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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. 

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