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Tales From The Future. I picked my nickname because many advisors and investors claim they can predict the future of the (stock) markets and somehow pick the winners. I don't. I usually do not engage in short-term trading and myopic analysis (quarter by quarter, without looking at the big... More
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  • Electric Vehicle Sales: It's All About The Cells (Most Bullish TSLA Analysts Still Miss The Supply Side) 21 comments
    Nov 23, 2013 5:16 PM | about stocks: TSLA, NSANY

    The title could also be asking: When will many bullish (NASDAQ:TSLA) analysts projecting millions of EV sales or even an "EV revolution" in the near term finally wake-up and care more about the (battery) supply side?

    (For example, the German government is still talking about putting one million EVs on the road by 2020. Many observers express doubt they can realistically hit that target - even when including all hybrid cars.)

    The bullish analyst scenario for the EV demand side goes something like this: EV battery prices will fall below the "tipping point" (around 150-200 $/kWh) over the coming years. Beyond this point, EVs will become cheaper than traditional gas or diesel cars (even assuming stable gas prices around the world). Many car buyers will choose EVs or at least PHEVs over "traditional" cars for the first time in their life.

    So far so good (I talked about EV mass-market demand challenges in earlier entries already, let's for now assume the demand is there), but what about the supply side needed to produce all these EVs by 2020?

    I think battery manufacturing (supply) challenges are still under-reported for TSLA and the EV industry in general - especially compared to possibly overblown short-term challenges these cars are facing (such as recent TSLA Model S fire incidents).*

    Why is battery supply and pricing the elephant in the EV room?

    Let's assume demand for long-range EVs (let's define this as 200+ miles of range on one charge) takes off in the near future as the battery $/kWh numbers keep falling. Some simple calculations in a scenario:

    1. Let's assume 100 million new cars/year will be built by 2020. (This assumes demand in Africa and SE Asia continues to grow with net-new first-time car buyers and a rising middle class. A likely scenario looking at recent real-term purchasing power improvements in many countries. The current global number is around 85 million cars produced per year).

    2. Let's assume 80 million of those cars will be new passenger cars (currently this number is at around 65 million cars/year).**

    3. Let's assume the $/kWh numbers drop to the 150 range by around 2020 (in six years) and EV demand picks up in the mass-market.***

    4. Let's assume 10% of cars sold will now be long-range EVs with 4000 battery cells each. Why 4000? That is using TSLA's current model of small 18650 cells and adding some energy density improvements/cell; for example, a higher Ah number above the current 3.xy, say 4.0 Ah.

    5. Result of this scenario: 8 million cars x 4000 cells = 32 billion cells (or the equivalent in larger cell GWh) total will be needed for each car production year - this is only for EV car production; no smartphone or similar device "fighting" for battery supply added (and I assume we still use many of these devices by 2020, probably more so than today).

    At the moment, the worldwide production capacity is at a fraction of the GWh number needed for EV batteries by 2020 (across the entire range of Li-Ion batteries), even if just a few of all cars are EVs or hybrids: I used 10% market share for EVs in the scenario above (8 million EVs/year) and didn't even include hybrid battery demand (!).

    The "giga battery factory" TSLA is rumored to be planning could (for example) be capable to supply battery packs for 500k cars/year (especially for its mass-market Gen III car).

    As you can see in the following video presentation, TSLA's CTO JB Straubel is already talking about 700k TSLA vehicles produced per year by 2019 in a presentation - I doubt Straubel was using exact (and likely) confidential numbers, these could be just rough sales estimates:

    http://www.youtube.com/watch?v=ShJuKTmtHjY

    (See minute 21:00 and following in the YT video from September '13. Note that JB Straubel is assuming 5000 cells/car in the video, I'm only using 4000 cells/car average based on optimistic technology progress.)

    If you don't time to watch the video, here are two important numbers:

    40 GWh of capacity will be needed just for those 700k TSLA cars

    25-30 GWh is the current global manufacturing limit (all plants)

    The 25-30 GWh manufacturing limit includes (for example) the battery for the mobile phone in your pocket. I doubt mobile phones will be banned by 2020 so the world can manufacture more EV batteries ;-)

    The YT video is not only an interesting technical overview on TSLA but also straight talk from a man who should know about battery supply - probably more so than any other auto executive apart from very few counterparts at Nissan/AESC, BYD or execs and researchers from dominant battery suppliers like LG Chem, Panasonic or Samsung SDI.

