A Very Deep Dive into Tesla - Part 1 Tesla Auto
Is Tesla the next most valuable company in the making? Or is Tesla the biggest bubble ever?
DISCLOSURE: Not investment advice and only for your entertainment purposes! I do have a position in Tesla stocks.
Introduction
Tesla, one of the most valuable and most controversial company in the world. There are Tesla bulls, who claims that Tesla stock should be worth $4000 a share in 2025 while there are also many Tesla bears, who claims Tesla is only worth $10 a share. So, who is right? This very deep dive will try to answer this question by taking an extensive look into Tesla’s electric cars, Tesla’s ‘Full Self Driving’ and Tesla’s energy business. If you are more interested in one particular topic, please feel free to jump straight to that section first. After reading this deep dive, I hope you can have a more comprehensive understanding and stimulate some new thoughts about Tesla. Also if you enjoy this type of in-depth analysis, please subscribe to my newsletter for more future deep dives on other exciting companies!
Electric Vehicles
Addressable Market Size
Motor vehicles represent a market over 2 trillion USD, with 91.3 million of motor vehicles sold in 2019 worldwide (statista). Only 1% of the total car sales are EVs. EVs are projected to grow between 40%-80% compound annually in the next five years (Ark Invest, Precedence Research and HIS Market). These illustrates the massive and rapid runway for EV in the coming years. EV sales growth has been significantly higher than ICE (internal combustion engine) growth in the last two years as shown below. Furthermore, the EV trend has been supported by governments, for example, the UK by banning new ICE cars in 2030, and California in 2035. As Tesla becomes more successful, there have also been more EV startups such as NIO, Lucid, Xpeng. Even legacy auto companies like General Motors have announced that they are going all electric by 2035.
Source: Ark Invest
The price of a 350-mile EV will be on par with a Toyota Camry, an average ICE car in two years (Ark Invest). When such EV price is achieved, EVs will truly enter the mainstream market. Although Ark has been known for their ‘aggressive’ prediction, even if we make a more conservative prediction, for example, 5 years, EVs are still not far away from dominating the mainstream market. Tesla as the EV leader will be greatly benefited.
Source: Ark Invest
Tesla
There have been more than 100 car startups in the US over the pass century. Only two did not go bankrupt, one is Ford and the other one is Tesla. When Elon Musk and others co-founded Tesla, people thought starting a car company is stupid and starting an electric car company is stupid square. Nevertheless, despite challenges and being only a month away from bankruptcy during the Model 3 ramp, Tesla has survived and becomes the most valuable auto company in the world.
Tesla have always been the EV pioneer. When the Tesla Roadster, Tesla’s first EV, was released in 2008, it was the first highway legal serial production all-electric car that have 200 miles of range. After 10+ years, Tesla have expanded their lineup from one super high-end model to four ‘more affordable’ model. Below is a list of current Tesla models in 2021.
Source: Tesla
Above are the specifications and prices of all four Tesla (base) models. While Tesla does not have a 25k car for the public, it is becoming more competitive in the 35k+ market. In fact, Tesla’s Model 3 has become the best-selling premium sedan in the world, beating the BMW 3 Series and Benz’s E class (Electrek). In the following sections, we will dig deeper into why a Tesla model might be a great car, and why Tesla is taking the world by storm.
Performance
Tesla is known for speed. At Tesla’s respective price, it will give you one of the best, if not the best performance. As shown below, in terms of 0-60 acceleration, all Tesla models are ranked in top 5 out of most US electric cars. Furthermore, Tesla also have better performance than comparable ICE cars. Car reviewers have commented that Tesla have a low gravity and evenly distributed weight thanks to its bottom mounted battery pack. As a result, all Teslas are very nimble, easy to maneuver and offers a fun driving experience. Furthermore, All Tesla’s models are very quiet absence the usual noise of an ICE. Sandy Munro, a famous car mechanic Youtuber, has commented that driving a Tesla is just like driving a BMW, but faster.
