Also the taxi industry. They will surely oppose laws that allow for autonomous driving since then you could summon your car to pick you up and drive you home and thus no one would need a taxi anymore.
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Long-Term Fundamentals of Tesla Motors (TSLA)
- Thread starter Robert.Boston
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- elon is an ass investing TSLA
Also the taxi industry. They will surely oppose laws that allow for autonomous driving since then you could summon your car to pick you up and drive you home and thus no one would need a taxi anymore.
dmckinstry
Model X 2019
what's going to be really interesting at the Q3 call will be any commentary about order levels for the D. Over the longer term (2016) I think this just made 100k annual sales of the X + S a very likely - that's ~$10B in revenue alone.
Of course the real action will be with the performance / sales of an Dual Motor, Autopilot Model 3. Think about what $40-$50k will buy with the Model 3!
Of course the real action will be with the performance / sales of an Dual Motor, Autopilot Model 3. Think about what $40-$50k will buy with the Model 3!
jhm
Well-Known Member
Modeling the Big Disruption
View attachment Market Share Model.xlsI would like to share my disruptive market share model. This model is an extension of the logistic growth model I presented in a tutorial a few days ago. I that model I made the assumption that Tesla would ultimately gain 10% share of the global auto market, but wouldn't it be nice to have a model that anticipated how much market share Tesla could gain under certain assumptions of the competitive intensity of Tesla and the rest of the auto industry? That is exactly what I propose to do. The aim of this model is not so much to predict the future as it is to understand the implications of competitive intensity, to explore sensitivities to the strategic choices of competitors, and to consider strategic options. To that end, I post a working worksheet model for readers to play with and a sensitivity analysis table to summarize outcomes under different strategic choices. Before I discuss the model, let me summarize a few important observations from this model given Tesla's current level of competitive intensity:
1) Tesla should be able to deliver 500,000 cars in 2020 regardless how strong or savvy the competitive response may be. The industry cannot slow Tesla by competing with it.
2) Conventional ICE auto sales will peak between 2022 and 2025 after which conventional autos will go into perpetual decline. This will be a critical moment for traditional automakers.
3) At current growth rates, hybrid vehicles may never gain more than 10% market share and will likely peak between 2028 and 2031. At about the same time,
the entire fleet of conventional hybrid autos will peak and go into perpetual decline. This will be a critical event for the oil industry.
4) Tesla may well reach sales in excess of 21 million vehicles by 2030 and may ultimately gain 84%, 55%, or 25% of the global auto market depending on whether the industry pursues EV growth with low, moderate, or high intensity (30%, 40%, or 50% growth per year). The industry would actually have to sustain an EV growth rate high than what Tesla is committed to to prevent Tesla from capturing more than 12% market share.
These claims have far reaching implications. It involves the disruption of at least two major industries: traditional autos and oil. Both will peak and fall into decline within twenty years. It is critical that Tesla asserts itself to provoke this disruption. Without such provocation the peaks of these industries could be forestalled by decades. However, competitive situation is asymmetrical. The auto industry cannot compete with Tesla without hastening the end of conventional autos. Competing with Tesla cannot harm Tesla over the next ten or more years; it can only prevent Tesla from acquiring more than about 25% market share in the post-ICE auto market.
So let me set up this model. First, I segment the auto industry into four types of vehicles: Conventional (ICE), Hybrids (ICE+Batteries), EV (all electric, excluding Tesla), and Tesla. I will make the assumption that over time there will be a net market share transfer from C to H, E and T, and from H to E and T. It is important also to assume no net transfer between E and T. This allows all market share currently enjoyed by C and H to flow ultimately to either T or E. Both T and E will be absorbing states only if one assumes long-run parity , that there is no net transfer between them. I am also assuming that there can be no long-run parity between H and E. The rationale here is that battery costs will eventually decline to such a point that it is cheaper to add extra battery capacity than to add a small ICE for extended range, and other issues may obsolete all ICE even sooner.
In 2013, 82.84 million autos were sold world-wide. About 2% were Hybrids. Tesla sold 22k, and Nissan sold 90k globally. I assume that there were perhaps another 20k competitive EVs sold. So, I assign 110k initially to the E segment. This puts the industry at a 5 to 1 advantage over Tesla within the parity EV space. If both E and T were to grow at identical rates each year, this ratio of market share would hold, leaving Tesla with 1/6 of the post-ICE market. So basically the auto industry would have to be just as committed to growing EVs to retain 5/6 of the market. Even without a mathematical model, this is a pretty astounding observation. It is very hard to catch up with a competitor that is committed to doubling its business every year or two.
Disruptive Market Share Model
Let's make some formal assumptions about growth rates. First, we need some mathematical notation. Let C(t) be the number of Conventional vehicles sold in year t, and dC(t) be the change in vehicles sold from t to t+1. Apply the same notation to H, E, and T. Moreover, define the sum as N(t) = C(t) + H(t) + E(t) + T(t). Also define market share mC(t) = C(t)/N(t), similarly for the other segments.
Second, we assume that the market as a whole will grow at a small exponential rate, g, so that,
dN(t) = g*N(t), or simply, dN/N = g
I assume the rate g=2.75%. This rate is consistent with 100 million cars in 2020 starting with 82.8 million in 2013.
Next, we'll make two assumptions about segment growth that each share in general growth g in proportion to their size and that the transfer from one segment to another is in proportion to both segments. So, for example the transfer from C to H is the quantity
b_{CH}*C(t)*H(t)/N(t) = b_{CH}*C(t)*mH(t) = b_{CH}*mC(t)*H(t)
I point this out to emphasize that the quantity transferred is proportional to market share of either segments. This is a net transfer so b_{CH} = - b_{HC}. I call the coefficient b the transfer intensity.
