Here’s How Electric Cars Will Cause the Next Oil Crisis

[Midpack]

Why the Tesla Model 3 will make or break the company

Quote:

Deliveries won't start until late 2017 By Elon Musk's own admission, deliveries of the first Model 3 cars won't even start until late 2017. Sure, you'll be able to order one. Though, you won't be driving it for a very long time. Californians, current Tesla owners get first dibs If simply being forced to wait a year and a half until the first production Model 3 rolls off the assembly line weren't enough, you probably can't even buy one of the first ones Tesla builds. That's because Tesla is restricting the first batch of Model 3 sales to either California residents or current Tesla owners. That means, if you're an Accord owner in Dallas, you're probably not going to be able to get a Model 3 until — I'm just spitballing here — 2019 (rapid activation of Tesla’s gigafactories notwithstanding; see below).

[ERD50]

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Originally Posted by Gone4Good People lining up to "Put down money today for an electric car, sight unseen, while hoping to drive it in 2017." This EV stuff just might for be real. ...

Define "for real".

Clearly, Tesla has shipped thousands of EVS, and have received sparkling reviews overall. A remarkable achievement, against great odds. Impressive, very impressive. And very real (ask anyone who has experienced the acceleration of a Tesla S).

But 'real' enough to lead to "wide spread adoption" and a "crisis" in oil prices (the premise of this thread)?

As Midpack posted - a limited bunch of loyal early adopters willing to put down $1,000 deposit (refundable, I assume?) is a long way from "widespread adoption". I'm pretty sure Justin Beiber concerts sell out pretty quickly as well.

-ERD50

[Whisper66]

"This EV stuff just might be for real" - I'll consider it "for real" when a manufacturer can make a profit with an EV car that has similar performance (power and travel range) and price point as similar performing gasoline cars without help from government incentive. I think we are still years off from that situation.

[clifp]

I watched Elon reveal the model 3. I haven't put down my deposit yet, but in all likelihood , I'll trade in my Model S for a Model 3.

I'd bet that at $35,000 the Model 3 will better than any other $35,000 car out there.
The tax credit will certainly help sales. I don't know about profitability,

[Totoro]

Quote:

Originally Posted by Whisper66 "This EV stuff just might be for real" - I'll consider it "for real" when a manufacturer can make a profit with an EV car that has similar performance (power and travel range) and price point as similar performing gasoline cars without help from government incentive. I think we are still years off from that situation.

I'm thinking about starting up a low cost lease car company here in Europe. We won't do EVs until at least 2020 probably. Electric cars are typically about 10% more expensive on a TCO basis last time I checked. In Europe, with limited incentives. The more you drive, the better the numbers for EV (lower fuel costs, less maintenance per km).

Europe will be the first place they reach break-even excluding incentives, gas costs alot more over here. It looks like that'll be 3 to 5 years out before we're there. The US should follow a bit after that.

Price point will still be higher than comparable gas cars. It's a higher purchase price vs. lower fuel and maintenance costs.

Power and travel range won't compare though for the next 10 odd years. Torque is insane for an EV, and range is unbeatable in a gas car. If you want an 500 mile range EV, you won't get it for a similar costs. A bigger fuel tank costs nearly nothing, batteries are expensive.

But most cars do low mileage, especially in urban areas and high density zones. Again, Europe but places like Beijing, Buenos aires, New York too.

An EV is simply put not an ICE. Just like a diesel is not a gasoline car. All have use cases. The major difference is that the use case for EVs is expanding fast due to lower battery costs and buildout of infrastructure.

Grand takeover where electric will become standard will take up to 20 years I'd guess, but the momentum is pretty much unstoppable at this point, accelerated but not enabled anymore by government incentives. Makes it real in my book.

I guess all of this known.

[misanman]

Quote:

"This EV stuff just might be for real" - I'll consider it "for real" when a manufacturer can make a profit with an EV car that has similar performance (power and travel range) and price point as similar performing gasoline cars without help from government incentive. I think we are still years off from that situation.

Just heard a WSJ report this AM that said Tesla loses $10,000 on each "S" they sell. I suppose the "3" is key to stemming this kind of deficit.

[travelover]

Quote:

Originally Posted by misanman Just heard a WSJ report this AM that said Tesla loses $10,000 on each "S" they sell. I suppose the "3" is key to stemming this kind of deficit.

Yep, they will make it up on volume.

[Gone4Good]

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Originally Posted by travelover Yep, they will make it up on volume.

Manufacturing cars is a capital intensive business. So yeah, volume is how you turn losses into profits.

[FIREmenow]

Seems to me the car is less than half the equation when talking about adoption. The lack of infrastructure to support charging stations (other than home) appears to be a bigger drawback.

[mpeirce]

Quote:

Originally Posted by FIREmenow Seems to me the car is less than half the equation when talking about adoption. The lack of infrastructure to support charging stations (other than home) appears to be a bigger drawback.

Maybe I'm missing something, but I don't get how many people will charge these things.