    What do these battery supply needs and numbers mean for TSLA (and the rest of the EV makers, I'm using TSLA as a prominent example) ?

    TSLA would need funding and break ground on the first battery factory by around 2015 and then plan for a second plant or a major expansion right after the first "giga factory" is finished by around 2017.****

    You can do your own cap-ex calculations for these investments (I did some calculations and arrived at billions of $ in earlier Instablog posts).

    And these are just the numbers for TSLA's planned car sales. Other manufacturers will have to build up massive battery supply chains as well - so far only Nissan as an EV pioneer has done that (three global battery plants; knowledge gained from a Nissan-NEC JV since 2007).

    As all TSLA investors (and analysts) should know: TSLA already is (as of late 2013) one of the largest buyers of Li-Ion battery cells worldwide and it currently produces just 25k or so cars/year.

    Admittedly with more cells used for each car - but this is a rounding error given the small production in 2013 and the difference is included in my calculations above (I assumed only 4000 cells/car in the future):

    Currently, the largest Model S at 85 kWh still uses around 7000+ 18650-type cells from Panasonic Japan; the numbers will probably be quite similar for the largest Model X SUV due in late 2014. Another indicator of cell numbers will be the lower-range Mercedes B EV being built with TSLA technology - this car is due in the same timeframe.

    To reiterate: I'm just assuming about 10% of all passenger cars equipped as long-range EVs in the 2020 scenario above; 90% of cars would still use older/other battery types [let's remember these battery types will compete on the supply chain for some of the same raw materials. So will consumer electronic makers such as AAPL. AAPL and peers are willing to pay (a lot) more per Wh in case supply is tight because of better margins.] or run on ICE, CNG or fuel cells:

    Somehow the EV car industry has to supply these 32 billion cells (or the equivalent GWh with larger cells) efficiently and eco-friendly, including improving the raw material supply chain (replace Cobalt...).

    You can call me a BEV "naysayer", but in my opinion, it will take 1 or 2 decades to solve this battery supply problem and ramp-up (unless a real breakthrough in battery technology comes along before then...).

    In my opinion, the EV "revolution" will be a slow evolution. It will take longer than anticipated on a grand scale (again unless a battery tech breakthrough comes along...) and require more investments from battery suppliers and car makers than most investors anticipate today.

    Without giant battery factories being built worldwide at a rapid pace, there won't be enough supply for even 10% of all new cars to be EVs.

    The second result of my simple calculation and estimate is that while 10% of cars may be long-range BEVs one day, the rise in absolute production to 100 million new cars/year will probably mean there will be as many conventional cars on the road in 10+ years as today!

    That being said I know that continued use of oil resources for personal transportation is also very problematic (hidden military costs/resource wars over oil, oil spills, shortages in conventional oil fields, problems with "fracking" and other exploitation of unconventional oil sources...).

    Total pollution numbers may decrease a little since stricter standards for CO2 etc. may be passed. There may be more short-range EVs and hybrids (both mild hybrids and PHEVs) in the total "car population" - but there won't be a big difference in usage and lifecycle dirt assuming the production is rising to 100 million cars/year in total (unfortunately).

    Summary On TSLA Factory Challenges:

    I'm not arguing TSLA will be unable to build this plant once they raise the funds. But the plant's importance and challenges (also regarding the timeline) are underestimated in my opinion:

    - This plant will require billions in investments from TSLA (even if done as a JV) because of the sheer size and risks involved for third-party battery suppliers.

    - TSLA will especially need to choose the "correct" battery size and chemistry and ramp-up supply logistics - as well as get Gen III sales estimates right. Critical decisions given the plant's size.

    - Quality control needs to be very good (Fisker car fires with A123 batteries and Mitsubishi using GS Yuasa batteries are a dire warning, these were self-ignitions, very different to Model S fire incidents). Panasonic has high quality standards today, this needs to be replicated for 2+ billions cells per year over time in the TSLA factory (about 4 times Panasonic's current volume per year!).

