Tesla battery day disappointed investors: Quartz

On Tesla’s “Battery Day” yesterday, the focus was on two magic numbers: $ 100 per kilowatt-hour and 1 million miles.

Battery costs need to be reduced to around $ 100 per kWh for electric vehicles (EVs) to achieve cost parity with internal combustion engines. And a battery that lasts for 1 million miles will eliminate owners’ concerns about durability and transform vehicles into valuable assets for the supply of electricity.

CEO Elon Musk promised the first and didn’t mention the second. The Tesla battery is set to reach about $ 60 per kWh in three years, five years ahead of industry predictions. A million-mile battery capable of lasting the entire life of an electric car (and more), as well as recharging the grid, was absent, but the innovations Musk showed off could do it. (Telsa’s updated warranty guarantees that your current batteries will retain at least 70% of their capacity for 8 years or at least 100,000 miles.)

In previous years, that might have been enough to reassure investors. Even getting closer to Tesla’s goal will drive the automotive industry’s transition to electric vehicles. But most of Musk’s promises are years away from being fulfilled. A lot has to go right for Tesla to justify its valuation as the world’s most valuable automaker (its share price has quadrupled this year). Signaling investor concern, the stock price fell 7% in after-hours trading, reducing $ 50 billion from Tesla’s market capitalization of $ 354 billion..

Redesign everything

Battery Day was an opportunity for Tesla to present its vision of becoming the world’s most sophisticated battery manufacturer and, along with it, the largest automobile manufacturer.

Shareholders invited to the event sat in company vehicles in the parking lot of the Tesla factory in Fremont, giving the pandemic presentation a drive-in format. Musk was happy in front of a towering screen with CTO Drew Baglino. The car audience honked in support throughout the performance.

Since 2014, Tesla has been manufacturing its batteries in a Nevada “Gigafactory” in a joint venture with Panasonic. Now, he wants to redesign every aspect of the EV battery, from the dimensions to the materials to the factories themselves. Historically, lithium ion production has been a tailored affair requiring toxic liquid solvents, exotic metals, and an expensive manufacturing process. To change this, Tesla says it will adopt a dry manufacturing process (without liquid solvents) and trade the expensive cobalt with more affordable elements like iron, nickel and magnesium in its cathodes. The cell factory, vehicle design and assembly are being rethought from scratch.

Together, Tesla says that adds up to a cheaper manufacturing process that looks more like the incredibly fast and inexpensive production of a soda bottling plant than today’s slow and laborious assembly. Within a few years, Tesla is betting it can increase battery range by 54% while cutting manufacturing costs by more than half. If it succeeds in producing a cell that costs $ 61 per kWh, it will cut more than $ 2,000 per vehicle, UBS said in a report to investors, giving it about a 40% advantage over rivals.

But investors shrugged off Musk’s big promises, likely due to dissatisfaction with the schedule. The rough outlines of Tesla’s battery advancements were already suspected before yesterday’s unveiling. Little of what was revealed was ready for production. Musk tempered his grand ambitions by acknowledging that increasing production of high-volume batteries would be “incredibly difficult” even though a pilot assembly line in Fremont already produces tens of thousands of cells.

“It’s not completely public,” Musk said when warning that full-scale production was two years (or more) away. “But it’s close to working … There is a clear path to success, but a lot of work in between here and there.” Musk predicted that Tesla’s battery production would reach 100 gigawatt hours by 2022 and 3 terawatt hours per year by 2030, far more than industry predictions. Today, the entire battery industry produces less than 500 gigawatt hours.

This all sounds suspiciously like a harbinger of the “production hell” that plagued the Model 3, and nearly bankrupted Tesla in 2018. Anyone casually following batteries knows that the past three decades are littered with broken promises. and broken deadlines in the battery industry.

But it’s not really about the batteries

Over and over again yesterday, Musk described Tesla not as an automobile manufacturer, but as one of the world’s great manufacturers. Musk isn’t betting Tesla’s future on tomorrow’s batteries. You’re betting it on your crafting prowess. Musk boasted of the custom aluminum alloy Tesla uses to make the Model Y’s rear chassis in a single mold. And how you are using the steel casing of the batteries as structural support to take the weight off the vehicle. And the company’s vertical integration of the battery and vehicle manufacturing process at a time when the globally distributed supply chains of legacy automakers make it difficult to coordinate rapid innovation.

The only lasting competitive advantage in the industry, Musk argued, will be the ability to make EVs cheaper and faster than rivals, not the technology itself.

“Eventually all car companies will have long-range electric cars,” Musk said. “But not every company will be a great manufacturer. Tesla will be absolutely ahead of everyone else in the making. That’s our goal. ”His latest strategy, Musk estimated, will allow him to produce 20 million vehicles a year, about 40 times current production and twice Toyota’s annual production.

Tesla has found this out before. At his original Fremont factory, Musk set out to create an “alien battleship” from a manufacturing plant. Tesla would build robots capable of producing vehicles faster than the eye could track with assembly lines stacked so thickly that it would be virtually impossible to walk between them. That strategy failed spectacularly. A humble Musk later admitted that “the excessive automation at Tesla was a mistake,” he said. tweeted in 2018. “To be precise, my mistake.”

But the big automakers shouldn’t rest easy. While most are only a few years away from catching up with Tesla’s technology, UBS calculates, they are far less likely to outperform Tesla in performance, efficiency, range and autonomous driving technology at comparable prices.

In an industry with extremely tight margins, Tesla could be a financial nightmare for its rivals. By 2023, UBS predicted that Tesla will enjoy a 15% operating profit compared to the 6% industry average. That puts Tesla on its way to becoming the world’s most profitable automaker in just a few years. With automakers spending like never before to master electric and self-driving technology, cash is the key to survival. The latest Tesla announcements may have disappointed investors. It should be a warning to the rest of the industry.