Tesla Motors (NASDAQ:TSLA) has spectacular growth plans. For starters, they were aiming to sell half a million of their electric cars in 2020 - just four years from now. In the year ending last December, the company sold 50,580 cars, so achieving 500,000 sales in calendar 2020 would mean 58% CAGR over five years. But with some 400,000 Model 3 reservation on the books, Tesla's CEO Elon Musk wants 500,000 unit sales by 2018. Tesla is now looking for 115% CAGR over three years. Wow...
Accelerating Model 3 ramp to meet unexpectedly huge demand pulls Tesla's 500,000 unit 2020 sales target forward to 2018. This is very ambitious growth. - Author
If Tesla reaches their ambitious goal and continues to grow beyond 2020, shareholders are likely to see spectacular returns that may arrive sooner than even Tesla optimists have expected. On the other hand, if the company can't execute, can't find customers, can't earn and/or attract the necessary capital, can't build cars profitably, can't, can't, can't - then TSLA isn't going to be worth much, certainly not the several thousand dollars a share another decade of growth can deliver for shareholders.
Model 3 is targeted against the BMW 3 Series and similar high-end 'D' segment ICE cars. - image Tesla, annotations Author
Tesla is completely right in wanting to ramp Model 3 production as quickly as they can. To go more slowly would be to surrender customers to other auto makers who must surely be awake by now. But will Tesla's Model 3 rocket to a win or turn the company into a 'hole in one' (as they say in the rocket business...)
Tesla has had difficulty getting their Model X into production. They are doing better now and production is ramping up, but Model X is years late and production has been slowed by a complex design that placed unbridled creativity ahead of manufacturability. Model 3 had better be different or Tesla and their shareholders will suffer.
Assessing Tesla's Chances
Tesla has just set upon a risky and potentially very rewarding path. The stock has taken a substantial hit as the "Nervous Nellies" flee to the sidelines, but audacious venturing in pursuit of great reward is what this company is about - what Tesla has always has been about. Let's look at Model 3 prospects and assess Tesla's chances. Let's see if Model 3 is a car that Tesla can make quickly and make profitably.
What is Model 3?
Model 3 is an electric car intended to compete on price, size and performance with ICE cars, the likes of the BMW 3 series. A year ago I speculated about what Model 3 would be like and analyzed the cost and performance of the car.
Cost estimates for Model 3 made a year ago suggest tight margins for the base, $35,000 configuration without options, but much better margins on longer range, higher performance variants. - Author
My estimates for Model 3 have so far agreed with much of what Tesla has announced about the car. But there are some critical things we did not learn at the end of March. We don't know what Model 3 will weigh. We don't know how big the Model 3 battery will be.
Tesla Model 3 - Actual vs. Estimated Specifications
|Feature||Actual||Estimated June 2015|
|Base Price||$35,000||$35,000 (1)|
|0 - 60 Time||<6 seconds||5.7 seconds (1)|
|Range (1)||215 miles (EPA), minimum||220 miles (EPA)|
|Wheel Size (2)||20 inch||20 inch (2)|
|Wheelbase||114.6 inches (3)||114.6 inches|
|Drivetrain||RWD & Dual Motor||RWD & Dual Motor|
|Curb Weight (1)||???||3,141 pounds|
|Curb Weight (2)||???||3,594 pounds|
|Battery (1)||???||44 kWh|
|Battery (2)||???||66 kWh|
(1) Entry Model (2) Performance Model (3) Scaled from Tesla released images.
Determining Model 3 Weight
As fortune would have it, there is a new bit of information that let's us estimate the weight of the Model 3 performance version. If the weight of any Model 3 version is close to the predicted weight, then the other versions are also likely to agree with the estimated weight. And weight is what sets battery size, and the costs for most of the car's systems, structure, etc. If the weight estimates are right, it is likely battery size estimates are correct and so are cost estimates. If Model 3 weighs significantly more than estimated, making Model 3 at a profit may prove difficult for Tesla.
Motor Trend was given exclusive access to Model 3 recently at Tesla's GigaFactory and they posted this video in which Test Director Kim Reynolds notes that the front tires are Michelin 235/35-20's and the rears are 275/30-20's.
