Articles/Megaposts by FluxCap

[FluxCap]

All very good points Flux.

To me your first point towers over any discussion of the EV market... the battery supply issue is actually a massive moat around Tesla's growth for at least the next 15 years in my estimation. That's not just about the Bolt and GM, but the entire auto industry.

Elon did not want to build a Gigafactory, he had to. No one else would build the batteries to enable even 0.5% of the market to be long range EVs in 2020. Had the Bolt looked like a compelling vehicle and GM looked motivated to produce it, the battery supply still would have meant it was a non-issue for Tesla's growth. Tesla's greatest challenge, ramping up battery supply, is also the greatest moat to it's future growth. I doubt anything the other automakers do will impact Tesla's growth whatsoever before for at least 15 years. That's about the earliest I see enough battery supply coming online to make it possible Tesla might be demand constrained (that is, collective spending of $300-500 billion on new battery plants to make it possible for 30-50% of the vehicle market to be long range EVs,).

One question though... I saw where GM did not commit to building the Bolt yet, but did you see something directly from GM saying the Bolt was at least 4 years away?

Thanks, Steve. Great points.

The 4+ year estimation was my own based on minimum time required to essentially fund, plan and build a GM Gigafactory that could realistically produce and source batteries cheap enough to make a $30k 200-mile range car -- which is clearly not going to happen.

 

[palmer_md]

They do have a factory in Holland, MI that they built to support the 100k / year Volt, but when sales never materialized, the plant has been idle and the batteries were built at other facilities. My understanding is that now they may utilize this plant once a larger supply is needed for the new volt and the bolt.

 

[FluxCap]

They do have a factory in Holland, MI that they built to support the 100k / year Volt, but when sales never materialized, the plant has been idle and the batteries were built at other facilities. My understanding is that now they may utilize this plant once a larger supply is needed for the new volt and the bolt.

Thanks Palmer. I'm aware of the LG Chem plant.

However -- Volt batteries are 40-mile batteries. As far as I know, this LG Chem factory is not capable of producing 200-mile range EV batteries using existing tooling, chemistry, tech or supply chain. Certainly not for anything more than a handful of publicity cars. Am I wrong?

 

[palmer_md]

Thanks Palmer. I'm aware of the LG Chem plant.

However -- Volt batteries are 40-mile batteries. As far as I know, this LG Chem factory is not capable of producing 200-mile range EV batteries using existing tooling, chemistry, tech or supply chain. Certainly not for anything more than a handful of publicity cars. Am I wrong?

I agree. They won't be able to build any more than a "compliance car" number of vehicles using only that plant. Who knows if they have more idled capacity elsewhere, but certainly they have nothing in the works (publicly noted) on the scale of Tesla's Sparks facility, and to truly compete at the scale Tesla is projecting they will have to do something in addition to what they have in Michigan.

 

[SteveG3]

WSJ article said GM had capacity at that plant for either 60K Volts or 20K Bolts... so using palmer's 100K number for Volts, perhaps 30-35K Bolts if no Volts were built.

I think this is somewhere between a compliance car and a foot in the water kind of hedge against the risks of completely kicking the can down the road on recognizing ICE will eventually lose dominance, even if it takes a couple of decades. Volt looks quite a bit more compelling to me than the Bolt... they very likely can build the Bolt at meager volumes for years, satisfy regulations, and show that the Bolt lags the Volt in demand.

Part of their non-commitment may be to wait and see Tesla unveil the Model 3 so they can position their Bolt as something other than a head-head competitor with the Model 3 and avoid the likely hurt to the brand they'd face if the two vehicles were seen as attempts at the same goal.

