Tesla

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I would agree that RND is a greater barrier to entry than supply chain for automakers?

To begin with, automakers typically outsource most components of the car, in order to focus on the things they do best - system integration, the overall design of the vehicles, sales and marketing. To stay competitive, they need to be lean, as well as to minimize the capital intensity. Furthermore, some suppliers can design/manufacture the parts better than the automakers (tires, seat belts, air bags, brakes etc). GM for instance has been selling off parts manufacturing divisions over the years, but still does car assembly themselves.

Even if supply chain is a major obstacle, there are several ways around it:
1) There could be a possibility of "car designing" companies outsourcing the manufacturing and assembly of cars to traditional automakers (one stop turnkey model alike consumer electronics). A similar parallel can also be seen in the semiconductor industry where fabless design the chips, while outsourcing the capital intensive nature of chip manufacturing to foundries.
2) There is bound to be traditional automaker laggards in the EV race, not wanting to lose out, they will most likely form joint ventures or at least taking a minority stake in the EV startup. Besides, there already exists several joint ventures between Chinese and well-known international automakers. It is also worth noting that there are several big Chinese automakers with decades of experience in car manufacturing. In fact, Shanghai-listed Zhengzhou Yutong is one of the most reputable bus manufacturing company.

Production/quality issues?
As an example, Hyundai cars were seen as extremely poor quality in the US in the late 1980s. A change in management in 1998 led to an eventual turnaround in less than 7 years, with heavy investments in quality, design, manufacturing, as well as offering ten-year, 100,000 mile warranty. By 2004, Hyundai achieved one of the top car sales in the US and only second to Toyota in the J.D. Power and Associates quality study. For the timeline to be decades? With strong funding and a good management team, I wouldn't be so pessimistic.

Lastly, I doubt the big name investors did not do their due-diligence, and did not foresee this supply chain "issue" while committing huge capital to it. Then again, who knows given the dot com bubble.
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Copy and paste from Wikipedia, hope it shed some insights to curious on-lookers that may not be familiar with the Tesla's strategy (at least on paper): 
https://en.wikipedia.org/wiki/Tesla,_Inc.#Strategy

Quote:Strategy[edit]
Tesla aims to disrupt the automotive industry by creating many innovative pieces that fit together; this strategy was called "complex coordination" by Tesla investor Peter Thiel.[113] Its marketing, production, sales and technology strategies all are notably different from its competitors.

Robotic manufacturing of the Model S at the Tesla Factory in Fremont, California
Tesla's automotive strategy is to emulate typical technological-product life cycles and initially target affluent buyers. It would then move into larger markets at lower price points.[29][114] The battery and electric drivetrain technology for each model would be developed and paid for through sales of the earlier models.[29][115] The Roadster was low-volume and priced at US$109,000. Model S and Model X targeted the broader luxury market. Model 3 is aimed at a higher-volume segment.[30][116] This business strategy is common in the technology industry.[117] According to a Musk blog post, "New technology in any field takes a few versions to optimize before reaching the mass market, and in this case it is competing with 150 years and trillions of dollars spent on gasoline cars."[118]

Tesla's production strategy includes a high degree of vertical integration (80% in 2016 according), which includes component production and proprietary charging infrastructure. The company operates enormous factories to capture economies of scale. Tesla builds electric powertrain components for vehicles from other automakers, including the Smart ED2 ForTwo electric drive (the lowest-priced car from Daimler AG), the Toyota RAV4 EV, and Freightliner's Custom Chassis Electric Van. Vertical integration is rare in the automotive industry, where companies typically outsource 80% of components to suppliers,[119] and focus on engine manufacturing and final assembly.[120][121]

The Tesla Patent Wall at its headquarters was removed after the company announced its patents are part of the open source movement.[122]
Tesla's sales strategy is to sell its vehicles in company-owned showrooms and online rather than to use a conventional dealer strategy.[123][124]

Tesla's technology strategy focuses on pure-electric propulsion technology, and transferring other approaches from the technology industry to transportation, such as online software updates.[125] Tesla allows its technology patents be used by anyone in good faith.[126] Licensing agreements include provisions whereby the recipient agrees not to file patent suits against Tesla, or to copy its designs directly.[127] Tesla retained control of its other intellectual property, such as trademarks and trade secrets to prevent direct copying of its technology.[128]

Tesla Human Resources VP Arnnon Geshuri committed to bringing manufacturing jobs "back to California".[129][130] In 2015, Geshuri led a hiring surge about which he said; "In the last 14 months we've had 1.5 million applications from around the world. People want to work here."[131] Geshuri emphasizes hiring veterans, saying "Veterans are a great source of talent for Tesla, and we're going after it."[130][132][133]

Technology[edit]
As a vertically-integrated manufacturer, Tesla has had to master multiple technology domains, including batteries, electric motors, sensors and artificial intelligence.