    - Most bullish TSLA analysts are in my opinion underestimating the timeframe and investments needed to build his plant, some of them didn't even mention the plant in their reports (but on the other hand the same analysts model in hundreds of thousands of TSLA cars sold/year before 2020, which is of course impossible to achieve without the battery supply !)

    Bullish TSLA analysts (and public policy makers around the world) modeling in millions of EV car sales by 2020 in their spreadsheets will need to start thinking harder about the supply side challenges. It's quite simple: no battery supply = no EV built or sold. So far, only a few people are discussing this, even after the latest 10-Q, for ex. here.

    Needless to add that the TSLA plant decision could impact the debt structure and/or share count (follow-on offerings) of the company.

    - TSLA plant construction will likely need to start in (early to mid) 2015 already since TSLA is still listing "2016-2017" for its Gen III car:

    files.shareholder.com/downloads/ABEA-4CW....pdf

    (see second-to-last slide in the TSLA PDF presentation for investors)

    Because of all the plant challenges the Gen III car could face introduction delays. Alternative: A possible price hike for the Gen III car and continued third-party battery supply in smaller numbers to keep the "2016-2017" Gen III introduction date intact. (?)

    If so, TSLA could push out the need for its plant by 1-2 years. The disadvantage would be a mix-and-match of cells for the Gen III between the first (signature?) series and later model years, this is very problematic to handle technically and also more expensive.*****

    General Summary:

    There is no easy solution in personal (car) mobility ahead of us and this challenge goes way beyond TSLA and other EV manufacturers.

    Maybe we even need to think about creating a soft plateau for a global 100 million new cars/year (2020 scenario) using different incentives:

    The hard answers might include taxing road use/more congestion charges, changes in behavior/new car demand (more rental cars and less car ownership, use more substitutes such as bikes, e-bikes with small battery needs), technology improvements ("automated driver-less taxis" on demand in 2020-2030 that you can order 24/7) and - most importantly in my opinion - better public/mass transport (more subways and trams in cities, more local trains to connect suburbs and high-speed trains or similar ground transport between urban areas).

    I know most of these ideas are not popular except with maybe a few green activists (and I wouldn't include myself there). But Mega-cities such as London already have car congestion charges, others like Singapore and Shanghai are increasing taxes and road charges as well.

    The "personal mobility freedom" mantra for cars (especially commuters with one person/car) may soon be near its peak in these dense urban areas - just look at the rush hour congestion in cities like Los Angeles.

    Maybe the real "EV revolution" will happen on two wheels, not four? E-bike sales are climbing fast and only require much smaller batteries.

    PS: I recently closed my TSLA short position and no longer hold a position at the time of writing (nor do I intend to open one again until Q4 2013 numbers are announced).

    _____________

    * I think the absolute (fire) incident numbers concerning the TSLA Model S and other EVs so far are too small to draw a good conclusion, especially in comparison to decades of statistics for ICE incidents. We will have to wait longer until more EVs from TSLA and other makers are on the road to compare incidents and miles driven (especially fire incidents). Meanwhile, TSLA is using ICE fire statistics to defend itself.

    ** Production Statistics for 2012 (also provides link to earlier years): www.oica.net/category/production-statist.../

    *** 2020 estimates for larger cells with equally optimistic targets can for example be found below. This includes variables such as replacing Cobalt and other problematic (or very expensive) raw material inputs:

    Cobalt is not only much more expensive than any other chemical input, but it also often comes from conflict-scarred regions of Africa. Eliminating the need for cobalt will dramatically lower the battery price.

    By 2020, Navigant Research expects that prices for batteries will be below $200 per kWh. At that point, EVs will carry only a small premium over their gasoline counterparts, and battery-based energy storage will be almost as inexpensive as natural gas generation in a peaker plant. When those milestones are achieved, the battery market will become worth more than $75 billion in annual revenue (as opposed to about $12 billion today).

    www.batterypoweronline.com/main/articles.../

    I'm using an optimistic $150/kWh (not $200) because the EV's total cost of ownership advantages may remain a hard sell for some first-time EV buyers (i.e. buyer's irrational aversion to spend a little more for the EV or battery lease vs. ICE cars at the time of purchase - even when saving more on charging vs. gas at the pump later on).