With the above assumptions we can now derive the following growth formulas:
dC/C = g - b_{CH}*mH - b_{CE}*mE - b_{CT}*mT
dH/H = g + b_{CH}*mC - b_{HE}*mE - b_{HT}*mT
dE/E = g + b_{CE}*mC + b_{HE}*mH
dT/T = g + b_{CT}*mC + b_{HT}*mH
Note in the first formula that the growth of conventional is based on the general growth of the market minus growth that is being transferred to H, E, T. So long as the market share of these alternatives are small, then C can grow nearly at rate g. So it is that initially the incumbent technology can simply ignore challengers and focus on the bulk of the market. For example, if the intensity of transfer from C to H is 0.10 and the market
share of H is 2%, then C is only losing 0.20% in growth rate to H. That may be of concern, but EVs and Teslas are ignorable due to extremely low market share.
In the second formula, H is gaining general growth plus transfer from C, but losing share to E and T. Initially, mC is about 98%, so this growth rate is roughly g + b_{CH}. I set b_{CH} = 0.10 so that H grows at a little over 12% initially. This seems to be a comfortable rate for the industry. It's a modest amount of disruption. If the Hybrid market were to heat up and grow at 40% a year, it would grow to about 8% market share in 4 years and deprive Conventional cars about 3.20% in growth rate. This would overwhelm the general rate 2.75%, and the net result would be that C would have a negative growth rate. This would be disruption within 4 years. So long as the transfer intensity is low, it will be a long time until H disrupts C.
Finally, we turn to the two last formulas which are structurally equivalent. These segments are simply receiving market share from the other segments in addition to the general growth rate. Their growth rates differ by how competitive they are in capturing market share fro C and H. Since mH is so small initially, their growth rate is dominated by the transfer intensity from C. Tesla needs this intensity to be about 0.55 to grow from 22k in 2013 to about 500k in 2020. So this is my base case for this intensity parameter. It is difficult to know how much transfer intensity there may be from H to T. It's not exactly observable since the current market is dominated by C. It is reasonable to assume that it is a fraction of the intensity from C, since EVs and Teslas have bigger advantages over conventional cars than hybrids. So I'll simply assume half the intensity. One interpretation of this is that if the industry could switch all C into H, then the growth rates of E and T would be cut in half. It is possible that the industry may at some point respond to the Tesla threat by severely cannibalizing C with H. Even now, most of the new models touted as competitors to Tesla are in fact hybrids of one sort or another. While this strategy has the theoretical potential to slow the transition to EVs, the industry cannot or will not disrupt conventional cars fast enough. The growth rate of hybrids would need to be as fast as Tesla's growth rate. Arguably, that that effort would be better directed at growing EVs. The reason is that due to parity transfer of C to E would deprive T more growth potential than transfer to H. In any case, the disruption of C is inevitable the only question is how long it will take. So the key question is how much transfer intensity to E the industry will pursue.
Discussion
Tesla seems committed to an intensity of 55%, maybe as much as 65% or as little as 45%. Meanwhile, it is hard to imagine the industry mustering an EV intensity greater than Tesla. In my sensitivity analysis, we consider industry competitive intensities from 20% to 70%. Intensity of 20% would be a disaster for the industry, as T would walk away with around 95% ultimate market share. So while there may be such a low response initially, eventually the existential threat will motivate a higher response. That threat may become apparent when conventional auto sales begin to stall and decline irrevocably. The time of peak C will likely come by 2025 according to this model, but may come as early as 2022. Ironically, the higher the competitive intensity is, the sooner will come the peak. There may be some comfort in collective inaction, but there will also be really opportunities for those competitors that take up the challenge. The companies that establish strong market share within the EV space stand to capture a lasting hold on market share.
The disruptive market share model generates scenarios of how this could play out. I encourage readers to play with the worksheet and get a feel for the dynamics. I find it particularly challenging to come up with a realistic scenario that is favorable for traditional automakers. Conversely for Tesla, the strategic path is pretty clear. Tesla needs to grow by 45% or more per year, and it can walk away with 25% of the market. Actually, the longer it takes for the market to disrupt, the bigger its share. If the industry does turn up the intensity, then Tesla will likely be able to turn up its intensity as well. So Tesla is in the enviable position. It remains to be seen who may join them. A co-disruptor will need to come from outside of the industry or be willing to divest itself of its ICE business.
So have fun with the worksheet model, and let me know what you think. In future posts, I'll discuss model limitations and potential extensions.
View attachment 61227
View attachment Market Share Model.xlsI would like to share my disruptive market share model. This model is an extension of the logistic growth model I presented in a tutorial a few days ago. I that model I made the assumption that Tesla would ultimately gain 10% share of the global auto market, but wouldn't it be nice to have a model that anticipated how much market share Tesla could gain under certain assumptions of the competitive intensity of Tesla and the rest of the auto industry? That is exactly what I propose to do. The aim of this model is not so much to predict the future as it is to understand the implications of competitive intensity, to explore sensitivities to the strategic choices of competitors, and to consider strategic options. To that end, I post a working worksheet model for readers to play with and a sensitivity analysis table to summarize outcomes under different strategic choices. Before I discuss the model, let me summarize a few important observations from this model given Tesla's current level of competitive intensity:
1) Tesla should be able to deliver 500,000 cars in 2020 regardless how strong or savvy the competitive response may be. The industry cannot slow Tesla by competing with it.
2) Conventional ICE auto sales will peak between 2022 and 2025 after which conventional autos will go into perpetual decline. This will be a critical moment for traditional automakers.
