- Incumbent auto giants entrance diminishing Tesla's margins.
- Incumbent expertise and brand that diminishes Tesla's appeal.
- First mover disadvantage: rest of auto industry sees large initial ROI by piggybacking off Tesla
GM can't be the only guys racing to bring Tesla experience to it's existing brand followers. Luxury makers like BMW, Benz will woo the lion share of the market Tesla originally pioneered. First movers rarely do well here unless they've cemented their brand position in the luxury space such as Ferrari, Lamborghini etc.
tl;dr: When the status quo catches up to Tesla, it will put downward pressure. Tesla's winning strategy should be to limit quantity and artificially inflate unit price. It is not equipped to take on dozen automotive brands in the long run.
Please correct me where I'm wrong.
Not saying TSLA has no risk: for one thing, they still have not figured out how to scale up production. But in general, I think we tend to overestimate the incumbents' advantage. Most incumbents have too many old interests that hold them back. There is an article  about German automakers' unwillingness to commit to EVs because the profit from ICEs are way way higher than that from electric ones because of ICE's complexity.
(Similarly, this is the reason why most of the wind farms in China are not connected to the national grid, because the existing power plants do not want to shut down and lay off workers.)
The point is that they popularized the electric car by getting it right, just like Apple popularized the smartphone by getting it right.
Tesla may or may not be around to reap the rewards of their popularization of the electric car, but they've definitely made an impact, and done their part to push automotive thinking forward by at least a decade IMO.
Yes, there is some institutional inertia that holds back the incumbents. However, there is also a huge store of knowledge about what to do and what not to do.
Here's a somewhat relevant story from my time at Boeing. When the 737-7/8/900 was being designed, some young bloods looked at the vertical stabilizer and said "Oh my God! Look at all this useless structure! We'll use cutting edge FEA and CATIA and show those old pencil-and-paper slide-rule jockeys how it's done." Everything looked great, and they started building the new aircraft in Renton. Except that during flight testing, they found that the new vertical stabilizer assembly was cracking. They had to stop the line (very expensive), remove assemblies from built aircraft (very expensive), and pay penalties to airline customers for delivery delays (astronomically expensive). If memory serves, they had to take a $1B writedown. There were also public firings of high-level executives.
I have first hand sales experience with luxury brand vehicles (read: RR/Bentley price class). Technology oriented US customers love Tesla. Sure, top notch luxury is nice, shiny and gives a unique experience, but at the end it is a different kind of experience from that a Tesla customer seeks. At the end, they buy both.
I wonder why the downvote for my question. It was not the tone, I hope.
The fixation on this is odd. I see plenty of Teslas and very fast imports around here in north CA but they always seem to be taking it easy...
The whole integrated/shared thing has been going back and forth in different industries at different points in time. Apple has been getting more and more integrated recently whereas earlier wisdom in PC industry was to use shared components.
Musk is betting that it's time to integrate the automotive industriy. If he is right, Tesla will balooon to the size of Apple. The electric part is not the most important here.
Tesla cars are nice, but they didn't need to make the entire pipeline. They're doing that because they want to reuse the pipeline and tech in other industries.
Vertical integration doesn't guarantee better prices just because you don't rely on third party suppliers. There are other benefits, such as monopolizing a certain part of the supply chain (like batteries in the case of Tesla) but it also requires very high investments (Gigafactory). Those investments can pay off in the future but can also turn out to be very expensive mistakes - you basically wager long term pay offs against flexibility.
This has been pointed out many times on these boards, and I agree with it.
Tesla (Musk) got this EV ball rolling, for real, and deserve immense credit for that. But it sounds too often here that Tesla has "won". Building cars is hard, capital intensive, and there are many massive companies diving into this. And despite what you may have heard, companies like Ford, GM, Fiat aren't staffed with idiots.
One thing that may work for in favor of Tesla though, is the fact that self-driving car will fundamentally shift people's relationship with cars. Out goes the needs to have best-handling, best crash protection, best-feedback providing cars.
Value of those engineering know-hows will be greatly diminished because computers will be doing the driving. Instead, there will be more emphasis on comfort, software, and efficiency.
There isn't going to be one or two electric car manufacturers. There will be dozens.
