UK's Telegraph quotes Elon saying major OEM to build BEVs using Tesla tech/patents.

[austinEV]

Thanks for the excellent responses. My concern stems from the fact that I have never seen a good model on Tesla's cost of goods. When I have tried to work it out, I get a very unsatisfying result. That is, I think the numbers show that a tesla model S (without a battery pack) costs way more than a BMW 7 series without a drivetrain. I think this is a reasonable assumption too for a few reasons that I should really write up fully...

So I concede the charge network advantage, and the perception advantage.... But, that doesn't help me as a stockholder if the BMW clone runs away with the market. Then Tesla is essentially just a poorly capitalized also-ran. I know I am skipping over the battery supply issue, and internal resistance (innovator's dilemma issues).

Tesla's advantages:
1) they have the right philosophy: design a BEV from the ground up
2) They have the right battery philosophy: standard format which gives economy of scale (panasonic supply) and build their own captive supply for growth in the GF.
3) The have good tech in the car. good, simple infotainment stack and excellent driver safety sensor suite.
4) direct sales model

How those can be neutralized by BMW:
1) They can design cars. They essentially did this with i3 and i8, they just chickend out and used a poor design and rex. They may not mess up forever.
2) They may punt and buy industry standard cells. Tesla is not buying the global supply, and they never got traction with non-panasonic suppliers. It would not be that hard to get enough cells to start, just as TM did. Then with BWM's weight added to Tesla's, the industry could spawn it's own GF's of new capacity.
3) TM isn't protecting it's patents... BMW could literally just reverse engineer everything and write their own SW. Not impossible.
4) screwed here in the US, but I think they sell direct everywhere else in the world.

I mean nothing is really too hard. I have not squawked too much about the patent thing before, largely because I was content that automakers would keep failing for long enough to give TM a long runway. If there really is a major clone effort that bothers me. We talk all the time about how Model S is Battery SUPPLY CONSTRAINED. If BMW truly came out with a clone that god forbid used the same type of cells then TM and BMW would be dividing the same tiny market, not expanding it. If they are using pouches then they are not a clone and not a competitor.

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As Auzie says, if someone else can help break open the total addressable market that's to Tesla's benefit even if Tesla's market share suffers some. Better 20% of a 10X market than 80% of a 1X market.


I don't see much reason to believe that's true. Tesla achieves a lot of savings with its vertical integration, something other auto manufacturers do not have. Someone cloning the S and it's relatively low run rates isn't going to get huge gains in some bottom line simply due to size. It might even be worse because it's hard to get vertical integration if the company is currently configured around wide spread outsourcing and distributed integration.

I will get off my rear this weekend and publish my cost of goods calculations to get some crowdsourcing help. I think I can prove that TM has poor COGS. It never really mattered when they had runway and were selling high margin cars. But it starts to matter a lot if you consider a "clone" situation.

 

[jkliu47]

From the article:

"I'm lucky enough to have tested both the F1 and the Bugatti Veyron Supersports, which currently claims the world's fastest 0-60mph time for a mainstream production car, and I can attest that the P85D feels considerably faster than both."

Holy crap.

Add to that the following paragraph:

"The physiological effect of stamping on the accelerator in the P85D is genuinely alarming. You would be well advised to push your head back into the headrest, as you simply won't be able to keep it upright unaided. Your vision will distort, your chest will tighten and you'll feel the blood surge up into your torso from your legs. The first time you try a full-bore accelerate run, you may well panic and back off."

And this coming from a traditionally UK journal not given to hyperboles.

Holy crap indeed!

PS In a similar vein, I remember reading a review in 2013 from a Chinese journalist who flew into Southern California to test drive the Model S, more than a year before its introduction into the mainland China. His description of the Tesla's acceleration included the warning that passengers should be warned beforehand, otherwise there is a possibility they could become sick with all the unfortunate results. I wonder how it would be with the P85D?!!

 

[RobStark]

Ok, I want to be one of you cool kids with the "more the merrier" viewpoint, but I am not there. Explain to me, as a shareholder, why I want another major OEM making a Tesla clone? While that other automaker will have to solve the battery sourcing problem, they will probably have a lower cost basis for everything else. So BMW (for instance) could make a car with similar specs but more cupholders that was $10k less. Why does this make me happy again?

Particularly, if they say "you are right Mr Musk, 18256 cells are better than pouches. that is why we bought up Panasonics' new capacity they are bringing online in an nth factory they are un-mothballing".

Neither Panasonic nor the Koreans have significant unused capacity.

Panasonic did because the Koreans had a small but significant price advantage although Panasonic had a small chemistry advantage that the consumer electronic companies did not find significant but Tesla did.

The Chinese Battery companies have that excess capacity but then BMW would have to sell Model S clones with China Inside.