    Regarding battery leases and EV battery re-sale values, the outlook doesn't look so bleak: Both EV pioneers Nissan (JV with Sumitomo) and TSLA are thinking about re-using the EV batteries beyond their useful lifecycle in cars, e.g. for domestic or industrial use as "buffers" or recycling the batteries. This increases the battery value for car owners. Other car makers and battery suppliers will likely follow suit and deploy similar usage strategies for spent EV batteries in the future.

    **** These estimates of 2 years total lead and plant construction time (until the first batteries are rolling off the production line) are first taken from Nissan's recent battery plant construction in the U.S.:

    Start Date: May 2010 (breaking ground on the plant):

    www.nissan-global.com/EN/NEWS/2010/_STOR....html

    End Date: October to December 2012 (first battery packs about to be ready for charging by the end of 2012):

    wheels.blogs.nytimes.com/2012/12/13/niss..._r=1

    While this Nissan plant could produce up to 200k packs, it's still running well below capacity as of late 2013.

    Note that Nissan is using larger cells and is not using smaller 18650-type cells (standard size for many other uses such as laptops, however TSLA may change the size for the Gen III).

    Second, it took Panasonic about 1.5 years to create new 18650-type cell manufacturing lines in Asia (several factories in China and Japan).

    I'm therefore assuming 24 months needed for a new "giga factory" by TSLA (given the huge capacity and possible cylindrical size changes).

    Also of note, Nissan LEAF batteries only hold 24 kWh at the moment (short-range EV). TSLA's batteries will likely require about double that in each battery pack to achieve 200+ miles. A rough estimate: 50 kWh.

    ***** Note: Whenever I wrote "TSLA plant" above it could either be a plant fully owned by TSLA or a joint-venture (JV) with a large battery supplier.

    In both cases, TSLA would (at least in part) vertically integrate its battery supply (similar to Nissan-AESC) including later re-cycling or re-use and sales of older "spent" EV batteries for other customers.

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Comments (21)
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  • Tales From The Future
    , contributor
    Comments (4954) | Send Message
     
    Author’s reply » More about the German government's EV goals calling for one million EVs 2020 can be found here (report from May 2013):

     

    http://buswk.co/19RWxVI
    23 Nov 2013, 07:31 PM Reply Like
  • JRP3
    , contributor
    Comments (8013) | Send Message
     
    You know my thoughts on the battery issue, but ultimately it's all going to boil down to one thing and one thing only: Population control. It's going to happen eventually, one way or another, and sooner is better than later, and voluntary and organized is better than chaos, disease, and famine. With an increasingly toxic food supply we may end up sterilizing ourselves anyway.
    24 Nov 2013, 11:39 AM Reply Like
  • Tales From The Future
    , contributor
    Comments (4954) | Send Message
     
    Author’s reply » A big can of worms you open here :)

     

    Our society (and monetary system) is based on constant GDP growth, that in part is/was itself based on population growth besides other factors like productivity growth.

     

    Without going into details (that would probably take a few hundred pages :-) I see the population delince being played out in two large countries in our times:

     

    Look at Japan's and China's population pyramids (even when/if the latter is currently relaxing its one-child policy)

     

    Both countries will face many old people and fewer young people in 2-3 decades from now.

     

    The rest of the world will see how that goes, maybe automation (robots etc.) is that far along by then that it works out with less human input.

     

    Otherwise, a consequence is likely: Many people will (have to) work longer in the future, maybe until they are 70+ years old...

     

    PS: There was a good book recently on the subject, but I haven't read myself, just the summary:

     

    "If population levels continue to rise at the current rate, our grandchildren will see the Earth plunged into an unprecedented environmental crisis, argues computational scientist Stephen Emmott in this extract from his book Ten Billion"

     

    http://bit.ly/1g99GiQ

     

    On the other hand, the Club of Rome said similar things back in the 70s when the number was less than half that...

     

    http://bit.ly/1g99QXz

     

    The apocalypse has been postponed so far :-)

     

    On a serious note, I see the use of water, oil and meat production as critical. I guess our grandchildren will learn to love more veggie food if they want or not...