The approach for estimating the weight is something like this. When a car accelerates, the down force on the front wheels decreases and that weight is transferred to the rear wheels. The force pushing the car forward is applied by the tires where they contact the road, and this force is resisted by the car's inertia (mass) which is centered somewhere above the road. These forces tend to tip the car backward, and decreasing downward force at the font wheels and increasing down force at the rear wheels tends to tip the car forward. These forces must balance or the car will flip over.
The balance point is where the [weight shift] X [wheelbase] = [acceleration force] X [CG height]. If the car is accelerating at 1g, then the acceleration force is equal to the weight of the car, and the percentage of the car's weight that is transferred from front to rear is just [CG height] / [wheelbase]. If we assume Tesla engineers have chosen a design point where the performance car, fully loaded and accelerating at 1g brings the rear tires to their load limit, we can then figure the car's weight as in the following figure.
By combining what we know about Model 3 with some reasonable design assumptions we are able to estimate the empty weight of the performance version. - image Tesla, annotations Author
The weight estimate obtained by this method is an educated guess and not a physical determination, but by tying things we know together with some reasonable engineering assumptions, it does offer a 'feel' for how heavy Model 3 is likely to be. It turns out that this estimate is very close to my earlier one based on predicted battery performance and the knock-on effects.
An earlier estimate of the performance version curb weight based on expected battery chemistry improvements and knock-on weight savings (3,594 pounds) differs from the latest weight estimate based on tire loading under acceleration (3,596 pounds) by just 2 pounds (about 1 kg). This increases confidence in weight, battery size and cost predictions made earlier for Model 3.
But, Can Tesla Build It?
This latest clue about Model 3 weight corroborates earlier estimates for the car being significantly lighter, having smaller, lighter, higher energy batteries, and being a money-maker for Tesla, especially with the longer range, higher-optioned variants. This is good news for the company, but investors won't have much to look forward to if Tesla cannot manufacture Model 3 efficiently, soon and in volume.
Tesla and their shareholders have experienced the pain and delay an over-complicated car design can deliver. Model X is surely the ultimate expression of "suburban bling", and Tesla will sell as many as they can make. The problem has unfortunately been in the 'making' part - so to speak. If Model 3 isn't a whole lot easier to build than Model X, those 400,000 Model 3 customers holding reservations won't be seeing their cars for a long, long time. If Tesla is going to make Model 3 a success, they need to innovate toward simplicity and manufacturability, and not just "bling".
Three Things So Far
There are three Model 3 design elements that can be seen directly and/or inferred that suggest Tesla is focused on simplifying Model 3. However, if one expects Tesla to just go with tried and proven approaches in the interest of manufacturability, one will be disappointed. This is an innovative company, staffed with some of the best innovators in the world (CEO Elon Musk included).
Tesla is a very competent innovator. Innovation isn't what troubles Model X. What has made Model X difficult was Tesla innovating in the direction of "cool features" and "suburban bling" and not in the direction of manufacturability. Model 3 will be full of Tesla innovations, and hopefully this time, innovation will be aimed in the right direction.
Innovation One: Glass Roof
Tesla made a lot over the cool glass roof on Model 3. It looks great. It improves rear seat headroom. Tesla has mastered the coatings/absorber technology to keep out damaging UV rays, brilliant sunshine and uncomfortable heat with big glass roofs on Model S. But if we look a bit more closely, there is something about the big glass roof that should really matter to shareholders.
Extending the Model 3 rear window forward to form a glass roof eliminates components and strengthens the rear of the car much as the windshield strengthens and stiffens the car forward of the 'A' pillar. - image Tesla, annotations Author
Besides being cool, besides being innovative, Model 3's big rear glass roof is simple. What Tesla has done, from an engineering standpoint, is add a second windshield to the back half of the car. No new "technology" here - windshield mounting by gluing the glass directly to the body ("direct glazing") is common on today's cars and increases the strength of the roof/'A' pillar structure. Tesla has just done to the roof and the back what the world already does to the front of the cabin.
What is innovative about the Model 3 glass roof isn't the technology, it's the design - that is the applying of existing technology in a clever way that makes the car better and at the same time simpler.
