The original UBS report on Tesla economics

[bwilson4web]

There are now several possible scenarios on what could unfold in the next few months. The competition could take a bite out of the Tesla market share, resulting in a drop in X/S sales.

Currently there are no X/S competitors shipping. The "PowerPoint" competition is soliciting orders from those who might have been considering an X/S. But the strong, used prices of the X/S suggests no one is exchanging an X/S for a yet to ship competition.

Or due to more awareness, the whole market expands due to competition and so everyone grows.

This is a serious challenge because the recent years saw the hybrid and fuel efficient market plateau at ~4% (see Hybridcars Dashboard reports.) As newer models entered the market, there was a shuffling of relative positions but not a significant growth by gasser conquests. Here are some examples:

Initially the Prius was so dominate it had to use a different Y-axis scale to plot with the other fuel efficient cars.

Over time, Prius sales began to weaken as the competition advanced but no significant increase in absolute numbers. By the way, notice there is a clustering under the market dominant Prius in the 2000-3000 sales per month. Then gap to everything under 1500-1800, all the rest. By now the efficient car market had plateaued about 4%.

By 2016, Prius sales had weakened so much that we could plot it and the competition on the same scale. Efficient car market share continued in the 4% range and even weakening.

Eventually the Prius remained a top market hybrid, others could top it. Efficient car market share was <4%.

The data suggests the USA, fuel efficient market may have plateaued with all the known "early adopters" getting their rides. The only advances have been the Model X/S that conquests the expensive luxury market. Tesla alone has been conquest sales into the gasser market.

Or the competition falls flat on their face, unable to make a dent to Tesla's market share , either due to supply problems or due to lack of sustained demand.

Past sales suggests few new entries totally fail but after a year or so of <1,000 sales per month, they are quietly withdrawn.

Or Tesla focuses more on $50K market rather than $80K market. Or... (there are many other scenarios).

We've seen 18 years of playing with price and it looks more like shifting the rubble.

What makes more sense is to broaden EV offerings into areas where there are no competing vehicles and conquest sell:

• pickup trucks - the largest USA segment, protected by the 'chicken tax' tariff, time to enter a market of $50k, luxury vehicles.
• minivans - only one plug-in hybrid but there sure are a lot of 3-row gasser minivans rolling around.
• service vans - another area where EV can make a significant presence because of lower operating costs and the ability to charge outside of business hours.
• large trucks - these folks live by the cost-per-mile and EVs can make a significant impact. Note that fuel-cell vehicles are hobbled by the higher than diesel costs.

We also need significant deployment of EV charging networks:

• L2 chargers with a graduated fee, low-to-high, to encourage moving the car after an hour. Every shopping mall, mini-to-large should have these. Lodging should have L2 charging and truck stops, fast DC. Light poles in parking lots should have L2 capability.
• Continue building and maintaining fast DC charger networks.
• Vocational tech training for EVSE repair technicians.

Bob Wilson

 

[bwilson4web]

Sorry, one graph in error:

Here are some examples:

Initially the Prius was so dominate it had to use a different Y-axis scale to plot with the other fuel efficient cars.

Over time, Prius sales began to weaken as the competition advanced but no significant increase in absolute numbers. By the way, notice there is a clustering under the market dominant Prius in the 2000-3000 sales per month. Then gap to everything under 1500-1800, all the rest. By now the efficient car market had plateaued about 4%.

Bob Wilson

 

[interestedinEV]

In a product life cycle there are different stages. They are: introduction, growth, maturity and decline. Even though Tesla has been around for years, as a product EV market has not reached the maturity stage yet and there is room for market expansion. The hybrid market on the other hand is mature and might be flirting with decline. I do remember reading many years back that Toyota and others considered the hybrid as an interim step before transiting to BEV or Fuel Cells and it was going to be more of a niche. Toyota may have changed their thinking about BEV's possibly due to their market position in hybrids. One thing missing in this analysis is the macro economic factors and how they could shift these volumes. If crude oil prices were to reach $110 a barrel, demands will shift and Toyota may have to ramp up. A lot things could happen to change the trajectory of the BEV market.