     

    "“You know what this costs?” She took his plate. “They gotta raise a whole animal for years and then they kill it. This isn’t vat stuff.” She forked a mouthful up and chewed.” – William Gibson, Neuromancer (1984)"

     

    http://bit.ly/14znUCb
    24 Nov 2013, 03:23 PM Reply Like
  • Long Chance Orientation
    , contributor
    Comments (4) | Send Message
     
    Interesting and well written article. I have a few follow up questions.

     

    Is the only problem with battery supply chain venture capital?

     

    Do you think it is not profitable to build new giant battery factories in the next 5 years for a private company?

     

    If so is it wrong to think that government will step up with billions of dollars to fund these ventures considering the overall environmental and strategic benefits of EV adoption?

     

    Regards
    Matthias
    24 Nov 2013, 09:10 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (4954) | Send Message
     
    Author’s reply » Ok, I try to answer them one by one:

     

    1. Except for Cobalt, I don't see a problem on the raw material input side at the moment. Input prices could of course become volatile, but there is enough lithiumm etc. for now.

     

    Large car companies (for example VW Group has a 10+ billion R&D budget per year: http://bit.ly/1gaU7XL ) can pay for these plants.

     

    It's more an issue of timing and ROI timelines, for example Nissan built a lot of excess capacity since 2010 which is still idle. The success of BMW i and TSLA will be watched closely by the rest of the industry in the coming months.

     

    Smaller companies like TSLA will most likely need additional financing, e.g. either debt or follow-on stock offerings.

     

    2. I think it's only profitable for large car companies who can endure a long maturity on their return, i.e. a return on investment by 2020 only - or a joint venture of a car company and a supplier like Panasonic, LG or Samsung.

     

    The investments are so big and the price drops ongoing ($ per kWh) that no supplier will build a giant plant on their own without orders from a car maker in my opinion.

     

    In short, I see car companies vertically integrating battery supply, Nissan-Rnault did this, Tesla is planning it soon and others mau follow.

     

    I think battery companies themselves will not invest, but there are smaller ones (Blue, recent IPO in France) left:

     

    http://reut.rs/1gaU7XM

     

    Many stand-alone Battery companies listed in the US failed (A123...)

     

    3. The U.S. has set aside money (NIssan used money from the DoE to build their third battery plant), but maybe the political will isn't there after many setbacks from previous loans (Solyndra, Fisker...).

     

    Most major EV battery companies are located in Korea, Japan and China. Government support (as for the local car industry) is certainly an option as long as they can fly under the WTO guidelines somehow.
    25 Nov 2013, 04:10 AM Reply Like
  • Tales From The Future
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    Author’s reply » Regarding battery raw materials, I would like to focus on one particular issue from 1. in more detail: Cobalt supply.

     

    The problem with Cobalt supply is political instability, most of the known reserves are in the DRC in Africa:

     

    "Over 50% of the world's cobalt reserves are in the DR, but In 2011, as previous, less than 5% of cobalt was refined in the Central African region, Smith said. “Most of it was going east to China for refinement and, in fact China remains the largest exporter of cobalt to the United States,” she said.

     

    Cobalt has numerous uses, including superalloys and catalysts, but its growth in battery applications has outpaced all other end uses and now accounts for 27% of overall consumption, compared to only 11% in 2002, Smith said."

     

    http://bit.ly/IosC0Q

     

    As with other raw materials, consumer electronic makers (mobile phones...) also need Cobalt and they are willing to pay more.

     

    The supply problem will only increase over the coming years, China is in the dominant position to get most of the material.

     

    One of the important open questions regarding EV pattery price cuts thus is how and when Cobalt can be replaced/reduced, also see footnote in the article.
    25 Nov 2013, 04:45 AM Reply Like
  • JRP3
    , contributor
    Comments (8013) | Send Message
     
    The latest chemistry that Tesla uses has reduced amounts of Cobalt compared to earlier versions, and there are already lithium ion chemistries that use none, so while it could be an issue in the near term I expect it to be eliminated completely at some point.
    25 Nov 2013, 09:42 AM Reply Like
  • Tales From The Future
    , contributor
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    Author’s reply » Yes, it will be interesting to see if TSLA/Panasonic or other battery makers can achieve this by the time the batteries for the Gen III are built.

