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Plug-In Drivers Not Missin' the Piston Electric vehicles are here to stay. Their market acceptance and growth will continue. Why?...

Tuesday, August 31, 2021

The Tesla Network's Underground Advantage

Elon Musk knows how to cross-promote. The Boring Company uses Tesla vehicles in its Loop service. Space X uses Tesla Model X vehicles to transport astronauts to the launch pad. And who could forget when Space X launched a Tesla Roadster into space. It wouldn't be surprising to someday see a Lunar (or Mars) rover based on the Cybertruck with a large Space X logo on the side of the vehicle.

With this cross-pollination in mind, let's conjecture about the, yet to be deployed, Tesla Network. The Tesla Network is Tesla's planned robotaxi service. Of course, Full Self Driving is needed before there could be a robotaxi service. However, Tesla could launch a preliminary version of the Tesla Network that uses human drivers. This version of the network would be similar to Uber or Lyft, but with a 100% Tesla pure electric fleet.

Let's add one more component before putting the pieces together. The Boring Company Loop system is currently deployed in Vegas and under development in other cities. In this controlled environment, it will be much easier to achieve full self-driving.

Now, let's put this together. Imagine if the Tesla Network had access to the Loop tunnels. If the Tesla Network cars were human-piloted, they would drop into fully automated mode as they enter the Loop, they'd then navigate the tunnels, upon reaching the other end they'd return control to the human pilot as the car exits the Loop system. 

Consider a city that has a Loop tunnel system under the most congested portions of the city. In this example, there are Loop entry and exit points at the airport, the convention center, the multimodal park-and-ride, the stadium, and any other major attractions in the city. 

The Loop system would only be available to Tesla Network vehicles since they have the needed autonomous system to navigate the tunnels with high speed and to coordinate access with the other vehicles in the system.

This would be a major advantage that other ride-hail providers could not match. Image pulling out your phone, opening the "Tesla Hail" app, tapping in your destination; two minutes later a Tesla pulls up to the curb in front of you. You're in a westside suburb and you want to go to an event on the other side of town. It's rush hour (because it's always rush hour nowadays). You hop in the Tesla and head toward the crosstown highway. Instead of getting on the gridlocked highway, the car diverts to a corkscrew, you spiral down a level or two as the steering wheel tucks away, you enter a well-lit tunnel and accelerate to freeway speeds. The few other cars that you see are all engaged in a well-choreographed autonomous ballet. This is not a collection of rude and distracted drivers; this is an orchestrated, efficient system. 

After passing under the congestion of the city, you resurface on the eastside. The steering wheel redeploys and flashes for the driver to take control once again. The trip continues and you are dropped off with door-to-door service in half the time it would've taken on surface streets.

If this were available, why would you use any other service? 

Tuesday, August 24, 2021

Living In 2030

A friend was complaining about his electricity bill. He said, "With all this the heat this summer, I've been running the air conditioner a lot and the electricity bill is through the roof." 

He knows me well and before I could even say it, he said, "I know, speaking of my roof, I should put solar panels up there, right?" 

"Well, yeah," I said. "It makes more energy during the sunny summer months, so production scales up and down well with AC use; keeping the electric bill pretty flat with even a modestly sized solar system."

Him: "I might do it someday. Last time I looked, it was too expensive."

Me: "I'd check again. The prices have been dropping and there are incentives that can help pay for it. I'd get a quote from Tesla, Sunrun, and at least one other installer."

Him: "It would be cool to get home batteries too. We don't lose power often, but last winter we did and we had to go stay with my in-laws for a couple of days. I'd pay a lot to avoid doing that again, haha."

This conversation made me think of an expression, “The future is already here – it's just not evenly distributed.” In a lot of ways, our home is part of that unevenly distributed future. We have 2 long-range EVs in the garage, we have solar panels on the roof, and batteries to time-shift our energy use and back up for grid outages. Each one is great on its own, but when you put them together, they have positive compounding effects that allow you do even more.

Batteries are the most expensive component in an EV. Solar and EVs will be the obvious choice by 2030 (if not sooner). Wright's Law and Swanson's Law provide positive feedback loops for these technologies. Prices will continue to drop for solar and batteries; opening a larger market for them; further increasing economies of scale, further reducing costs, rinse and repeat.

