[coenhyde]

The incumbents will defend that market segment to their death indeed. Tesla is pulling a 30% gross margin on their EV's, while legacy auto looses money on their EV's. I don't see legacy auto being capable of refactoring their cars, manufacturing processes and business models fast enough to survive.

The fall can cascade quickly, as the incumbents are stuffed with debt. When sales of ICE fall due to the growing EV segment they will have a hard time seeking the funding necessary to transition. IMO it's all a bit late. But good luck to them. From my observation only Ford and VW really appreciate the situation they are in, and they are trying hard to navigate out. Hopefully they survive. GM is screwed.

[giantrobot]

> I don't see legacy auto being capable of refactoring their cars, manufacturing processes and business models fast enough to survive.

That doesn't make any sense. "Legacy auto" knows how to make cars. To their final assembly factories there's not a huge difference between a BEV, PHEV, or an ICE drive train. So long as they feed in components they get cars out. They definitely know how to get components made to feed into their factories.

That's a place where they have an advantage over Tesla. They can make BEVs that break even or lose money because they have a whole line of ICE cars making a profit. Tesla only has their up market BEVs to make their money.

Tesla doesn't have a moat around BEVs. Now that "legacy auto" is making them Tesla is just another BEV manufacturer. As their market share erodes they're going to have a harder time maintaining their price premiums. They also don't have the deep bench of fleet sales that "legacy auto" has. The places they're trying to diversify (Power Wall, solar, etc) aren't markets that support the premium prices they currently enjoy with their cars.

[coenhyde]

> That doesn't make any sense. "Legacy auto" knows how to make cars. To their final assembly factories there's not a huge difference between a BEV, PHEV, or an ICE drive train. So long as they feed in components they get cars out. They definitely know how to get components made to feed into their factories.

That's the problem. When they do it that way, they don't make a profit on BEV's. "Legacy auto" got good at building the supply chain network for parts. Then they pick and choose and assemble into a car. But everyone is taking a slice, and it's hard to optimize designs for efficiency between so many suppliers. Then they have their dealers to contend with.

What i'm saying is that "legacy auto" can certainly build and sell a BEV like they do with ICE. And it's not too hard for them to make that change, baring battery supply challenges. But they don't have the 30% gross margin that Tesla does. That margin will continue to grow and then turn into a weapon when Tesla needs to be competitive.

[giantrobot]

> That margin will continue to grow and then turn into a weapon when Tesla needs to be competitive.

This does not follow at all. Tesla sells their barely up market cars at luxury car prices and makes a significant amount of money off selling emission credits and raking in other government subsidies.

As "legacy auto" manufacturers ramp up their EV production they won't need to buy emission credits from Tesla. They'll also themselves be eligible for the bottom line boosting government subsidies.

I also don't see Tesla being able to compete on luxury as they have significant problems with fit and finish. Now that traditional luxury brands have solid EV offerings it seems unlikely Tesla will be able to keep their margins and increase their sales volume.

[coenhyde]

> This does not follow at all. Tesla sells their barely up market cars at luxury car prices and makes a significant amount of money off selling emission credits and raking in other government subsidies.

Emission credits were 3.6%[1] of revenue last quarter (Q1 2022). I don't know what "subsidies" you are referring too but you may be thinking of the EV tax credit, which was exhausted by Tesla in late 2019[2]. So in that regard other EV automakers have an advantage over Tesla.

> I also don't see Tesla being able to compete on luxury as they have significant problems with fit and finish. Now that traditional luxury brands have solid EV offerings it seems unlikely Tesla will be able to keep their margins and increase their sales volume.

Tesla has certainly had fit and finish issues but they are solving this. Their new Model Y produced in TX uses their "giga castings" which removes the opportunity to screw up alignment by removing ~150 welds for the body. Look it up if you want to know more.

I think error in your thinking is that Tesla will remain static while others catchup. That's not going to happen. Tesla is innovating (increasing margin) and scaling at a faster rate than "legacy auto".

[1] Q1 2022 Financials https://tesla-cdn.thron.com/static/IOSHZZ_TSLA_Q1_2022_Updat... [2] https://fueleconomy.gov/feg/taxevb.shtml

[sangnoir]

> But they don't have the 30% gross margin that Tesla does.

Sure, but they'll make it up on volume. Tesla also will have much lower than 30% gross margins in 10 years -but can it catch up with "legacy auto" on volume?

[dahdum]

> I don't see legacy auto being capable of refactoring their cars, manufacturing processes and business models fast enough to survive.

My take is the opposite. Incumbents already have like 90% of what Tesla had or chose to build from scratch. EV's are not complicated at all compared to ICE, and incumbents have been refining their manufacturing process for decades in a brutally competitive industry.

Unless Tesla can somehow get an effective monopoly on battery tech or FSD, which they are not, they're going to be just another car company. Nothing they can deliver can't be done by others.

Personally I think it's way more likely Waymo or Apple deliver FSD first, with broad industry partnerships wiping out Tesla's advantage.

[coenhyde]

I agree that the EV tech stack is easy. EV retro fits illustrate how simple EV's are. But that's not the part that matters. What matters is if you can make an outsized profit building and selling EV's. Legacy auto can't, Tesla can. Tesla is very vertically integrated so they can eek out extra margin that others can't. They also aren't inhibited by the existing dealer / service / financing model. So what I'm saying is if legacy auto wants to compete with Tesla, they have to refactor their entire business. And i don't see that happening. It will be interesting to see who is right in 5-10 years.

[steveBK123]

I was with you in my 4 years of Tesla ownership but having researched & sampled the competition I just can't agree anymore.

Tesla has gone down a cul-de-sac with FSD to the point that there's plenty of equally competent highway "self driving", which is all 99% of people actually need/want.

Further Tesla is extremely focussed on SKU minimization .. very few models with very few options. Tesla only has 4 cars which are kind of like 3.5 given how similar 3/Y are. People want a variety of sizes/shapes/luxury levels, and to have some options within a model.

At the Model 3&Y end of price curve, they face serious competition from Ford, Hyundai, Kia and VW.

At the S&X end, they are actually in worse shape because the Germans will sell you a wide range of cars, which actually feel luxurious inside for the ~$100K price you are paying... with lots of fun colors and options packages. The interior of a $50K Model 3 and $130K Model S are more similar than dissimilar.

You can get also get worse EVs for cheaper than the lowest Tesla starting price... not every car can start at $50K.

I mean it's kind of crazy the Tesla Model Y has crept up to $68k starting price. There are a lot of crossover/hatchback EVs in the $40-60k range especially with tax credits included...

[coenhyde]

Tesla is focused on unit production, SKU minimization is a side effect. They are supply contained. Why make additional models of cars if you can sell more of the ones you already make instead? There's more than enough demand to support their limited SKU's, high price points and current production; for the moment. When Tesla manages to cap out on their demand, they can lower prices and introduce more models. But when that happens they will be at a scale where their economies of scale and vertical integration allows them to still make a large profit while their competition breaks even or worse.

[steveBK123]

Maybe? But cars are like fashion. Demand can change more rapidly than Tesla can design, announce, and scale production of new models to fill all the gaps in their model line.

Once competitors can ship in higher volumes at the Model 3/Y price points then they can readjust pricing quickly of course.

Look at the Model S right now, if you want a Plaid you can essentially have it RIGHT NOW, there's even a few inventory cars popping up periodically. For the Model 3/Y, if you go with performance model, again you can have it in weeks like in normal times. To me this looks like demand at the high end is cooling off for Tesla.

[caf]

Hyundai belongs in that group as well.