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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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  • TSLA And EV Range: The Curious Case Of The Mercedes Benz EV 30 comments
    Feb 3, 2014 1:04 PM | about stocks: TSLA

    Most people following the development of electric vehicles (EVs) know that TSLA is building some components for cars manufactured by two companies with TSLA stakes (namely Toyota and Daimler):

    • Toyota RAV EV
    • Mercedes Benz B EV

    The Mercedes B EV is due in showrooms later in 2014. First reviews start to appear of the near-finalized car. What piqued my interest was the possible range since Tesla's own cars are long-range EVs. The Mercedes B EV spec sheet includes:

    • Powered by Tesla
    • Fitted with a 28 kWh Tesla battery pack
    • Equipped with a 174 hp electric motor
    • Able to churn out 251 pound-feet of torque
    • Capable of doing the 0 to 60 mph dash in 7.9 second
    • Capable of hitting 100 mph
    • Not one of those vehicles with battery intrusion in the interior or cargo holds
    • Heavy at 3,858 pounds

    http://insideevs.com/mercedes-benz-b-class-electric-drive-road-test-review/

    As a commenter on that site noted:

    I'm a bit curious about the range. If it has a 28Kwh battery pack, that's only 4kwh more than the [Nissan] Leaf. By Leaf standards that would have a range of 87 EPA miles (vs 75 currently). but this car is heavy and appears less aerodynamic. So I wouldn't be surprised if it has similar range to the Leaf after EPA testing. We'll see.

    For a long time TSLA optimists have claimed that the Tesla battery configurations are much better. I maintain that while their battery density may be higher for the time being (see chart below for details, I already used this chart in earlier blog entries)..

    (click to enlarge)

    ...the battery race to bring costs down and miles up is far from over.

    The current "advantage" is that both the Model S and X come with large and expensive battery packs, for example, up to 85 kWh in the Model S. These car models have ASPs around $100k (!).

    Assuming that TSLA does not supply its partners with "inferior" batteries (doubtful, most likely the same cells from Panasonic are used) the difference in real vehicle range might not be that big at similar car prices - since the Mercedes B is supposed to be sold for "only" $35-55k (the exact pricing is still unknown at this time).

    It was easy for TSLA to dismiss short-range EV competitors like the BMW i3 or the Nissan LEAF - but let's again not forget that a fully equipped Model S costs thrice as much as a LEAF and twice as much as an i3. Different cars for different segments - the battery pricing (and ability to add more powerful batteries) is therefore also entirely different.

    Looking at the first lower-priced Mercedes B EV limousine with "TSLA battery technology" inside (which again is likely only the battery pack and the BMS, the cells are sourced from Panasonic*), these Tesla "advantages" apparently become much smaller.

    The question therefore remains how TSLA can build its future, mass-market car with the following promised specs:

    • 30k-35k USD base price
    • above 200 miles of range in the real world*

    (Source: Tesla IR presentations and various tweets by TSLA execs)

    This question is especially important for shareholders because Tesla also promises a "Category-leading gross margin" (quote from January 2014 Tesla IR PDF presentation+) for the car.

    What will happen next? I will just list a summary of likely events since I already discussed the topic in earlier blog entries:

    • TSLA does not have enough battery supply beyond the Model S, the upcoming Model X (SUV) and compliance/small series OEM contracts for partners like Toyota or Daimler. (This supply is covered by an extension between Panasonic and TSLA announced in late 2013 and should last for about four years).
    • TSLA will most likely need to (not to use word "is forced to") build a giant factory. "Giant" is quite an understatement - the factory would be roughly equal to the total capacity of the global battery output (around 20 - 30 GWh per year). On a European tour in late January 2014, TSLA execs used the 30 GWh number. (I will put a video link in the comment section).
    • The battery factory cap ex will be investments in the billions of $ range. TSLA will likely approach possible JV partners to bring its cap ex down (e.g. Panasonic, Daimler, maybe even third-parties outside the automotive space such SCTY where the TSLA CEO has a relationship and where other battery output could be used for storage/grid buffering purposes).
    • Since TSLA announced it wants to sell its mass-market Model E (formerly known as "Gen 3" car) by 2017, it will need to start building the plant in 2015 already. A plant of this size will likely require about 24 months of total build and testing time until cells can be mass-produced off the assembly lines - even if TSLA doesn't build it out to full capacity in the beginning.

    I can reiterate what I wrote back in 2013 - when many TSLA bulls dismissed the need for this giant plant as a simple bluff to achieve better supplier pricing from the likes of LG/Samsung/Panasonic:

    TSLA is basically forced to build this plant to be able to sell a mass-market EV given supplier risks: No third-party seems to be willing to build this capacity for a single customer given the cap ex.