Batteries[edit]
Unlike other automakers, Tesla does not use individual large battery cells, but thousands of small, cylindrical, lithium-ion commodity cells like those used in consumer electronics. It uses a version of these cells that is designed to be cheaper to manufacture and lighter than standard cells by removing some safety features. According to Tesla, these features are redundant because of the advanced thermal management system and an intumescent chemical in the battery to prevent fires.[182] Panasonic is the sole supplier of the cells for Model S, Model X, and Model 3 and cooperates with Tesla in the Gigafactory 1's '21-70' cells.[183]

In February 2016, Tesla battery costs were estimated at US$200 per kWh.[120] Tesla indicated later in 2016 that their batteries cost less than $190/kWh.[184] Still later that year Argonne Labs estimated $163/kWh at a production rate of 500,000 packs per year.[185][186]

..
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Rnd is a barrier and so is the supply chain.
Nowadays nearly all automakers depend heavily on their suppliers.
The reason why the business for suppliers to automakers is somewhat more stable is due to the level of stickiness.
It is just very difficult to swap suppliers or qualify a new one. I.e. you can only go to Bosch(the last I checked is no.1 supplier) or Continental for certain parts.
Qualification to be a supplier is extremely tedious and part approval is another nightmare, I have worked through the entire process and it is not easy nor swift.

Hyundai may have vastly improved the quality of their cars over time(not a short period) but even then they are still behind in quality and many aspects. (Gap is narrowed nevertheless) They are able to achieve a low cost as their quality standards are much lower than traditional German autos or even GM. Even the Korean engineers who work for the car makers acknowledge this fact. In a country like Singapore(and in many other countries), durability makes little difference as many people scrap their cars much earlier than the intended life time it is designed for.

The point is that Tesla has already pulled off something really difficult even though they took a number of years to do it. To give you an idea, tesla started in 2003 and right at this moment is struggling with production issues with Model 3, their first "mass market" car which is already incredible by auto standards. Start ups in china is extremely unlikely to catch up anytime soon, that, I am quite certain. To design and make an electric car is relatively easy. To make it at a high level, meeting all safety and quality standards and mass produce it is more than just difficult.
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(20-02-2018, 01:19 PM)Wildreamz Wrote: Tesla's production strategy includes a high degree of vertical integration (80% in 2016 according), which includes component production and proprietary charging infrastructure. 
First of all, what does 80% mean? Does it mean that Tesla manufactures 80% of its own parts??
Does the statement even sound reasonable?
Does one have any idea what the Robert Bosch, Valeo, Magna, TRW, Denso, Delphi etc. supplies to the automotive industry? Anyone remembers Takata airbags?
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(20-02-2018, 09:57 PM)Big Toe Wrote: ..

Start ups in china is extremely unlikely to catch up anytime soon, that, I am quite certain. To design and make an electric car is relatively easy. To make it at a high level, meeting all safety and quality standards and mass produce it is more than just difficult.

Another part of Elon's genius is his marketing. Will most people pay BMW prices for a Chinese made car? At least not today, I don't think most people would. But many would pay top dollars for a Roadster. The Model 3 enjoys a halo effect and hence the same premium price and appeal.
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(21-02-2018, 09:36 AM)HitandRun Wrote:
(20-02-2018, 01:19 PM)Wildreamz Wrote: Tesla's production strategy includes a high degree of vertical integration (80% in 2016 according), which includes component production and proprietary charging infrastructure. 
First of all, what does 80% mean? Does it mean that Tesla manufactures 80% of its own parts??
Does the statement even sound reasonable?
Does one have any idea what the Robert Bosch, Valeo, Magna, TRW, Denso, Delphi etc. supplies to the automotive industry? Anyone remembers Takata airbags?

1. According to CALSTART, the advanced transportation consortium in California, 70% of an electric vehicle's component parts may be different from a gasoline-powered vehicle.