 

[FluxCap]

Sticking this here for posterity:

On the Apple EV Project Announcement

Six hypotheses from me today (with my level of certainty):

1) Apple's EV efforts are *huge* validation for Tesla Motors' entire business model in the public at large, as well as with many doubters in the investment community. This is already providing upward share price pressure and will continue to do so. (90% sure)
2) Apple will try, and fail to bring an EV to market that competes with Tesla in the premium segment within the next 5 years. (65% sure). Unless they partner with Tesla, and then they will succeed. (85% sure)
3) Apple will try to buy Tesla before release of the Model 3. Elon, the board, and shareholders will wisely refuse. (45% sure)
4) Apple will try again to buy Tesla after the first year of Model 3 sales at an obscenely higher valuation. (25% sure)
5) The combustion engine will begin to sunset in 2020, and will completely sunset by 2040, significantly changing our global climate and economic system for the better. (75% sure)
6) I will retire with an excessively large bank account. (100% sure)

 

[SteveG3]

Flux,

what event(s) would mark to you the combustion engine beginning to sunset?

 

[austinEV]

Flux,

what event(s) would mark to you the combustion engine beginning to sunset?

I am not Flux, but I have been considering that very question. My original test was when my elderly parents considered an EV, but they ran out and got a leaf last year and spoiled my test. I influenced them unduly.

I think ICE's will be done the moment when you realize that people are shopping for BEV's first and then checking ICE's against them. When the *presumption* of buying a new car would be BEV and maybe you get an ICE is the moment when ICE's are in the death spiral. Then the industry will consolidate massively and they will go through lots of ugly restructuring and give bondholders giant haircuts and start to retool as BEV makers.

It might well be 2020 because the model 3 will be in serious production and maybe the bolt and some others. I would peg it later though.

 

[InTheShadows]

Flux,

what event(s) would mark to you the combustion engine beginning to sunset?

A big sign of the final sunset will be when the "coal rollers" start to embrace EV's. When that happens it's all over.

 

[SteveG3]

Austin, we'd definitely know the sunset was happening, had happened at your new reference point. the "start" could be a number of things. Among the things I'm thinking, I have a snarky/real answer, but I'll wait a bit and see if anyone else picks the same one.

A big sign of the final sunset will be when the "coal rollers" start to embrace EV's. When that happens it's all over.

shadows, not quite sure what you mean by "coal rollers"?

 

[austinEV]

By definition the coal rollers won't care about the attractiveness of EV's. Coal rollers are idiots modifying their trucks to run off of coal to spew out copious visible pollution.

 

[glhs272]

I thought rolling coal was modifying their trucks (diesel trucks specifically) to run extremely rich, such that massive amounts of soot are produced and exhausted by the engine. Nothing to do with making it run on coal.

Edit:

I am curious about Fluxcap's item 6) making that huge bank account by the time he retires. Assuming Tesla is massively successful, how can I do the same? I have some 225 shares of Tesla. I buy and hold because I don't really know how to trade and even more afraid of options. I just don't understand them well enough. I am curious to hear Fluxcap's strategy.

 

[FluxCap]

Flux,

what event(s) would mark to you the combustion engine beginning to sunset?

For me, the sunset of the combustion engine will be a market-driven one. When it no longer becomes profitable to make combustion engines, companies will stop doing so. Now, there are many variables that go into making combustion engine manufacturing profitability. Chipping away at those variables methodically and steadily is what I see Tesla and any "Fast Follower" businesses doing. More on this later.

- - - Updated - - -

I thought rolling coal was modifying their trucks (diesel trucks specifically) to run extremely rich, such that massive amounts of soot are produced and exhausted by the engine. Nothing to do with making it run on coal.

Edit:

I am curious about Fluxcap's item 6) making that huge bank account by the time he retires. Assuming Tesla is massively successful, how can I do the same? I have some 225 shares of Tesla. I buy and hold because I don't really know how to trade and even more afraid of options. I just don't understand them well enough. I am curious to hear Fluxcap's strategy.

First, I am not an investment advisor and I do not recommend you make investment decisions based solely on my posts here or anywhere else.