Data obtained from: InsideEVs (all models included are the most-powerful models)
Safety
Tesla is one of if not the ‘safest car’ a consumer can purchase. All Model S, X, Y and 3, received a 5-star safety rating in every category from the National Highway Traffic Safety Administration (NHTSA). When Model S was first released, it achieves the best safety rating of any car ever tested. Same stories happened with Model X and Model 3. The Model Y has the lowest rollover risk of any SUV recorded to date at just 7.9%. These top notched safety numbers are achieved through the fortified structure of the battery pack that provides exceptional strength, large crumple zones and uniquely low center of gravity.
Source: Tesla
Interior Tech
Tesla have always strived for the ‘simplistic and futuristic’ look for all its models’ exterior and interior (see picture below). Tesla is the first to implement a large monolithic screen in the interior to replace buttons and smaller screen offered by legacy automakers. The touchscreen also allows users to watch their favour Netflix series, YouTube channels, or play video games while charging. The touchscreen provides an excellent experience after the initial learning curve. Although some people may still prefer bottoms, the touchscreen sure is a step towards simplicity. The full-length sunroof overhead also provides and endless and enjoyable view.
Interior of Model 3 (left) and the new Model S (right)
Source: Tesla
Range
Range is a very important factor for when people consider buying an EV. Although it is true that with chargers at home, range should not be a huge issue for most people for their daily commute, many people have ‘range anxiety’ and want a ‘peace of mind’. Fortunately, all four Tesla models have the most range out of all the popular EVs in the US.
Data obtained from InsideEVs (all models are models with the most range)
EVs’ range is still a no match to ICE cars. Additionally, when there is wind or going uphill, EV’s range’s, including Tesla, may take a 30-40% discount. It also takes significantly longer to charge an EV than fueling an ICE car. It only takes 5 minutes to refuel a gas tank vs around 20 minutes to a 50% charge, 40 minutes an 80% charge and over an hour a full charge for the Model 3. This may be concerning for those who take road trips regularly. The charging ‘problem’ is especially true in China, the biggest EV market, because of high population density. There is this saying in China: you should only consider getting an EV as your second car, because you will not want to wait for hours for a charger on the highway during Chinese Lunar New Year, when everyone is trying to drive hundreds of miles to go home.
On balance, in the US and Europe, range is becoming lessor of a problem on EVs, because of low population density and great coverage of superchargers. However, in Asian countries, and China in particular, range may still be a legitimate concern. This is especially true for families that only planned to get one car, which is very typical, considering that there are only 35.3 cars per 100 households in China (Statista). However, this ‘range’ problem should continue to smoothen with 500+ miles of Tesla around the corner and greater supercharger coverage in Asia.
Tesla Supercharging Network
Tesla’s supercharging network is the gold standard of charging. Its V3 charging stations are also one of the fastest chargers, which charges at 250 kw per car, allowing a Tesla to received 200+ miles of range in 15 minutes. Tesla’s supercharging station also provides the best-in-class experience as the user only need to plug and charge without bothering with authentication or payment hassles that are present in other charging network.
Source: Zap Map
As of late 2020, Tesla have roughly 20k+ superchargers with 2k+ supercharging stations worldwide. Roughly half of the superchargers are in North America, making the supercharging network well established as shown below. Some notable ‘competitors’ such as Electrify America and EVgo have been ramping up their supercharging network. However, they are still playing the chasing game.
Source: Tesla
Although Tesla’s supercharging network is the best EV charging network, it is still nowhere comparable to gas stations. The UBS Evidence Lab estimated the average drive time to the nearest TSLA Supercharger is 31 minutes vs. to the nearest gas station of only 4 minutes in the US in 2017. Although many US and Europe Tesla owners have a charger at home, Tesla should continue to deploy more superchargers, especially in Asian countries, because a considerable portion of Tesla owners in Asian do not have home-charger due to building constraints.