3) At current growth rates, hybrid vehicles may never gain more than 10% market share and will likely peak between 2028 and 2031. At about the same time,
the entire fleet of conventional hybrid autos will peak and go into perpetual decline. This will be a critical event for the oil industry.
4) Tesla may well reach sales in excess of 21 million vehicles by 2030 and may ultimately gain 84%, 55%, or 25% of the global auto market depending on whether the industry pursues EV growth with low, moderate, or high intensity (30%, 40%, or 50% growth per year). The industry would actually have to sustain an EV growth rate high than what Tesla is committed to to prevent Tesla from capturing more than 12% market share.
These claims have far reaching implications. It involves the disruption of at least two major industries: traditional autos and oil. Both will peak and fall into decline within twenty years. It is critical that Tesla asserts itself to provoke this disruption. Without such provocation the peaks of these industries could be forestalled by decades. However, competitive situation is asymmetrical. The auto industry cannot compete with Tesla without hastening the end of conventional autos. Competing with Tesla cannot harm Tesla over the next ten or more years; it can only prevent Tesla from acquiring more than about 25% market share in the post-ICE auto market.
So let me set up this model. First, I segment the auto industry into four types of vehicles: Conventional (ICE), Hybrids (ICE+Batteries), EV (all electric, excluding Tesla), and Tesla. I will make the assumption that over time there will be a net market share transfer from C to H, E and T, and from H to E and T. It is important also to assume no net transfer between E and T. This allows all market share currently enjoyed by C and H to flow ultimately to either T or E. Both T and E will be absorbing states only if one assumes long-run parity , that there is no net transfer between them. I am also assuming that there can be no long-run parity between H and E. The rationale here is that battery costs will eventually decline to such a point that it is cheaper to add extra battery capacity than to add a small ICE for extended range, and other issues may obsolete all ICE even sooner.
In 2013, 82.84 million autos were sold world-wide. About 2% were Hybrids. Tesla sold 22k, and Nissan sold 90k globally. I assume that there were perhaps another 20k competitive EVs sold. So, I assign 110k initially to the E segment. This puts the industry at a 5 to 1 advantage over Tesla within the parity EV space. If both E and T were to grow at identical rates each year, this ratio of market share would hold, leaving Tesla with 1/6 of the post-ICE market. So basically the auto industry would have to be just as committed to growing EVs to retain 5/6 of the market. Even without a mathematical model, this is a pretty astounding observation. It is very hard to catch up with a competitor that is committed to doubling its business every year or two.
Disruptive Market Share Model
Let's make some formal assumptions about growth rates. First, we need some mathematical notation. Let C(t) be the number of Conventional vehicles sold in year t, and dC(t) be the change in vehicles sold from t to t+1. Apply the same notation to H, E, and T. Moreover, define the sum as N(t) = C(t) + H(t) + E(t) + T(t). Also define market share mC(t) = C(t)/N(t), similarly for the other segments.
Second, we assume that the market as a whole will grow at a small exponential rate, g, so that,
dN(t) = g*N(t), or simply, dN/N = g
I assume the rate g=2.75%. This rate is consistent with 100 million cars in 2020 starting with 82.8 million in 2013.
Next, we'll make two assumptions about segment growth that each share in general growth g in proportion to their size and that the transfer from one segment to another is in proportion to both segments. So, for example the transfer from C to H is the quantity
b_{CH}*C(t)*H(t)/N(t) = b_{CH}*C(t)*mH(t) = b_{CH}*mC(t)*H(t)
I point this out to emphasize that the quantity transferred is proportional to market share of either segments. This is a net transfer so b_{CH} = - b_{HC}. I call the coefficient b the transfer intensity.
With the above assumptions we can now derive the following growth formulas:
dC/C = g - b_{CH}*mH - b_{CE}*mE - b_{CT}*mT
dH/H = g + b_{CH}*mC - b_{HE}*mE - b_{HT}*mT
dE/E = g + b_{CE}*mC + b_{HE}*mH
dT/T = g + b_{CT}*mC + b_{HT}*mH
Note in the first formula that the growth of conventional is based on the general growth of the market minus growth that is being transferred to H, E, T. So long as the market share of these alternatives are small, then C can grow nearly at rate g. So it is that initially the incumbent technology can simply ignore challengers and focus on the bulk of the market. For example, if the intensity of transfer from C to H is 0.10 and the market
share of H is 2%, then C is only losing 0.20% in growth rate to H. That may be of concern, but EVs and Teslas are ignorable due to extremely low market share.
In the second formula, H is gaining general growth plus transfer from C, but losing share to E and T. Initially, mC is about 98%, so this growth rate is roughly g + b_{CH}. I set b_{CH} = 0.10 so that H grows at a little over 12% initially. This seems to be a comfortable rate for the industry. It's a modest amount of disruption. If the Hybrid market were to heat up and grow at 40% a year, it would grow to about 8% market share in 4 years and deprive Conventional cars about 3.20% in growth rate. This would overwhelm the general rate 2.75%, and the net result would be that C would have a negative growth rate. This would be disruption within 4 years. So long as the transfer intensity is low, it will be a long time until H disrupts C.