    Now why wouldn't any battery company jump up in joy and try to sign such a huge contract with Tesla as soon as possible?

    Battery manufacturing margins have been very low or even loss-leaders traditionally - one can see this in financial statements of aforementioned companies (LG/Samsung/Panasonic...). Many of these companies are conglomerates operating in different industries and with billions in revenue, they can therefore "swallow" continued operating losses or survive cyclical downturns in battery production.

    The proposed TSLA plant will create significant concentration risk given the cap ex (billions of $) in my opinion - even if Tesla builds it together with one or several JV partners. 30 GWh worth of battery per year is not another small factory. Risks include for example:

    • A possible shortfall in Model E demand
    • Technology changes (better battery technology, new chemistry or battery formats** appearing shortly after the Model E starts shipping
    • Price spikes in raw materials (such as Nickel, Cobalt, Lithium; it remains to be seen what exact chemistry Tesla will use for the Model E) needed for EV batteries.

    As I wrote back in 2013 few to none of the bullish TSLA analysts seemed to factor in the need (and by extension the cap ex) for this giant factory. The first questions only started appearing by late 2013 in a Tesla conference call - long after a few critical articles on SA published in 2012/2013 discussed the absolute need for this plant given global supply shortages - only to be dismissed or even mocked.

    Now the same investment plan is hailed by people bullish on the company as a wise strategic move (perhaps because TSLA execs hinted that the plant will actually be needed? Sometimes the message changes when the messenger changes...)

    Let's await the detailed factory sticker price and financing details (Which partners? Which financing, for example a debt issue or secondary offering?) before making a final judgment.

    In the meantime, I maintain that this concentration of risk - and not a few, isolated fire incidents involving the Model S - will heavily determine the company valuation going forward as the Model E is still years away from introduction.

    As for the global competition, it's aware of the plans and not sleeping - for example, car giant VW Group recently announced it wants to be the world leader in electric vehicles (EV and PHEV) by 2018. That's only one year after the planned Model E introduction. In VW's words:

    "We are starting at exactly the right time," Volkswagen AG CEO Martin Winterkorn said in a release. "We are electrifying all vehicle classes, and therefore have everything we need to make the Volkswagen Group the top automaker in all respects, including electric mobility, by 2018."

    www.volkswagenag.com/content/vwcorp/info....html

    Similarly, Nissan (the current market leader in global EV sales and part of the Renault-Nissan brand alliance) is rumored to be introducing an updated LEAF with a better range in the next major revision.

    On the heels of Nissan are unnamed Asian car manufacturers who will introduce mass-market EVs and PHEVs with a "big bang" in 2015 and 2016.

    For readers who absolutely believe in a pure EV automotive future I would at least suggest buying a stake in several companies involved in the sector - especially given TSLA's current valuation near $200 and likely upcoming stock dilution due to the discussed cap ex.

    Putting a big chunk of the personal portfolio into TSLA shares is obviously not equal to a diversified and less volatile "EV sector ETF" (I don't think such an ETF exists already, but readers get the idea).

    Older investors will certainly remember: Picking the few long-term winner(s) in a nascent sector (from computers over software to solar...) is very hard, even if one is convinced that the sector as a whole has a bright future.

    ________

    * Note that earlier range targets "200 or more miles of range" are now worded by Tesla IR as

    "Tesla performance & range"

    in the latest Tesla IR presentations (as of January 2014). Maybe this is guiding on the safe side compared to earlier announcements using numbers.

    ** For example, TSLA may switch to a larger cylindrical format for the Model E. A specific example would be using 28650 cells instead of 18650 cells.

    + PDF Source:

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

    Themes: EVs, electric vehicles, VLKAY, scty Stocks: TSLA
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Comments (30)
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  • Tales From The Future
    , contributor
    Comments (5020) | Send Message
     
    Author’s reply » Some more numbers from the original test source (Autocar UK) looking at the Mercedes B EV:

     

    "Energy for the electric motor is provided by a 28.0kWh lithium ion battery, sited low down within the floor between the front and rear seats. Charging time on a 400 volt/16 amp system is put at three hours, or as Mercedes-Benz prefers to express it, one and half hours per 100km, or 62 miles.

     

    All up, the battery and its ancillaries add 300kg, taking kerb weight up to a rather hefty 1750kg. By comparison, the i3 tips the scales at a comparatively lightweight 1195kg.