BMW has an advantage with the purchase of cupholders,tires,glass etc from suppliers but Tesla does not share profits with dealers nor advertisers. And Tesla would set the rates at which BMW could enter the Supercharger network. My guess is that Tesla would not set the price so low BMW has an advantage yet not so high BMW chooses to go it alone.

BMW would only have a cost advantage with a BEV specific platform if it was able to sell in far greater numbers than Tesla. Doubtful. Converting one of their mass produced ICEv platforms is not going to work.

 

[gpetti]

Another fun quote from the article
"The physiological effect of stamping on the accelerator in the P85D is genuinely alarming. You would be well advised to push your head back into the headrest, as you simply won't be able to keep it upright unaided. Your vision will distort, your chest will tighten and you'll feel the blood surge up into your torso from your legs. "

Might have to buy a G-suit before my car arrives.

I wonder if the Supercharger roll-out and associated costs along with the ongoing cost of free charging might not be sustainable long term. Of course the deployment costs should eventually reduce as they have more of the world covered but the electricity costs will continue to rise as more cars exist taking advantage of the free charging. Seems like $2,000 per car covers 60-70,000 miles of supercharger charging so it will be a while before that becomes uneconomical but on the other hand - they might not be done installing superchargers for years at this rate. I think that if more manufacturers produce cars that can use superchargers they will have to contribute to the roll-out in some way, reducing Tesla's expenditures and also escalating the speed of network growth. That is a great thing for Tesla - and for all of us. Faster supercharger roll-out means more people commit to EVs and the Tesla standard starts to become the de-facto standard for longer range cars. Even with more competition its good for Tesla. You don't want to be the BETAMAX as and when things start to pickup.

 

[Auzie]

Thanks for the excellent responses. My concern stems from the fact that I have never seen a good model on Tesla's cost of goods. When I have tried to work it out, I get a very unsatisfying result. That is, I think the numbers show that a tesla model S (without a battery pack) costs way more than a BMW 7 series without a drivetrain. I think this is a reasonable assumption too for a few reasons that I should really write up fully...

So I concede the charge network advantage, and the perception advantage.... But, that doesn't help me as a stockholder if the BMW clone runs away with the market. Then Tesla is essentially just a poorly capitalized also-ran. I know I am skipping over the battery supply issue, and internal resistance (innovator's dilemma issues).

Tesla's advantages:
1) they have the right philosophy: design a BEV from the ground up
2) They have the right battery philosophy: standard format which gives economy of scale (panasonic supply) and build their own captive supply for growth in the GF.
3) The have good tech in the car. good, simple infotainment stack and excellent driver safety sensor suite.
4) direct sales model

How those can be neutralized by BMW:
1) They can design cars. They essentially did this with i3 and i8, they just chickend out and used a poor design and rex. They may not mess up forever.
2) They may punt and buy industry standard cells. Tesla is not buying the global supply, and they never got traction with non-panasonic suppliers. It would not be that hard to get enough cells to start, just as TM did. Then with BWM's weight added to Tesla's, the industry could spawn it's own GF's of new capacity.
3) TM isn't protecting it's patents... BMW could literally just reverse engineer everything and write their own SW. Not impossible.
4) screwed here in the US, but I think they sell direct everywhere else in the world.

I mean nothing is really too hard. I have not squawked too much about the patent thing before, largely because I was content that automakers would keep failing for long enough to give TM a long runway. If there really is a major clone effort that bothers me. We talk all the time about how Model S is Battery SUPPLY CONSTRAINED. If BMW truly came out with a clone that god forbid used the same type of cells then TM and BMW would be dividing the same tiny market, not expanding it. If they are using pouches then they are not a clone and not a competitor.

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I will get off my rear this weekend and publish my cost of goods calculations to get some crowdsourcing help. I think I can prove that TM has poor COGS. It never really mattered when they had runway and were selling high margin cars. But it starts to matter a lot if you consider a "clone" situation.

It seems to me that the main stumbling block in the thesis that you pose above is the assumption that BMW can make lower cost basis bev due to the fact that they already make lower cost ice as compared to Tesla's bev. That assumption is wrong, imo. They do make lower cost basis ice car, but their ability to make low cost basis ice does not translate into the ability to make low cost basis bev.

From my perspective, it is much harder and more expensive to utilise existing manufacturing facilities and resources to add on new product lines than to build greenfield plants for new lines. Greenfield plants have lower cost basis than compromised add-ons, due to superior purposeful laid infrastructure. In the existing plants, it may be costly to add on infrastructure for new lines. The product flow layout is likely to be less than optimal due to existing restrictions.

In a different language, imo, ice makers have very little resources that they can utilise if they decide to go into serious bev business enterprises. They likly need new, different hires and different facilities, different R&D, etc. All these new initiatives will face serious internal roadblocks due to internal competition for funding.