Google's autonomous driving efforts alone weren't taken too seriously either, but when rumours of Apple's interest in the space began to swirl, that's when the carmakers (including Tesla) got the message and suddenly all started scrambling to come up with a strategy to develop an autonomous OS. Fast forward 3 years and here we are, with stodgy old GM in a position of confidence.
Tesla's own charger network also presents a slight advantage for potential buyers, other brands [for the moment] rely on home chargers, dealership sockets and third-party vendors like Chargepoint or Volta.
Even more scary is collusion of giants trying to kill Tesla. Say the Japanese automakers group together to share the risk and costs of building the same infrastructure.
My primary concern is the margin per unit. Only a handful of automakers today have been able to sustain their margins, namely Porsche which supposedly makes the most margin per car. If you wonder outside the luxury segment, you find razor thin margins and heavy competition.
Tesla and Elon Musk deserves a big award for bringing the EV market to people who succeeded in capitalism. But as you saw with Ford, just because you were first won't guarantee your place. Heck, without bailouts, there would be very few American automakers left.
And this is really where my argument for maintaining high margin per unit is essential for long term survival. That can only be accomplished by moving upwards, not downwards. The accumulative cost & risk of selling 2.5 model 3 vs 1 p90D can't be ignored.
Having said that the market seems undecided between the bears and bulls on the upcoming Tesla earnings report.
Very few? In fact, just one. Ford.
Someone would have bought the companies and continued making cars.
No way the supplier network would have survived a dual bankruptcy.
I'd be a Bolt owner today if I thought I could road trip in it at a reasonable level of stress.
But I think the larger point is still valid: the charging infrastructure is still not nearly as widespread as gas stations and charging still takes longer than re-fueling. For us, the compromise of a range extender is still the best of both worlds. We can run electric most of the time, but we can still use the Volt as a "regular car" for road trips.
The big advantage Tesla has, as far as I can see, is the charging network. Someone else is going to have to bite the bullet and put up a few thousand charging stations.
First, they're not organized into a coherent network. When making a long trip, you may need to go well out of your way to hop from one CHAdeMO location to the next, or just not be able to do it altogether. Tesla's network is not entirely ubiquitous yet, but it covers 95% of cases now.
Second, somewhat related to the first, they tend to be installed in small numbers, often just as single units. That makes it almost impossible to rely on them. If you arrive at a single CHAdeMO unit and it's broken or in use, you're screwed. Tesla Superchargers are usually installed of groups of 6 or more. For site-wide outages, the car will tell you and route around the broken sites.
Third, they are ssllooww. Charging in half an hour sounds nice, but that's a Leaf, with a tiny battery. Plug a Tesla into a station like that and you're looking at a couple of hours. Most CHAdeMO stations max out at 50kW or less (I believe many of Nissan's are only 20kW!), while Superchargers do up to 120kW. Recharging time on road trips is generally acceptable with Superchargers, but with CHAdeMO you're looking at doubling or tripling that time, and it'll start to become a significant portion of your total travel time.
Most people want to be able to make long trips. It's the #1 question I get about my Tesla. So far, no other manufacturer has shown anything capable of long trips. The Bolt could do them, if it had a reasonable charging network and could charge quickly, but it doesn't and it can't.
- A software engineering mindset, which results in regular infotainment updates, constantly improving features and a vehicle that gets better with time
- No dealer network - which leads to a customer first mindset.
Remember, incumbent auto makers are not fast moving or innovative at all. They are all cash cows. Although they can predict that a move to EVs will keep them alive long-term, such a move will always be done with a small fraction of GM's resources and labour in the coming decades, and Tesla with Elon's burning desire to destroy them are probably going to win.
Remember, GM can't sell these two products on the same lot: One which is a cash cow, and one which only exists to combat some distant threat of GM becoming obsolete.
Also you're forgetting that Tesla cars are just better in every sense. Better brand, faster, longer range, novelty...
> better brand
GM/F/Honda/Toyota/etc are reliable, BMW/Audi/Lexus/etc are luxurious and have a package that's been very carefully tuned
Doesn't matter to 90%
> longer range
Debatable, also price constrained
Not what you look for in a massive purchase that you want to last 10+ years
to be had.
GM and any other electric carmaker will be buying their batteries, powertrains, or both from Tesla after they flop with their own native lineups.
I think you should give GM a little more credit...