     

    As a result, the energy consumption of the new Mercedes-Benz is significantly higher than the BMW at 18.0kW/h against 12.0kW/h. Despite this, Mercedes-Benz claims an overall range of 124 miles on the European test cycle. However, officials suggest the real world figure is closer to 90 miles."

     

    http://bit.ly/1etcLe9

     

    Strangely enough, the Mercedes B EV seems to lack access to any DC fast chargers - including TSLA Superchargers. The last one is not surprise given the small battery - but Daimler could have
    at least added access to other fast-charge standards which is an included standard feature or small option upgrade on most other EVs. This is a drawback compared to other EVs such as the i3 or the LEAF (equipped with CCS or Chademo).

     

    TSLA therefore remains the only company supporting its proprietary "Supercharger" system.
    3 Feb, 10:28 PM Reply Like
  • Rik1381
    , contributor
    Comments (1420) | Send Message
     
    If the Mercedes B-Class EV doesn't have any DC fast charging ability then that suggests to me that it's merely a compliance car, like the Toyota RAV4 EV that also has Tesla technology.
    8 Feb, 02:21 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (5020) | Send Message
     
    Author’s reply » If a reader is interested in details how TSLA intends to bring battery costs down, see at minute 09:10 and following:

     

    http://bit.ly/1cPpFmN

     

    This is a Q&A from February 2014 (Norway). The 30 GWh number is also mentioned.
    3 Feb, 11:04 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (5020) | Send Message
     
    Author’s reply » Here's a writeup for people who don't have time to watch the video:

     

    http://aol.it/1eWuib6

     

    The battery part summary, see minute 09:10 of the video:

     

    "The new giga-factory for batteries could bring costs down by at least 30 percent, ideally 40 percent and will produce about 30 gigawatt-hours worth per year."

     

    It remains to be seen if Musk refers to industry numbers or his own internal numbers here when calculating the discount.

     

    TSLA so far did never specified its own battery and cells costs in detail publicly.
    6 Feb, 02:38 AM Reply Like
  • solucky
    , contributor
    Comments (8188) | Send Message
     
    I guess from the 30% savings at least 10% are Panasonic profit and transport. But how many batteries must tesla produce to get the investment in the plant back ?
    6 Feb, 02:32 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (5020) | Send Message
     
    Author’s reply » That's a good point, the battery investments are huge - on top of the investments for the Model E tooling itself.

     

    For example, Nissan spent about 5 billion EUR on its various EV programs, including three EV battery plants worldwide.

     

    The cost of the 30 GWh factory has to be recouped sooner or later...
    6 Feb, 07:49 PM Reply Like
  • JRP3
    , contributor
    Comments (8120) | Send Message
     
    "Looking at the first lower-priced limousine with "TSLA battery technology" inside (which again is likely only the battery pack and the BMS, the cells are sourced from Panasonic"

     

    Built to design specs from Tesla, which may be proprietary.
    4 Feb, 08:43 AM Reply Like
  • Tales From The Future
    , contributor
    Comments (5020) | Send Message
     
    Author’s reply » So why isn't the range of the Mercedes B better if it uses proprietary TSLA technology?
    Or did Mercedes opt for a tiny battery on purpose?
    Could it be that they weren't able to add more than 28 kWh in this price range?

     

    2017 is not that far off in "car years" so we will see how TSLA can bring costs down - and/or the promised introduction date can be kept.
    4 Feb, 09:15 AM Reply Like
  • JRP3
    , contributor
    Comments (8120) | Send Message
     
    For whatever reason Mercedes, like every other OEM besides Tesla, want's to produce only limited range EV's. Tesla has figured out how to build cost effective and competitive EV's in their target market segment, I expect they'll do the same 3 years from now with the Model E. I'm less convinced other OEM's will be able to do the same, but if they do, great, it just further validates the path that Tesla is taking.
    5 Feb, 09:43 AM Reply Like
  • Tales From The Future
    , contributor
    Comments (5020) | Send Message
     
    Author’s reply » It still doesn't answer the question why the battery range and price range of the Mercedes aren't better.
    All important "EV-related" parts of this car are built by TSLA. I'm pretty sure Mercedes can build the rest of the car, it's just a B class car they make for years. I don't see the huge range or price advantage?
    5 Feb, 01:07 PM Reply Like
  • JRP3
    , contributor
    Comments (8120) | Send Message
     
    Simple really, they didn't package it in a very efficient platform and I'll assume Tesla made a profit on their components and I'll assume Mercedes then marked them up further to make a profit on the vehicle.
    6 Feb, 09:01 AM Reply Like
  • Tales From The Future
    , contributor
    Comments (5020) | Send Message
     
    Author’s reply » If TSLA has to spend/invest billion of $ for a giant battery factory that will also end up somewhere in the Model E price.

