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Baron Capital "We believe that BMW will likely phase out ICE over the next 10 years"

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RobStark

RobStark

Well-Known Member
Jul 2, 2013
11,916
61,537
Los Angeles, USA
#1
CNBC interviews Ron Baron of Baron Capital. BC has ~$20 Billion under management.


http://www.cnbc.com/id/102161115?__source=yahoo%7cfinance%7cheadline%7cheadline%7cstory&par=yahoo&doc=102161115


Baron thinks "all of us will likely be Tesla customers in 25 years" because its competitors are already being compelled to build and sell electric cars. "They do not want to build such cars," Baron wrote. "As a result, they are developing electric expertise so slowly that the lead Tesla has built up through its fast growing staff ... may soon become insurmountable."


"Tesla's car culture is far different from that of other car companies," Baron wrote. At least, all car companies except for BMW. Baron noted that two of his analysts recently visited BMW in Germany and the BMW financial team believes that a "revolution in the drive train is underway. ... We believe that BMW will likely phase out internal combustion engines over the next 10 years," Baron wrote.

 
#2
Well, it is the Bayerische Motoren Werke. So, it seems like a lot of the company's identity is tied up with ICE engineering.

On the other hand, they're going out on a bit of a limb with the i3. So, maybe they get it. We'll see what kind of range the i5 or i6 have, if and when they are announced.
 
#4
Baron Capital "We believe that BMW will likely phase out ICE over the next 10...

BMW is gradually realizing that EVs are the future but they have to walk a terrifying tightrope to simultaneously ramp down ICE production and ramp up EV production while not negatively impacting profits and pissing off shareholders. And they have to start making attractive EVs instead of the silly cars they e come out with so far. I don't envy their precarious position.

Tesla has no such encumbrances and will forge ahead, continually outpacing the competition.
 
#8
Tipping point

ecarfan said:
BMW is gradually realizing that EVs are the future but they have to walk a terrifying tightrope to simultaneously ramp down ICE production and ramp up EV production while not negatively impacting profits and pissing off shareholders. And they have to start making attractive EVs instead of the silly cars they e come out with so far. I don't envy their precarious position.

Tesla has no such encumbrances and will forge ahead, continually outpacing the competition.
Click to expand...

Seems like impossible task for ice car makers. They have to go against their own employees, shareholders, dealers, existing manufacturing, R&D and other facilities, and most importantly decision makers at their boards have to go against their own self-interest. I have great trouble seeing it happening.

I expect a tipping point like switch from ice cars to bev. When that happens, say 15-20 years from now, ice car makers will see rapid demand fall and will die off within next several years.
 
#9
The question is whether the existing auto OEMs will follow the example of Kodak or Nikon. One the paradigm shifts, you must either change your company or bankrupt it.

The challenge is changing fast enough. Car companies are enormous, and so are their daily fixed operating costs. If demand for Toyota vehicles fell by 50%, Toyota would be bankrupt. Of course, they could restructure and move on, but the pension obligations, debt service, and so on requires a certain revenue stream. So, falling behind in this transition will prove fatal to at least three of the big players.
 
#10
Auzie said:
I expect a tipping point like switch from ice cars to bev. When that happens, say 15-20 years from now, ice car makers will see rapid demand fall and will die off within next several years.
Click to expand...
It'll be sooner than that. Straubel and Elon were saying minimum 30% cost reduction on battery just by efficiency of production, without any tech advances and that tech will advance. So 30% is the very conservative baseline.

Tesla is rumored to be in the $200-250/kwh cost now, so if they start hitting near $100/kwh the initial cost of an ICE and EV will be about the same. Factor in long term savings on an EV and it'll dominate sales.

So, 5 years from now when Tesla has $100/kwh batteries shipping in bulk, we'll be at that tipping point. The only thing saving ICE vendors for a little while will be that Tesla, and whoever else invests similarly, simply won't be able to meet worldwide demand.
 
#11
ckessel said:
Auzie: Seems like impossible task for ice car makers. They have to go against their own employees, shareholders, dealers, existing manufacturing, R&D and other facilities, and most importantly decision makers at their boards have to go against their own self-interest. I have great trouble seeing it happening.

