a while to learn that one).

  1. Low-cost marketing (elon musk can make headlines and drum up demand with a tweet and a streamed event at the company’s HQ. Can you name another automaker that can do that?)

  2. Ridiculously loyal consumers (owners compete with each other to make their own commercials)

  3. Complete control over the consumer experience (copying the Apple store idea. No dealers. No haggling. buy on the internet. What other carmaker will be able to replicate that?)

  4. A beloved brand (cracked Interbrand’s list of top 100 global brands in 2016 while spending next to nothing on marketing since inception)

  5. Access to SpaceX engineers (to share manufacturing/materials ideas)

  6. An energized and talented workforce (#2 on the “meaningfulness” scale behind SpaceX. Employees put their heart and soul into Tesla because they believe in the mission)

  7. The supercharger network (fully agree that this is likely a temporary advantage…but it is an advantage)

  8. The Gigafactory (another temporary advantage, but Tesla is the leader for now)

  9. Optionality and market opportunities galore (Beyond new model introductions, the company is pushing hard into solar and battery systems for the home and grid. The total addressable market is estimated to be $15 trillion. Yowza.)

  10. Talented leadership who’s all in (Musk. JB Straubel. Not to mention that they can easily recruit top talent given their stature)

I know the valuation is insane and the financial statements are ugly, but I honestly believe that TSLA is that 1 in a 1,000 “story stock” that is worth owning in the same way that AMZN has been a “story stock” worth believing in for years. Risking 2% of my portfolio on the idea that it could work out doesn’t sound like a bad idea to me.

But then again, I could be wrong.

Brian

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Hi Brian,

Thank you for sharing the link to the article you wrote and for sharing the summary. I agree that Tesla is polarizing. Proponents and opponents seem almost zealous.

Perhaps I have come across as an opponent. That was not my goal. I was simply questioning why an investment in Tesla at this point would be the only acceptable automaker in the world to invest in, especially on a board that is focused on future share appreciation. And I still think it is a valid issue.

I think that Tesla makes a great product. And I think that without Tesla you would not be seeing Ford, Nissan, BMW, and the rest investing so much in EV as they are now. Musk has definitely moved the EV timetable up significantly. And that is a very good thing.

Many of your points listed are valid. (Well, all of them are technically valid. I just am not sure how much they should really be weighted.) For example, a Tesla and SpaceX synergy makes much more sense than a Blue Origin/Amazon synergy. It is great to have loyal customers. Unfortunately, they need literally millions more of them, and fast.

I do think that the loyalty/kool-aid issue is a concern. In some of the back and forth one poster said at one point, Tesla is more than just a car company. Later they say, well if Tesla just did cars, they would be profitable. So is being more than a car maker a good thing or a bad thing? I guess it depends on what question you are trying to answer at the moment. Very Muskian.

I am not investing in any automaker at this point. I have concerns about all of them, and few (if any) of them are really poised for huge growth based on a variety of different factors. I do not think that any of them meet a Saul-type of consideration at this point. I could be very wrong. But here are a few of my concerns about Tesla.

Cash burn. It is huge and Elon keeps having to raise money through dilution or bond sales. Granted interest rates are favorable. Yes, he keeps promising deliveries and to slow the losses. But, I have read the earnings calls and I am not convinced yet. Maybe if some tough questions were actually asked by some analysts and solid specific answers were given I would feel differently about the cash burn rate.

Solar City. I cannot help but feel that this acquisition was more about family relations than sound business fundamentals. Not that I have a problem with taking care of family, but I think that Tesla has been hurt financially on how and when then deal was done. I am glad that Buffalo is finally up and running. But, it was well behind schedule from my recollection. (In fairness, things are often behind schedule in the world of manufacturing - but sometimes it seems like this stock is valued on too many stories.)

Moat. I just do not see that big of a moat, even with what you have listed.

I am not sure that I would quantify tweets as a moat. Free marketing is great, but can be equally dangerous. (I will not make any presidential comparisons.) Then again, any press…

Loyal customers are great, but they need more. Also, how often will they get a repeat customer. The price point is a bit higher than an iPhone.