Bob is right in his view point that competition so far has been on powerpoint and the products have not reached the dealer showrooms. Again, I do not know what the state of the EV market will be in six months, or 12 months, but I am going to guess there will be more products to choose from and there will be actual physical products that customers can walk out from a showroom with. One can be dismissive and say that will not happen, and Tesla is secure in its position. If I were Tesla management, I would not take this competition lightly and would be paying great attention to what others are doing. To an uninitiated lay person like me, it does not sound like distant thunder, it sounds real.

Elon Musk and others know a lot that I don't, and may be confident that there is nothing to worry about. However I do not think a smaller manufacturer like Jaguar Landrover would have spent so much money on product development, unless they were confident of breaking into the market. I looked at their sales growth and they have been growing under the Tata ownership and want to sell a million cars a year soon. I am going guess they see a big portion of that growth coming from BEV's.

I am going to reserve judgement and will wait for things to play out. In less than an year we will know if the competition is real or were just paper tigers.

 

[Pushmi-Pullyu]

There is one fact stated in the article that cannot be ignored, and that is that competition is coming. One might call it Deja Vu, that Tesla has had to deal with the entry of the Bolt, Leaf, I3 etc and none of these have an impact on Tesla. Those cars were much smaller and with less cache. I believe that Jaguar, Audi and others are more serious about entering the market and have their sights on the Tesla S/X market and have competitive products.

It's "cachet", not "cache", but yes. #GrammarNazi

This is why it is important that Tesla not slow down in its expansion. Tesla very much needs to "Damn the torpedoes, full speed ahead!" over at least the next two years. Tesla needs to expand its market while there isn't any serious competition. If they wait until later, after real competition arrives, then it will become far harder to grab market share.

Arguably real competition has already arrived, with the Jaguar I-Pace, but that will be made in such small numbers that it won't have a serious impact on Tesla's sales. A much bigger threat to Tesla being able to rapidly expand its sales are entries from VW and other legacy auto makers, which reportedly will start appearing in (presumably fall of) 2020. Between now and then, Tesla has a window of opportunity that it needs to exploit as far as it possibly can.

Tesla needs to ignore the cries that it should slow down its expansion; the cries that it should start concentrating on making profits. Needs to ignore those cries until at least the second half of 2020. Once real competition in volume emerges, that will be the time for Tesla to slow its growth and start concentrating on being profitable.

All just my opinion, of course. But hopefully an informed opinion, and -- unlike the opinions expressed by investors (both "short" and "long") -- it's an opinion not biased by personal greed.

 

[interestedinEV]

It's "cachet", not "cache", but yes. #GrammarNazi

This is why it is important that Tesla not slow down in its expansion. Tesla very much needs to "Damn the torpedoes, full speed ahead!" over at least the next two years. Tesla needs to expand its market while there isn't any serious competition. If they wait until later, after real competition arrives, then it will become far harder to grab market share.

Tesla needs to ignore the cries that it should slow down its expansion; the cries that it should start concentrating on making profits. Needs to ignore those cries until at least the second half of 2020.

Continuing expansion is an argument that Elon/Tesla can make. Investors can then make an informed decision if they think it is a) reasonable and feasible and b) if they are willing to stay on for the ride. They will and are even now voting with their money. The feasibility issue here is "does Tesla have the cash or can get the cash to be able to weather two more years of negative cash flow, assuming increased investment in new products and services?" Tesla has many plans including self driving trucks, ride services, other cars, solar energy etc. Do they have money for all of that? Or are some plans going to be put off? If so which ones? The solar energy business may not have the "cachet" (Thank you #GrammarNazi ) of the BEV business but, as long as it remains a part of Tesla, it still needs attention and investment.