Savings
With a Tesla, there is no more need for expensive gas. At 15000 miles per year, a Toyota Camry will cost $1200 almost double what a Tesla Model S 85D costs ($612) (Investopedia). Calculations are done with an average electricity cost of $0.12/kWh and an average petrol cost of $2.40 per gallon in the US. The savings is even larger worldwide, as the average electricity price is $0.139 vs. average gasoline price per gallon is $4.24. Tesla also has lower service/maintenance costs compare to a typical ICE car, because an electric engine has far fewer moving parts than a regular ICE. Tesla only has 15 moving parts in Model 3 and 25 moving parts in Model Y compare to around 200 moving parts for a typical ICE car. Tesla also do not require annual maintenance and regular fluid changes. These savings may add up to a few thousand dollars over several years. These savings make Tesla very appealing, especially in the future when the price of Tesla equals to an average ICE car.
Price
Currently, Tesla’s models are not the most affordable on the market. The average new vehicle price in the US is $40179, and the Model 3 starts around that price. This means that for customers shopping for cheaper cars, Tesla is not a potential option. However, in markets over 40k, Tesla is very competitive and appealing to potential EV buyers. Nevertheless, cheaper models are needed for the public. Fortunately, all EV makers are still unable to produce ‘cheap’ EVs as battery costs remain high.
Data obtained from InsideEVs
Below shows the 5-year cost of owning a Tesla Model 3, Toyota Camry LE and an Audi A5. Factoring all savings and resale costs, a Tesla Model 3 have a cheaper per mile cost than a Toyota Camry. This is significant because Toyota Camry is an ‘average car’ for the masses, meaning that owning a Model 3 is slightly cheaper than the ‘average car’ in the US. However, two things must be noted, first there’s no guarantee that 5 years from now, in 2026, if Tesla mass produce their Model, it will still have this high of a resale price. Secondly, some people may not be able to purchase a 39k car upfront because their budget is only 25k.
As shown below, US and China’s Model 3 price are the cheapest in the world, however in many countries, Model 3 cost more than 50k. This is because Model 3 is classified as a ‘luxury car’ in many countries and the effect of luxury car tariffs. Therefore, a lower price Tesla model is very important, especially in countries other than US and China, to fully unlock Tesla’s full growth potential.
Source: InsideEVs
Build Quality Issue
Alongside price, there are two things that Tesla must improve on; build quality and service. Tesla has been notorious when it comes to build quality. If you are interested in cars, you may know that Tesla has poor quality control. There are many videos on YouTube that detail such issues. Many reviewers have commented that Tesla do not have the build quality that match the price of the car. Tesla’s build quality is not on par with any luxury vehicle brands or even a normal Toyota car.
Below are some examples. The first set of figures below from Engineering Explained shows some poor-quality paint job on a brand new 2018 Model 3. The second set of figures below from Sandy Munro is some other examples. There has even been a case reported by ‘The Fast Lane Car’ on YouTube that one of the doors of their Tesla Model Y cannot be opened. Additionally, this did not happen to them once, but three times.
Poor paint job on a 2018 Model 3
Source: Engineering Explained
Source: Sandy Munro
Although there seems to be less build quality issues with the interior and Tesla have been steadily improving its build quality overtime, Tesla has ranked worst in problems per 100 vehicles (J.D.Power). Elon has attributed the poor build quality to Tesla working to quickly ramp up production. Nevertheless, this build quality issue is unacceptable for most consumers. Having a volume goal should not be an excuse for poor build quality. Furthermore, Tesla have the ability to fix these issues as demonstrate by their ability to take care of the interior. If the quality of interior can be great, why can’t the quality of the exterior also be great?
Source: JD Power
Service Issue
One of the benefits of owning a Tesla is not many services are required. However, when a service is required, problems may arise, because Tesla service and customer experience have been quite poor over the years. Many reviewers have concerned that the numbers of Tesla service centers are inadequate causing the waiting list for service to be very long. It is regular to have appointment several weeks or even a month or two away. There are also difficulties with the use of Tesla app to book or alter a service appointment and hardly anyone from Tesla service team will pick up the phone. Many complains can be found on YouTube. However, most of them have all noted that Tesla’s workers at their service centers are quite friendly and hard-working, thus suggesting this service problem to be a structural problem rather than a personal problem.