My money is more on Ford being a risk factor to Tesla than GM.
Musk has been working on increasing battery production for years. I don't see other car manufacturers outpacing Tesla for the simple reason of not having enough batteries.
The cars look like a brand awareness device for the power company.
If there are no Tesla cars in ten years then Tesla the power company probably won't mind much.
What Tesla has, is talent + a big headstart. The talent part is not unique at all. The clock is ticking rapidly on the headstart, and Tesla is well aware of that.
As an example of software advantage, Tesla is currently getting more real-world training data for autonomous vehicles than every other company combined.
As an example of hardware advantage, Tesla will be producing more lithium ion battery capacity from its gigafactory than the entire world could produce a few years ago.
As an example of product advantage. Well, have you been inside a Tesla?"
Or something like that I think... :P
But who knows, maybe Faraday Future will reveal a pixie-dust powered anti-gravity sphere that will make everyone else irrelevant.
Having a network of cars collecting data is great, but they may not actually be able to collect all of it simply because it is super high bandwidth, whereas those with test cars can stick a rack of disks in the car and collect all of the data.
Regarding the data collection, that's a great point. I hope that's not the case though, as I would think the data is far more valuable than the bandwidth it's carried on. Though, I suppose the capacity simple doesn't exist to send it over the air the way you can just store locally and physically offload. Then I guess it comes down to whether the compressed data from an enormous number of vehicles still gives a significant advantage.
Maybe I should have waited for the self-driving version.
In fact, your comment alludes to that. For you, a self-driving car is an opportunity to make a leisurely, personalized, homey space. That's wonderful, if one has the money for it - and many people do.
However, let's take a step back and look at the millions of people who say, "I want a car that gets me from A to B". They're not looking to own a leisurely, personalized, homey space. They're looking to get places, hopefully at the cheapest price and in the most reliable way. They're not looking to own something.
You note that cars are often parked. Given the low utilization of vehicles, it stands to reason that renting time in a self-driving taxi should be significantly cheaper than owning one. If that self-driving taxi can serve the needs of 3 people instead of one, you only need to pay for a third of it. Even if the profit margins are an outrageous 50%, you'd be paying 150% of 33.3% or 50% of the cost of owning a self-driving car. However, the pricing is likely to be even more favorable. If owning a car costs you $500/mo and you can get your transit via self-driving taxi for $150/mo, there's a huge cost incentive to switch.
I think that's the big thing. The cost advantage is going to be quite stark. Owning a car will cost many times what getting driven around by a self-driving taxi will cost. While many people can afford a car today, it's certainly a significant budget item for many. Even for those that can comfortably afford it, it's safe to assume that many will ditch the cost for something cheaper.
Ultimately, our tastes as a society change as our society changes. As the cost of owning a car becomes sky-high compared to a mostly-substitute, many people will switch to it. Not everyone will. People spend up for luxury items all the time. But luxury items are, well, not commodities. Even if you can afford a luxury item, if you don't value that kind of item, you won't pay up for it. Plenty of rich people see a car as just a way to get from A to B. They'll take the cheaper self-driving taxi. Plenty of low and middle income people will be able to stretch their budgets better lowering transportation costs substantially.
Even if you're skeptical of a dramatic change, let's say I propose that 10% of people that currently own cars would ditch them for self-driving taxis. I'm not even suggesting that it's changing society, but a 10% dip in demand is quite significant to an industry.
I think you're right that there would be something nice about having a leisurely, homey ride. It could be a wonderful experience. But luxury automakers already try to give their owners a much nicer experience than someone gets in a Civic and there are definitely more Civic's out there. It's that, while a Mercedes S-Class is lovely, the Civic allows them to spend their money on other things (or afford transportation at all). Similarly, self-driving taxis will allow people to spend their money on other things or more easily afford transportation. You certainly paint a desirable picture and there are definitely people that will choose your vision. However, I think more people will choose the economy of self-driving taxis.
Cars made horses a luxury item. Horses were no longer common transportation. The car was cheaper and better. It certainly wasn't perfect in all ways, but enough that horses became a luxury item.
I also think there will be a significant fraction of the population that uses their car as personal, daily storage. My wife keeps a bunch of stuff in her car, and would be significantly impacted if she had to take it all in and out every time she went everywhere. Same thing with kids car seats, etc.