2. Tesla is now ~80% vertically integrated, says Goldman Sachs after a Tesla Factory visit

3. BOOK EXCERPT: TESLA’S VERTICAL INTEGRATION IS A RADICAL CHANGE IN STRATEGY
Quote:One of the many ways in which Tesla does things differently than other automakers is its tendency towards vertical integration. The industry giants have become aggregators, sourcing components from vast chains of suppliers all over the world. However, as Greg Reichow, Tesla’s former VP of Production, explained in a recent article, the Californian upstart builds many of its own battery, power electronics, and drivetrain systems, to say nothing of more mundane components - in some cases, it has even made its own seats. Some have estimated that, of the over 5,000 components in a Tesla vehicle, around 80% are made in-house.
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Let's not get carried away with how different the components are and how many % is made in house.
One needs to understand what really goes into manufacturing the auto parts and sub assemblies needed for the final assembly at the Tesla factory. Without a deep understanding of how the parts are made, it is completely pointless to debate.

Ok take for example Fischer tech and Sunningdale, they manufacture mostly the covers of HVAC controls and Navigation/Audio/Radio.
Smaller parts include the car remote. They do not supply direct to the car makers but to the Tier 1/2/3 suppliers.
How do they manufacture these covers?

They need molds and an injection machine to do that. They will need raw material(resin) and probably paint as well.
To make a mold, they will usually take 8-12 weeks to fabricate the mold base(the part that holds the mold together, usually outsourced) and the inserts(The part that actually form the part).

To make the inserts, one would require designer to program the CNC machine to cut copper electrodes. These electrodes are then put on an electro discharging machine to "blast away" unwanted material to a high level of precision(same as filing). So that is in summary of what it takes to make 1 part. Does Tesla make its own molds and plastic parts found in their cars. Highly unlikely. The same can be said for many of its other components and materials. Does Tesla make its own displays? Or makes it's own ICs or passive components found on the PCBs? So what exactly does tesla make?

I do not know exactly what Tesla makes but I do know that it is impossible to make 80% in house. No car company is able to do that, they will need to out-source, a lot of it and mostly to companies that are already producing auto parts.
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Big Toe, thanks for the details regarding the manufacturing process. It is very useful.

Several points I would like to make:
1) I believe the writer on the wiki page is window dressing its numbers to obtain the 80% in-house figure. This is just not logical and cost efficient unless the production scale is really massive to justify the RND and production cost in many components. Much technical expertise is required to the different components of a car. A key component of Tesla EVs - the batteries are supplied by Panasonic.

2) Yes, totally agree that Elon Musk's genius is his marketing. However, let's not forgot that his marketing/charisma is not only directed towards consumers, but investors as well. That is why Musk always set those "sky high" targets to wow investors, but often missed them. I would be cautious with management that makes claims but very often fail to achieve it. The risk-reward just isn't appealing.

3) Agree that the qualification process is tough. From my reading of reports thus far, as well as discussion with industry personnel, the qualification proceed typically takes around 1 year and is tough. But in my opinion, this is more of an obstacle for a competing supplier, rather than customer. Let's not forget that there are experienced Chinese automakers, and besides the startups can form joint ventures with established US/Europe automakers. Of course branding could be an initial issue, but pricing and other perks could be used to gradually build the brand, similar to Hyundai or tech companies that burn cash to build market share. Isn't this the way that VC funded companies operate nowadays?

4) Happen to come across this article today. Do take note of Hyundai's continued turnaround success as well as the intense competition in EV. Quote:
"In the pantheon of luxury carmakers, Hyundai Motor Co. doesn’t usually come to mind. But the Korean company’s Genesis line beat out German rivals to be named 2018’s best car brand in the U.S. by Consumer Reports.

In its debut year, Hyundai’s luxury line bumped Volkswagen AG’s Audi from top billing to the No. 2 spot, with premium mainstays BMW, Toyota Motor Corp.’s Lexus and VW’s Porsche rounding out the top five. South Korea’s Kia Motors Corp. snagged sixth place, ahead of Subaru, Tesla, Honda and Toyota.

Dead last in J.D. Power’s quality surveys in 1994, Hyundai spent years as fodder for late-night comedians. But the carmaker and affiliate Kia are no longer seen as builders of cheap, utilitarian urban cars, with both automakers now ranking among the highest in J.D. Power’s annual vehicle dependability study.

