Tesla's $800 Billion Question
Seeking Alpha Analyst Since 2021
I am an avid value investor with a particular interest in biomedical companies. My time horizon is forever. Clearly you can see I'm heavily influenced by Warren Buffett, and by extension Benjamin Graham. I'm always looking to protect against "permanent loss of capital" while investing for the long run.
Summary
- Tesla is the leader in battery technology currently, but the gap is projected to close.
- Tesla is not a leader in autonomous driving, but in fact lagging far behind according to researchers.
- Tesla's battery lead needs to bridge a $750 billion market cap. gap (GM market cap: $60 billion, Tesla market cap: $800 billion).
Is Tesla’s $800 billion market cap, more than ten times General Motors’, fair? The battle of electric automobile makers will be won by leadership in batteries and autonomous driving. Their market cap suggests that they are crushing the competition. Let’s see how Tesla squares up with their rivals.
The current model of batteries used in Tesla's EVs is the 2170 generation produced by Panasonic and CATL. Let’s see how the specifications stack up against Porsche and Audi.
Manufacturer |
Tesla Model S (2170 battery) |
Audi e-Tron |
Porsche Taycan |
Mileage |
365 mi |
256 mi |
248.5 mi |
Battery Capacity |
100 kWh |
95 kWh |
93.4 kWh |
Wh/km (efficiency) |
210 Wh/km |
283 Wh/km |
230 Wh/km |
Super(FAST)charge Time |
5 to 90% in 37 min. |
0 to 80% in 30 min. |
5-80% in 22 min. |
The cost to produce batteries has fallen to about $100-200 kWh, but that would mean Tesla’s batteries cost around $10, 000.00 per vehicle as they are estimated to be among the industry’s lowest cost producers. Cutting battery costs is crucial, because for manufacturer’s stuck at the high end of costs per kWh they may have batteries that cost twice as much as a competitor and so their vehicles will cost significantly more; and for those on the low end of production costs per kWh they stand to be more profitable.
It’s clear that Tesla is the leader in all categories of battery performance except for charging; however, its competitors are not far off. Porsche and Audi, who both began battery production far later than Tesla, currently have 100 less miles per full charge. They may close this gap with solid state batteries, or not, but in either case the extra mileage may be irrelevant to luxury buyers when the charging time is so fast.
The lion’s share of Tesla’s share price is due to speculation on their future battery technology and autonomous driving. Their next generation batteries called the 4680 has 16% more range, will be 56% cheaper than the 2170 generation (in use for the model S above), and recharge from 10 to 80% in 15 minutes. If Tesla can do this, they will be able to trounce the competition on pricing and they may maintain their electric vehicle market share in and around 20%; however, the competition isn’t sleeping. They are investing more than Tesla in battery technology. QuantumScape with the backing of Volkswagen, Bill Gates, and others is producing a solid-state battery. Its advantages lie in a 10-minute charge time from 0 to 80%, $50 per kWh production cost, is less prone to spontaneous combustion, and has a 300-mile range. The specifications between Tesla’s 4680 and QuantumScape’s solid state battery are similar and if they both achieve their aims Tesla will lose their advantage.
The story of Tesla’s autonomous driving is not as clear for lack of licensure standards and wide scale adoption that can be tested. Here we rely on rankings provided by researchers from Guidehouse Insights, formerly called Navigant Research. Guidehouse Insights Q1 2020 leaderboard lists the following companies:
1. Waymo,
2. Ford Autonomous Vehicles,
3. Cruise,
4. Baidu,
5. Intel-Mobileye,
6. Aptiv-Hyundai,
7. Volkswagen Group,
8. Yandex,
9. Zoox,
10. Daimler-Bosch.
Tesla didn’t even make the “Top 10” list.
With the differences in execution in the use of lidar (which requires far less learning and mileage as opposed to Tesla’s computer driven AI) versus radar, no clear licensure process, and no commercial use of autonomous it’s hard to have a clear view on who the leader is.
Tesla is undoubtedly today’s leader in battery technology, but the same can’t be said of the short-term future, and in the case of autonomous driving they are not at the cutting edge. Putting vehicle sales volume aside, there’s a $750 billion market cap difference between GM and Tesla that their battery lead must cover to bridge the gap.
References:
Guidehouse Insights Leaderboard: Automated Driving Vehicles
Tesla Model S vs Porsche Taycan vs Audi e-tron - White Paper
Tesla's 4680 battery cell is 'brilliant' according to industry experts
QuantumScape releases performance data for its solid-state battery technology
Author: Immanuel Woldetekie
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