I expect a tipping point like switch from ice cars to bev. When that happens, say 15-20 years from now, ice car makers will see rapid demand fall and will die off within next several years.
Click to expand...
It'll be sooner than that. Straubel and Elon were saying minimum 30% cost reduction on battery just by efficiency of production, without any tech advances and that tech will advance. So 30% is the very conservative baseline.

Tesla is rumored to be in the $200-250/kwh cost now, so if they start hitting near $100/kwh the initial cost of an ICE and EV will be about the same. Factor in long term savings on an EV and it'll dominate sales.

So, 5 years from now when Tesla has $100/kwh batteries shipping in bulk, we'll be at that tipping point. The only thing saving ICE vendors for a little while will be that Tesla, and whoever else invests similarly, simply won't be able to meet worldwide demand.
Click to expand...
That is the question, when will the tipping point happen.

I revised my post few times, changing that number of years. Started with 10-15, ended with 15-20. Difficult to say, there are too many variables and uncertainities that may play out one way or the other, all in the future.

The most important variable is the availability of bev cars. Once bevs availability matches or outpaces demand, we may see tipping point eventuate.
 
#12
I expect a tipping point like switch from ice cars to bev. When that happens, say 15-20 years from now, ice car makers will see rapid demand fall and will die off within next several years.
Click to expand...

I think demand for electric will increase dramatically in a few years when the Model 3 becomes available and something like it (worse) is launched by competitors too, the value proposition just seems attractive for a $35k long range electric car when you save $2k a year on gas, with lower maintenance cost to boot. At this point in time I think it will be very hard for production to keep up with demand as building out the huge amount of production capacity needed for the batteries will take a long time. I think almost all cars sold will be electric in 15 years.

The question is whether the existing auto OEMs will follow the example of Kodak or Nikon. One the paradigm shifts, you must either change your company or bankrupt it.

The challenge is changing fast enough. Car companies are enormous, and so are their daily fixed operating costs. If demand for Toyota vehicles fell by 50%, Toyota would be bankrupt. Of course, they could restructure and move on, but the pension obligations, debt service, and so on requires a certain revenue stream. So, falling behind in this transition will prove fatal to at least three of the big players.
Click to expand...

I definately agree, most existing car manufacturers will have a very hard time restructuring their giant operation, manufacturing electric cars is a lot different than ICEs and will require a large change in the work force. The question is when to load up on puts, I bet the market will be far too late to discount a company like Toyota for being behind/not in the race at all in the transition to electric, so I will sit on the sidelines the next year or two as their sales won't be seriously affected by electric anyway. If the SP is still lofty at that point, they haven't taken electric seriously and the IV is still low, I think far OTM puts with expiration 2 years out could be a goldmine.
 
#13
Perfectlogic said:
I think demand for electric will increase dramatically in a few years when the Model 3 becomes available and something like it (worse) is launched by competitors too, the value proposition just seems attractive for a $35k long range electric car when you save $2k a year on gas, with lower maintenance cost to boot. At this point in time I think it will be very hard for production to keep up with demand as building out the huge amount of production capacity needed for the batteries will take a long time. I think almost all cars sold will be electric in 15 years.



I definately agree, most existing car manufacturers will have a very hard time restructuring their giant operation, manufacturing electric cars is a lot different than ICEs and will require a large change in the work force. The question is when to load up on puts, I bet the market will be far too late to discount a company like Toyota for being behind/not in the race at all in the transition to electric, so I will sit on the sidelines the next year or two as their sales won't be seriously affected by electric anyway. If the SP is still lofty at that point, they haven't taken electric seriously and the IV is still low, I think far OTM puts with expiration 2 years out could be a goldmine.
Click to expand...

You know what I find amusing :) You just said, in effect, that big successful auto makers are doomed, and there's a beautiful opportunity coming in a few years to score big by shorting them as they slide from no growth and into bankruptcy.

More amusing, and this took me a moment, is that I'm nodding along with you and think you've got a reasonable point of view.

That's some serious dislocation and change coming to the world. An addition to what's amusing to me - the rest of the auto industry doesn't see it.


