Translation:
Author: Winslow
Body:
4,252 words in total
Expected reading time: 15 minutes
Apart from the abstract and the conclusion, the full text is divided into ten chapters:
(1) The global trend of electric vehicles
(2) How electric vehicles can solve greenhouse gas emissions
(3) Opportunities of Tesla’s electric vehicles
(4) Leading electric vehicle design and manufacturing (this article)
(5) Autonomous driving coming in 2025
(6) World-class energy infrastructure and storage solutions
(7) Sharply rising demand for raw materials
(8) Elements of disruptive innovation
(9) Beating competitors
(10) Financial and value predictions of Tesla
Leading Electric Vehicle Design and Manufacturing
Tesla’s constant innovation in manufacturing and design has set a standard for the automotive market. Traditional automotive companies must adapt and take the same measures to compete, or they will likely face the risk of bankruptcy over the next decade.
Tesla has advantages in manufacturing over traditional automotive companies and new electric vehicle companies
Many investors believe that traditional automotive companies transitioning from fossil-fuel vehicles to electric vehicles is a relatively easy thing to do. Despite the need for a significant capital investment in production equipment and updating existing models, they also believe that existing traditional automotive companies can re-dominate the entire automotive market as long as they have sufficient time, money, and technology.
However, these assumptions all ignore a key fact: whether these companies have enough innovation genes to completely shift to an entirely new business direction. This is extremely difficult for some giant companies, and based on their current product lines, they are likely to be completely phased out within just 5-10 years, making the entire process even more challenging.
When you write a new idea on a blank sheet of paper (new company), it is easier to innovate and iterate, and it is also easier to produce some technological routes that can lead the industry.
For example, Daymak, a Canadian electric vehicle company, has designed an electric vehicle that provides autonomous driving services. This company is also designing an electric vehicle that can mine bitcoin (or other currencies) while charging to pay for charging fees, expected to be released in 2023.
Holon believes that traditional automotive manufacturing companies will face enormous challenges in transitioning to electric vehicles, so only a few traditional automotive companies may survive until 2030.
Capital investment plans to catch up with TeslaAccording to Reuters analysis, 29 global car companies have announced public plans to invest over $300 billion in electric vehicle manufacturing and design by 2025, with 45% of that investment directed towards the Chinese market.
Volkswagen has continued to announce its commitment to electrification, despite its current net debt of $190 billion and the need for additional capital investments of approximately $100 billion to maintain over 100 models across 12 different brands. Volkswagen has also committed to investing $34 billion in electric transportation and $57 billion in battery manufacturing by 2025, and recently increased its target for electric vehicle production capacity by approximately 50% by 2030.
Daimler and Hyundai have also announced plans to invest approximately $20 billion in electric vehicles and batteries by 2030.
Toyota appears less interested in transitioning to electric vehicles, with plans to only produce one million vehicles by 2030. The company believes customers will continue to purchase its hybrid vehicles, rather than fully electric vehicles.
An annual survey conducted by OC&C Strategy found a significant increase in customer interest in electric vehicles in 2019, with 50% of customers in the UK, France, and Italy considering electric vehicles for their next purchase, while Germany and the United States had slightly lower percentages.
Many car companies have underestimated customers’ interest and demand for electric vehicles over the next decade, leading to significant lag in capital investments.
In our view, the correct question may not be how Tesla can sustainably compete, but rather how traditional car companies can survive and transition into electric vehicle companies.
Additional analysis and a detailed global plan for the electric vehicle production curve of traditional automotive companies can be found in “Element 8: Disruptive Innovation.”
Advantages of Tesla’s Self-built Production Line
Most leading automotive companies have long relied on partners to provide many of their parts. Overreliance on outsourcing and zero inventory (JIT: just-in-time) can lead to production delays (or even worse) when supply chain problems arise.
The global chip supply crisis is currently tormenting some automakers, forcing them to produce partially finished vehicles and store them until chip supplies are restored. Toyota reduced production by 40% in August of this year due to chip shortages.