If someone has a house with a garage it's straightforward.

But what about apartment dwellers? When I was young and relatively broke I parked on the street. How do I charge my EV? Maybe once in a while I could top it off at a charging station.

Seriously, what's the long term plan?

[clifp]

Quote:

Originally Posted by misanman Just heard a WSJ report this AM that said Tesla loses $10,000 on each "S" they sell. I suppose the "3" is key to stemming this kind of deficit.

Somebody at the journal needs to take an accounting class.
According to M* Tesla had gross profits of 924 million divided by the 50,000+ cars they shipped last year that puts the gross profit per car at about $18,000 (without knowing more details like inventory, it is hard to get a more exact figure).


Now Tesla did spend 1.6 billion on operating expense, which include building the big battery gigafactory, and R&D for the Model X and Model 3, resulting in a operating loss of $714 million. This means that if Tesla sells 90K cars this year, without increased spending on R&D and admin cost they'll break even.

It is certainly possible for car companies to lose money on some car models. Many times Ford and GM have lost $500 to $1,000 on small cars, and I'd bet that GM is losing money on each Votl.

[clifp]

Quote:

Originally Posted by mpeirce Maybe I'm missing something, but I don't get how many people will charge these things. If someone has a house with a garage it's straightforward. But what about apartment dwellers? When I was young and relatively broke I parked on the street. How do I charge my EV? Maybe once in a while I could top it off at a charging station. Seriously, what's the long term plan?

I think it is a real problem for Tesla. i do have well to do friends that have canceled buying a Tesla because eventhough they had parking spaces for their fancy multimillion dollar condos, they had no means of charging, or maybe two spots for several hundred condos.

When you are talking about $35,000 and a city dweller the problem is going to much more common.

[Midpack]

Quote:

Originally Posted by clifp Somebody at the journal needs to take an accounting class. According to M* Tesla had gross profits of 924 million divided by the 50,000+ cars they shipped last year that puts the gross profit per car at about $18,000 (without knowing more details like inventory, it is hard to get a more exact figure). Now Tesla did spend 1.6 billion on operating expense, which include building the big battery gigafactory, and R&D for the Model X and Model 3, resulting in a operating loss of $714 million. This means that if Tesla sells 90K cars this year, without increased spending on R&D and admin cost they'll break even. It is certainly possible for car companies to lose money on some car models. Many times Ford and GM have lost $500 to $1,000 on small cars, and I'd bet that GM is losing money on each Votl.

Accounting class, really? The WSJ didn't report "gross profit per car" - that's meaningless, especially for a carmaker with one model. Gross profit is before R&D, Sales, G&A, interest, etc.- all legitimate costs that will always impact net income. Even Elon Musk acknowledges they haven't made money yet, but they may eventually (he claims 4Q-2016) - I wouldn't bet against him.

And the your gigafactory $ reference might be misleading. The gigafactory capex is not hitting the income statement as an expense all at once or even within a few years. It will be amortized over 10-30 years, and it's impact will hit income incrementally over 10-30 years - so that "hit" is long term starting now. Like a mortgage for homeowners.

And while noting the gigafactory capex, you might also mention their cash reserves dropped from $1.9B to $1.2B last year...quite a burn rate.

Income Statement for Tesla Motors Inc (TSLA) from Morningstar.com

http://mobile.reuters.com/article/idUSKCN0VJ2J6

[Gone4Good]

Quote:

Originally Posted by mpeirce What about apartment dwellers? When I was young and relatively broke I parked on the street. How do I charge my EV? Maybe once in a while I could top it off at a charging station. Seriously, what's the long term plan?

Hmm, certainly goes against the hypothesis that 100% of charging will happen overnight. Seems that the urban places where EVs are most useful are also where the need for day-time fast charging stations is the highest.

And charging stations are a bit of a chicken and an egg problem. You certainly don't want to buy a car you can't charge and no one wants to invest in a charging station unless there are cars to charge.

I think that's why Musk started at the top end of the market and is working his way down. People who can afford a six figure car help build the infrastructure the rest of us may use oneday.

And even the next generation of car, starting at $35K, isn't exactly mass market. That's still in the luxury category, but it will create demand for exactly the kind of infrastructure that is needed for widescale EV adoption.

That, to me, seems like the long-term plan. And judging by the lines of people waiting to pay money to wait in line for a car it seems like it's a plan that is starting to work.

[ERD50]

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Originally Posted by clifp ... I'd bet that at $35,000 the Model 3 will better than any other $35,000 car out there. The tax credit will certainly help sales. I don't know about profitability,

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Originally Posted by Gone4Good ... And judging by the lines of people waiting to pay money to wait for a car it seems like it's a plan that is starting to work.

Ahh, that tax credit helps explain part of the reason for these long pre-order lines:

Sorry, But Don’t Expect Your Tesla Model 3 to Cost Under $30K | WIRED

By the time the Modem 3 ships, Tesla could be at the point where the $7,500 credit is being phased out or eliminated. So getting in line for a chance to lock in a $7,500 credit makes more sense than standing in line for the latest i-whatever.