So in 2030, if your roof has sun exposure, you can be assured, you'll have solar up there and if you are shopping for a new car in 2030, an internal combustion vehicle will be harder to find than a stick shift transmission is today in 2021.

Disclosure: I'm long Tesla.

Saturday, August 14, 2021

10 Reasons Tesla Will Be Even Bigger in 2022

Following Tesla is always exciting. They are irreverent and unbound to the past. Next year will be no different. Tesla will break new ground, will grow, and it will continue to be exciting to follow. Here are a few of the growth drivers you can expect to see in 2022:  

  1. New Gigafactories - Tesla is building Gigafactories in Austin, Texas and Berlin, Germany. Both of these are scheduled to be complete later in 2021. That means in 2022, they will be producing products and ramp up output. In 2021, these projects were primarily just massive expenses; in 2022 these investments will begin paying dividends. 

  2. Plaid - For most of 2021, the Model S and Model X were not in production. These two vehicles are currently Tesla's most expensive and they stopped producing them in Q4 of 2020. The refreshed Model S and X (including Plaid trims) started limited shipments in the second half of 2021 and will be in full production for all of 2022. Tesla has previously sold about 100,000 units annually in the S/X category. 100,000 units at an average price of ~$100,000 each is ~$10B in revenue that Tesla could bring in from just these high-end vehicles. Even if they only sell half this amount, that will be a nice bump to the top line and vehicle margin.

  3. $25k Car - Call it the Model Next, Model 2, or whatever you'd like; it will be a big deal. For every $10k you move down the price curve, the available market roughly doubles. That means there are currently buyers out there that want a Tesla, but cannot afford a Model 3 or Y. The $25k car could be the one they are waiting for. I don't expect to see the $25k car in production in 2022, but I think we'll see an unveiling event and a lot of preorders; deliveries in 2022 would be a nice upside surprise.

  4. Chip Shortage - To survive and continue to ship cars in 2021, Tesla enabled many alternative chip providers. In one case, they have 19 options for a given component. This means that in 2022, as ANY of these providers escape the constraints of the chip shortage, Tesla will be able to utilize the volume of those components. Additionally, it means that Tesla doesn't have vendor lock-in. They will be able to select the vendor with the best availability, price, reliability... 

  5. CEO Compensation - Musk's compensation plan had 12 tranches. These have nearly all been met. There's only about $500M in stock-based compensation left in the current plan. This is significantly less than he was awarded in the stock run-up approaching the S&P 500 inclusion. This compensation reduction will improve Tesla's OpEx burden. Of course, a new compensation plan will be put in place at some point and we'll have to see what that one looks like. 

  6. Growth Rate - Tesla has been growing at about 50% per year. 2022 looks like it will continue this trend. Tesla will likely ship more than 1.5 million vehicles in 2022. They are asking their battery suppliers to double their battery cell supply to Tesla. Why would they need 2X the supply if they ramp up their own production and only ship 1.5X the number of vehicles? Two reasons; one, the Semi, and see #7 for the second answer.

  7. Tesla Energy - Summers are getting hotter, winters are getting colder; we are more dependent on home HVAC than we've ever been. It looks like this trend will continue. Sadly, with this growth of dependence, our electrical grid has too often also become less stable. This has some people looking for ways to solve this problem for themselves. One way to do that is with home energy storage systems like Tesla's Powerwall products. Utilities and local governments are looking to solve the grid side of this problem too. One solution is grid-scale energy storage like Tesla's Megapack. I expect to see growth in these products to outpace vehicles in 2022.