Here's my canary in the coal mine that tells us it's starting to happen. Porsche. They don't have the volume in far away markets from Tesla - their volume are in markets that are close cousins to Tesla's markets, esp. when Model X is shopping in volume, and their total volume is ~2-3x Tesla's (instead of 100-1000x). I see Porsche being plowed under fast in a few years, and remaining valuable because of the name - not because of the car units they can sell.
 
#14
Robert.Boston said:
If demand for Toyota vehicles fell by 50%, Toyota would be bankrupt. Of course, they could restructure and move on, but the pension obligations, debt service, and so on requires a certain revenue stream. So, falling behind in this transition will prove fatal to at least three of the big players.
Click to expand...

Too big to fail. Toyota will get bailed out by the Japanese Government. So will Honda.

Mazda and Subaru?
 
#15
adiggs said:
You know what I find amusing :) You just said, in effect, that big successful auto makers are doomed, and there's a beautiful opportunity coming in a few years to score big by shorting them as they slide from no growth and into bankruptcy.

More amusing, and this took me a moment, is that I'm nodding along with you and think you've got a reasonable point of view.

That's some serious dislocation and change coming to the world. An addition to what's amusing to me - the rest of the auto industry doesn't see it.


Here's my canary in the coal mine that tells us it's starting to happen. Porsche. They don't have the volume in far away markets from Tesla - their volume are in markets that are close cousins to Tesla's markets, esp. when Model X is shopping in volume, and their total volume is ~2-3x Tesla's (instead of 100-1000x). I see Porsche being plowed under fast in a few years, and remaining valuable because of the name - not because of the car units they can sell.
Click to expand...

I think some people in auto industry see it very well. There is not much they can do about it, or there is not much they wish to do about it. It is like seeing the tsunami of hurts coming, all one can do is take cover.

They will set themselves up to be out of the game before the tipping point. Maybe buy puts or even naked shorts:wink:
 
#16
adiggs said:
Here's my canary in the coal mine that tells us it's starting to happen. Porsche. They don't have the volume in far away markets from Tesla - their volume are in markets that are close cousins to Tesla's markets, esp. when Model X is shopping in volume, and their total volume is ~2-3x Tesla's (instead of 100-1000x). I see Porsche being plowed under fast in a few years, and remaining valuable because of the name - not because of the car units they can sell.
Click to expand...

I dont think you can short Porsche specifically though as they are part of Volkswagen Group, otherwise I would agree that things are definately not looking bright for them.
Too big to fail. Toyota will get bailed out by the Japanese Government. So will Honda.

Mazda and Subaru?
Click to expand...

Even if they do get bailed out won't the stock hit rock bottom? How low did GMs stock go at the bailout?
 
#19
ckessel said:
It'll be sooner than that. Straubel and Elon were saying minimum 30% cost reduction on battery just by efficiency of production, without any tech advances and that tech will advance. So 30% is the very conservative baseline.

Tesla is rumored to be in the $200-250/kwh cost now, so if they start hitting near $100/kwh the initial cost of an ICE and EV will be about the same. Factor in long term savings on an EV and it'll dominate sales.

So, 5 years from now when Tesla has $100/kwh batteries shipping in bulk, we'll be at that tipping point. The only thing saving ICE vendors for a little while will be that Tesla, and whoever else invests similarly, simply won't be able to meet worldwide demand.
Click to expand...

Europe´s renewable ( green ) electricity production is about 15 percent of total ; is the US percentage considerably higher ?
 
#20
Calm down! calm down!

Car manufacturers are not wedded to ICEs. They're wedded to profitability.

I think electrification will be disruptive, but:
- cars are more than their drivetrain
- electrification has a _very_ long way to go in order totally to supplant ICEVs: battery pricing, power pricing, range, and, yes, charging speed;
- ICEs are cheap and they don't need a reliable electricity network: luxury cars will move first, but globally mainstream vehicles would not be replaced that quickly

I think one of two approaches will be popular:
- BMW REx model: tidily-packaged small gasoline generator used for longer trips
- Disruption of rental: I hope Tesla is already thinking about it. If you can create an affordable, reliable long-range electric car with auto-pilot/autonomous driving technologies it should have relatively low operating costs, low maintenance, low insurance costs, all while providing a pleasant, relaxing ride: a great candidate for high-mileage operation. Make rental a more seamless and pleasant experience and it'll be a lot easier to sell shorter-range BEVs.
 
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