 

[ZsoZso]

Just because the drive-train is different that does not mean, there is nothing to reuse from an ICE-car manufacturing plant. There are lots of other components that are the same: chassis, wheels, brakes, seats, infotainment system -- basically the entire interior. Experience and low cost suppliers for many of these parts can come handy.

 

[Perfectlogic]

The notion that a Tesla clone would somehow help open up the market several times which in turn should be helpful to Tesla doesn't make any sense to me, Tesla clearly has no problem stimulating demand on its own, it actually happens automatically. The luxury car market is not infinitely big, and Tesla will probably become demand on the S/X in 2016, do you really think a Model S clone eating up Tesla's marketshare would be good for Tesla stock? Do you really think Tesla needs help generating demand for the Model 3? Clearly if BMW announced tomorrow that they would have a Model S clone ready next year at the same price Tesla stock would fall more than 10%. I am not saying BMW can make a clone at the same price, but if they did it would definately be detrimental to Tesla stock.

 

[RobStark]

Just because the drive-train is different that does not mean, there is nothing to reuse from an ICE-car manufacturing plant. There are lots of other components that are the same: chassis, wheels, brakes, seats, infotainment system -- basically the entire interior. Experience and low cost suppliers for many of these parts can come handy.

The Chassis is fundamentally different. That is the point. Plus if you make it out of steel it comes at a significant weight penalty. Chose aluminum then you can't use the old equipment.

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The notion that a Tesla clone would somehow help open up the market several times which in turn should be helpful to Tesla doesn't make any sense to me, Tesla clearly has no problem stimulating demand on its own, it actually happens automatically. The luxury car market is not infinitely big, and Tesla will probably become demand on the S/X in 2016, do you really think a Model S clone eating up Tesla's marketshare would be good for Tesla stock? Do you really think Tesla needs help generating demand for the Model 3? Clearly if BMW announced tomorrow that they would have a Model S clone ready next year at the same price Tesla stock would fall more than 10%. I am not saying BMW can make a clone at the same price, but if they did it would definately be detrimental to Tesla stock.

The earth is finite therefore any market on earth is finite. But as far as Tesla is concerned the luxury car market is infinitely big since it can't possibly fill all the demand. BMW using Tesla patents signifies to the market and people in general that BEVs are not weird niche products but mainstream products and that Tesla tech in particular is more likely the winner not the Betamax or Plasma TVs of BEVs. It will give confidence to the more risk averse that Tesla tech is here to stay and that makes them more likely to buy.

I think Tesla will sell as many cars as they can make, and they will make as many as battery and manufacturing constraints allow. Tesla believes the pie is bigger than Tesla can eat all by itself. That is why Elon essentially said anyone can use Tesla patents without compensating Tesla.

If BMW came out tomorrow saying they are making Tesla clones I do think TSLA will take a hit because the market does not understand that fundamentally truth. Once the BMW product is on the street and Tesla sales continue unabated that the stock will more than recover.

 

[Perfectlogic]

But as far as Tesla is concerned the luxury car market is infinitely big since it can't possibly fill all the demand

You are insinuating that Tesla won't be demand constrained for a long time but this is obviously not true. Already in a year Tesla will have production capacity of 100k/y, how many $100k cars do you think Tesla can sell? I'm not sure of the exact size of the $100k car market but expecting Tesla to sell more than 200k per year seems very optimistic and even more so if they are competing against a clone. The 200k/y rate will probably be achieved in 2 year or thereabouts if the demand is there, that is not long time.

For it to be worth it competing against a clone the demand needs to increase more than 100% for the product, seems very unlikely to me that demand would explode that much on the simple ground of a new clone coming to market when the demand is already high.

 

[jhm]

I doubt BMW would ever make a Model S clone. A Tesla clone in my view is an car maker that uses Tesla's patents, standards and protocols to design their own distinctive models. I would like to see a market for standard batter packs and charging infrastructure. Tesla has huge potential also for developmental work and software as a service. In the early stages of a technology, cooperation can be very beneficial and advance the technology much more quickly. This can also be politically advatageous, prevent Tesla from attack, and definitely avoid costly patent litigation.

 

[AnOutsider]

It's BMW. Everything points to it...

Probably... or it could be how Audi suddenly think they can get the r8 to 250 miles

 

[jhm]

Another angle on this it that Tesla clones could become promising investments. Tesla investors already have understanding and a comfort level with what Tesla is doing, so they could be in a good position to see the primise in a Tesla clone before other investors do. For example, if BMW is the first clone, many BMW shareholders may be confused by the anouncement or feel threatened by moves to divest ICE business. This could incite a segment of shareholders to thin their position. This in turn could be a promising opprtunity for seasoned Tesla investors to buy BMW shares at a discount.

