Elon reiterated this three times on the Q3 Tesla earnings call, and it was the first time I had ever heard him say it. It is claimed Tesla intends to produce 1,000 GWh of domestic, vertically integrated batteries annually. Let’s explain what that entails:
Tesla has only recently begun producing battery cells, yet it already has plans to produce more than all other manufacturers combined. Some have been at it for 30 years, while others, like Tesla, are just getting started. Being vertically integrated, Tesla will: Here is an update on how they’re doing with building the 4680 batteries: make the battery cells. Create the anode materials and other battery precursors, such as cathode . mineral filtration (mentioned this is in Corpus Christi ). If the resource becomes the limiting factor (which it isn’t yet), mine the materials. They were certain that they would be able to take advantage of all IRA incentives for battery construction, including: The most well-known and widely-discussed price point for consumers is $7,500 per vehicle, or $37.5 billion annually assuming Tesla sold 5 million vehicles domestically. A billion kWh at $35 per kWh for cell manufacture might equal an additional $35 billion annually. $10 per kWh for pack manufacture multiplied by a half-billion kWh (assuming batteries are used for automobiles and energy storage, respectively) equals an additional $5 billion annually. Energy storage tax credits of 30% to 50% for ten years nearly assure rapid industry expansion. Elon Musk also stated that they believe they are still on the right track to reach a battery cell cost of $70 per kWh without utilizing any of the aforementioned subsidies. This approach was defined during Battery Day.
Also take note that Tesla is developing a method for charging companies to receive the same renewable fuel subsidies as ethanol does right now.
Additionally, Tesla will probably submit a bid under President Biden’s Bipartisan Infrastructure Law, which contains direct grants for interstate charging.
WHAT DOES ALL OF THIS MEAN? Let’s start by noting that Tesla’s cost to create a Model 3 or Y was around $36,000 last year and has been reducing owing to innovation but rising due to increases in material costs, so maybe flat overall. They expressed confidence that overall costs will decrease in the coming year during the investor conference call. Tesla must reduce customer costs if they want to see its sales soar in 2023 (when Austin ramps up manufacturing). I believed that Tesla would need to introduce the Model Y Standard Range and lower the price of the Model 3 slightly to increase sales before the Inflation Reduction Act of 2022 was passed, and even after it was passed but before Tesla announced today that they are confident they will be able to qualify for the provisions. They are generating enough money to be able to afford to do this to increase demand, and over time, they may employ innovation to cut costs and make up for the margin they lost.
I now believe that the $7,500 credit’s impact will negate the need to lower the price of the Model 3 this year. As soon as Austin ramps up to the point where the wait period is only a few weeks, I do believe they will want to reintroduce the standard range Model Y to the US market.
Two-thirds of the batteries, according to Elon, will have an iron cathode instead of a nickel one, with magnesium acting as a backup plan. This means Tesla will bring back the Model Y with a standard range, given only standard range vehicles have used iron-based batteries up until now (although, that could change).
RETURN OF THE “MODEL 2” (“MODEL C?”) Nowadays, Tesla is more wiser about avoiding hurting existing sales by teasing the arrival of a better car when nobody can afford it and it could reduce demand for Tesla’s current models. Having said that, they did mention that they have a concept for a smaller Tesla that would only cost about $18,000 to produce and that they aren’t going to announce it today. That announcement might be made around 2023 or 2024, in my opinion. They could have needed the car by 2024 to maintain demand (assuming regulators haven’t given the RoboTaxi their seal of approval by then) if the IRA hadn’t been passed.
CONCLUSION All of this makes me believe that when the $7,500 tax credit takes effect in less than 3 months, sales in the US will soar. Tesla will eventually reduce the prices of its automobiles as their costs decrease as it grows supply to meet demand. They will disclose the next-generation platform, which I call the Model 2, after a year or two and assuming more competition from other manufacturers (always a concern, but so far it has been more bark than bite) (but Elon has said will not be named the Model 2).
About three years ago, I last wrote about this vehicle. Will it resemble a smaller Model Y hatchback or crossover? A Cybertruck, perhaps? Or will it include a novel design that is unheard of in Tesla products before? Most people—including myself—thought all Teslas would look very similar before the Cybertruck announcement. Many people have trouble telling the Model S, 3, X, and Y apart because of how similar they are to one another. But at this point, we ought to have learned our lesson and understood that every car will be built to achieve a certain set of objectives, and if that necessitates a design that differs from what Tesla now offers, then so be it.
I should disclose that I own shares of Hertz (HTZ), XPeng (XPEV), BYD (BYDDY), Tesla (TSLA), and Nio (NIO). However, I don’t provide any kind of investment advise here.
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