As the entire world accelerates towards digitalization over the next decade, many fast-growing areas like AI, 5G, and blockchain technology will create significant demand for chips, and existing chip manufacturers’ production capacities are evidently insufficient. This will enable electric vehicle companies like Tesla, which are capable of independently developing key components such as batteries and chips (including the recent Dojo D1 chip), to increase product adaptability and avoid potential crises in some outsourced supply chains.Tesla recognizes the complexity of the automotive industry supply chain and has vertically integrated by manufacturing its own batteries and motors. In their recent AI Day, Tesla unveiled their self-developed AI training chip called D1 Dojo, which is capable of breaking into the top 10 of the world’s supercomputers (see Table 2). However, what is worth noting here is that Dojo is specifically designed for AI data training, giving Tesla an advantage in AI training.
Since achieving full autonomy in vehicles is a complex process and requires a large amount of data to train the system, if Tesla is able to develop its own hardware and systems suitable for training this data, it will give Tesla a significant advantage.
Similar to iOS and Android on smartphones, Holon believes that an appropriate system will be able to handle a large amount of complex autonomous driving data. This is why global tech giants such as Amazon, Google, Apple, Alibaba, Baidu, and Microsoft are all preparing to enter the electric vehicle industry.
To ensure that Tesla’s software system can become a universal system similar to this, Tesla is transforming the automotive industry into a vertically integrated form, including design, manufacturing, testing, software development, logistics, and direct sales. This also gives Tesla much more profit margin than other companies.
One core advantage of Tesla compared to traditional car companies is that its models are pure electric from design, which allows Tesla’s engineers to design and sell these electric cars without restrictions, and then improve the car’s computer through subsequent over-the-air (OTA) updates.
Elon Musk’s Smart Manufacturing
From disrupting the design and manufacture of automobiles (as well as batteries, space travel, neural links, transportation, and production and storage), Elon Musk embraces all things innovative. This allows Tesla’s engineers to deconstruct all production steps to make product design and production faster and cheaper.
One of Tesla’s well-known innovative applications in the production process is the use of enormous mechanical stamping machines, which integrate the casting of the entire car body and rear floor (see Figure 16). Combined with Tesla’s nearly fully automated manufacturing process, which requires almost no human intervention from start to finish, production efficiency has been greatly improved.Tesla engineers reduce the manufacturing steps of a Tesla car by one every time they make one step forward. Producing a traditional fuel-based car requires 130 steps, but only 40 for a Model 3. This reduces the complexity of the manufacturing process, and the time per module (an average of 90 minutes less for each production step). The experience gained from producing the Model 3 has been successfully applied to produce the Model Y, as well as update the Model S and X, creating cost savings that lead to lower prices and increased demand.
Tesla is also actively expanding the success of its US Super Factories to its production sites outside the United States, such as in Shanghai, China and Berlin, Germany. In 2020, Tesla manufactured 500,000 electric vehicles solely based on its US and Chinese factories. With the upcoming Berlin Super Factory and the planned India Super Factory in 2022 or 2023, Holon believes that Tesla is fully capable of achieving its annual production target of 5.5 million electric vehicles by 2025.
According to projections, Tesla’s free cash flow will reach $48.2 billion in 2025 and $182 billion in 2030. In this situation, Holon believes that Elon Musk will further accelerate Tesla’s production capacity to further squeeze the market share of traditional car companies still in the product development and release stage (2021-2030). Tesla’s production capacity can easily exceed Holon’s predictions, reaching an annual production of 14.85 million electric vehicles by 2030.
In addition, the release of Tesla’s two new products (Cyber Truck and Tesla Semi) will further increase Tesla’s production capacity and revenue.
Interestingly, in 2009, Mercedes-Benz engineers purchased a Tesla Roadster (originally produced by British car company Lotus). Mercedes-Benz engineers were impressed with Tesla’s achievements in battery packs, which persuaded Daimler to purchase a 10% stake in Tesla for $50 million.
