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This article was published by an investment firm called Holon Global Investments and originally written in English by Tim Davies. It took me two weekends to read the 144-page article, and personally, I found the systemic thinking logic and content presentation of facts to be relatively complete and objective, which was very helpful for me. Therefore, I decided to translate it for myself to read again and share while adhering to the principle of staying as close to the original as possible. At the same time, because I have my own related but not necessarily mature thoughts and unscientific mathematical modeling, my personal views will be supplemented with italicized letters as a multi-dimensional reference for comparison. This is not investment advice.
If interested in reading the original text, the link is provided here: https://holon.investments/tesla-on-the-road-to-a-us-10-trillion-company-and-beyond/
It is necessary to reiterate that the original intention of translating this article is purely for my own self-iteration. I believe that, rather than the conclusion, it is more important to learn how to combine rationality and sensibility, and to master the method of systematically understanding a company and the era it is in. Rather than the numbers themselves, it is more important to try to understand the logic behind the numbers and their rationality by combining common sense. And this article is a great learning material for this purpose.
Apart from the abstract and conclusion, the full text is divided into ten chapters:
(1) The global trend towards electrification of cars (this article)
(2) How the electrification of cars solves the problem of greenhouse gases
(3) Tesla’s electric vehicle opportunity
(4) Leading electric vehicle design and manufacturing
(5) The imminent arrival of autonomous driving in 2025
(6) World-class energy infrastructure and storage solutions
(7) The rapidly rising demand for raw materials
(8) Elements of disruptive innovation
(9) Surpassing competitors
(10) Predictions of Tesla’s finance and value
Introduction
Many investors believe that Tesla is just another car company. From this perspective, compared with other conventional car companies, it is easy to conclude that Tesla is overvalued. At the same time, it is assumed that Tesla is just a hype, and that with other brands entering the electric vehicle market, the advanced technology that Tesla currently possesses will soon be caught up with.
Holon believes that investors who hold the above views have actually not fully recognized that Tesla’s core advantage is its “sustained technological innovation.” Without a highly free culture of technological innovation, it can almost be concluded that traditional car companies have already lost the race to transition from fuel vehicles to electric vehicles at the starting line.This report aims to help investors understand that Tesla will become the most influential automotive and technology brand in the world over the next 30 years and the logic behind it, and seize this unique opportunity. During this period, Tesla is likely to gain about 22% of the global market share for electric vehicles.
This report provides a detailed analysis of Tesla’s huge advantages over traditional car companies in electric vehicles, autonomous driving technology, and battery technology. In addition, Tesla’s energy integration, including solar energy panels and energy storage, will also be discussed. Furthermore, Tesla is expected to generate over $10 trillion in free cash flow after 2044, and these free cash flows will bring long-term investment returns for long-term development.
Finally, we analyzed Tesla’s main competitors and concluded that most existing fuel vehicle brands will not be able to become global brands in this transformation, but instead will become localized and regional brands. Toyota Motor Corporation is currently the most vulnerable company due to the indecisiveness in the transition to electric vehicles by 2030.
Holon believes that the replacement of fuel vehicles by electric vehicles, investments in related renewable energy infrastructure, electric vehicle charging networks, and energy storage solutions will be the biggest investment opportunities in the next 20-30 years.
When investors understand these opportunities and can find the most innovative companies worldwide, they will be in the best position to participate in this trend and achieve outstanding ultra-long-term returns.
The Global Trend of Automotive Electrification
Due to changes in fuel vehicle regulations and the increase in wealth of people in developing countries, the demand for electric vehicles will increase to over 200 million units per year in the next 30 years.
- Holon’s Global Electric Vehicle Demand Model
To date, there are still few analysts who can provide a more detailed and complete global electric vehicle penetration forecast model.
In the past twelve months, Holon’s research team has developed a global electric vehicle demand model that reflects the 62 largest countries in the world, covering 90% of the global population. Our model enables us to better understand which countries will lead the demand for electric vehicles in the next thirty years and to continue to grow and develop.