     

    If I recall correctly, Musk only mentioned Lithium in the last CC by name, Lithium should not be an issue on the supply side (of course there could also be some volatility in pricing there, I expect the main supply/risk issue to be in Cobalt.)

     

    This is not my area of expertise, however. I only quoted sources. For example, the source quoted above (via FuturesMag) says that there are about 4-6 kilograms of Cobalt needed for each hybrid or EV:

     

    "Laptop and tablet computer growth since 2009 has increased 35% and production is expected to double over the next five years, requiring an estimated 11,000 tonnes of cobalt, Smith said. The most exciting development in the battery market is, however, expect to be in electric vehicles. A good approximation of use, she said, is four kilograms of cobalt for a hybrid electric vehicle and six kilograms for an electric vehicle battery.

     

    “Based on announced plans by leading automotive manufacturers, we believe that you should see about 12 million to 13 million hybrid and electric vehicles on our roads by 2020,” Smith said. “This will necessitate as much as 20,000 to 30,000 tonnes of cobalt.”

     

    http://bit.ly/IosC0Q

     

    I would need more raw material amounts for TSLA-specific batteries, I don't think this information is public.
    25 Nov 2013, 12:17 PM Reply Like
  • JRP3
    , contributor
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    I would expect not since it's probably something of a proprietary blend, but you might be able to find numbers for the general NCA chemistry.
    25 Nov 2013, 07:41 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (4954) | Send Message
     
    Author’s reply » Yes, maybe they will share more details once the plant is under construction or in a form release to the SEC in the future (critical issues in the supply chain...)?

     

    Lithium was mentioned in the latest conference call if I recall correctly, Lithium supply should not be an issue.

     

    (IF Cobalt is currently used in the Panasonic cells manufactured for TSLA, I expected Cobalt supply to be singled out by name, not lithium...).
    25 Nov 2013, 08:17 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (4954) | Send Message
     
    Author’s reply » One more thing: Readers who think this is all solvable soon and my article is at best fear-mongering can directly go here to re-inforce their views:

     

    Guest Post: EV Myths and Realities, Part 1—The Battery Crisis

     

    (...)
    But it's not the case. The resources are not scarce. "Peak battery" is not following hot on the heels of peak oil.
    (...)

     

    http://bit.ly/MdPiwL

     

    As someone who believes in always listening to the other side before making an investment decision, I even include a link for you :)

     

    Note that this article only touches on the raw material input/global reserves.

     

    TSLA and other companies in the supply chain would still need to extract these resources and build the actual plants before 2020 for cell manufacturing etc.

     

    I assumed the reserves to be there in theory and focused on the investment side (building the plants, tight timeframe until 2020) and growing price constraints (since other manufacturers using the same supply chains are also experiencing growing demand for the same raw materials in consumer electronics etc. and have higher margins)

     

    PS: There is also a part 2 to this article here, it focuses more on the grid for EVs:

     

    http://bit.ly/LRwCaa
    25 Nov 2013, 08:51 PM Reply Like
  • Early Adopter
    , contributor
    Comments (23) | Send Message
     
    tftf, I must commend you on writing the first and only short thesis on Tesla I've read that holds any merit. All of the other short pieces out there have been absolutely drivel and just nonsense. Well done, and thank you for putting together something useful and thought provoking for us longs.

     

    It's also interesting to note that TSLA reached its all time high just 2 days after JB gave that talk at Standford. I think some smart money, both long and short, took notice then. I also believe the revelation of the need for a giga battery factory on the Q3 earnings call is what triggered the post earnings drop, not the earnings themselves (which were quite good).

     

    One correction I wanted to point out is that JB said quite clearly in the Stanford video that nickel is Tesla's most expensive input, not cobalt. I believe the NCA chemistry used by Tesla relies on only trace amounts of cobalt. A look at nickel supply would be informative.
    26 Nov 2013, 12:55 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (4954) | Send Message
     
    Author’s reply » Thank you, I put in quite some work (my article got too long probably).