Tesla having poor service experience should be caused by Tesla fundamentally not focusing on service. This following story is a prime example. Tesla’s once ‘VP of Worldwide Service and Customer Experience’ left Tesla in 2018, and Elon said that he would take over his responsibilities and they would not look for a replacement. Elon by every means is a very busy man and may not have enough energy to look after the service department.
Both the build quality and service issues are not a good look on Tesla. There is no denial that a Tesla car is amazing. However, a potential customer may not know how good a Tesla. Therefore, these quality and service issues may give potential customers an ‘unreliable’ impression on Tesla. This sway potential customers away from Tesla. At the end of the day, no matter how good the product is, all customers love to feel ‘taken care of’, and currently Tesla is failing on this department.
A 25k Car in Three Years’ Time?
Elon has always said that Tesla is going to make their cheap EVs for the masses. Rumors have hinted at potential multiple 25k models. These ‘Model 2s’ will be designed specifically for different continents, potentially a sedan or crossover-SUV for China, and a hatchback for Europe. See below for some potential designs. Rumors have hinted that Model 2s are likely to have 300 miles of range and come with the performance, high tech interior and superb safety of a typical Tesla. Elon has said that the Model 2 will also offer Tesla’s full self-driving (FSD), which may be extremely appealing if Tesla had successfully crack autonomous driving soon.
Potential Designs of Model 2
On Battery Day last September, Elon has said that this 25k car is likely to be released within three years’ time. Speculators have commented that Tesla cannot release this car right now, because currently the cost of battery and production efficiency is not ready yet. When Tesla do release a 25k Model 2 (reasonable expectation within three years), it should stack up with the competition quite well. With savings on gasoline and without annual services, Model 2s’ true cost may well be the cheapest out of all 25k car, while also offering the best performance and safety features, making it the best 25k car. When the Model 2 is released, this will truly open the flood gates to mass adoption of EV and create exponential growth for Tesla. However, on the flip side, if such Model 2 is not delivered within 3-5 years, this will greatly hinder Tesla ability to expand and increase its total market share.
Cybertruck
The top 3 selling cars in the US is all pickup trucks. This indicates the importance of Tesla to have a pickup truck in their lineup. Tesla have announced their pickup truck, the Cybertruck on 21 November 2019 (See below). Although the Cybertruck has been announced two years ago, it has not been released to the public yet and rumors are expecting it to be massed produce in 2021. Or more conservatively, start a small production in 2021 and ramp up in 2022. Currently, there are already more than 650k pre-orders on the Cybertruck. Although not all pre-orders will be converted into real orders, it does indicate the excitement around the Cybertruck.
Source: Tesla
The design of the Cybertruck is very futuristic to say the least. People either love it or hate it. This may be a potential roadblock to mass sale the Cybertruck to existing pickup truck customers, because the average owners of pickup trucks are 50-55 years old male. An old trucker may not accept the futuristic design. Existing pickup truck customers have strong brand loyalty on their pickup truck’s reliability. Furthermore, this is exactly one of Tesla’s main weakness. Nevertheless, the Cybertruck may potentially attract a group of new (younger) customers who did not consider owning a traditional pickup truck before.
Below is a direct comparison of the performance of the Cybertruck with the top 3 selling pickup trucks in the US. Cybertruck have the fastest 0-60 acceleration, most towing capacity, payload capacity and storage. Reviewers that have got into a Cybertruck have commented that it is a very nimble pickup truck. The Cybertruck is made with stainless steel compare to a typical Ford F-150 with aluminum. Stainless steel is much heavier and stronger than aluminum (Stainless steal’s tensile strength: 505MPa vs Aluminum: 276 MPa). Furthermore, the Cybertruck is exoskeleton vs other typical truck being endoskeleton. These factors make the Cybertruck hard and durable in rugged use cases. The price of the Cybertruck is also competitive. However, the range of a Cybertruck is clearly a no match to existing pickup trucks and may be a big concern for potential buyers.
Source: Kevin Rooke via Twitter
Cybertruck may not be a true competitor to the other pickup trucks because it is fundamentally different. It is an off-road sport truck, rather than a traditional pickup truck. In the words of Sandy Munro, the Cybertruck is for pioneers and not for a typical pickup truck owner. We may need to wait until the Cybertruck is released to the public to know whether it’s a hit or miss.