“They have over the years checked every one of these boxes and they’re really building very competitive vehicles,” Fisher said of the South Korean automakers. “It’s really going to happen for Genesis once we see luxury SUVs, because the luxury market is all about SUVs -- that’s where the volume is.”

At No. 8, Tesla remained the highest-rated American auto brand. But it doesn’t make the best electric car. That honor went to General Motor Co.’s all-electric Chevrolet Bolt, which won in the new Compact Green Car category.

The Bolt stood up against other pure EVs like Tesla’s Model S, as well as hybrids like the Toyota Prius. As a hybrid, the Prius still burns gasoline, and the Model S’s price tag that can exceed $100,000 is out of reach for most consumers, so the environmental impact of each is limited, Fisher said. With the testing model costing $38,424 and boasting 250 miles of battery range, the Bolt wins. The Model 3 could challenge it, but first Tesla has to produce them at scale."

https://www.bloomberg.com/news/articles/...ports-says
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(23-02-2018, 02:33 AM)Big Toe Wrote: ..

Without a deep understanding of how the parts are made, it is completely pointless to debate.


..

I do not know exactly what Tesla makes but I do know that it is impossible to make 80% in house. No car company is able to do that, they will need to out-source, a lot of it and mostly to companies that are already producing auto parts.

@Big Toe
I agree, since we do not know the exact inner workings of the Gigafactory and how the parts are made, there is no point to debate further (imho 转牛角尖). I choose to take analyst word for it (as far as I know, there is no reputable source that dispute that 80% number), but I think it is reasonable to be skeptical based on your own volition and experience. But as I have posted, 70% of EV component is actually different from conventional ICE, and Tesla's Model 3 actually have even lesser parts than traditional EVs (no dash board). So I don't see it as impossible. To each his own.

Note: People also said the Hyperloop is impossible and landing a rocket was impossible. Heck, people also said EV will never be economically viable.

@holymage
1) Just a minor addition: the 80% figure is actually from a Goldman Sachs analyst after a visit to the Gigafactory.
https://electrek.co/2016/02/26/tesla-ver...ntegrated/

2) Yes. I believe being a good marketer to investors is an important attribute as well. I recognise it could be used to up-sell a stock beyond it's intrinsic value. But when an entrepreneur is starting out, one of the biggest asset he can have is the charisma to sell his ambitious idea to the high bidder, securing funding at a low cost to actually go build stuff. I see the pros outweigh the cons here honestly. 

Elon has "over promised", but most Tesla Bulls sees it as a way he use to rally his employees. At the end of the day, the company's growth trajectory is nothing short of impressive, just looking at % growth alone in the last few years, they actually outgrown Facebook.

3) Using pricing to build brand is an interesting thought. Would you value a brand more if they sell cheaply or if they price it sky-high? Which direction would the Chinese go? Actually brand building really requires clear thoughtful messaging and consistent delivery of that message over many many years (in general), to build up. eg. Nike: Just Do it. Apple: Think Different. OPPO:? HUAWEI:?

If any Chinese brand can instantly turn themselves into Ferrari just by raising price, they would probably have done so.

4) Thanks for your info on Hyundai, will read up on it.

"At No. 8, Tesla remained the highest-rated American auto brand. But it doesn’t make the best electric car. That honor went to General Motor Co.’s all-electric Chevrolet Bolt, which won in the new Compact Green Car category."

Very interesting. "Best" is highly subjective though. Does it mean best value for money or best performance? I'm not sure if the iPhone X is the "best" phone, but it sure is the best selling / most profitable phone in the last few months. I would love to see a Google Trend comparison for "Chevrolet Bolt" vs "Model 3" , "Model X" or "Model S".

Lastly, interesting video (see below). Very impressed by Tesla's social media / marketing reach:

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For Tesla's fan boys, they can believe what they like....  Big Grin

But serious investors who like some insight, they may wish to refer to this link:

Tesla's Main Suppliers

Or

Tesla's Model X Supplier


In the automotive industry, there is no need to build everything from scratch. The key automotive suppliers are always keen to help one out, for a price of course. That's why even this small Singaporean company, can come up with its own car.

Singapore Electric Car


Niche auto manufacturers like Porsches, Ferraris, McClarens etc. rely heavily on their suppliers. Ditto for the big boys like Volkswagen and Toyota.
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