- Modeling Methodology
We start with collecting historical data from each country, including per capita vehicle ownership, electric vehicle sales, average lifespan of passenger cars, vehicle types (if any), and total population. At the same time, we obtain third-party long-term population forecast models.
Currently, 62 countries have obtained samples, and the average lifespan of fuel vehicles for passenger cars is 8-14 years. In the model for the next thirty years, we use 12 years as the average replacement cycle for global fuel vehicles and electric vehicles.# The Future of Electric Cars
In developed countries, the main trend is the replacement of old gasoline-powered cars with new electric ones. As a result, the average number of cars per person has remained relatively stable. However, in developing countries, the combination of population growth and wealth expansion will lead to a very different scene. In the next 30 years, the average number of cars per person is expected to rise rapidly, especially in developing countries, where increasing incomes will enable more families to purchase their first car.
We believe that the sales of gasoline-powered cars will be banned before 2040, and before 2050, all gasoline-powered cars will be replaced by electric vehicles. The largest demand for electric cars will come from developing countries.
In this report, we assume that 100% of the electric car market is comprised of pure electric vehicles. Hydrogen and other potential alternative energy sources have great potential, but based on current technology, they are unlikely to capture more than 10% of the market share, unless there are some breakthrough technologies.
Vehicles powered by hydrogen are currently only suitable for commercial vehicles (which Tesla does not focus on as they are oriented toward passenger cars), pickup trucks, and semi-trailers. We will spend more time in the next 12 months studying other possible alternative energies and evaluating their potential impact on the conclusions of this report. The upcoming electric car IPO project Rivian, which will be launched in Q4 2021, will draw investors’ attention to the potential of electric cars in the commercial vehicle field.
We divided our analysis of Tesla’s business development into three different stages.
The first stage is the product development and release phase, which covers all electric vehicle models and products that Tesla will release from 2021 to 2030 (including autonomous driving software). At the same time, Tesla will expand production globally.
The second phase is the acceleration stage, which spans from 2031 to 2040. During this period, Tesla will enhance its global capacity from 15.4 million vehicles per year to 34.1 million vehicles per year, by building new factories and expanding existing ones. Establishing market share in China and India will be the key to success during this period.
The final stage is the maturity stage, which spans from 2041 to 2050. The most significant feature of this phase is the shift from incremental electric vehicle demand (first-time electric vehicle purchases) to stock electric vehicle replacement demand. During these ten years, Tesla’s demand for production capacity growth will slow to an annual increase of 1-2%, and is expected to reach a production capacity peak of 45.6 million vehicles per year by 2048.
Our report will once again analyze these three stages in ” (10) Tesla’s Financial and Value Forecast”.
Figure 3 illustrates the demand forecast for electric vehicles from 2016 to 2050. Here we can see that global sales of electric cars will reach 86 million units per year in 2035 and then accelerate to 206 million units per year in 2049. We believe that 2050 will be the last deadline for fuel-powered cars to hit the road, and basically all cars on the road will be electric.
In the United States, 29% of greenhouse gas emissions are caused by transport. Replacing all of the world’s carbon-based fuel vehicles with electric vehicles will make a huge contribution to achieving the goals of the Paris Agreement.
An important finding from our research is that 75% of the demand for electric vehicles over the next thirty years will come from developing countries. We predict that demand for electric vehicles in 2049 will be 206 million units, more than twice the annual global car sales record of 97 million units in 2018.
The dark blue line in Figure 3 represents demand for first-time electric vehicle purchases, either from converted fuel-powered cars or from first-time car buyers. Before 2035, this will be the main driving force behind the growth of electric vehicle demand. Replacement demand for electric vehicles (from the previous electric vehicle replacement – orange line) will reach 27% in 2040 and 60% in 2050. This further supports our idea that the global wave of fuel-powered car electrification will be completed within thirty years at the shortest.
A survey of 2,000 electric vehicle owners in the UK in 2020 showed that once fuel-powered car owners switch to electric cars, 91% of electric car owners stated that they will never consider switching back to fuel-powered cars.
