Author: Lindsey Boycott
Estimated read time: 8 minutes
Publication date: 24th Feb 2020 13:12 GMT+1
An unlikely bromance: China’s President Xi Jinping & Elon Musk
Tesla (NASDAQ: TSLA) found success where no wholly foreign-owned auto company has before and built a Shanghai-based Tesla factory with the People's Republic full blessing. It's a first for President Xi Jinping, but China wants electric cars and wants Elon Musk's company to provide them. If there was a permit, regulation, or license that was a barrier to building, that situation quickly resolved itself, and Gigafactory 3 went from muddy patch of a meadow to a fully-operational manufacturer of Model 3s in under ten months. The first electric cars rolled off the assembly line in December 2019, and Tesla expects the factory to produce both faster and more efficiently.
The electric car-maker has forecasted that China's margins will be comparable to those in the United States, but some believe that its forward-looking statements to be an understatement. Once production is in full swing, it's thought that Tesla's $10,000 premium on China's Model 3, in combination with the lower cost of labor, will leave Elon Musk's vehicular magnum opus sitting pretty. However, Tesla's manufacturing supply may eventually outstrip demand, and if this occurs – the company may slowly lower the cost of China's model 3 to restore balance. The result will most likely be similar costs between the US and China models, which could land a mortal blow to luxury electric car competition like BMW (OTC: BMWYY) and Mercedes (OTC: DDAIF). China is the world's largest market for electric vehicles, and getting in on the ground floor was a strategic move.
Tesla is already onto EU expansion by breaking ground in Germany on what it hopes will be its fourth factory. While the land purchase has not officially been finalized, the EV company expects to save time with moving forward on getting the GigaFactory 4 up and running. The tech firm plans to be will be well on its way to completion by the end of 2020. Tesla intends the Berlin-based factory to produce 250,000 units a year with potential for future expansions upping that number to 750,000 if need be.
Tesla’s Semi is ready to roll
Another significant money-maker for Tesla that is currently flying under the radar is its Semi truck line. While consumers may not be aware of this branch of business, the potential for revenue is massive, considering that trucking transports 70 percent of all freight annually, accounting for $671 billion worth of manufactured and retail goods in the US alone. Additionally, trucks consume an estimated 53.9 billion gallons of fuel every year for commercial purposes.
Tesla will begin limited production of Semis in 2020, but there are already companies like Walmart (NYSE: WMT), UPS (NYSE: UPS), and DHL (OTC: DPSGY) lining up to pre-order the next-generation of freight-transport. With a median price of $165,000 and an advertised battery range of 500 miles going 65 miles an hour, the fuel savings alone are likely to ensure the truck pays for itself within a few years. Potential revenue projections land somewhere in the billions.
Tesla versus Porsche - Tesla wins
For those who remained skeptical about Tesla's true potential, the soon-to-be-released Roadster is the answer to every challenge issued by an internal combustion engine auto-manufacturer. It's the fastest car out there with record-breaking acceleration, range and performance, and in the words of a self-made man and Tesla investor, Steve Mark Ryan, "Anything you can do, I can do…. way better." The Roadster doesn't need to sell millions to be a roaring success either, just 50,000 cars sold globally leaves Tesla with around $10 billion in high margin revenue.
Moving on to the Plaid Model S & X, skeptics have been poking at what these newest editions can deliver. Porsche (OTC: POAHY) took it one step farther by taking its electric Taycan around the notoriously challenging Nüburgring race track and invited Tesla to do the same. A few days later and an unknown Plaid Model S drove the route while recording, and the unofficial time blew the Taycan’s away. When another Model S appeared sometime after that and beat the former Tesla's time, the rest was history. For those who'd like performance without the hefty price tag, driving enthusiasts can sidestep the Porsche Taycan and move straight onto the Model S.
Big Batteries: Tesla’s Solar Power Keeps the Lights on
With Tesla well-placed to lead the market on all fronts auto, the next trend for 2020 will be big batteries - the kind of cells that bolster power grids and reduce consumer energy costs. Its energy division provides both commercial and residential products that can power anything from the Hawaiian island of Kaua’i to an individual's home. In 2017, Tesla installed 54,978 solar panels and 272 Powerpack batteries for the Kaua’i Island Utility Cooperative. The project represents the first time the utility provider contracted for a system that stores solar energy and releases it after sunset.
If that wasn't enough, Tesla is working with the Australian government to trial run what is called a virtual power plant. Elon Musk visited South Australia and, in an interview, learned how high the cost of electricity was for the residents living in that part of the country. Visibly moved by the financial hardship placed on the communities in that area, he vowed to work harder to help South Australians.
Tesla is now building a virtual power plant consisting of 50,000 Powerwalls and solar systems. The tech firm is building the infrastructure in phases and has already reduced the electricity rate by 20 percent. Phase 3 will be the next section completed. Aside from the well-intentioned help, this project will eventually extend to 50,000 homes. It is a proof in concept that other cities spanning the globe are wanting to explore with Tesla – representing another possible multi-billion-dollar revenue stream.
Closer to home, Tesla is offering a shingle-like solar panel roof for residential homes. With costs running at roughly the same as a conventional roof, the technology provides decades of energy-producing tiles that can power a home. It's said to be the lowest cost per watt compared to any nation-wide solar panel provider and offers the intriguing capability to monitor energy usage within the home. It's also warrantied for tile, power, and weatherization and rated for hail, wind, and fire.
Tesla leads the charge in battery and powertrain tech
Tesla is already at the forefront of power cell technology, and not only will that be beneficial to its vehicles, but it will also be a boon to savvy automakers who see the future lies with smart energy. The company scheduled its Battery & Powertrain Investor Day for early 2020 and odds are good Tesla will be unveiling its new line of next-gen energy cell and driveline tech that will leave the competitors in the dust. The development of strategic partnerships with other automakers would be the next logical move for those wanting access to Musk-approved batteries and Powertrains—a convenient cash generator for Tesla and a sound plan for the other auto-guys. Even a Gigafactory could become a licensed commodity.
Tesla might be known for its hardware but its secret weapon lies with its software options. As the trend in cloud computing and software-as-a-service grows, so will the market for solutions that can download and deploy everywhere and anywhere. Innovative infotainment and performance upgrades, combined with premium subscription options, can be made available on-demand customer's car. The potential revenue is limitless for Tesla as customers look for ways to upgrade after they buy their vehicle.
Other fun & profitable facts
Interestingly, Tesla has also started offering auto insurance to residents in California, with the potential to expand into other states. The key here is the electric auto-maker already has better data than any insurer out there. As Tesla vehicles become more autonomous and safer, customers can enjoy lower insurance rates while the firm reaps the benefits of tailoring policies to a customer's driving habits. Low cost, high margins. Freeway Insurance is also known for low car insurance rates, likely the best in the industry, thus it will be interesting to see how they compare.
Another easy revenue-generator is the company's abundance of zero-emissions credits that it can sell to competing automakers who don't have the infrastructure in place to sufficiently reduce pollution. If these rival vehicle manufacturers don't want to face significant fines from state governments, they make deals with their environmentally-friendly car-manufacturing counterparts. Fiat-Chrysler (NYSE: FCAU), for example, recently agreed to pay Tesla $2 billion in credits over the next year or two.
All the pictures: Tesla Press Kit
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
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