Finally, we turn to the two last formulas which are structurally equivalent. These segments are simply receiving market share from the other segments in addition to the general growth rate. Their growth rates differ by how competitive they are in capturing market share fro C and H. Since mH is so small initially, their growth rate is dominated by the transfer intensity from C. Tesla needs this intensity to be about 0.55 to grow from 22k in 2013 to about 500k in 2020. So this is my base case for this intensity parameter. It is difficult to know how much transfer intensity there may be from H to T. It's not exactly observable since the current market is dominated by C. It is reasonable to assume that it is a fraction of the intensity from C, since EVs and Teslas have bigger advantages over conventional cars than hybrids. So I'll simply assume half the intensity. One interpretation of this is that if the industry could switch all C into H, then the growth rates of E and T would be cut in half. It is possible that the industry may at some point respond to the Tesla threat by severely cannibalizing C with H. Even now, most of the new models touted as competitors to Tesla are in fact hybrids of one sort or another. While this strategy has the theoretical potential to slow the transition to EVs, the industry cannot or will not disrupt conventional cars fast enough. The growth rate of hybrids would need to be as fast as Tesla's growth rate. Arguably, that that effort would be better directed at growing EVs. The reason is that due to parity transfer of C to E would deprive T more growth potential than transfer to H. In any case, the disruption of C is inevitable the only question is how long it will take. So the key question is how much transfer intensity to E the industry will pursue.
Discussion
Tesla seems committed to an intensity of 55%, maybe as much as 65% or as little as 45%. Meanwhile, it is hard to imagine the industry mustering an EV intensity greater than Tesla. In my sensitivity analysis, we consider industry competitive intensities from 20% to 70%. Intensity of 20% would be a disaster for the industry, as T would walk away with around 95% ultimate market share. So while there may be such a low response initially, eventually the existential threat will motivate a higher response. That threat may become apparent when conventional auto sales begin to stall and decline irrevocably. The time of peak C will likely come by 2025 according to this model, but may come as early as 2022. Ironically, the higher the competitive intensity is, the sooner will come the peak. There may be some comfort in collective inaction, but there will also be really opportunities for those competitors that take up the challenge. The companies that establish strong market share within the EV space stand to capture a lasting hold on market share.
The disruptive market share model generates scenarios of how this could play out. I encourage readers to play with the worksheet and get a feel for the dynamics. I find it particularly challenging to come up with a realistic scenario that is favorable for traditional automakers. Conversely for Tesla, the strategic path is pretty clear. Tesla needs to grow by 45% or more per year, and it can walk away with 25% of the market. Actually, the longer it takes for the market to disrupt, the bigger its share. If the industry does turn up the intensity, then Tesla will likely be able to turn up its intensity as well. So Tesla is in the enviable position. It remains to be seen who may join them. A co-disruptor will need to come from outside of the industry or be willing to divest itself of its ICE business.
So have fun with the worksheet model, and let me know what you think. In future posts, I'll discuss model limitations and potential extensions.
View attachment 61227
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RobStark
Well-Known Member
For various political reasons no one company will ever achieve 84% automobile market share much less the 95% discussed later in the post.
Anti-monopolistic legislation in North America, the EU,Australia New Zealand.
Protectionist mercantilist policies in Asia, Latin America and Africa.
65% North American market share and 25% global market share IMO is extreme hyper bullish scenario.
To paraphrase Engine Charlie Wilson in this scenario
What is good for America is good for Tesla
And what is good for Tesla is good for the country.
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The Blue Owl
Endangerous Herbivore
@jhm: this is positively one of the best posts I've read so far anywhere on this forum. The logical flow is impeccable and makes for a crystal-clear explanation, one which I could pretty much absorb in a single, continuous read from top to bottom. Brilliant. It also reminded me immediately by a related argument you've made before about the inevitability of the race to build the first Gigafactories.
I'm almost certain you've done this before, so could you kindly disclose, promptly, any and all books, papers, and/or blogs which you've authored, 'cause I sense a veritable fountain of knowledge here that makes me feel really thirsty.
Based on all the precedent I'm aware of from every other industry that ever went through such a transformation, it is inconceivable to me that today's mainstream manufacturers can match Tesla's intensity for the foreseeable future. As I've said elsewhere, in order to transform themselves, they have to kill themselves. In fact, it's not even a matter of "can they do it": so far, they don't seem to realize they have to. Your model should be on the desks of Mary Barra and friends right now, in order for the dinosaurs they watch after to hope to see another day. ICE is done. Dead. Deader than dead.
In fact, the more I contemplate your model, the more likely it seems to me that the domination of the new car universe will be split between Tesla on the one hand, and an "Android platform for cars" that is yet to emerge on the other. Only by pooling their efforts will the remaining EV contenders (most of which have yet to appear on the firmament) be able to keep up with the savage pace of technological advancement imposed by Tesla. Whoever chooses to run alone will either have to join the Androids, or will succumb.
One thing is certain: whoever didn't hear the starting gun fired by Tesla on Thursday night, is done. Dead. Deader than dead.
I'm almost certain you've done this before, so could you kindly disclose, promptly, any and all books, papers, and/or blogs which you've authored, 'cause I sense a veritable fountain of knowledge here that makes me feel really thirsty.
I think this is the key observation, which qualitatively captures the essence of your analysis: that the incumbents have to start running as fast as Tesla right now, in order to preserve their current share. Anything less, and they'll condemn themselves to a slow and inexorable death.
Based on all the precedent I'm aware of from every other industry that ever went through such a transformation, it is inconceivable to me that today's mainstream manufacturers can match Tesla's intensity for the foreseeable future. As I've said elsewhere, in order to transform themselves, they have to kill themselves. In fact, it's not even a matter of "can they do it": so far, they don't seem to realize they have to. Your model should be on the desks of Mary Barra and friends right now, in order for the dinosaurs they watch after to hope to see another day. ICE is done. Dead. Deader than dead.
In fact, the more I contemplate your model, the more likely it seems to me that the domination of the new car universe will be split between Tesla on the one hand, and an "Android platform for cars" that is yet to emerge on the other. Only by pooling their efforts will the remaining EV contenders (most of which have yet to appear on the firmament) be able to keep up with the savage pace of technological advancement imposed by Tesla. Whoever chooses to run alone will either have to join the Androids, or will succumb.