Tesla Semi
Tesla has announced their electric truck, the Tesla Semi, in 2017. Although Elon has promised that it would be in production in 2019, due to battery constraint and a focus on the production of other Models, the Semi has not been released to the public yet. Nevertheless, although the Semi is not in production, it may be a big disruptor when it is publicly released.
The most important thing for a truck is its economics, as trucks are mostly used for generating revenue. The two graphs below show that operating a Tesla semi is cheaper than a Diesel Truck. With a Convoy, the savings is even larger. Furthermore, Elon claims that with a Convoy, the operating cost per mile is even cheaper than rail. Furthermore, the average diesel price is currently 3 dollars rather than $2.5, meaning that savings will be even greater.
Source: Tesla
By using an average US diesel cost of $3.04 per gallon, one gallon of diesel providing 6.5 miles of range, and 125k of annual milage per truck, the annual fuel cost of a diesel truck is around $58k. On the other hand, a Tesla Semi, with a guaranteed electricity rate of $0.07 kWh, the same 125k miles, and 2.75kWh of electricity required per mile, the annual electricity cost equals to $24k. This results in around $35k annual savings (Calculation courtesy of Cleanerwatt). This does not even include service and maintenance savings. Considering that an average Class 8 truck sold for $117k in the US and the 500-mile Tesla Semi is expected to cost $180k, this means that only two year is required to pay back the extra price on the Tesla Semi. This savings alone will make the Tesla Semi a very attractive truck for potential buyers.
However, there is a potential weight concern that may hampers the economics of the Tesla Semi. The Tesla Semi is categorized as a class 8 vehicle, which can have a maximum weight of 36000kg (inclusive of the truck weight and payload). The energy of Lithium-ion battery is only around 250wh/kg (due to improve to 400wh/kg in 3 years’ time according to Elon), whereas diesel is around 12500 wh/kg. This means that the batteries of a Tesla Semi will take up more space and weight compare to a typical diesel fuel tank (illustrated below).
A potential illustration of an average diesel truck (left) vs a Tesla Semi truck
Source: Real Engineering
It is estimated that a 500-mile range Tesla Semi will need a battery pack close to 1000 kwh. Currently a 100 kwh Tesla battery weighs around 500-600kg, meaning that a 1000kwh pack will weigh at least 5 tons. Assuming that a battery is an add on to the Semi, a Tesla Semi will weigh 5 tons more than an average truck, meaning that 5 tons worth of cargo space will be lost per trip. Although it is likely that Tesla will decrease the Semi’s weight outside the batteries, the fact that Tesla did not disclose the weight of the Semi, likely means that weight is a potential drawdown of the Semi.
Tesla claims that the Semis only needs 5 seconds for 0-60mph, whereas a regular diesel truck needs 15 seconds. With full load, it takes a Tesla semi 20 seconds to reach 60mph and a diesel truck over a minute. Although this 0-60 performance may not seem important for a truck, it does translate into real life benefits. The power of a Tesla Semi allows it to travel at a max speed of 65 mph on a 5% upgrade vs a normal diesel truck at 45 mph, which implies roughly 50% higher speed during uphill. As Truck drivers earn their wages by milage, this will translate into higher ranges covered for truck drivers.
Like most Tesla models, range on the Semi is still a concerning factor. The Semi offers 500 miles of range at highway speed vs an average 2000 miles of range provided by a diesel truck, a 4x difference. Elon has stressed that 80% of routes in the US are less than 250 miles, and a Semi can obtain 400 miles of range with one 30min charge, allowing the truck to go for another 6-7 hours. However, a diesel truck can be fully fueled up within 15 mins in comparison. Although a driver is likely to take a break for driving 6-7 hours, range is still a legitimate concern for truck drivers who wants to have the flexibility to not charge when they are in a rush or only want to take short breaks. Furthermore, even if Tesla wants to improve the range on their Semi in the future, it will hamper the amount of cargo the Semi can take because of the weight.
