Published on September 24th, 2020 |
by Vijay Govindan
September 24th, 2020 by Vijay Govindan
Not investment advice. I own shares of Tesla and am actively looking to buy more if the price declines. I believe in the 10 year plan, plus or minus a few years.
As part of Tesla’s Battery Day festivities, a bold plan was revealed. Tesla will start producing its own batteries by ramping up its new 4680 battery “pilot” factory. Tesla aims to reach 100 gigawatt-hours (GWh) of its own production by 2022 — in addition to whatever batteries it can source from Panasonic, LG Chem, and CATL. To give an idea of the scale, 100 GWh is ⅔ of Gigafactory Nevada’s full, unrealized potential, in only 2 years.
Tesla wants to produce 3 terawatt-hours (TWh) of batteries by 2030. That is 30 times more than the bold goal of 2022.
Tesla’s mission statement is “to accelerate the world’s transition to sustainable energy.” At the current rate of cost reduction in batteries, and limited future growth in battery production, by my guess, Tesla’s mission would have taken close to a century with no outside help.
Tesla needed a massive way to scale battery production and reduce costs to accelerate its mission. From what was revealed on Battery Day, every single aspect of the battery’s raw materials, production, and use were re-imagined. Rumors have circulated for a long time regarding the Kato Road facility near the Fremont factory. We now know the proof of concept factory, based on the continuous flow of paper and glass bottles, is shooting for 10 GWh of limited production by next year.
How ambitious is this target?
Let’s keep doubling 100 GWh until we reach 3 TWh (3,000 GWh).
- 100 GWh doubles to 200 GWh — first double
- 200 GWh doubles to 400 GWh — second double
- 400 GWh doubles to 800 GWh — third double
- 800 GWh doubles to 1600 GWh — fourth double
- 1600 GWh doubles to 3200 GWh (3.2 TWh) — fifth double
This works out to 52% annual growth, for 8 consecutive years, off of an already large base. Tesla’s battery forecast is slightly slower. Every 1 year, 7 months, and 6 days from the start of 2022, Tesla wants to double production.
Such large numbers quickly exceed the mind’s ability to comprehend. Battery production is abstract. If you wanted to reach $1 trillion and got paid $1 a second, that would take 31,709 years. It’s big.
What would Tesla’s revenue look like if it followed the same pattern?
Yahoo! Finance notes Tesla had $25.71 billion in revenue over the last 12 months. We’ll say it is $25B to make it easy.
Historically, Tesla has grown its revenue 50% on average every year. This year will be the exception due to a terrible virus. If Tesla keeps up that pace next year, Tesla will have revenues of $37.5B.
- $25B — 2020 trailing 12 months revenue
- $37.5B — estimated 2021 revenue
- $75B — first double
- $150B — second double
- $300B — third double
- $600B — forth double
- $1200B — fifth double
Why is $1200 billion so ridiculous?
Let’s apply a 40% discount to the last number, since Tesla’s sole aim is to reduce the cost of batteries and scale production. That’s taking the average price of a Tesla from $41,667 to $25,000, the price of Tesla’s less expensive vehicle due in 3 years.
$1200B * 60% = $720B
Pick an 80% price reduction if that suits you.
$1200B * 20% = $240B
Here are the trailing 12 months of revenue from Yahoo! Finance for some of America’s largest companies, according to the Fortune 500:
- Walmart — $542.03B
- Amazon — $321.78B
- Apple — $273.86B
- CVS Health — $262.98B
- ExxonMobil — $213.86B
Looking at the above, Tesla wants, at a minimum, to be larger than ExxonMobil or larger than Walmart, depending on where you think it will end up. That ignores the following decade, in which it will continue to scale. It is Tesla moving into the largest markets in the world. This doesn’t include Full Self Driving (FSD), robotaxis, insurance, or anything else.
Most people and financial analysts would laugh off that assertion that Tesla will play with the big dogs in a decade. They wouldn’t find it credible. According to the financial cognoscenti, Tesla’s Battery Day was a bust. There was no million-mile battery, no electric airplane prototypes, Plaid was delayed, no updated energy density, no details, no battery cost metrics, nothing real today, just vapor. Take a look here, here, and here for proof. If you think it was CNBC only, Marketwatch had similar sentiments, as did many other media outlets.
One piece by Gene Munster said investors only look out 1 year, and there was nothing there. If real investors only care about the next year, we must applaud Elon, Drew, and the Tesla crew’s stretching of humanity’s vision by planning for the next 10 years.
In my prior article, I noted that Tesla [TSLA] was bubbly at the level it was at, and there would be a good chance of a decline or consolidation (this is not investment advice, just an observation). Everything had to go aces for it to hold. That’s usually a recipe for disaster. Given we had the usual possibility of a “buy the rumor, sell the news” scenario; a potentially disappointing reception from short-term investors and Wall St. traders; and a general market that is going belly up slowly, it’s hard to think Tesla would be immune.
If you can see the vision, if you can buy into it, if you can see how Tesla has an action plan to execute and dominate the energy and manufacturing sectors in the coming 10 years, to become the best manufacturer in the world, a vertically integrated company searching for every way to reduce costs and grow production, to help humanity and the world, you’ll get it. Not everyone will, not today, not in five years, not ever. But it will become more obvious to more people as Tesla grows.
The key is the battery production growth and the reduction in battery cost. I think they will do it and will change the course of humanity in the process. They are asking other companies to join them in their efforts. They realize they can’t do it alone. That’s an investment I am willing to make, support I am willing to provide, to Elon and his merry band of troublemakers.
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