One thing is certain: whoever didn't hear the starting gun fired by Tesla on Thursday night, is done. Dead. Deader than dead.
jhm
Well-Known Member
Rhino, thanks for your high praise. I think this model just puts into mathematical expression what many have known here for quite some time. Regarding other things I have written, I am reluctant to reveal my identity in this forum for professional reasons. I do have a PhD in statistics, but most of my other writting is actually unrelated to Tesla so it probably would not be of much interest here anyway. I'm happy to carry on discussion here or to collaborate offline. Thanks, again.
I think you may be right about the Android analogy. Could LG be at the center of that ecosystem? In any case it is mostly the battery capacity that has to scale at a P85D pace. As Tesla has shown us again with the range gain due to the D, its not just about battery price. It's also about engineering the best performance out of batteries.
I think you may be right about the Android analogy. Could LG be at the center of that ecosystem? In any case it is mostly the battery capacity that has to scale at a P85D pace. As Tesla has shown us again with the range gain due to the D, its not just about battery price. It's also about engineering the best performance out of batteries.
jhm intresting point of view.
But you ignore the very possible disruption of the Personal Automobile itself.
In my opinion the future of the Car Industry will be Google Self Driving Fleet, the Cars drive totaly autonomous from place to place and pick up and transport the users, with an Uber like App.
870-1300Billion USD/ year savings just in the US alone
Must read for everyone Morgan Stanley Research Report:
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CB0QFjAA&url=http%3A%2F%2Fwww.wisburg.com%2Fwp-content%2Fuploads%2F2014%2F09%2F%25EF%25BC%2588109-pages-2014%25EF%25BC%2589MORGAN-STANLEY-BLUE-PAPER-AUTONOMOUS-CARS%25EF%25BC%259A-SELF-DRIVING-THE-NEW-AUTO-INDUSTRY-PARADIGM.pdf&ei=SZ85VOL_NYnnaI7ZgdgG&usg=AFQjCNFq848rA74T8EODFoVvUBgAiLjYmg&sig2=mBIHyYB4UG6V9KXLmKav9g&bvm=bv.77161500,d.ZWU
I think this is the major disruption in the auto industry, those fleets will certainly be EVs but I dont expect an increase in marketshare after 2020, or when the Level 4 SDC comes out and the first Fleet is deployed.
A fleet could have a hyperfast growth in marketshare. Since 1 Fleet car could replace 6-7 conventional cars.
I also see this as the major concern for the TSLA future evaluation, having a company in a shrinking market is not a good scenario.
Sure there will still be people that prefer to own their own Car, but that number will shrink. The customers of low price Cars will tend to use SDC much more likely and that is the majority marketshare of the Car Industry.
But you ignore the very possible disruption of the Personal Automobile itself.
In my opinion the future of the Car Industry will be Google Self Driving Fleet, the Cars drive totaly autonomous from place to place and pick up and transport the users, with an Uber like App.
870-1300Billion USD/ year savings just in the US alone
Must read for everyone Morgan Stanley Research Report:
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CB0QFjAA&url=http%3A%2F%2Fwww.wisburg.com%2Fwp-content%2Fuploads%2F2014%2F09%2F%25EF%25BC%2588109-pages-2014%25EF%25BC%2589MORGAN-STANLEY-BLUE-PAPER-AUTONOMOUS-CARS%25EF%25BC%259A-SELF-DRIVING-THE-NEW-AUTO-INDUSTRY-PARADIGM.pdf&ei=SZ85VOL_NYnnaI7ZgdgG&usg=AFQjCNFq848rA74T8EODFoVvUBgAiLjYmg&sig2=mBIHyYB4UG6V9KXLmKav9g&bvm=bv.77161500,d.ZWU
I think this is the major disruption in the auto industry, those fleets will certainly be EVs but I dont expect an increase in marketshare after 2020, or when the Level 4 SDC comes out and the first Fleet is deployed.
A fleet could have a hyperfast growth in marketshare. Since 1 Fleet car could replace 6-7 conventional cars.
I also see this as the major concern for the TSLA future evaluation, having a company in a shrinking market is not a good scenario.
Sure there will still be people that prefer to own their own Car, but that number will shrink. The customers of low price Cars will tend to use SDC much more likely and that is the majority marketshare of the Car Industry.
RobStark
Well-Known Member
Of course the market that prefers a personal car will shrink because that is virtually the entire market save for people that prefer public transportation. And it will include many people who prefer small efficient city cars now.
But IMO that market is small and mainly concentrated in densely populated cities.
Going anywhere you want, at any given moment, and doing so anonymously will remain a big plus.
Then there is the safety of lil google type cars.
I don't see people that prefer Pickups, SUV,Crossovers,Mid-Full size sedans preferring these little automated units.
If the current choices in transportation tell us anything is that transportation choices are not made from a completely rational self maximizer POV. People tend not to choose the most cost efficient way to get from point A to point B.
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Future transportation, better than present
Jhm, thank you for your post, a lot of thinking and work went into it.
I have doubts that the market will grow at the assumed growth rate of 2.75%. My expectation for that rate is to be positive for say next decade. The growth is likely to be driven by increased wealth in developing world. After a decade or so, hard to say, my expectation for growth is to gradually reverse and become negative, ie market might shrink rather than grow.
The world and humanity are changing at a rapid rate due to world population instant connectivity and increasing transparency. My expectation for car ownership is to start declining due to changes in societal attitudes and technological developments.
Cars are often used for work commute now. If that need is eliminated by new technologies, then cars will be used for pleasure only. There are far better ways to address such need than expensive car ownership. Lease has many advantages over ownership - just check the thread of disappointed owners who missed on the latest improvements. Shared lease, ownership or hire may become more common. Business models based on share are thriving.