That said, I like to follow a few simple rules:

1) Never invest more than you can absolutely afford to lose while maintaining your life needs.
2) There is no such thing as a sure thing. When a trade goes well, step away for awhile so you don't get cocky.
3) Making money as an active trader in the market takes lots and lots of hard work, focus, discipline, time and effort. And luck. If you are unwilling to put many many hours/week into research, I would stay away from active trading.
4) For the investor with relatively little time to devote to babysitting investments, high-risk / high potential reward investments should be a very small percentage of your portfolio. That means things like individual equities (stocks) you know little about should be avoided.
5) For TSLA, Buy and Hold is a fantastic strategy if you are willing to watch the market and do at least a few hours of research per week to stay on top of things.

 

[jhm]

Flux,

what event(s) would mark to you the combustion engine beginning to sunset?

In my modeling peak ICE happens in 2023 +/-2 years. Peak ICE is the year that the most new ICE will be built after which ICE sales decline year after year. This is a crisis point for traditional automakers because the only way to grow is to make EVs. It will also be very hard to divest ICE capacity without booking a loss.

So peak ICE is the event to watch for.

 

[jhm]

So to put finer point on when peak ICE will happen, consider that the global new car market grows about 2% to 3% per year. When the growth in EVs becomes large enough to consume all the growth in the market, there is no growth for ICE. That is,

Growth_ICE = (Growth_All - Share_EV * Growth_EV) / (1 - Share_EV)

So clearly Growth_ICE < 0 when

Share_EV > Growth_All / Growth_EV

So let's assume that EVs continue to grow about 50% around the peak and that the whole auto market grows around 2.5% around this peak as well. Then the peak happen when EV marketshare hits 5%.

Now one issue that makes this tricky is that the growth in the entire market is quite variable from year to year. So in a bad year, it could look like ICE is post-peak before the difinitive peak. And in a particularly good year post-peak, ICE could have a little growth. So we may have a few bumpy years near the peak, a bumpy plateau, if you will. However, one thing that works against that is that demand growth for EVs may still out pace the growth in supply. Suppose EV marketshare is at 4%, but 7% of the market wants to buy an EV the next year while the supply will only be enough for 6%. What will that surplus demand of 1% do? Will these excess EV buyers settle for a new ICE, or simply wait until the next year? We know many people who are waiting until the Model X or the Model 3 to buy their next new car. They'll make due with older cars or even buy a used car to bide their time. So it may well be that close to peak many buyers will delay purchases in anticipation of buying an EV. If this is the case, it puts downward pressure on the growth of the new car market leading up to the peak. Moreover, just one year after EV share hits 5%, the share goes to 7.5% and then over 11% the year after that. So within two years of hitting 5% share, EVs are decisively gobbling up any growth in the entire new car market.

Thus, I am pretty confident that the peak will happen within a year of EVs reaching 5% marketshare. So the next question then is, when will this critical share be reached? This largely depends on how competitive the EV market becomes. At the extreme, we could envision a scenario where Tesla must do battle alone. Thus, Tesla alone must build 5M cars or so. After hitting 500k in 2020, it must continue to grow at 50% for 5.7 years. Thus, 2026 is my most remote sceario. More likely, Tesla will have only half the EV market at peak ICE, whence Tesla needs only reach 2.5M cars as other EV makers complete the rest. This moderate scenario puts the peak at 2024. Finally for an aggressive scenario, suppose Tesla has only 25% EV share at peak ICE, then Tesla needs to get to 1.25M, which happens in 2022. So here's the irony if the auto industry comes out with a bunch of Tesla Killers so as to confine Tesla to a 25% EV marketshare, then they hasten the ICE apocalypse to as early as 2022. Otherwise they can forestall their fate by at most 4 years, but enter the post-apocalypse utterly unprepared. I don't think it's realistic that the industry will let Tesla walk away with more than 50% of the EV market, so the ICE peak will most likely happen 2022 - 2024. Even so the important questions are: when will EV reach 5% penetration? And who will have how much share of the emerging EM market at that time?

 

[SteveG3]

For me, the sunset of the combustion engine will be a market-driven one. When it no longer becomes profitable to make combustion engines, companies will stop doing so. Now, there are many variables that go into making combustion engine manufacturing profitability. Chipping away at those variables methodically and steadily is what I see Tesla and any "Fast Follower" businesses doing. More on this later.