    7b. Fungibility - Tesla has two major product categories for cell utilization: vehicles and energy storage systems. This allows fungibility in the supply utilization system. They can ask suppliers for more cells than the anticipated vehicle run rate. The surplus cells can go into energy products. If there's an upside surprise in vehicle production (a ramp goes smoothly and quickly, more Semis or long-range vehicles are ordered than expected...), Tesla will have the needed cells.
  8. US EV Tax Credit - Most EVs available in the US qualify for a $7,500 federal tax credit. The big exception to this is Tesla. Tesla hit their allocation of this credit in 2018 and phased out of the incentive. This means that Tesla has been at a $7,500 disadvantage compared to other EVs. However, the Biden administration has ambitious transportation electrification goals. To help achieve these goals, the federal EV incentive is going to be revamped. Instead of a fixed number of vehicles per vendor, there will be an incentive for all EVs. This means that Tesla will once again be eligible for the incentive. In addition to the previous $7,500, there would be an additional $2,500 if the EV is manufactured in the US and another $2,500 if the vehicle is made by unionized autoworkers. So Tesla vehicles manufactured at the Fremont or Austin factories would be eligible for a $10,000 incentive.

  9. RAISE the Roof - A bill was introduced in the US House of Representatives and the Senate to amends the solar investment tax credit to include integrated solar roofs. If passed, this bill would make Tesla's solar glass tile roof product eligible for a 26% tax credit for solar systems on residential and commercial properties. It’s called the RAISE the Roof act and the acronym stands for Revamping Appropriate Incentives for Solar Energy.

  10. Cybertruck - I've saved the best for last. The Cybertruck shattered expectations. It does not look like other trucks, it is not designed or made like other trucks. The shattered windows from the failed demo just increased awareness of the event. There are now more than a million pre-orders. This truck will start delivery in 2022 and bring an entirely new customer genre to Tesla - Truck Guys and Gals! 
Note that I didn't put the production of the 4680 cells on this list. They are certainly an important component in the Semi, Cybertruck, and other products. And we are likely to see them in 2022; however, the products they enable (which are listed) are the important achievements.

Similarly, I didn't list Full Self-Driving (FSD). I'm sure that there will be great strides in FSD in 2022, but I don't expect the launch of Robotaxis in 2022. FSD might, however, advance to the level such that the drivers can be removed from the Boring Company Loop tunnels. These tunnels are a controlled environment and much easier to automate than city streets. I think full autonomous city street driving will be at least 2 years after fully autonomous Loop tunnel driving.

Disclaimer, I am long Tesla. This is not stock advice. 

Sunday, August 8, 2021

Musk vs Milton :: forthright vs fraud [allegedly]

Recently, Federal prosecutors indicted Nikola Motors founder Trevor Milton on three counts of fraud for statements that misled investors about the state of the electric truck startup's technology.

I was discussing this topic with a friend and he said, "Milton copied Musk's playbook and now Milton is likely going to jail. It won't be long before Musk shares a cell with him."

"Woah!", I said, "That's a big leap in logic."

His argument went something like this: 

"Musk has made (and still makes) big bosterious, obvisouly unrealistic, claims to get media attention and investments. Musk claimed that they'd have a "lights-out alien dreadnaught" factory; that never happened. The Roadster, Semi, and Cybertruck have been announced for years and are still not going to be delivered to customers anytime soon (if ever). Outside of a prototype or two, the Cybertruck. is. not. real! He's obviously trolling. Musk has even said the Roadster will fly or hover, this will *never* happen in a production version. It all just chum for the fanbois. Musk is the P.T. Barnum of our day, not the Edison or Tesla."

"Milton followed the same playbook. He even named his company after the same guy, Nikola Tesla. Here's the most telling dead givaway, Milton said he was going to "Out Elon, Elon." Milton made big claims that they'd have a great factory, great products, a great fueling network, partnerships... The only difference is that Milton was not granted the "Elon Time" to deliver on fifty percent of what he promised and then declare victory."

Tesla's original battery factory --

"Gigafactory Nevada," I interjected. 

"I refuse to call them 'Gigafactories'," he said -- "As I was saying (he continued), Tesla's original battery factory is still not as big as Musk claimed it would be when he made the deal with the state Nevada. It's been years. That's fraud [allegedly]. What about the solar covered charging stations, only a few of them even have solar panels. That's greenwashing and lying to the public. Then there's, the icing on the sham cake, Full Self Driving. It requires an attentive driver at all times. That's not self driving, "full" or any other level. It's a driver assist system, with relaxed operational domains and a chump behind the wheel to take the blame when something goes wrong. Musk has been selling FSD for years, since 2016 in one form or another, with the promise that it will be here "soon." All the while taking people's money while making them the beta testers for it."