The Model 3 glass roof is also a compromise. To gain the mechanical reinforcement advantage, the roof/rear glass must be glued directly to the structure and this means Model 3 cannot be a hatchback. This will make it harder to scrape together buyers because some folks just love the convenience of a hatch. Judging from the 400,000 reservations, this probably won't be a issue, but Tesla's willingness to forgo functionality to achieve simplicity is a good sign for investors. We have just seen Tesla innovate to make Model 3 less costly and easier to make. And this shareholder is very, very pleased.
Innovation Two: Display
At the Model 3 unveiling, we were treated to a most unusual dashboard display - none. The Model 3 dashboard has nothing on it - no controls, no gauges, not even AC vents! All the Model 3 controls were on a single, large touch screen, suspended in space above the center console. But what we saw isn't what we'll get.
Tesla CEO Elon Musk has tweeted that Model 3 will have a more exotic user interface than what was shown at the Model 3 unveiling event.
DLP - Digital Cinema In Your Car
DLP (Digital Light Processing) is a technology developed by Texas Instruments (NYSE:TI) that uses arrays of micro-mechanical mirrors, each roughly the size of a red blood cell, to generate and project images. If you go to a cinema and watch a "digital movie", you will experience DLP technology. In the last several years, DLP technology has been applied to smaller, less costly image projection systems, including automotive Head Up Displays and even cell phones.
By removing the conventional instruments, and even the air conditioning duct work from the dashboard, Tesla has created the room needed to install an exceptional head up display or HUD in Model 3. With a HUD, the driver essentially looks into the optical system and sees a virtual image focused in space several tens of feet ahead of the car.
But the field of view of most HUD displays is limited. To achieve a wide field of view - a large, compelling image for the driver - a large aperture optical system is required. By removing everything else from the dash, Tesla has made room for very large HUD optics, enabling a compelling display.
It should be appreciated that the cost of the HUD is mostly in the display generating components - the DMD (Digital Micromirror Device), illumination source, drive electronics. The exit optics - that is the 'big' components - are just inexpensive, molded plastic mirrors.
The largest barrier to putting a great HUD in cars is finding the volume within the dash for the necessary large optical components. Tesla appears to be taking the innovative approach of replacing the conventional instruments with the HUD, thus freeing up the necessary volume to make a great HUD display. At the same time, what is saved by eliminating conventional instruments will largely, if not entirely offset the cost of the HUD.
The same DLP technology used for the HUD can also be used to project images on to a 'frosted' screen from the back. In fact, the same optics used to display images can be used to detect operator gestures, allowing an interactive touch screen to be implemented on an inert piece of frosted glass without any wiring. In other words, the touch screen shown in the Model 3 at the unveiling could be implemented using the same imaging technology as the HUD with nothing more than a piece of frosted glass or plastic positioned in front of the dashboard.
Digital Light Processing - the same technology that projects digital movies in theaters - can also be used for automotive head up displays, and to implement interactive touch screens on inert surfaces. Tesla's unusual dashboard arrangement in Model 3 appears optimized to utilize DLP image projection technology. - image Tesla, annotations, Author
Oh NO! More Falcon Wing Doors...
Is this yet one more over-complicated technology innovation in the interest of making Model 3 the coolest car ever? Investors should be worried if a HUD and a touch screen in Model 3 end up as just another hard-to-produce engineering "hero project". We need to understand whether DLP technology will make Model 3 easier or harder, more economic or just more costly.
First, it should be realized that DLP based HUDs are already being used in other cars. The technology not only works, it works and is manufacturable for this automotive application.
There are compelling advantages that make DLP displays preferable to LCD or OLED alternatives. The active elements of a DLP display are very small compared to an LCD display or conventional "instrument cluster". The DMD image generator - the array of a couple million movable mirrors - is built on an IC chip, about the size of your thumbnail. DLP image projectors are also more power efficient than LCD displays, allowing brighter images and lower operating temperatures, both of which are important for automotive displays that must be visible in bright sunlight conditions.