- - - Updated - - -

Well, that metric may take a long time. I was thinking start of "sunset" is when it is such a widespread public realization that EVs are better than ICE that ICE manufacturers drop any pretense of an alternative reality. Or, short, somewhat snarky answer, when Toyota puts more money into EVs than hydrogen fuel cells (though this is a bit skewed by Japanese government's involvement in funding the hydrogen hoax). Somewhere between 2023 and 2027.

- - - Updated - - -

So to put finer point on when peak ICE will happen, consider that the global new car market grows about 2% to 3% per year. When the growth in EVs becomes large enough to consume all the growth in the market, there is no growth for ICE. That is,

Growth_ICE = (Growth_All - Share_EV * Growth_EV) / (1 - Share_EV)

So clearly Growth_ICE < 0 when

Share_EV > Growth_All / Growth_EV

So let's assume that EVs continue to grow about 50% around the peak and that the whole auto market grows around 2.5% around this peak as well. Then the peak happen when EV marketshare hits 5%.

Now one issue that makes this tricky is that the growth in the entire market is quite variable from year to year. So in a bad year, it could look like ICE is post-peak before the difinitive peak. And in a particularly good year post-peak, ICE could have a little growth. So we may have a few bumpy years near the peak, a bumpy plateau, if you will. However, one thing that works against that is that demand growth for EVs may still out pace the growth in supply. Suppose EV marketshare is at 4%, but 7% of the market wants to buy an EV the next year while the supply will only be enough for 6%. What will that surplus demand of 1% do? Will these excess EV buyers settle for a new ICE, or simply wait until the next year? We know many people who are waiting until the Model X or the Model 3 to buy their next new car. They'll make due with older cars or even buy a used car to bide their time. So it may well be that close to peak many buyers will delay purchases in anticipation of buying an EV. If this is the case, it puts downward pressure on the growth of the new car market leading up to the peak. Moreover, just one year after EV share hits 5%, the share goes to 7.5% and then over 11% the year after that. So within two years of hitting 5% share, EVs are decisively gobbling up any growth in the entire new car market.

Thus, I am pretty confident that the peak will happen within a year of EVs reaching 5% marketshare. So the next question then is, when will this critical share be reached? This largely depends on how competitive the EV market becomes. At the extreme, we could envision a scenario where Tesla must do battle alone. Thus, Tesla alone must build 5M cars or so. After hitting 500k in 2020, it must continue to grow at 50% for 5.7 years. Thus, 2026 is my most remote sceario. More likely, Tesla will have only half the EV market at peak ICE, whence Tesla needs only reach 2.5M cars as other EV makers complete the rest. This moderate scenario puts the peak at 2024. Finally for an aggressive scenario, suppose Tesla has only 25% EV share at peak ICE, then Tesla needs to get to 1.25M, which happens in 2022. So here's the irony if the auto industry comes out with a bunch of Tesla Killers so as to confine Tesla to a 25% EV marketshare, then they hasten the ICE apocalypse to as early as 2022. Otherwise they can forestall their fate by at most 4 years, but enter the post-apocalypse utterly unprepared. I don't think it's realistic that the industry will let Tesla walk away with more than 50% of the EV market, so the ICE peak will most likely happen 2022 - 2024. Even so the important questions are: when will EV reach 5% penetration? And who will have how much share of the emerging EM market at that time?

JHM, some interesting points here, particularly the insight that there will come a point where consumers start deferring their next car purchase to wait for an EV, which will increase the pressure on incumbent automakers.