I think on-demand cars will probably replace second commuter cars for families, but there will still be many, many owned-cars as well.
I'm sorry for communicating poorly, but my point was more that it is not likely possible to predict all the consequences of a completely new technology and how behavior and economy will change in response. And I'm not even predicting anything myself about demand (beyond my own desires, which is dicey enough to predict) -- I am just curious where the confidence comes from when people state that ownership will be significantly reduced as an obvious fact when IMO that is certainly plausible but I don't have any reason for such confidence.
A car in a driveway or parking spot has horrible utilization rates. Ownership of things like cars has never actually made sense, given that they depreciate in value as soon as you drive it off the lot.
Meanwhile, more and more OEMs are moving into the car sharing space, and I think that will scratch the itch of wanting to drive a car for fun, or utility (need to pick up something large or be some where at a specific time).
There is also a factor that those predictions do not seem to be factoring in: That the need for a car is concentrated at commuter hours in the morning and afternoon. So the sales reductions will be tempered by the fact that many cars will be needed simultaneously.
The Model 3 and the Bolt would be similar in costs. Wouldn't it?
Even if I didn't have some special access due to some relatives, I'd still have a Bolt this month as opposed to mid-next year?
By that time, Chevy will be shipping self-driving ones and according to the article they're going to NOT be doing that as a 40k addon.
I hope Musk has a very strong transition into a strong luxury brand. The simple truth is that there is a massive rush on personal transportation and all the small players are eager to sell to the Toyotas and Chevys of the world. These people are by and large expats from the early self-driving car projects.
As the analogy goes, just because it takes 1 woman 9 months to make a baby does not mean 9 woman working together can make a baby in 1 month.
Either way, it's very committed. GM isn't fucking around, they mean business!
One thing you can do with 1000s of fleet vehicles is begin untangling the logistics of running a publicly accessible robotaxi network, which will brings with it a whole new set of problems above and beyond the autonomous os itself.
Some things are better left to those with more experience and expertise.
Someone needs to wash and clean out the cars between the rides, maintain them, park them for the night as well as provide occasional repairs (i.e. have a few spare parts and bumpers on hand).
But once the tech is figured out, then you can start optimizing the marginal cost of each car, and spreading out capital costs over more cars, both of which reduce the cost.
It would create a huge boost to revenue since drivers get ~75% with Uber. If they drove the same schedule it would be 4x the revenue, but autonomous vehicles don't have to sleep or see their families so the revenue difference in switching 1 human into 1 robot should be at least 6x.
This is mainly because:
- the booking fee goes 100% to Uber, which can be another 25% on short trips
- UberPool arbitrates rider fares and driver are paid the lower of (75% of per mile, per min, OR 75% of rider quoted fares). This accounting hack, on average, increases Uber's take to 35%
- Upfront Fares is weighed to give Uber, on average, an extra 5% to compensate for "variance".
> However, gross bookings is not the same as net revenue, which came in at $663.2 million in the first half of 2015, compared to $495.3 million in all of 2014. That's the amount Uber actually receives before costs but after it pays drivers their cut and accounts for promotions, driver incentives, and more. For example, Uber paid out $2.72 billion to driver contractors in the first half of 2015, just under 75% of bookings.
So in the first half of 2015 they had $3.63b in gross bookings, but just $663.2m in revenue. If you magically switched out all the drivers to robots revenue would match bookings which is a 5.5x boost.
I'd be interested to see what TCO they'd need to have to no longer be cheaper.
However, self-driving vehicles can end up being a 'base load' that runs 24/7, and then Uber just pays drivers to appear during peak times, so they can avoid paying for (labor + driver's car) during unnecessary times.
It's really wrong IMO to value 16-25yo lower when considering minimum wages.
"Tesla Narrowly Misses 80,000-Vehicle Sales Goal in 2016"
GM sold 320k cars in December 2016 alone.
[Edit: Over 10 million cars last year: http://money.cnn.com/2017/02/07/news/companies/gm-record-sal... ]
Hence the comparison.
"Tesla has now 1.3 billion miles of Autopilot data going into its new self-driving program"
There's a reason Tesla picks up the tab for your vehicle's machine to machine cellular connection. And why it connects to wifi when you're at home.
Think about it this way: Companies like Google or Amazon don't launch products just because the tech is cool or innovative. They only launch products that can become $1B+ drivers of revenue for them.