Mercedes-Benz helped Tesla research its first luxury car, the Model S and closely examined Tesla’s semi-automated battery pack assembly. During the cooperation, Tesla’s innovative team often had disagreements with the German engineers. The former’s disruptive design and production concepts were challenging for the rule-following German engineers. The latter believed that a technology could only be applied to a new model when it was repeatedly verified to be perfect.And Tesla engineers believe in embracing innovation and quickly launching products, then continuously refining them through software updates (via WiFi). In 2014, Daimler sold its shares in Tesla for $780 million, citing concerns about the difficulty of scaling and standardizing Tesla’s model.
Can Tesla produce 45 million passenger cars per year?
The opportunity and challenge facing Tesla is whether it can increase production capacity to surpass the sum of existing car manufacturers. If successful, Tesla can completely shut out traditional competitors who are trying to engage in price wars. With the support of its globalized and scaled application of automated production technology, Tesla can achieve this production target much more easily than other car makers who are forced to produce hybrid cars on gasoline vehicle production lines.
Tesla achieves product price reductions through cost savings, making traditional car makers still under significant financial pressure even more breathless in competition. Continuous decline in gasoline vehicle sales, huge capital expenditures necessary to produce electric cars, massive debts, constant increases in employee pension funds and aging workers, and a series of payable accounts arising from potential factory closures will make life exceedingly difficult for these traditional enterprises. Therefore, Holon believes that only a few car companies are able to successfully transition to electric vehicles.
To produce 1 million cars a year, a car manufacturing factory must produce nearly 20,000 cars per week. Assuming the factory operates 24 hours a day for 365 days a year without any downtime for maintenance, it means that 2,750 cars need to be produced per day, 114 per hour, or 1 per 30 seconds.
To maintain this production rate, it is essential to ensure timely delivery of natural resources, refined raw materials and externally produced vehicle parts in the supply chain. Ultimately, delivering vehicles on time to customers is the most important part of the process, requiring extremely high standards for logistics.
Our model predicts that Tesla can capture 20-22% of the global passenger car market, which means it needs to produce 45.6 million passenger cars per year from 2049. This is equivalent to producing a brand new Tesla every 0.7 seconds.
Tesla has purchased huge amounts of production land in Shanghai and Berlin to build mega-factories capable of producing 2-2.5 million cars each year (through expansion of existing plants).
More production factories will be located in southern Europe, the UK, South Africa, and Brazil. Mega-factories may also begin construction in other areas of India and China.
Stable resource prices, especially the cost of batteries, will impact the pricing and demand for electric cars over the next thirty years. Please refer to section (7) “Rising Demand for Raw Materials” in the report for a better understanding of the amount of resources needed to meet the future needs of Tesla and other electric vehicle manufacturers.
Tesla’s Mega-factories: Today’s example is tomorrow’s plan.Tesla has built five gigafactories and two US factories to date. Each factory has the potential to expand its production capacity to 2-2.5 million vehicles in the long term.
They are building dedicated production lines for mass production of electric cars, such as the Model 3/Y in Shanghai, to meet the huge demand for exports in the local and neighboring regions. The key to selecting a site is having the necessary infrastructure, such as electricity, water, ports, roads, railways, and airports, which all together provide a complete solution for Tesla’s supply chain.
See Appendix B – Potential sites for Tesla and other EV manufacturers’ production facilities, which provides a detailed analysis of the site selection model based on our EV demand predictions by region and potential gigafactory locations to serve local demand.
At Tesla’s 2017 Annual Shareholder Meeting, Elon Musk discussed the long-term need to build 15-20 gigafactories around the world. In 2016, Musk said in a statement regarding the challenges of electric cars and energy storage in addressing greenhouse gas problems, “We’ve calculated that to totally transition the world to sustainable energy, it would take on the order of 100 gigafactories like this.”
In 2017, he said Tesla’s long-term goal was to supply 20% of global energy storage and EV production capacity through gigafactories, which is consistent with our global EV demand prediction model.
We believe that lithium battery production plants will be merged with vehicle manufacturing plants, either built by automakers like Tesla or joint ventures such as the Tesla-Panasonic Gigafactory in Nevada (see Figure 17).
(to be continued)
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.