As to your 5% EV market share figure spelling peak ICE. I think I understand what you are saying- the point at which annual EV production is greater than growth in the global vehicle market is the peak of ICE manufacturing. Makes sense... as to the timing, I think there's some other variables to consider. It's one thing for Tesla to grow 50% per year from now until 2020 as they grow into Fremont and GF1's full capacity. Though Elon talked about that 50% annual growth going straight through 2025, a) we don't know that this would be all through vehicle sales, b) it's such a stunningly high bar (let's call it 5 million vehicles per year) I wonder at how Tesla will achieve it, though I don't rule it out. I actually had started a thread to try to figure out what "chess piece" might Elon "invent" to do it, as it seems otherwise near impossible. To me it seems near impossible in terms of having the cash flow to finance building plants that fast, and the management capacity to get so many large scale plants (battery and auto plants) built in such a short timeframe. Before that point I think we will continue to see nil EV production from the incumbents, precisely because they can still grow sales with ICE alone as the market as a whole expands. I should mention by EVs, I mean 200+ mile EVs. I think ICE makers will make quite a lot of plug-in hybrids. Apple jumping in obviously would accelerate things, but I would expect them to deliver in very low volumes in 2020, my estimate of year 1, ~5K to try to insure their first car is launched in a way that credible quality is a realistic outcome. Their cash would help them ramp up quickly from there... but just managing the building of multiple plants, I think capacity for 2.5 million cars would be quite an achievement by 2025 for Apple. fwiw, I believe the biggest auto plants in the world produce about 650K vehicles per year. My best guess is that we reach the point a majority of the incumbent producers give up the long range EV denial sometime between 2023 and 2027, and ICE sales peak somewhere between 2026-2030.

 

[Svetlin]

Jhm, excellent theory. Here is some empirical validation. Norway hit peak ICE in 2013. EV market share went from 3.4% to 7.6%, while the overall market grew by 3%. The assumptions for Norway would be different than your global assumptions, but it seems like 5% market share is in the right ballpark.

The data is from:
EV Norway (InsideEVs gives different (lower) data for Norway)
and
Car Sales Statistics - Lists of the Best-Selling Cars Around the World

Let's hope for a 1% share in the US in 2015.... yeah, I know, not going to happen, but 2016 should do it, and then on to 5% by 2022.

 

[Robert.Boston]

I think there's a "tipping point" for EV adoption, at which point a combination of infrastructure and public awareness/acceptance opens the door to great gains. Looks like the 5% mark is a good line for that tipping point.

 

[jgs]

This is a very interesting thread and ties in with something I've been ruminating on. That is, at what point do gas stations become sufficiently unprofitable that the gas station network begins to shrink? Is the current abundance of gas stations predicated on the assumption of an expanding market for fuel -- if so, it might suggest that even "peak ICE" would be enough to start triggering consolidation in the fuel retail industry. And how much does the industry have to consolidate before a vicious cycle ensues:

fewer gas stations -> ICE fueling becomes less convenient -> ICE value proposition is diminished -> fewer ICEs -> smaller market for fuel -> even fewer gas stations

One might expect this to be symmetrically coupled with a virtuous cycle for EVs, although it doesn't have to be zero-sum (for example, overall individual car ownership could level or reduce, as some demographers are now predicting).

 

[FluxCap]

This is a very interesting thread and ties in with something I've been ruminating on. That is, at what point do gas stations become sufficiently unprofitable that the gas station network begins to shrink? Is the current abundance of gas stations predicated on the assumption of an expanding market for fuel -- if so, it might suggest that even "peak ICE" would be enough to start triggering consolidation in the fuel retail industry. And how much does the industry have to consolidate before a vicious cycle ensues:

fewer gas stations -> ICE fueling becomes less convenient -> ICE value proposition is diminished -> fewer ICEs -> smaller market for fuel -> even fewer gas stations

One might expect this to be symmetrically coupled with a virtuous cycle for EVs, although it doesn't have to be zero-sum (for example, overall individual car ownership could level or reduce, as some demographers are now predicting).

I too like this conversation. However, on your gas station point -- gas stations are almost always only profitable in the USA because of two primary things: cigarrettes and lottery tickets. They rely on the fact that cars are literally required to stop at them with people exiting their vehicles to generate foot traffic into their unhealthy convenience stores, which sell unhealthy items to people that shouldn't buy them. Nearly all the profits of gas go to the top of the food chain -- oil companies.