(fwiw I am not the one downvoting you)
That is a thing though, have cool stuff that serves as advertising to showoff your company as being cool & cutting-edge.
Amazon gets a lot of mindshare out of echo beyond the raw value accrued through sales IMO.
This problem lends itself to horizontal scaling very well, I'd say.
It's possibly a way to test your implementation by comparing it to what the human does, but that doesn't apply for a million basic things like sign recognition and you can't teach machine learning with that.
GM paid a billion dollars for those Cruise clowns. If they build 10,000 self-driving cars, that alone is $100K per car.
Meanwhile, Volvo is quietly putting 100 customers in self-driving cars. They're still way ahead on marketing, too.
Volvo and Google/Waymo are the only self-driving car makers I'd trust right now.
They're the only ones who take the safety issues seriously. All the other ones testing in California have crappy disconnect statistics. (Uber refuses to test in California because they'd have to report their numbers, but reports of their bad driving indicate their system isn't very good.)
I am strongly against the PR blitz that self-driving cars have been getting for years, but to judge a company's product before they have a product is a little presumptuous.
Each company has its pros and cons. Waymo certainly seems to have the current lead, but they bled so much talent it's strongly indicative of a serious internal cultural problem. Delphi has been steadily improving their technology over the years, but as more automakers build their own tech it will be hard for them to find a buyer. Argo is the new up and comer, but they haven't really announced anything other than a large amount of funding and some great leadership. Volvo seems to be doing a great job and I hope they deliver on their promises, but they haven't launched yet so who knows what will happen. Uber pursued the technology aggressively and that has led to something of a shitshow, and they've already lost a lot of talent. Tesla had the PR machine that is Elon Musk behind it and their customers love them (and many of their customers believe they have level 4 autonomy) but their track record for self-driving technology is questionable. Cruise has a great business model by working with Lyft and GM and have clearly developed quickly, but they haven't released nearly as much data as Waymo. Then there are the others that haven't really had any PR announcements and the companies that are completely in stealth mode.
I don't think anybody knows what's going to happen.
A certain level of paranoia in the design is required. The kind of paranoia that aviation engineers have. Volvo gets this - they have dual everything, lots of sensors, and their CEO says that if there's an accident in autonomous mode, it's Volvo's fault. Google got it while Chris Urmson was in charge. The others, not so much. Tesla ... many of their customers believe they have level 4 autonomy. Yes. At least one death is clearly attributable to customer overconfidence in the system.
One thing has become quite clear - expecting the driver to back up the self-driving system on a second by second basis does not work. If the driver can tune out, they will tune out. It's now clear, even to Tesla, that if you don't have level 4 automation, you must keep the driver's hands on the wheel.
There are two problems for autonomous vehicles that this part of your comment highlights - one is how good a driver is good enough, is it good enough if they have less accidents than a taxi-driver?
The other is managing the negative perception when the press report deaths, even if the vehicles are safer and produce less deaths than human drivers, the press will ensure the perception is negative despite what the statistics may show.
But it probably isn't a great comparison, at least not until we see what the GM cars can do and then the Teslas prove out equivalent capabilities (without the benefit of $50,000 of sensor hardware).
So 1/10 of 1% market share a whole lot of red ink (meaning cars may be under-priced, increasing quantity demanded), and no competition constitutes "many customers"? I guess it's all relative, but I disagree.
Oh well I guess it will be a few years before I can recline and take a nap in my robo car while in traffic
If you live in the middle of SF it might sound silly to own an autonomous vehicle, but if you live out in rural Sonoma County it is going to sound a lot less silly. I frequently go out to the mountains and I doubt I'm going to want to call an Uber to load all my camping gear into and be gone for a week.
About half of my neighbors own RVs.
Self-driving vehicles would be a dream come true.
It's great that all this work is being done but IMO summoning Johnny cab to take you home from a bar in SF is decades away.
We will need miracles in lidar technology for GM to hit their target of thousands of vehicles next year.
I see in the article that they acquired a self-driving tech startup but that doesn't say much about how much experience that start up brings, and it not like there's many veterans in this field.
Will they be playing catch up with Tesla, Google et al for years to come or will the tech soon start becoming commoditized?
Good luck to the beta testers buying them.
