Posted on January 17, 2017 by Matt Pressman
Recent news from the Tesla Motors [NASDAQ: TSLA] Gigafactory investor meeting demonstrates significant progress on Tesla's battery front. Last week, Forbes* asked, "Will Tesla's battery investment win it the inside track against the Germans?" The old guard narrative assumes the German's will fast-track change. For example, regarding the Tesla Gigafactory: "Stefan Bratzel of the Center of Automotive Management (CAM) in Bergisch Gladbach, Germany, agrees that a possible shortfall in battery availability could stymie the fight back from the likes of BMW, Volkswagen and its Audi and Porsche subsidiaries, and Daimler’s Mercedes-Benz, but believes they will probably get their act together in time."
Above: Tesla Model 3 at the Gigafactory (Image: Motor Trend)
That said, not everyone thinks Germany's automakers can catch up to the Silicon Valley disruptor overnight. It's reported that, "Dean Dauger, a computational physicist and president of Dauger Research of Huntington Beach, Calif., begs to differ, saying Tesla will win a long period of ascendancy mainly because of its decision to make its own batteries." Furthermore, Dauger explains that "the Germans have no way of getting their competitive electric vehicles before 2025 at the earliest in any great numbers because they simply won't have access to enough batteries at competitive prices."
Above: Status of Volkwagen's battery factory vs. the Tesla Gigafactory (Source: Dauger Report*)
Looking at projections, "Dauger estimates German production of 200-mile plus electric cars - BMW, Mercedes, and the VW Group - will reach about 10,000 a year by 2021 with GM at 55,000 while Tesla will reach more than 650,000. In 2025, Tesla will have a huge market lead at 1.2 million a year, with the Germans still at just under 15,000 and GM at 80,000... Dauger said the Germans will be shackled by the fact that most of their current assets are taking care of the traditional internal combustion engine (ICE) technology, so they will be reluctant to offer too many of the kind of electric vehicles [consumers will want] because that would undermine their core sources of revenue."
Above: Market share forecast, Tesla vs. competitors, for long-range battery electric vehicles (Source: Dauger Report*)
In contrast to Tesla, "The Germans will have to buy batteries from outside suppliers and, while every other manufacturer except Tesla will be doing the same, this demand surge will maintain high battery prices, if not stimulate them yet higher, thus undermining the economics of Tesla's competition. Meanwhile Tesla plans to force its battery costs ever lower. The choice for traditional manufacturers is - pay a premium price for batteries [or] don't make many long-range electric cars."
Above: A look at Tesla's monopoly on battery cost savings (Source: Dauger Report*)
Dauger concludes, "That extra cost makes it uneconomic for traditional manufacturers to build a major response to Tesla's long-range BEVs. At the same time, the Gigafactory enables Tesla to build, by comparison, enormous numbers of long-range BEVs."
Above: A look at Tesla Gigafactory construction progress filmed last month (Youtube: Argosy Minerals Limited)
Dauger's prediction? "Tesla will clearly be dominant in this growing part of the car industry in the next decade, other car makers cannot 'follow suit'; head-to-head against Tesla, they won’t stand a chance. Tesla Motors' target markets, for at least a decade, are theirs for the taking. Since (the competition) doesn’t have a plentiful economic battery source like the Gigafactory, they'll be limited runs like the BMW i8, so they'll be drowning in a sea of 100,000s, perhaps millions of Model 3s."