Those claims certainly don't paint a pretty picture of Musk (or Milton). Both men have certainly made incredible claims. There's, however, an important distinction. Musk makes claims about what they will do (forward-looking statements). Milton lied about what they had done. Let's deal with Milton first. 

Milton [allegedly] had a semi-truck rolling down a hill and passed it off as being powered by their technology. Milton [alegiedly] had a supplier's names taped over and then passed the component off as something they had developed. The Hindenburg Report detailed all of these allegations and more. So it's not that Milton wasn't given "Elon Time" to make good on promises. The charges against him are not for saying that they would have a great factory and great products. There are charges against him for misrepresenting things that he was showing to the public and claiming as accomplishments. 

Let's address each of the claims about Musk: 

  • Milton used Musk's playbook - Musk's playbook is to sell the idea of a better future. He is far from the first one to sell the vision of a bright future based on their products, but yes Milton did use Elon as a role model. Milton made similar fantastic claims, the difference was that (in my opinion) Milton didn't have the talent or resources to ever deliver on those blusterous claims. And, most importantly, Musk's playbook does not including showing non-working prototypes and claiming that they work. Musk's playbook does not include rolling vehicles down a hill and implying that it's operational.

  • Alien dreadnaught - Tesla's factories are highly automated (as are all modern auto factories), but it's not a lights-out (no humans) factory by any means. Musk admitted he was wrong about this and called humans "underrated." Being wrong about something, learning, and then admitting you were wrong is not the same as lying. Tesla still built factories, they just changed the plans when they found the current state-of-the-art in robotics to be lacking. 

  • Roadster, Semi, and Cybertruck - Every vehicle that Tesla has ever made (with one notable exception) has been late. Tesla does not just change a few tailfins and release a vehicle calling it a new model. Each one is a clean-sheet design to maximize safety, range, and manufacturability. When a product is not derivative, delays are common (if not inevitable). Tesla has delivered millions of vehicles, there's no reason to believe that these three will be any different. These will go to production. It doesn't matter if it's in 2022, '23, or '24. These vehicles will be the yardstick by which every electric entrant into that market space is measured. Saying things like 'the Cybertruck is fake' frankly makes you sound like you are hating on Tesla with no basis in facts.
  • Flying Roadster - The SpaceX edition of the next-gen Roadster will have cold gas thrusters. These are the same type that are used as maneuvering thrusters on rockets. I think Musk knows where to find a few engineers with experience designing these. Sure there may be legal restrictions about where they can be used, but, as wild as this claim is, there are no laws of physics that have to be suspended for this to occur. Just because no one has ever done it, doesn't make it impossible.

  • Gigafactory Nevada is not done - In 2020, the show Super Factories covered Gigafotory Nevada. They said that 13 million battery cells were produced per day. Panasonic later disputed this number but did confirm that in 2019 Gigafactory Nevada producing at a rate of 54 Gigawatt-hours annually. And by the way, this is why they are called 'Gigafactories' because they produce in the gigawatt-hour order of magnitude. So this is a massive factory by any measure. As for the incentives with Nevada, these were based on milestones that Tesla has to meet over a 20 year period to receive the tax incentives.  If Tesla does not meet the milestones, they don't receive the benefit. The contract even has clawback provisions that could allow the state to rescind prior-year incentives in some cases. 

  • Solar-powered charging stations - Tesla has installed charging stations around the world. They have more DC fast-charging stations than the next three providers combined. Most of these are leased areas on the parking lots of retailers like Target or Walmart. Installing a solar canopy would be up to the site owner, not Tesla. And many of those sites do have solar panels on their roofs (not as visible or sexy as a solar car cover canopy, but still there). At the sites that Tesla owns, like Kettleman City, they have solar canopies providing shade and energy. Additionally, Tesla has sold residential solar and commercial solar systems.