     

    I was lucky enough to catch the JB Straubel video when it went online in late September 2013, it basically had zero views back then.

     

    By last week (late November 2013) it only had 400 views. On the other hand, the TSLA car fire videos had thousands of hits and were being replayed on CNBC and Bloomberg constantly (to me overblown mass media fear, I think the samples are too small to judge Model S safety etc. for now).

     

    So my short thesis is: People watched the wrong short video for the wrong reasons:)

     

    A spectacular fire is more interesting to watch than boring GWh numbers in a spreadsheet.

     

    Financial media has become entertainment instead of digging for answers.

     

    To give credit where credit is due, John Petersen (a red flag to many TSLA longs) wrote long articles about the critical supply issue back then and earlier in 2011 and 2012:

     

    http://bit.ly/17OP7DE

     

    I quoted him in my earlier blog entries on this issue.

     

    In August 2013 I became convinced to short TSLA more based on battery supply BEYOND the Model S and X cars (current supply is secured thanks to Panasonic deals).

     

    I simply can't believe why TSLA analysts don't ask more questions about crucial battery supply and battery pricing in the latest conference calls.

     

    Wall Street is mostly myopic in my opinion, analysts look only Q after Q...they care more about a few additional cars shipped per Q than 40 GWh in five years.

     

    Absurd.

     

    PS: That's also why I earlier wrote about Tesla becoming the Porsche equivalent in EVs (high-end cars, less than 200k cars/year, no Gen III). This alternative "Porsche exit" strategy would be a safer one in my opinion for TSLA because that battery supply would be easier to secure, the margins are higher, no brand dilution etc.

     

    That was an armchair strategic exercise only. We know TSLA is hell-bent on the mass-market with Gen III and possibly Gen IV cars later on, a high risk strategy on BOTH the demand and supply side in my opinion.
    26 Nov 2013, 01:05 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (4954) | Send Message
     
    Author’s reply » @Early Adopter: And thank you for pointing out the Nickle supply.

     

    I didn't discuss Cobalt, Nickle and other raw material questions in my main article. I don't know enough about the composition of TSLA cells, the information isn't public. TSLA uses a special chemistry, changed from the older Roadster cells, which were believed to be more "standard".

     

    I was pointing out Cobalt because the situation in the DRC is very unstable, it 's basically getting resources from a war or near-war zone:

     

    http://bit.ly/1bSMiBV

     

    But I don't know how much Cobalt TSLA cells require or if it was replaced already....

     

    The (positive) article from Nick Butcher goes into detail about raw material supply for EVs here:

     

    "If Tesla, or anyone else, wants to make 10 million long-range performance EVs per year in eight years’ time, neither raw material reserves nor market production capacity will stop them."

     

    http://bit.ly/MdPiwL

     

    (Same link as in earlier comment)

     

    For a rebuttal, there are many articles from John Petersen here on SA.
    26 Nov 2013, 01:32 PM Reply Like
  • JRP3
    , contributor
    Comments (8013) | Send Message
     
    Unfortunately all of Petersen's resource concerns are based on a single, false premise: What the world produces today is all that the world can produce tomorrow.
    There is no critical element for lithium ion batteries which is resource constrained. (Cobalt is not critical since it can and has been replaced).
    26 Nov 2013, 07:34 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (4954) | Send Message
     
    Author’s reply » Fair enough, that's why I added the link to the Nick Butcher articles so everyone can run the numbers (at least rough estimates) themselves and hear from both sides.

     

    I differ on JP's argument in the sense that I focus on the supply chain (raw material pricing) and battery factories and assume the supply/extraction will be solved over time (also by replacing/reducing some critical or expensive elements through ongoing R&D, that will however take 1+ decade.)

     

    I also differ with him on TSLA valuation (he prefers to apply the book value on TSLA and has very low price targets) I think TSLA could be interesting (again) at around $50.

     

    My argument is that while it's possible that short-range and long-range EVs may one day get a significant marketshare, it will take decades and billions to even get to 10-20% marketshare:

     

    A slow EV evolution over 2+ decades instead of a fast EV revolution.