I am already seeing far less work related travel due to improved connectivity. Who would want to spend long unproductive hours on airports, freeways, etc if the connectivity is at fingertips. My children and their generation consider car ownership a chore and adjust their life around not owning a car as a preferred choice.
Online goods sales and delivery eliminate need for traditional shopping complexes that require a car to visit.
Here is the transport mode that I see growing and competing with car market, maybe not yet but certainly in the future:
Jhm, thank you for your post, a lot of thinking and work went into it.
I have doubts that the market will grow at the assumed growth rate of 2.75%. My expectation for that rate is to be positive for say next decade. The growth is likely to be driven by increased wealth in developing world. After a decade or so, hard to say, my expectation for growth is to gradually reverse and become negative, ie market might shrink rather than grow.
The world and humanity are changing at a rapid rate due to world population instant connectivity and increasing transparency. My expectation for car ownership is to start declining due to changes in societal attitudes and technological developments.
Cars are often used for work commute now. If that need is eliminated by new technologies, then cars will be used for pleasure only. There are far better ways to address such need than expensive car ownership. Lease has many advantages over ownership - just check the thread of disappointed owners who missed on the latest improvements. Shared lease, ownership or hire may become more common. Business models based on share are thriving.
I am already seeing far less work related travel due to improved connectivity. Who would want to spend long unproductive hours on airports, freeways, etc if the connectivity is at fingertips. My children and their generation consider car ownership a chore and adjust their life around not owning a car as a preferred choice.
Online goods sales and delivery eliminate need for traditional shopping complexes that require a car to visit.
Here is the transport mode that I see growing and competing with car market, maybe not yet but certainly in the future:
jhm
Well-Known Member
You're right. As a limitation of this model, it does not contemplate regulatory or other constraints on growth. But there are other ways to interpret this model that can get around the issues you raise. Basically, we can think of T as representing more than just a single entity named Tesla Motors Company. Rather it could be an alliance of Tesla and clones. Musk may have already anticipated this with open sourcing Tesla's patents. He is inviting others to join them in doing what Tesla is doing. So consistent with this model is a whole Tesla open source ecosystem that collectively controls 95% of the future market. This may seem like a semantic sleight of hand, but the mathematics makes no necessary distinction and the strategic issues around cultivating an ecosystem are quite real.
Certainly before anyone plugs this model into DCF model for Tesla, they should consider ecosystem question. This is also how you would want to think about the Gigafactories as well. Some fraction of GF output will go into cars of other makes. A robust Tesla ecosystem would be the logical market for GF products.
If anyone does attempt to use this model in a DCF, please keep me posted. I'd be very intersted in how it goes. In fact, that is a big part of what motivates me to post my models. Consider it open source.
The Blue Owl
Endangerous Herbivore
It's true the main ideas were discussed before, but I reacted enthusiastically to the support provided by the quantitative approach, which makes their inevitability so much more apparent and harder to reject. A mathematical model illuminates ideas in a way that mere pontification on the subject cannot match. An equation is worth a thousand pictures and all that.
Of course, and I shouldn't have asked (I also prefer to stay anon.) I'll PM if needed.
In fairness, the smartphone industry has two characteristics that make platform consolidation inevitable, which don't have (yet) a direct equivalent in the auto industry. First, smartphone makers are dependent on a strong army of third-party developers in order to create a compelling application ecosystem for users. This allows for only a very small number of platforms, since developers won't generally have the resources to commit to more than two, and many are happy to stay with only one. Today, those platforms are iOS and Android, plus HTML5 to a certain extent (Blackberry and Windows are still alive, but their future is far from assured.) Second, smartphone users don't like too many competing platforms either, since there is a cost in learning how to use them, plus there is the lock-in effect of the investment in apps and various services (for digital media storage, collaboration, etc.)
When it comes to EVs, the market will not support more than a few charging standards even at the beginning, and in the long run they will most likely converge towards a universal standard. It's possible that two equally entrenched networks survive (like CDMA vs. GSM), but I think that's less likely. So, that's one source of platform consolidation pressure.
The other is that cars are now defined more and more by their software rather than their hardware, as DaveT already pointed out in his thread. Tesla's technological lead is as decisive in software as it is in hardware and manufacturing, and I actually think it will be harder to match. Software platforms of this magnitude are very hard and expensive to develop, and the talent pool is extremely limited. That's why I would expect technological convergence a la Android to happen. (One could argue that this scenario has already happened in the fighter jet industry, leading to the push to replace a large variety of designs with variants of a single platform, the F-35, and to industry consolidation. Indeed, Boeing might end up leaving that market altogether.)
jhm
Well-Known Member
Thanks, TD1. I'll have to give that more thought. From a modeling point of view, the easiest way to approach that is simply to assume that the global growth rate will not remain constant at g = 2.75%. If one had a scenario for how fleet cars would depress global growth over time that could easily be brought into this model. But I think the fleet car disruption runs deeper than just the global growth rate. We need to think about how it will impact C, H, E, and T distinctly. My suspicion is that the impact will be much more severe on analog cars than digital cars. So C may be disrupted more quickly.
One thing to bear in mind is that even if 1 fleet car can relace 6 personal cars. That does not mean that demand for cars will drop by 5/6. What drives most of new car sales is replacement. If the average personal car is puts on say 10k miles per year, then the average fleet car displacing those 6 cars should put about 60k miles per year. So these fleet cars will need to be replaced in just a few years. Also fleet operators may be willing to pay a premium for cars that have higher life mileage. I think Tesla has the potential to build cars that will run well for 500k miles. The TCO perspective makes Tesla attractive. It could be that IC engines that are only good for 200k miles just won't cut it.