  • Full Self Driving - No one is required to buy FSD. It is an option. Tesla is not twisting people's arms to buy it. There's no high-pressure salesman trying to get you into an FSD system today. It's a checkbox on the website, if you think it's worth the money, get it; if not, don't. The people that have bought FSD are overwhelmingly satisfied with it. And, yes, right now FSD is just a driver assist system because it is in Beta. Yes, the people that are using it, are beta testing it because they want to. They are even willing to pay to use and test it. That's their prerogative. With the new subscription option, you could try it for a month or two and they decide if you want to buy it or not (or continue subscribing). 
  • Wild Claims - Musk has big ambitions. He wants to move humanity to sustainable energy production and consumption. He wants to make life multi-planetary... He leads with Moonshot asperations. He is forthright with these goals. He puts them out there for scrutiny and feedback. So yeah, Musk often misses timeline estimates. If you don't fail occasionally, you are not thinking big enough.

Apparently, my friend is not the only one to draw a comparison between Musk and Milton. Forbes claimed that the indictment of Milton was a "veiled warning" to Musk. Although I didn't see anything in the article to support this claim.

Certainly, Musk does not need my little blog coming to his defense, but if you wind up in a similar conversation where someone equates Musk and Milton because they read something in Forbes or the like, now you understand how they are fundamentally different.

Disclosure: I'm long TSLA

Sunday, August 1, 2021

F-150 Lightning: A Threat To Rivian, Not Tesla

Big players and startups alike are jumping into the electric truck market: Tesla Cybertruck, Ford F-150 Lightning, GMC Hummer Electric, Chevy Silverado EV, Rivian R1T, Canoo Pickup, Nissan Titan Electric, Atlis XT, Lordstown Endurance, Bollinger B2, Hercules Alpha, Fisker Alaska, Alpha Wolf...

2021 is turning out to be the year of the electric truck, well... at least the electric truck hype. We'll see which ones come to market and which ones follow the Nikola Badger and disappear (looking at you Lordstown). 

Ford recently revealed their F-150 Lightning electric truck and the EV media is swimming with Cybertruck vs Lightning articles. I see the headline appeal :: America's best-selling truck goes electric to take on Tesla, the innovative electric up start.

Despite the headline narrative, this seems like the wrong comparison to me. If you are interested in the Cybertruck, then Ford's offering is not likely to sway you. Similarly, if you are interested in a normal-looking truck like the Lightning, you are not interested in the Cybertruck. The Cybertruck is a divisive love-it-or-hate-it wedge design. It literally looks like a wedge and the design acts as a figurative wedge. Certainly, you can compare them on price and range and other factors to pump a story out, but the actual cross-shopping audience is likely very small.

An overlooked aspect of Cybertruck's quirk design is that this allows Tesla to sidestep this head-to-head fight with the electric offerings from the legacy automakers.

The EV startups, not Tesla, are the ones that should really be frightened by the launch of the Ford Lightning. Let's look at one electric truck startup in particular, Rivian. Truck buyers are among the most loyal of brand shoppers, which puts Rivian in a tough spot. If buyers were dedicated to a brand (Ford, Chevy, Nissan...) but wanted an EV pickup, then they are likely to wait for an EV pickup in their favorite brand (F-150, Silverado, Tundra...). 

So this leaves Rivian only with the truck buyers that are not as brand loyal, the ones that are willing to take a chance on a start-up when purchasing the most expensive thing, other than a home, that most people ever buy. If Ford didn't have an EV pickup coming out soon, maybe this would have left the door open for Rivian to woo buyers as their current gas-powered trucks aged. This is how Tesla was able to move into the luxury car market, there was a void of EVs from the majors and Tesla was able to thrive in a space with little-to-no competition for nearly a decade until they eventually reached escape velocity.

This time, however, the majors don't want to allow a startup to take away their most profitable market. They are going to move in with products that will suck the oxygen out of the room, leaving startups gasping for air. 

I guarantee you that the list of EV trucks on the market in 2025 will not be the same list at the start of this article. Most of the start-ups will be acquired or go under. The Fisker Alaska might be Baked Alaska by then; Canoo might float away, Rivian might reach the river's end, the B2 might bomb, the Endurance might run out of steam, the sky may crash around Atlis, and Hercules might not complete the 12 labors. The well-funded startups (like Rivian) have a chance, but Ford and Chevy are not going to make it easy on them. 

Disclosure: I'm long TSLA