     

    PS: I'm aware that TSLA execs talk about reducing battery pricing for 30-40% with integrated production, we will see.
    6 Feb, 12:38 PM Reply Like
  • Mr. No Nonsense
    , contributor
    Comments (30) | Send Message
     
    Good points, battery supply is more than likely going to be an issue for future Model E... but does anyone know why every competitor that attempts an EV besides Tesla has to make them so damn ugly?? (ie BMW i3 & B-Class) Current auto makers still don't get it when it comes to EV's
    4 Feb, 08:43 PM Reply Like
  • JRP3
    , contributor
    Comments (8120) | Send Message
     
    Yeah, it's almost as if they don't really want to sell them...
    5 Feb, 09:43 AM Reply Like
  • Tales From The Future
    , contributor
    Comments (5020) | Send Message
     
    Author’s reply » Some PHEVs like the new BMW i8 have a nice design in my opinion, but design is subjective. Some people even like the boxy design of the i3.
    I certainly wouldn't say all car companies invest billions in EVs and PHEVs just for compliance or green marketing reasons.
    Nissan-Renault, BMW and lately also VW (it will just take 2-3 years longer for VW to make it to market from today) have vested interest in EVs.
    GM, F, Toyota and again VW have a growing interest in hybrids.
    You are right that others, namely Honda, FCA, Daimler and Toyota don't show interest in pure (battery-only) EVs at the moment.
    6 Feb, 02:02 AM Reply Like
  • JRP3
    , contributor
    Comments (8120) | Send Message
     
    Mentioning a PHEV when talking about EV's doesn't make any sense.
    6 Feb, 09:03 AM Reply Like
  • Tales From The Future
    , contributor
    Comments (5020) | Send Message
     
    Author’s reply » I'm quite sure that BMW and others can design a nice "pure" EV down the road, not that different.
    The LEAF is selling well (for an EV, at least) even if many people find its design boring.
    The Prius also sold well for years despite similar design objections.
    Many mass-market (ICE) cars look bland / boring and sell well, maybe it's not even so important in that segment.
    6 Feb, 12:34 PM Reply Like
  • solucky
    , contributor
    Comments (8188) | Send Message
     
    Guess the I3 is for a complete differrent consumer group, the marketing is clear for the environmentalist that want use a car.

     

    green production, efficient, recycling its a complete closed concept...like in the commercials...even the leather is from local cows to reduce transport :)
    6 Feb, 02:37 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (5020) | Send Message
     
    Author’s reply » In other news, some analysts now suddenly talk about the "Giga" factory:
    Tesla Motors (TSLA) Could Build 'Mega' Battery Factory in New Mexico - Analyst
    http://bit.ly/1eqzAko
    Strangely enough, the only new speculation is the location since TSLA management already talked about 30 GWh in Europe publicly.
    I linked the video above. Anyone watching the YT video could have "guessed" the capacity - and the global capacity was known to be 20-30 GWh, I talked about these numbers for months.
    Panasonic/Sanyo is an obvious JV partner, that also doesn't take a lot of guesswork.
    Again, the analysts (at least in the summary) do NOT talk about the cap ex involved and the technology decisions (28650 cell-site instead of 18650? Which chemistry and therefore raw materials?...).
    I don't see how technology changes can be implemented in the 2015 timeframe since the
    battery factory won't be ready by that timeframe. The analyst then mixes in a known TSLA patent to be implemented by 2015 (?):

     

    " In addition to its traditional battery, Tesla may also manufacture Hybrid Battery Pack, which includes both Metal-Air Battery as well as Non-Metal Air Battery. He sees the 2015 Model S getting a possible 10% to 15% increase in driving range – driven primarily by innovations in Battery Packs, including Hybrid Battery Pack."

     

    In 2015, the battery cells are still coming from Panasonic cells for the Model S and X cars in my opinion. I don't see how the factory could be ready or why TSLA would switch to a
    second battery in the mid-life cycle of car production for Model S.

     

    But at least analysts covering TSLA are now talking about the subject - it's just a bit late since it's early 2014 and the supply issue was obvious for months if TSLA ever wants to build a mass-market car...
    5 Feb, 01:12 PM Reply Like
  • JRP3
    , contributor
    Comments (8120) | Send Message
     
    You seem unable to grasp the simple concept that changes in chemistry and format are quite possible with an already established factory. I'll keep trying to explain it to you and maybe you'll finally get it.
    6 Feb, 09:06 AM Reply Like
  • Tales From The Future
    , contributor
    Comments (5020) | Send Message
     
    Author’s reply » I get that. But you can't change the cars on the road and their batteries (and changing the factory also isn't free).