The Blue Owl
Endangerous Herbivore
Auzie and TD1: interesting observations. It is indeed possible that the new car market will differ from the old market not just in the type of propulsion technology, but also in other very significant ways brought about by the new sharing trend.
But regardless of the usage patterns that the new global car fleet will exhibit, the fact remains that the new fleet must be built by somebody, and it won't be ICE-based. And if indeed the emergence of automated driving technology leads us into a Minority Report-style future, whoever has the best automated driving technology wins the biggest share of the new pie. Yes, the new pie may be smaller under certain assumptions, but even then, Tesla's future won't be dependent on the size of the pie, but on its own ability to build the right car, and I think it is currently unmatched in that ability.
But regardless of the usage patterns that the new global car fleet will exhibit, the fact remains that the new fleet must be built by somebody, and it won't be ICE-based. And if indeed the emergence of automated driving technology leads us into a Minority Report-style future, whoever has the best automated driving technology wins the biggest share of the new pie. Yes, the new pie may be smaller under certain assumptions, but even then, Tesla's future won't be dependent on the size of the pie, but on its own ability to build the right car, and I think it is currently unmatched in that ability.
RobStark
Well-Known Member
Then for the purposes of evaluating TSLA it becomes necessary to distinguish between Tesla market share and clone market share.
Tesla and clones will be indirect competitors and collaborators.
And perhaps direct competitors and collaborators.
So clone market share is relevant to the TSLA investor but so is distinguishing between the two.
BTW
Getting people to make small lifestyle changes that increases a personal burden in some way for very large societal benefits have been tough.
Basing your retirement fund on global attitude changes from personal betterment to global betterment is dicey at best.
In a utopian/dsytopian world, depending on your POV, where personal cars have virtually eliminated and replaced by taxi fleet of autonomous pods then Tesla would still have an advantage in building those pods IMO. But the monetary value of the addressable market shrinks significantly. Tesla perhaps pivots to a clean energy management company that also makes these pods as side business.
And I guess in this future larger autonomous pods bring your stuff from Home Depot and Costco.
And all blue collar work is eliminated by telecommuting white collar workers. All stuff is made/grown by robots.
I just find it difficult to imagine this this global society in world where European borders are being changed by tanks not ballot boxes and where the most reactionary of forces are running rampant across several international borders in the heart of the Middle East.
adiggs
Well-Known Member
jhm - you identify points for peak conventional auto and peak hybrid auto. I realize now that this wasn't clear - I assume the approximate years you identified represent the years where the measurable growth in sales/registrations manifests as the peak; is that correct?
I ask because part of the nature of the auto industry is there is something like 3-5 years between the start of research and design, and the delivery of a buyable vehicle. If 2020 marks peak conventional auto in your model, then assuming a 5 year lead time for introduction of a competing vehicle, the conventional auto makers have to be doing the research and design in this new drive train, starting approximately now, with the idea that what they produce 5 years from now will be competitive with what Tesla is delivering 5 years from now. (EDIT: actually, the delivery in 5 years just needs to be usable in a conventional sense, and modestly profitable, and doesn't actually need to be competitive; 200 mile range at least gets people to the table, and if they have capacity to build and deliver, then they'll have buyers).
Except there isn't anybody with an obviously competitive platform to use as a starting point and to evolve over these coming years. I'm about 1 short sliver of a step away from saying that outside of a BMW / Toyota / VW coming out approximately immediately with their plans for outbuilding Tesla on the GF front, and making it clear that they are going to push the EV transition even more aggressively than Tesla, then the race is already over. It's just going to take several years for that to manifest.
- - - Updated - - -
Rob's got a good point here, and one that I believe Elon understands deeply and well. The path to a sustainable future (energy and carbon mostly I'm thinking of) isn't going to come from society wide choice to dramatically reduce energy consumption and take back on discomfort and inconvenience. Who knows - maybe that'd actually work, but there's little evidence of mass adoption of that approach, and lots of counter-examples.
The future comes from, for example, providing personal transportation that is better at the purpose of personal transportation than what we have today AND can be powered sustainably without generating carbon. We create the future by figuring out how to make everything better. (Or we have some really obvious, in-our-face evidence that our species is about to be massively inconvenienced or made extinct, like the world's oceans rising enough the current shoreline cities become uninhabitable; that'd get some action and sacrifice going).
Or to put as clear a point on it as possible - my family investments will be on make it better AND sustainable AND low carbon, rather than sacrifice.
For the self-driving vehicles, I don't think we have enough data or experience with how we would shift away from personal ownership, to conclude what impact this will have on personal ownership in the future. There's the mileage argument provided earlier - fewer cars, but just as many miles (good one!). We here are part of the rich 1-2B people in the world. The other 10B people that the planet will have as we reach peak population in 50ish years. As more and more of the next 9-10B people achieve adequate wealth, a personal auto is a manifestation of that wealth that will be aspirational. That's an argument for continued growth and even acceleration of the larger market.
I'm also thinking that self-driving cars sounds like a harsh competitor to the taxi market (but that's small in absolute people miles moved) and mass transit. What if the future of mass transit (buses, subways, etc..) is in self-driving autos instead? Keep the trains and buses on the really high volume routes, and all of the other side trips and inconvenient routing turns into a self-driving car. Is this an argument for self-driving cars and shifting away from personal auto ownership that is in favor of the market growing again?
My real point is that the technology isn't well enough baked, to start projecting today it's impact on the market. I'm investing as if there is zero impact, and when we see it real and 100's or 1000's of trips a day being done that way (in an open market that anybody can partake in - not POC / pilot / feasibility studies), then we have Innovators using the product and we can start assessing how that paradigm shift will really change things.
