In the previous article, we explored at length how Tesla may need to achieve a super price to lead the energy revolution in the automotive industry.
There are three main factors that contribute to achieving a super price:
- The ability to charge for software/services
- The ability to design ultimate low-level components and optimize the engineering of the entire vehicle system
- The ability to reshape the supply chain.
This article will first take a look at Tesla’s ability to reshape the upstream supply chain.
In the vehicle cost structure of the Model 3, the proportion from largest to smallest is: battery, body, interior, and motor and control.
Since the battery’s cost proportion is the largest, Tesla must first reduce the cost of the battery, and this can be seen from Elon Musk’s interviews and PPT presentations where the “battery” is the main focus.
Once the “battery” has been identified as the key point that Tesla needs to break through, following Tesla’s first principle, they must prepare to do it themselves.
However, even the largest companies cannot produce all components, and just like Apple who mostly outsources components except for chips, Tesla is only a company that has just established itself.
Nevertheless, in our earlier article “Tesla’s Stars and Oceans,” we mentioned Apple’s model of high prices, high gross profit margins. For example, for Apple’s smartphones, the gross profit margin has remained at 30-40% for a long time.
Therefore, on the one hand, Apple does not have the pressure to implement a super-price strategy, and on the other hand, the high pricing leaves enough profit margins for the upstream supply chain.
In terms of the relationship between Apple and its supply chain, it is only a difference between eating a lot of meat and a little meat.
So, let’s return to the battery. Can Tesla really do it themselves? There are two main questions that need to be answered: First, what are the benefits of doing it yourself? Second, is Tesla good at manufacturing batteries?
The answer to the first question is straightforward. Essentially, the super-price strategy is to remove the “middleman” and compress the profit layers of the supply chain as much as possible.
Since the battery is the largest cost, doing it themselves can eliminate the middleman’s profit and further approach the raw material cost.
Furthermore, doing it themselves can quickly iterate and design, truly achieving system-level optimization of this core component.
As for the second question, we can make an observation and draw conclusions. First, Elon Musk has praised the Gigafactory many times at various events. Moreover, the German Gigafactory will adopt a new generation of design, such as the Model Y’s body stamping machine.
Are these praises true? Let’s look at the facts.
I believe the appearance of the Shanghai Super Factory validates Elon Musk’s words.First of all, it took less than a year from groundbreaking to delivery of the first car at the Shanghai Super Factory. Moreover, it took less than a year from the delivery of the first car to the annual output reaching 300,000.
What’s more amazing is that the original planned output of the Shanghai Super Factory Phase I was 150,000. Within a year, the production climbed to twice the original planned output, becoming 300,000.
Therefore, there is enough reason to believe that Tesla’s experience in large-scale manufacturing is indeed very rich, and its advantage lies in the mother machines that manufacture a large-scale production of the same product.
Furthermore, does Tesla’s advantage in the battery industry chain still count as an advantage?
Let’s take a look at the battery industry chain, with upstream, midstream, and downstream being: raw material mining, electrolyte/membrane/cathode and anode material synthesis, and battery cell manufacturing.
The upstream and midstream are basically raw material mining and chemical synthesis. It is not difficult to see that the downstream may be where Tesla can make a difference.
Furthermore, looking at the process of battery cell manufacturing, the steps are roughly coating, winding, packaging, testing, etc., and the manufacturing process involves a large number of mechanical production lines. Therefore, Tesla should have an advantage in this link, and can even do better than existing suppliers by doing it themselves.
In fact, let’s go back to Tesla’s “Battery Day” held in September 2020. The focus was on how to use Tesla’s unique strengths to reshape the battery cell manufacturing process.
(Battery Day Investment Deck Translation: To build the best car in the world, we break the rules and redesign the electric vehicle and factory)
(Battery Day Investment Deck Translation: Now we’re ready to do the same in the battery field)
(Battery Day Investment Deck Translation: Compared with 2018, the output of the same factory area has increased tenfold, while investment per 1 GWh has decreased by 75%)
(Battery Day Investment Deck Translation: Planned to achieve a production capacity of 100 GWh in 2022 and 3 TWh in 2030)Here, the 100 GWh production capacity is equivalent to supplying about 1.2 million Model 3 long-range vehicles (with 80 KWh batteries), while the 3TWh is 30 times that of 100GWH, which can supply more than 30 million Model 3 long-range vehicles.
It can be seen that Tesla’s entry into the battery manufacturing field is revolutionary for the supply chain.
It seems that this will reproduce the history of Tesla’s cooperation with Mobile Eye.
But this time it’s slightly different, because the industry chain should have felt Tesla’s strength, on the one hand, it’s unlikely that the three giants of the electric cell suppliers from three different countries could join hands to challenge Tesla.
On the other hand, Tesla’s resources and its own engineering capabilities are no longer as weak as they seemed back then.
So, it’s unlikely that any of them will challenge Tesla by cutting off supply, and Tesla is likely to achieve its goals effortlessly.
“The only constant truth is that those who are powerful will not be trampled on”.
Perhaps in the future, it will be difficult to enjoy the benefits of the Tesla supply chain, so just take a sip of soup.
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.