     

    TSLA is early in the EV game. Shipping by 2017 (their target) means that other companies could follow up with much better batteries (say by 2020), leading to resale value issues etc.
    6 Feb, 09:25 AM Reply Like
  • JRP3
    , contributor
    Comments (8120) | Send Message
     
    Actually you can change the batteries in the cars on the road. The resale argument makes no sense however, new ICE models with better features don't hurt the resale value of used ICE models, it's already priced into the depreciation.
    6 Feb, 09:47 AM Reply Like
  • Tales From The Future
    , contributor
    Comments (5020) | Send Message
     
    Author’s reply » But the volatility in battery prices will be much larger in the coming years - either we assume EVs win more marketshare (but then battery prices drop faster, hurting EV resale values) or battery prices don't drop fast enough and more PHEV and ICE cars will be sold.
    For example, a car like the LEAF has no active thermal management currently. You can't just change the battery if the chemistry is altered to another one requiring thermal management.
    6 Feb, 11:48 PM Reply Like
  • JRP3
    , contributor
    Comments (8120) | Send Message
     
    The LEAF is the exception of course, which is why you specified it. Tesla has active thermal management so would not have that issue.
    There is no conceivable battery price drop that would significantly impact the price of used Model S 3-4 years from now. After that it's pretty much irrelevant since the second owner is likely to keep it another 3-4 years or longer. It will still be a luxury performance sedan with around 200 miles of range. It won't matter if newer versions have 400+ miles of range with a much cheaper pack, those new cars won't be selling in the sub $40K price range.
    7 Feb, 06:37 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (5020) | Send Message
     
    Author’s reply » PS: To be fair, the same analyst talked about the TSLA patents and the 2015 date before (without mentioning the need for a giant factory by TSLA):

     

    http://bit.ly/1cVopON

     

    I still don't see why TSLA should introduce this battery in 2015 (mid-cycle for the Model S) and who could build and test it in this short timeframe..
    5 Feb, 01:38 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (5020) | Send Message
     
    Author’s reply » The official US numbers for the B EV are now out:

     

    - Mercedes-Benz B-Class Electric Drive Priced From $41,450
    - 85 miles (EPA)

     

    http://bit.ly/1iKJidv

     

    So the range difference at similar price points is an (sarcasm) amazing 4 miles, the BMW i3 got rated at 81 miles in the US:

     

    http://bit.ly/1lGJD6w
    2 May, 08:06 AM Reply Like
  • JRP3
    , contributor
    Comments (8120) | Send Message
     
    Of course you missed the fact that they aren't exactly the same vehicle. The Merc is larger, probably heavier, and seats 5. It also looks a lot better, and is probably a more luxurious ride. Why not compare the mpg of a Prius and a BMW 3 series while pretending they are similar vehicles?
    4 May, 11:38 AM Reply Like
  • solucky
    , contributor
    Comments (8188) | Send Message
     
    I dont really love the look of both cars, but for my taste the I3 looks clear better. Maybee the reason is that the Bclass is an old car here and not new like in the US.
    4 May, 11:53 AM Reply Like
  • Tales From The Future
    , contributor
    Comments (5020) | Send Message
     
    Author’s reply » JRP3, you seem to disagree with everything I write just for the sake of it.

     

    "Of course you missed the fact that they aren't exactly the same vehicle"

     

    The fact remains that the two vehicles cost basically the same, so their range can be compared as an important feature. If Mercedes isn't capable of producing a lighter car, it's their problem.

     

    In summary, TSLA's batteries used in the Mercedes aren't a magical improvement at the moment.
    5 May, 08:58 AM Reply Like
  • JRP3
    , contributor
    Comments (8120) | Send Message
     
    I disagree with almost everything you write because you are consistently wrong, or at least consistently misleading. No one expects a larger, nicer ICE to get the same MPG as a smaller, less luxurious ICE, even if they are near the same price point. I can buy a Prius or a Camry at the same price level. The Prius gets much better MPG but the Camry is a much nicer vehicle. If you need unreasonable comparisons to make your point you probably don't have a good point to make.
    The i3 is smaller, lighter, and possibly more aerodynamic than the Merc, so the fact that the Merc still gets more range at the same price point is actually a testament to how cost effective Tesla's technology is. Somehow you missed that.
    5 May, 09:34 AM Reply Like
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