Last point - this hit me personally a couple of years ago. I'm of the belief (applied personally) that if you have the financial wherewithal to drive electric, generate your own electricity, and otherwise support the move to sustainable and low carbon transportation, then in fact you have a moral imperative to do so. It's a personal belief and I hope it's one you all share. That was what I concluded for myself anyway. There are some big problems I can't solve, but at least I can stop contributing to those big problems. The more of us there are that make a point of driving electric and generating our own electricity at the high end of the market, the sooner the volume will appear that will create the mid and lower end markets at volume that we actually need. (And it sure is a lot of fun obeying this moral imperative!)
I ask because part of the nature of the auto industry is there is something like 3-5 years between the start of research and design, and the delivery of a buyable vehicle. If 2020 marks peak conventional auto in your model, then assuming a 5 year lead time for introduction of a competing vehicle, the conventional auto makers have to be doing the research and design in this new drive train, starting approximately now, with the idea that what they produce 5 years from now will be competitive with what Tesla is delivering 5 years from now. (EDIT: actually, the delivery in 5 years just needs to be usable in a conventional sense, and modestly profitable, and doesn't actually need to be competitive; 200 mile range at least gets people to the table, and if they have capacity to build and deliver, then they'll have buyers).
Except there isn't anybody with an obviously competitive platform to use as a starting point and to evolve over these coming years. I'm about 1 short sliver of a step away from saying that outside of a BMW / Toyota / VW coming out approximately immediately with their plans for outbuilding Tesla on the GF front, and making it clear that they are going to push the EV transition even more aggressively than Tesla, then the race is already over. It's just going to take several years for that to manifest.
- - - Updated - - -
Rob's got a good point here, and one that I believe Elon understands deeply and well. The path to a sustainable future (energy and carbon mostly I'm thinking of) isn't going to come from society wide choice to dramatically reduce energy consumption and take back on discomfort and inconvenience. Who knows - maybe that'd actually work, but there's little evidence of mass adoption of that approach, and lots of counter-examples.
The future comes from, for example, providing personal transportation that is better at the purpose of personal transportation than what we have today AND can be powered sustainably without generating carbon. We create the future by figuring out how to make everything better. (Or we have some really obvious, in-our-face evidence that our species is about to be massively inconvenienced or made extinct, like the world's oceans rising enough the current shoreline cities become uninhabitable; that'd get some action and sacrifice going).
Or to put as clear a point on it as possible - my family investments will be on make it better AND sustainable AND low carbon, rather than sacrifice.
For the self-driving vehicles, I don't think we have enough data or experience with how we would shift away from personal ownership, to conclude what impact this will have on personal ownership in the future. There's the mileage argument provided earlier - fewer cars, but just as many miles (good one!). We here are part of the rich 1-2B people in the world. The other 10B people that the planet will have as we reach peak population in 50ish years. As more and more of the next 9-10B people achieve adequate wealth, a personal auto is a manifestation of that wealth that will be aspirational. That's an argument for continued growth and even acceleration of the larger market.
I'm also thinking that self-driving cars sounds like a harsh competitor to the taxi market (but that's small in absolute people miles moved) and mass transit. What if the future of mass transit (buses, subways, etc..) is in self-driving autos instead? Keep the trains and buses on the really high volume routes, and all of the other side trips and inconvenient routing turns into a self-driving car. Is this an argument for self-driving cars and shifting away from personal auto ownership that is in favor of the market growing again?
My real point is that the technology isn't well enough baked, to start projecting today it's impact on the market. I'm investing as if there is zero impact, and when we see it real and 100's or 1000's of trips a day being done that way (in an open market that anybody can partake in - not POC / pilot / feasibility studies), then we have Innovators using the product and we can start assessing how that paradigm shift will really change things.
Last point - this hit me personally a couple of years ago. I'm of the belief (applied personally) that if you have the financial wherewithal to drive electric, generate your own electricity, and otherwise support the move to sustainable and low carbon transportation, then in fact you have a moral imperative to do so. It's a personal belief and I hope it's one you all share. That was what I concluded for myself anyway. There are some big problems I can't solve, but at least I can stop contributing to those big problems. The more of us there are that make a point of driving electric and generating our own electricity at the high end of the market, the sooner the volume will appear that will create the mid and lower end markets at volume that we actually need. (And it sure is a lot of fun obeying this moral imperative!)
That is a incorrect assumption.
You assume that Fleet Cars will be the Avg. EV+Tons of Sensors.
The current design and engineering have a lot of planned obsolescence or are at least not designed for a heavy Fleet use.
A big Fleet player could design and engineer their own cars. With parts that are trimmed for long lasting.
Its a complete new way of designing Cars. For the first time their would be a Company who actually truly pursuits a high reliability and low service and maintenance.
I addition to that is the very "smooth" riding ability of an SDC, it always accelerates and brakes smooth, which will put much less strain on the chassy, brakes and tires.
E.g. The new London Tube is designed to last 40 years. And it has far heavier use than a car. since it literately runs 24/7.
Krugerrand
Meow
I don't think so. We have a group of people here well-off enough to buy a Model S and still we find plenty to fight about.
Well off nations do not have wars on their territory. People that willingly go to wars from well off nations tend to be from lower socio economic levels in their societies. Well off people simply have far better options at their disposal than to fight. Too much to loose by pointless barbaric fighting.
Very poor people need fleet car like hen house car, It will replace bus and taxi, but if you have enough money to buy car you don't want to share a car with strangers. It's human nature. People want to take their own driveless cars. Car is not just transporter. It's your face and pride. I don't think car market will shrink. It is your illusion.
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