     

    The problem for TSLA stock valuation if I'm correct:

     

    I don't think most TSLA shareholders have this timeframe in mind - maybe again thinking about AAPL and similar disruptive companies in other sectors (especially IT and biotech) where a new entrant can disrupt the entire industry in 3-5 years.

     

    As we all know, it only took AAPL and Android only about 3-5 years to dismantle NOK and BBRY in smartphones.

     

    The dangerous thing is that TSLA bulls directly apply these short timeframes from other industries to the car industry - especially given the battery supply constraints.

     

    Finally, many pioneers will not be future market leaders, that was shown again and again.

     

    Among the first car companies selling the most vehicles in 1900-1920, only a few are still around. Most are long closed, merged or bankrupted.

     

    Just because TSLA (and of course Nissan) are the EV pioneers now doesn't mean that they will still be market leaders in 10-20 years.

     

    That said, I give a higher chance to Nissan given its resources.
    26 Nov 2013, 08:29 PM Reply Like
  • JRP3
    , contributor
    Comments (8013) | Send Message
     
    Nissan is puzzling. The LEAF is a disappointing effort with poor range, that varies greatly depending on conditions, and a pack that can also degrade quickly depending on conditions, in a car with questionable styling, without great aerodynamics which might justify the style choices. They need to change almost everything about their approach to EV's if they want to be successful. There was a brief glimmer of potential greatness with their ESFlow concept car http://bit.ly/1hh8Xiu
    but so far there is no sign that they will actually build it. Instead they are messing around with more ridiculous concept cars that will almost certainly never be built.
    http://bit.ly/1hh8Xiv
    26 Nov 2013, 09:09 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (4954) | Send Message
     
    Author’s reply » Their partner Renault is also big into EVs. Together, they sold over 125k of EVs and are the global unit leader in the category, so I'm not down (yet) on Nissan-Renault EVs.

     

    Styling is personal taste, can't answer that. Many people also dislike the Prius styling - yet it still sold in the millions.

     

    I think Nissan--Renault can remain the EV market-share leader near-term if they improve a future "Leaf 2.0" in some key aspects.

     

    For example if they manage to extend the range (add battery cooling etc.) by just 25 to 50 miles (REAL-WORLD !) and don't raise the prices too much:

     

    http://bit.ly/1idMJPT

     

    All speculation, but different batteries could be available in the future. I think up to 125 miles of real-world range could make the "LEAF 2.0" a category winner for short-range EVs - especially since Nissan has its own battery supply.
    26 Nov 2013, 09:45 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (4954) | Send Message
     
    Author’s reply » Should have said about Nissan LEAF:

     

    different battery pack (sizes), not different batteries

     

    125 miles for the new Nissan LEAF is just a rumor at the moment.

     

    This shows another issue with EV marketing in the mass-market segment:

     

    Because the battery improvements are big in terms of pricing between car generations, vendors can't pre-announce future models too early or risk losing sales significantly. Different with mature ICE cars, only gradual improvements in engine department, fewer sales lost between generations/model year upgrades.
    27 Nov 2013, 04:39 AM Reply Like
  • Tales From The Future
    , contributor
    Comments (4954) | Send Message
     
    Author’s reply » @Early Adopter. Ok, I looked at the video again. JB Straubel indeed talks briefly about raw materials.

     

    Can we agree on the following:

     

    Nickel (sorry for missp in other comments): Most expensive battery input element

     

    Cobalt: Most critical element because of supply disruptions (most reserves are in the DR of Congo in Africa)

     

    He only talks about the Nickel price, Cobalt is just mentioned by name. But it shows that Cobalt is indeed (still) being used at the moment for TSLA batteries.
    27 Nov 2013, 12:42 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (4954) | Send Message
     
    Author’s reply » TSLA executives just reiterated the need for multiple giant battery factories:

     

    "Musk Sees Need for Hundreds of Battery ‘Gigafactories’ "

     

    http://bloom.bg/1qDM8eI

     

    Simple math if there are 100+ million cars and all should be powered as (long-range *) EVs.

     

    _______
    * I still have my doubts if this makes sense, see my Instablogs where I frequently discuss EREVs (cars with range extenders).
    16 May, 09:41 AM Reply Like
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