And these people could decide to drop their order if they find the credit is reduced by then (I've been assuming this is a refundable deposit, an option, but I haven't seen that in print yet). So that's a low risk deal - tie up $1,000 at current interest rates? And as is the case with Tesla and many new products, volume shipments may lag, prices may be higher than first discussed.

I'd guess it wasn't possible, but if they could have, it sure would have been advantageous to Tesla to turn down the tax credit for their first models, and keep those first 200,000 credits 'in reserve' for the lower price models, where the $7,500 is meaningful. I doubt the $7,500 credit made a single added sale for first models - I'm pretty sure there was another buyer in line behind anyone who would have balked over that price delta on a $100,000 car. Our tax dollars at work.

I talked about the lack of home charger earlier in regards to wide spread adoption. Yep, that's a real problem that just makes EV impractical for many, or at a minimum adds a cost to that 'inexpensive' car. Especially if we continue to see $2.xx/gallon gas.

IIRC, Tesla was also getting credits from other manufacturers, who needed to sell X% of 'zero-pollution' vehicles (don't get me started) in certain States, but didn't have the cars available, so just bought credits from Tesla? I think that will dry up soon, adding to Tesla's profitability challenge.

-ERD50

[ERD50]

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Originally Posted by Gone4Good Hmm, certainly goes against the hypothesis that 100% of charging will happen overnight. Seems that the urban places where EVs are most useful are also where the need for day-time fast charging stations is the highest.

Uh-oh. This goes full circle to my earlier explanations about marginal electrical power production and grid capacity.

The grid has the capacity (capability to deliver power) to support EVs charging at night, as night time use is lower than the day time peaks. But we already stress the grid in many areas on a hot summer day. Adding a bunch of fast chargers to that load will require added infrastructure, and capacity. And no, I don't think that we will have an excess of green energy for those super chargers anytime soon.

Quote:

Originally Posted by Gone4Good And charging stations are a bit of a chicken and an egg problem. You certainly don't want to buy a car you can't charge and no one wants to invest in a charging station unless there are cars to charge. I think that's why Musk started at the top end of the market and is working his way down. People who can afford a six figure car help build the infrastructure the rest of us may use oneday. ....

No, starting at the top had very little to do with infrastructure. Elon (and/or other Tesla founders) was/were smart enough to realize that an EV for the common man just didn't cut it.

They realized that if you stick enough $$$ batteries in a car for a 200 mile range that people wanted, you had a very $$$ car. But they also realized that much battery range could provide the acceleration of a car costing much more. So they focused on the performance crowd who liked the idea of a $100,000 EV rather than a $200,000 Ferrari (or whatever). And the crowd that would spend $100,000 for a performance car, but not $200,000. And a fossil fuel burning Tesla might even be cleaner than one of those mega-engine performance cars, I don't know.


-ERD50

[Gone4Good]

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Originally Posted by ERD50 Adding a bunch of fast chargers to that load will require added infrastructure, and capacity.

Thank you. We're now in 100% agreement. *Drops mic*

[easysurfer]

Build fast, available public charging stations and they will come.

Otherwise, pure EVs (non-hybrids) are for those who have a spare garage with their own charging station.

[Chuckanut]

Quote:

Originally Posted by Gone4Good I think that's why Musk started at the top end of the market and is working his way down. People who can afford a six figure car help build the infrastructure the rest of us may use oneday. And even the next generation of car, starting at $35K, isn't exactly mass market. That's still in the luxury category, but it will create demand for exactly the kind of infrastructure that is needed for widescale EV adoption.

+1

Time will tell if this will succeed or not.

I believe it was Bob Lutz, former GM executive who said that electric vehicles make more sense at the top of the market. No lower-income person is going to buy a new EV to drive to work just because it saves a few dollars in gasoline. They are going to buy a used Corolla for 1/5 or less the price of the EV because depreciation is the big cost of owning a car and they have just passed it on to somebody else.

The big difference in fuel costs occurs at the higher end where cars often get fewer mpg and/or run on premium fuel. So a performance Model S probably makes more economic sense in terms of dollars saved on fuel than a Chevy Volt.

A big Escalade or Tahoe is probably the best candidate for electricity, assuming it has the necessary range. Lots of fuel savings there. Just a thought.

But, what happens when the gas tax gets applied to EV's? At some point they have to pay their share of the taxes that supports the roads.


Please don't get me started on the tax subsidy for electric vehicles. Why a person who can afford a $40,000+ car needs a tax break is beyond me.

[Chuckanut]

Quote:

Originally Posted by easysurfer Build fast, available public charging stations and they will come. Otherwise, pure EVs (non-hybrids) are for those who have a spare garage with their own charging station.

As long as you stick to big highways going to and from big cities, there are plenty of charging stations.

Interactive Tesla Supercharger Map - TESLARATI.com

I suspect that if a person owned an EV for her daily commute, she might want to rent a gasoline car for that vacation in the Rockies.