Tesla is not bringing some new technology to automobiles by using a DLP head up display. The innovation is in removing the conventional instruments, controls and HVAC ducts from the dash, making room to implement a very compelling HUD that can then display all the information formerly presented by conventional instruments and displays. The display generating components are very small, only the optics (light, inexpensive, molded plastic mirrors) are large. This is an example of innovation that delivers simplicity, ease of manufacture and very possibly lower cost overall. This kind of innovative display solution for Model 3 is definitely the right kind of innovation. It's not another Falcon Door.
DLP based HUD and projected image touch screen, when used to replace conventional displays and controls result in small, simplified dashboard electronics while providing a compelling user experience. - Author
A second thing for investors to consider is Tesla's unique position vis a vis legacy competitors with regard to this display innovation. Making a really big HUD work requires getting all the "stuff" out from behind the dashboard. It also means accepting the risk that some customers accustomed to old-style instruments won't like this solution.
Legacy carmakers with entrenched suppliers, design teams and organizational "silos" will have a harder time making room behind the dashboard for this type of innovation. And, carmakers with established market shares, customer bases and dealer networks will face considerable adoption risk issues should they pursue this approach. Tesla has a particularly responsive engineering environment (Elon Musk gets what he wants...) and because Model 3 aims at a new market for Tesla, one populated with early adopters, alienation of the existing customer base and defense of market share issues are much less for Tesla than for their competitors. Here is an important innovation that simplifies design, reduces parts, eases manufacturing, probably reduces cost for Model 3, and takes the Tesla to a competitive advantage legacy carmakers will find difficult to emulate.
Innovation Three: Battery Pack
The battery pack illustration shown at the Model 3 unveiling differed significantly from the arrangement I predicted based on improving battery technology and comments made over several years by Tesla's management. Specifically, the pack arrangement shown was a lot bigger than expected.
The size of the Model 3 battery modules shown in the Model 3 unveiling video were much larger than estimated for a Model 3 battery using Tesla's liquid cooling scheme. - image Tesla, annotations Author
Another interesting feature of the Model 3 battery pack is that the middle modules in the layout are moved forward/aft such that there is a substantial "void" in the center of the battery pack.
The size of the battery modules would indicate a very large, very heavy battery if Tesla's liquid cooling scheme used on Model S/X were carried over to Model 3. Such a large battery would not be consistent with the estimated weight for Model 3 (as described above) or with Tesla being able to build the car profitably at the announced price point. Could there be a design innovation here that explains the larger battery modules and is consistent with the Model 3 weight, battery size and cost?
Having puzzled over this for a while, I believe we are seeing an important, but unannounced Tesla innovation.
Tesla's liquid cooling scheme used in Model S/X is relatively simple and particularly compact, and has worked well for Tesla cars to this point. Why would Tesla consider changing their battery design?
The simplest way to cool cells in a battery pack is to blow air directly over the cells. Because air is an electrical insulator, all the complexity of keeping the coolant and the electricity separated goes away. Air cooling has, for instance been used in the LEAF battery pack. The problem is that just circulating air in a sealed pack over the battery cells gets the air very hot. If one draws in air from the outside, the battery is subject to moisture and dust contamination, filters (and the associated maintenance) may be required, etc.
A further difficulty with direct air cooling is that the ambient air can be inconveniently too hot or too cold, requiring the battery cells operate over a wide temperature range. Under "worst case" conditions, for instance high rate DC charging on a very hot day, temperature control of the battery using ambient air becomes problematic.
Finally, air is much less dense than liquid coolant and has less heat capacity (BTU/lb-deg, or J/kg-K). Quite large volumes of air must be moved past the battery cells to remove large amounts of heat. This means a large part of an air cooled battery pack volume must be air passages.
With these considerations in mind, I tried to "reverse engineer" an air-cooled battery pack with the predicted number of "20700" form factor cells (2,880 cells for a 310 mile range (500km) Model 3). As the "design point", I chose SuperCharging at 160kW, and assumed 2% of the charging energy is converted to heat within the cells (400W heat per battery module, 8 modules). Under this condition, I designed for a cooling air temperature rise of 36F (20C) and an air pressure drop across the module cooling circuit <1.5kPa (<6" w.c.). As it turns out, this design assumption results in modules roughly the size shown in the unveiling video.