I don't understand the Gigafactory, from a capital allocation point of view.
Geographically, it's not near any major lithium, cobalt, (economical to extract) rare earth, etc deposits, and it's not in a traditional manufacturing area. Maybe they're getting a sweet tax deal. There are a number of tangential benefits, like heat recycling, solar availability, USA made (given the currently protectionist administration, but that could change in less than 4 years, max 8) etc, but I'm not sure these benefits outweigh the cost of being so far from raw material and export lines.
Obviously, the Gigafactory makes batteries, a technology which improves at an unbelievably slow rate compared to virtually anything else. However, battery research is an intense area of research focus, and the whole factory is one Nobel from becoming obselete, barring (probably expensive) retooling. A game changing improvement is not a matter of if, but when.
TSLA's bet is that this does not happen until they've paid off the asset. If you makes batteries as a core business, investment in facilities is the cost of doing business. If you make cars, it's a silly and imprudent experiment in vertical integration. Why bet the farm when you can pay marginally more for your batteries and cement the luxury market you already own? Batteries are a commodity, and at TSLA's scale, they surely can negotiate a good deal. Realistically, TSLA's target market is fine with absorbing a 2 or 3% increase in battery cost that a 3rd party supplier would demand.
Given the investment in vertical integration, it seems TSLA is trying to go after the low/mid-market. Why beats me -- razor thin margins necessitate scaling incredibly quickly. They are taking an incredible risk for meager rewards in fiercely contested territory. Contrary to what most outlets will tell you, Ford/GM/Japanese automakers are not stupid. Slow, yes, but not stupid. They will move quickly to shred TSLA in the low end market, assuming they recognize the threat. Not only that, but they take on comparatively little additional risk in doing so, outside of product development costs. They don't need to build assembly lines, factories etc, because they already exist. Even if one mfg misses the electric vehicle trend, it's highly unlikely 6 of them will.
That's all, and I'd really like a counterargument.
For better or worse, Tesla is hell-bent on vertically integrating every single aspect of production. I believe they might be working on software that will allow them to stop relying on NVDA's chips for self driving as well. "First principles" business model will make or break Tesla/Elon.
Global car production is on the order of 50 million vehicles per year, which means a required capacity of 2500GWh/year assuming 50GWh/car. 2013 li-ion battery production was 35GWh, some 1.5% of this number.
Tesla wants to reach a production rate of 500k cars/year in the next couple of years, and you probably wouldn't find a 3rd party manufacturer willing to eat the risk of upping the world's battery capacity by 50% to fulfil this contract. Never mind Tesla's long-term production goals, which are in the millions of vehicles per year.
Hence they're forced to do it themselves, same situation as the charger network on a bigger scale (which could in an ideal world be done by governments or a third party, but never on the short time scale required). I can't speak to the location of the factory.
Land is cheap, labor is cheap, and it's on a major rail line. You don't need to extract the lithium or cobalt on site, you just need to be able to get it cheaply. If this  source plays out, then they actually do have lithium nearby.
I came here thinking they were attempting some way to make things self assemble. "It's a self driving bolt. You don't have to use a screw driver to screw it in it does that itself."
Besides, GM building a self driving car feels like letting the people who make plastic grocery bags make doors for safes or something. Sounds dangerous and it just sounds like it'll cause the name "Bolt" to stand for "run away suddenly out of control."...
It also annoys me that companies name things common English names because that makes it hard to search for things. "Chevy bolt loose steering" "bolt bolt size trunk latch" "bolt size for tires"
Ultimately, it's obviously a battle that I'm not going to win because I'd prefer everything just have a GUID so I can easily identify exactly what I have. "The Chevrolet B0F30517-BAFE-43EB-BA62-1832AC5272F7"
Lastly, I know it's been a common theme for a long time but it just seems to keep getting worse. Apple Ping. Chevy Bolt. Chevy Volt. Chevy Spark. Many different products called Hydrogen etc. Rust. I know of at least 2 products called Go. It just wouldn't be difficult to change spelling or do something clever instead of just taking direct, common dictionary words and grabbing them for your product.
While it's true that GM isn't exactly known for their construction quality, they seemed to have somewhat turned that around recently, and have definitely embraced making good software.
Also, their self driving tech comes from the acquisition of Cruise (a YC company).