The Semi offers better driver experience to the driver, as it does not require constant changing gears unlike diesel truck. The Semi is connected to Tesla mobile service, with remote diagnostics, predictive maintenance, and location tracking. This coupling with fewer moving parts should make service and maintenance easier for the truck owner.
Source: Tesla
In terms of safety, Tesla have claimed that the Semi will be safer than a typical diesel track. Tesla aims to achieve this by enhanced autopilot, which allows for automatic emergency braking, automatic lane keeping and forward collision warning. It also has minimal rollover risk because of a very low center of gravity. Furthermore, the Semi will also prevent the classic truck jackknifing problem by having active safety measures with four independent motors acting as automatic stabilizers to balance the weight distribution across the wheels.
In terms of reliability, Tesla guarantees that the Semi will last at least 1 million miles, which will translate to 8-10 years of guarantee lifespan based on 100k to 125k of annual milage. Elon has said that the Semi is so realizable that even if 2 out of 4 total motors broke down, the Semi can still function, and will still be better than a diesel truck. The Semi will also be equipped with Tesla armor glass, which is almost bulletproof. This is important because the windshield of a truck on average breaks every year. When the windshield is broken, the truck will not be allowed to travel.
Overall, the Tesla Semi does seem promising despite range and weight concern. However, if the Semi do perform according to the numbers Tesla provided, the fuel savings over its lifespan will be a great deal for potential customers. However, the weight of the Tesla Semi and the reliability of a Tesla in general may be a red flag. Nevertheless, as Tesla is still constraint with their batteries, Elon has said that they will focus on their other models first. Therefore, making it unclear when the Semi will be mass produced. Therefore, until the Semi is publicly released, and mass produced, the true impact of it on the trucking industry is still unclear.
Tesla Insurance
Elon has said that Tesla is going to provide insurance for Tesla owners because many Tesla owners are being treated with unfairly high premiums by traditional insurance companies. Currently, Tesla only offers their Tesla Insurance in California but are planning to launch their insurance in three more states. Since Tesla insurance is relatively tiny right now, you may ask; what is the big deal about it?
Source: CleanTechnica
Here are some numbers, the US car insurance is worth $311 billion and $870 billion worldwide in 2021. The car insurance industry is very large and vulnerable to disruption because the insurance industry has been very without major change in many decades. If you have purchased insurance before, you know that insurance agents will ask you to fill in forms and answers general questions to assess your risks before buying a policy. However, it is actually very hard to use generalized forms accurately assess a person’s personal risks. For example, asking people how many car accidents they have cannot necessarily tells you what their driving behaviors are like.
This is where Tesla comes in. Tesla seeks to provide car insurance differently. Since every Tesla have 8 cameras and multiple sensors on it, Tesla can use the data collected from these sensors, and know a person’s driving behavior accurately, rather than playing the guessing game like traditional insurance provider. With accurate personal risk assessment, Tesla could provide more competitive insurance pricing that reflects the true risk of someone’s driving behavior. This has resulted in Tesla providing Tesla vehicle owners Tesla insurance with up to 20-30% lower rates than what traditional car insurer is offering . Getting a quote with Tesla insurance can be done as little as one minute without going through the hassles of purchasing insurance from a traditional insurance provider. As a result, in the long run, when Tesla insurance is offered in more places, it will be very likely that more than 50% (or even more) of Tesla owners will use Tesla insurance, because of its lower cost and Tesla’s vertical integration.
Source: Tesla
Elon has said that the Tesla insurance business could eventually represent between 30-40% of Tesla’s car business. This indicates how lucrative the car insurance business is because insurance revenue is annually recurring, whereas an average person only purchases a car once every seven years. Overall, although Tesla insurance is just starting off, it does have its unique advantage, the most comprehensive driver data that other insurance providers cannot replicate. This means that it should only be a matter of time when most Tesla are being insured by Tesla insurance, assuming that Tesla keeps on executing correctly.
This conclude part 1 of the very deep dive on Tesla! I hope you have enjoyed the content. Please view part 2 for in depth analysis on Tesla full self driving and autonomous driving development.
