TheStreet: Tesla Has One Big Problem

[Ehninger1212]

THERE IS A SURFBOARD?????

I think that one was sold back in 2018?

 

[SpaceDoc]

Cars and trucks are large, durable objects which require a factory specifically made for each model line.

That means to get market share, you have to build a factory - high barrier to entry. But as you said, there will always be niche and third party suppliers. So to get a piece of the market, all someone has to do is build a factory.

The fact that they're big, heavy things and their factories wear out just means that incumbents also face these high barriers just to stay in the market. It's not like a piece of software or a prescription medication that can be easily shipped to all corners of the Earth.

-Crissa

True to some extent.
I have heard of several EV manufacturers taking over existing plants that were either not in use, or winding down. So that lowers the barrier a little.

Also, nothing stops them from building factories from scratch at the same speed as we see Tesla's plant in Austin for example. Rivian took over a Mitsubishi factory for their first production line, and will be breaking ground this summer for their second factory.

https://www.theverge.com/2021/12/16/22840111/rivian-factory-georgia-5-billion-electric-amazon


As a related side note, Ford is coming on strong...

https://techcrunch.com/2022/01/04/ford-double-production-lightning-pickup/

https://media.ford.com/content/ford...-f-150-lightning-production-150000-units.html

 

[Crissa]

Yeah.

My biggest point was to have market share, the factory has to be built! Which means incumbents are only slightly better off than new entrants... they also have to built/rebuild their factories to keep up. Very capital intensive.

And Tesla said - and other manufacturers have acted as if this is true - existing facilities aren't much better than a brown field when it comes to spinning up production. The infrastructure just wears out and gets outdated quick.

-Crissa

 

[Ogre]

Yeah.

My biggest point was to have market share, the factory has to be built! Which means incumbents are only slightly better off than new entrants... they also have to built/rebuild their factories to keep up. Very capital intensive.

And Tesla said - and other manufacturers have acted as if this is true - existing facilities aren't much better than a brown field when it comes to spinning up production. The infrastructure just wears out and gets outdated quick.

-Crissa

Worse.

Existing companies have massive amounts of debt on those existing facilities which is quickly becoming sunk costs.

Over the past decade auto makers have spent (and financed) tens of billions of dollars spent upgrading a keeping ICE specific equipment up to date. They've spent tens of billions on additional research and development on internal combustion engines. Much of that money was invested in projects which will never hit break even and the only thing left is a pile of debt to pay it off.

GM has sold more vehicles in the US every year for the prior 90 years or so... this year Toyota passed them up. At the current rate, it's likely Tesla will pass GM up in 2-3 years as well.

 

[SpaceDoc]

Worse.

Existing companies have massive amounts of debt on those existing facilities which is quickly becoming sunk costs.

Over the past decade auto makers have spent (and financed) tens of billions of dollars spent upgrading a keeping ICE specific equipment up to date. They've spent tens of billions on additional research and development on internal combustion engines. Much of that money was invested in projects which will never hit break even and the only thing left is a pile of debt to pay it off.

GM has sold more vehicles in the US every year for the prior 90 years or so... this year Toyota passed them up. At the current rate, it's likely Tesla will pass GM up in 2-3 years as well.

Great points. And this mirrors, or perhaps is an extension of, the sunk costs or stranded assets (as they are commonly referred to), of the oil and gas industry in exploration, development and maintenance of hydrocarbon resources and infrastructure.

 

[Ogre]

Great points. And this mirrors, or perhaps is an extension of, the sunk costs or stranded assets (as they are commonly referred to), of the oil and gas industry in exploration, development and maintenance of hydrocarbon resources and infrastructure.

There is a huge adjustment coming to the market soon.

Within the next couple years, it's entirely possible one of the US automakers will post a *loss* as ICE inventory piles up and financing ICE vehicles becomes tougher. That's going to be a big wake up call.

Oil, coal, gas industry prices are going to plunge too. It's already cheaper to build new solar than it is to maintain much of the existing carbon based fuel generation facilities. As more and more solar and power storage comes online these companies are going to plunge in value.

 

[HaulingAss]

This is 100% right on. They created something that showed the world how much better EVs can be and they polished the brand off with massive engineering prowess and a side of sexy. They could sell anything at this point and people would buy it.

No, that's not how the auto business works.

A car is most people's second largest purchase in life (after a house). If you are selling crap, it doesn't take long for people to figure it out. People want Tesla's because they offer superior products and have gained people's trust. Throw that away and they have nothing.