What makes you think that other car makers cannot replicate the consumer experience? What really prohibits that? It is not patentable or trademarked.

I agree that your items 5 & 6 are the two most powerful advantages. Hard to quantify the value, but I agree that they are very significant.

I want Tesla to succeed. I want market forces driving innovation and I want more choices for customers. I am just really, really concerned about their financial position. I agree that the market opportunities are huge. Will Tesla be financially positioned to take advantage of them? I hope so.

But even if they are not, I think that Elon Musk has paved the way for others and made a significant impact on the near future both of consumer products and how energy opportunities are viewed.

Best of luck to you in your investments. Hoping for home runs for all of the people that add value to this board. I wish I had found it sooner. It is a great group.

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jhawker,

I never consider anyone on these boards to be an opponent – healthy debate is great! The last thing I want is for the Fool to just become an echo chamber.

I completely agree that TSLA is not a Saul stock and likely will never be.

To keep this friendly debate going:

It is great to have loyal customers. Unfortunately, they need literally millions more of them, and fast.

True, but how many TSLA customers are already out there, are active proponents of the company/car, and have yet to make a purchase? I count myself as one. Tesla has never earned a cent of revenue from me but I’m a proponent of the brand and my next car purchase (in 5+ years) will almost certainly be a used Tesla of some kind. Elon Musk has 12 million followers on twitter. If I was to guess I would already assume that the company has a million “loyal customers” of sorts, even if most of them haven’t made a purchase. With 400,000+ preorders for Model 3, I think the odds are very good that this number is over 2 million or so by now (and growing every day).

is being more than a car maker a good thing or a bad thing?

This is a valid point and a big risk in my mind. The company has HUGE optionality, but executing against that opportunity is hard. There’s no doubt that the company has a lot on its plate right now…it is possible that the growing complexity of their company could be their undoing. Huge grow is exciting but also hard to control.

Solar city

The jury is still out on that one. It is possible that the money was wasted on the acquisition. I never invested in solar city because the financial statement were so complex. Having them on Tesla’s books only further muddies the water. Only time will tell if this move pays off or if it is an expensive distraction.

What makes you think that other car makers cannot replicate the consumer experience?

The same thing that kept blockbuster from being put out of business by Netflix. It is hard for me to imagine the major automakers abandoning their dealership model without MAJOR lawsuits. Furthermore, as I understand it most dealers today make the majority of thier profits from services. By contrast, electric cars require far less servicing over the long-term. That’s a major threat to the dealership model so I know there will be an incredible amount of pushback to any proposed changes.

Plus, if electric cars are in the showroom next to ICE cars, will the salespeople themselves know how to sell the electric cars? What will they say? “Yes, all of the ICE cars in our dealership are obsolete, you should go electric”. That will go over well at the water cooler.

This challenge is a big reason why Tesla choose to forgo the dealership model altogether – they knew that the salespeople would dissuade customers (especially early on) from choosing electric and sell what they know – ICE.

Changing business models/business practices is far easier in theory than it is in reality. I bet they won’t make any changes until they absolutely are forced to by the market, perhaps 5+ years from now. There might be an automaker or two who moves sooner than that, but I don’t see it happening industry wide for years. While that plays out Tesla will continue to open stores and supercharges worldwide, growing its commercial footprint.

Hoping for home runs for all of the people that add value to this board. I wish I had found it sooner. It is a great group.

Me too! I’ve learned a ton from this board.

Brian

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Building out superchargers will be one of the early signs that other carmakers are getting serious. VW is beginning to do that, but maybe only in response to lawsuits:

https://electrek.co/2017/02/08/vw-electric-vehicle-charging-…

Enjoy,
Brian

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https://electrek.co/2017/03/15/vw-ev-infrastructure-320-kw-c…
more detailed link off VW “plans”
note many of these are L2 , nearly useless except in an emergency for a 200+ miles range car.

Have any actually been installed?

I note that none will be available on the X-Ways near my home .

Since they will be also useable by Teslas they are not deciding sales tool for VW. They will add to the appeal of buying a Tesla too.