I guess this a reason why I'd like to see an Indian automaker become a clone. A national or regional automaker could rise to become a first rate global EV maker following Tesla's lead. A top tier maker like BMW has a lot of established global business to lose if venturing into EVs goes badly for them. However, a second or third tier maker could see this as their opportunity to become a first tier player. So such a company might be willing to take bigger risks and could grow rapidly. This could make for a really nice investment.

I also invest in Kandi, but am concerned that they are too insular, to focused on working deals with Chinese politicians, to focued on making cheap cars. This may be the best game for them to play within China, but I miss the ambition of Tesla to become a truly great maker.

I think digital cars are the future, so I would welcome other ambitious players to invest in. There's only so much complexity on company can take on. We need other companies to step in and work out lots of potentially great products. Why should the world wait 6 years for Tesla to begin to design an F-150 killer? Some ambitious company needs to slam into this now and have something to deliver to the market in 2017. Tesla just does not have the bandwidth to do a truck right now, but a Tesla clone could jump right into this. I'd love to invest in this too.

 

[ckessel]

Since the word clone has been used a few times, it's perhaps worth noting that Elon said they weren't just completely giving away the patents, that the company using them had to be working in good faith not to just create a Model S clone.

 

[Perfectlogic]

The way I understood the use of the word clone was the notion of building an equivalent car of equivalent price, not exactly a clone ofcourse.

The idea of being able to invest early in an up and coming Tesla 2.0 is nice, but I think it's hard to replicate the success of Tesla, it takes a special kind of leadership for everything to be done correctly, which is why I am not personally particularly afraid of competitors.

 

[Robert.Boston]

BMW using Tesla patents signifies to the market and people in general that BEVs are not weird niche products but mainstream products and that Tesla tech in particular is more likely the winner not the Betamax or Plasma TVs of BEVs. It will give confidence to the more risk averse that Tesla tech is here to stay and that makes them more likely to buy.

This -- once an important OEM like BMW fully embraces BEV technology, it validates Tesla's product and strategy. Demand for the product and the stock is suppressed by concerns that BEV technology is a false start. Change that, and you change a lot, benefitting Tesla and its shareholders.

 

[Johan]

This -- once an important OEM like BMW fully embraces BEV technology, it validates Tesla's product and strategy. Demand for the product and the stock is suppressed by concerns that BEV technology is a false start. Change that, and you change a lot, benefitting Tesla and its shareholders.

Yes!

If BMW were to show that they are really going seriously in for EVs, especially if they cannibalize on their own ICE sales, then in my opinion BEVs as a concept will move from where we are today on the curve below (somewhere in the middle of the early adopter part of the diagram) in to the third phase "early majority". The available market for Tesla will increase many times over. If they can keep doubling and doubling production this bodes well.

 

[jhm]

Yes, the real test of who wants to be a clone is the willingness to cannabalize and divest their own ICE business. Only those with strategic commitment will do that. If you're willing to cut off your own left arm to get free, then you're just the crazy sort of SOB who will survive.

 

[green1]

Yes!

If BMW were to show that they are really going seriously in for EVs, especially if they cannibalize on their own ICE sales, then in my opinion BEVs as a concept will move from where we are today on the curve below (somewhere in the middle of the early adopter part of the diagram) in to the third phase "early majority". The available market for Tesla will increase many times over. If they can keep doubling and doubling production this bodes well.

I'm curious how you think we've even made it as far as early adopters with BEV penetration sitting at 0.4% of worldwide vehicle sales in 2013? (356,232 EVs out of 82.8 million cars sold worldwide) I think it's still in the "Innovators" stage (I know, you're in Norway and that's a bit different, but if you look a little further afield we're just not there (Norway actually slides in to the "early majority" in your graph))

 

[Johan]

I'm curious how you think we've even made it as far as early adopters with BEV penetration sitting at 0.4% of worldwide vehicle sales in 2013? (356,232 EVs out of 82.8 million cars sold worldwide) I think it's still in the "Innovators" stage (I know, you're in Norway and that's a bit different, but if you look a little further afield we're just not there (Norway actually slides in to the "early majority" in your graph))

Because of lack of supply or as Tesla says "production constrains". I don't mean sales I mean the percentage of people who would consider an EV for their next car, if there was one for them.

 

[ggr]

Reasons are many, I will list just few:

EV market penetration promotes better charging infrastructure, that promotes more bev sales. That dynamic creates self-feeding loop.
Cleaner air, quieter streets and all other advantages of green technology
More R&D $ going towards bev technology
Unstoppable technology shift from ice to bev. Tesla as the only player may not achieve that shift.

I disagree that ice car makers may have lower cost basis than Tesla to make bev, my expectation is for them to have higher cost basis as they are technologically behind and they have to fight strong internal resistance.

Agree. Remember, the enemy in the market is not (for at least the next 10-20 years) the other BEV makers, the enemy is the ICE. Tesla can't, for quite a while, take over the whole market, and therefore is not harmed by other entrants.