Our global electric vehicle demand model includes the economies of the largest 40 developing countries in the world, covering nearly 80% of the world’s population (approximately 5.5 billion people). We found that the per capita vehicle ownership rate is still very low, with less than 10% of people currently owning a car.
Looking ahead for the next 30 years, the market in developing countries can expect strong GDP growth, while the markets in developed countries are being dragged down by enormous debt and rapidly aging populations. By 2050, the global population of developing countries is expected to exceed 7 billion, and we predict that the per capita vehicle ownership rate will increase from less than 10% to 30% (the average level of 40 countries). Therefore, Holon predicts that the total number of electric vehicles in the world will reach 2 billion by 2050.
– Regional breakdown of electric vehicle demand: Developing countries market will lead demand in the next three decades
In order to better understand the timing and geographical scope of electric vehicle manufacturers’ capital investment layouts and production capacities across different regions of the world, our electric vehicle demand model also breaks down geographically.
As we discussed previously, the demand for electric vehicles in the next 30 years will mainly come from developing countries, with China and India each accounting for 20% of the global total demand.
Figure 4 shows the huge electric vehicle market share that China and India’s electric vehicle leading brands will enjoy in the next thirty years.
Apart from China and India, other Asia-Pacific regions, including Indonesia and Pakistan, and Africa, which is expected to gradually release its potential from 2035 onwards, are also included. Once the domestic economies of several more developed African countries start to grow, combined with the rapid growth of population and per capita disposable income, Africa will become the manufacturing center where global electric vehicle manufacturers must lay out their factories, starting from 2035.
Establishing large-scale local manufacturing plants in China and India will be crucial. Indian officials said on January 8, 2021 that Tesla will build four super factories to produce batteries and electric cars.
Tesla has not responded to this, and Elon Musk said Tesla will “definitely” announce its plans for setting up factories in India, but it is likely to be delayed until 2022. Tesla’s expansion plan in China is likely to fall in the central or southern regions, providing export capacity to the southern or central regions of Asia.
The market demand in developed countries is actually the replacement demand for gasoline cars, of which only a small portion is for first-time car purchases, mainly due to the decrease in population and the high level of per capita vehicle ownership. The United States and Europe are likely to ban the sale of gasoline cars before 2035, and some European countries, such as the United Kingdom, Sweden, Finland, and Norway, have already announced more aggressive plans to ban the sale of gasoline cars before 2025 or 2030.
- International Energy Agency (IEA) underestimated the number of electric vehicles in 2050.
Figure 5 shows the IEA’s predictions for the number of passenger cars/electric vehicles/hybrid vehicles globally from 1976 to 2050. They predict that the global number of passenger cars (gray shadow) will reach 3 billion by 2050, with electric vehicles/hybrid vehicles accounting for only 53% of that, or about 1.6 billion.The Figure 6 shows that Holon predicts the number of electric cars in 2050 will be 1.97 billion, which is 24% higher than IEA’s prediction of 1.6 billion. The main difference here is that ICE vehicles will be completely banned from the roads before 2050, while IEA’s prediction still allows for 1.4 billion ICE vehicles to be on the roads until that year.
To ensure that car companies have sufficient resources to reduce the price of electric cars to be comparable to, or even lower than, the price of ICE vehicles, large amounts of capital must still be invested throughout the entire industry chain. In particular, the demand for critical resources for batteries will far exceed the current supply chain’s capacity, such as nickel, lithium, cobalt (except in the Democratic Republic of the Congo), copper, and graphite.
In addition to the global electric vehicle demand forecast model, we will also conduct detailed analysis of the supply and demand of raw materials required to achieve this goal in section “(7) Sharply Rising Demand for Raw Materials.”
IEA’s prediction of 1.6 billion global electric/hybrid vehicles in 2050 includes 90% pure electric vehicles and 10% hybrid vehicles. This also supports our decision to only consider pure electric vehicles in the global electric vehicle demand model.
(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.