The battery pack and module configuration shown by Tesla at the Model 3 unveiling is consistent with the previously predicted battery size if circulated air rather than coolant is used within the battery modules to cool the cells. - Author
To keep battery temperature within a comparatively narrow range, and to avoid pumping ambient air into the battery pack, a heat exchanger connected to the HVAC system is used to remove/add heat to the circulating air within the battery pack. Interestingly, the void in the middle of the pack created by shifting the middle modules forward and aft (as shown in the unveiling video) conveniently fits this cooling scheme.
The following drawing illustrates the difference between an air-cooled and a liquid-cooled battery module. Because air is so much thinner and has less heat capacity than liquid coolant, the air-cooled module is largely filled with air passages.
Air-cooled battery module is much larger than a similar liquid cooled module because larger passages are needed to circulate enough air to achieve the required cooling. Model 3 appears to use 8 battery modules roughly the size of the air-cooled module illustrated. - Author
Air-cooled battery modules are very much simpler than liquid cooled modules. No separate, electrically isolated cooling ducts or plates are needed and the cooling air can directly contact the cells. With Tesla's cylindrical, metal cased cells, the battery module is just an injection-molded plastic box. This is another case where Tesla appears to have innovated in the direction of simplicity and ease of manufacture.
It is also a case where a compromise had to be made. Had Tesla stayed with their liquid-cooled approach, the battery modules could have been eliminated from the foot well areas, the seating position lowered, and either the car could have been lower overall, or the roof structure could have included structural bracing above the rear passengers' heads to allow a hatchback configuration. Tesla once again appears to have chosen simplicity and ease of manufacturing over features - a good sign for investors looking to see Model 3 in production soon.
There are a number of very significant simplifications possible in Tesla's/Panasonic's battery manufacturing process that are enabled by air-cooled battery modules, but description of these will have to wait for another article.
The use of air-cooled battery modules will necessitate a change in overall thermal management compared with Model S/X. While there are any number of ways Model 3 heating and air conditioning can be connected, the following figure illustrates one approach.
One approach to thermal management for Model 3 incorporating air-cooled battery modules includes a bi-directional heat-pump configured to transfer heat between two glycol cooling/heating loops. Only a single coolant radiator is used at the front of the car. - Author
Tesla is embarking on an extraordinary growth plan aimed at satisfying the unexpectedly enormous demand for the recently announced Model 3 car. The company faces both increased risk and the potential for greatly accelerated returns if the ambitious target of 500,000 total unit sales by 2018 is met.
Some investors who have tried to understand Tesla in the context of a maturing carmaker with diminishing growth opportunities have found Tesla's accelerated growth plan outside their range of expectation, and some investors uncomfortable balancing the risks and opportunities of a Silicon Valley start-up on the scale of Tesla have fled the stock in recent weeks.
Tesla has had substantial difficulty getting their Model X SUV to the market, and have admitted this difficulty stems from an overly ambitious quest for exotic features with Model X. If Tesla follows the Model X approach to design and innovation with Model 3, company ambitions for rapid Model 3 production ramp and profitability will be unfulfilled. Tesla has claimed Model 3 design and innovation will be much more disciplined and focused on manufacturability than was the case with Model X. Whether Tesla will deliver on disciplined design and innovation with Model 3 is the critical question for investors weighing Tesla's prospects and value going forward.
Predictions of Model 3 dimensions, performance and range made a year ago on the basis of expected improvements in battery specific energy and the knock-on effect reducing vehicle weight are in remarkable agreement with Model 3 details released thus far. Most recently, Model 3 tire data has allowed corroboration of estimated weight for the Model 3 performance version. As available Model 3 information continues to match earlier estimates, confidence in Model 3 cost estimates and profitability is increasing. This leaves the critical question of whether Tesla will remain focused. By innovating toward a simple manufacturable Model 3, the company can deliver close to the promised schedule, volume, price and profitability.
Careful examination of Model 3 design details available thus far indicates Tesla has made design innovations and specific design compromises favoring simplicity and manufacturability over unrestrained creativity. This bodes well for company success and investors can take heart that Tesla is now headed in the right direction to meet audacious Model 3 production and 2018 growth objectives.
Disclosure: I am/we are long TSLA.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.