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PluginIndia Electric Vehicles

Tesla Model 3 - How it will change the world

3/4/2016

12 Comments

 
By Nikhil Parchure
​As long as you are not living under a rock you must have heard about the Tesla Model 3. The hype and excitement about the launch was unprecedented. If you are regular visitor to this blog then you must be aware of the huge impact Tesla has made over past few years on the whole automotive industry and announcement of Tesla Model 3 will be the iPhone moment in the car industry. 

​Never before in the auto industry, people have formed lines to get inside show rooms and waited hours to see a new car launch. Companies pay money for presenting their cars at the auto show to get some attention and Tesla on other hand attracted the whole world to its facility to see industry changing Model 3. 

With all hype aside, I am going to analyze the Model 3 as an engineer and as a industry professional who works with lithium ion batteries. 

In the short time after the launch I was thinking of significant impacts Model 3 will have on the industry. So let us start with introduction of the Model 3. In a typical Elon Musk presentation, Tesla presented the company vision and mission with Roadster, Model S, Model X and under cover Model 3 pictures. 
You can watch the event summary prepared by www.theverge.com here.
So now you have an idea of what the car offers and what a giant leap it is compared to other cars currently available. ​
Picture
Source - tesla.com

Everyone is talking EV
With 215 mile range, 0 to 100 kmph in 6 seconds, beautiful design, $35,000 price and strong Tesla brand, Tesla will eliminate any excuse for not buying an EV.
Now the buyers will not question whether electric car is feasible but will discuss which car to buy. Now buyers have strong options of Nissan Leaf, Model 3, Chevy Bolt, BMW i3 and many other cars that will be launched as a response to Model 3. 
Model 3 price point will force other vendors to either match the design and technology or lower the price which means we can look at 200 mile electric vehicles at $25,000. Any price higher than that and you are competing with strong brand of Tesla. This will be transformational for the industry.

Range Anxiety is thing of past
With 215 mile minimum electric range and Supercharger capability, Tesla model 3 will have the most robust electric vehicle ecosystem. I have always mentioned in my blog posts that to defeat gasoline cars you have to create electric ecosystem and Tesla is on the cusp of achieving that. 215 miles is a lot of range. Average driver in US daily drives around 60 miles. 215 mile range means you do not need to charge everyday, this is huge. It also makes long distance driving a possibility. 

Competition will respond
BMW, General Motors, Toyota and Honda are not going to keep quiet and allow Tesla to capture all the market. These companies may not be as cool as Tesla but they are in this business for decades and have solid engineering teams. These companies are going to respond with strong product offerings. They will leverage their manufacturing capacities, strong dealership networks and consumer brand loyalty to challenge Tesla. 

Driverless cars are coming
Tesla Model 3 is going to come standard with Tesla Autopilot feature. This is another huge technological breakthrough. Typically lane departure warning, blind spot detection and other safety and driving assistance features are reserved for luxury segments but with launch of Model 3, Tesla will bring those features to mass market. The amount of data that will become available to Tesla by all Model 3, Model S and Model X driving around with this feature on the road will add tremendous value to their driverless car project. 

Lithium battery will win the market
Tesla’s focus on controlling supply chain and building massive lithium ion battery manufacturing will help the complete lithium ion supply chain. More investment will flow in downstream mining, transport and manufacturing of lithium ion base materials. As car competitors are going to respond by building electric cars, battery manufacturers are going to respond by adding investment in their battery manufacturing capacities. LG chem, Samsung, BYD and others are going to double down on manufacturing lithium ion batteries. This will reduce the battery cost and which in turn will improve the deployment across multiple applications. 

As an engineer I am trained to be conservative about future. So putting my critic hat on, not all about this announcement is rosy. There are multiple challenges that are facing electric vehicle industry. 

Execution is key
Tesla has already received reservations for 200,000 cars. Elon Musk has promised cars will start delivery at the end of next year. That will put tremendous pressure on Tesla’s manufacturing team. Model S and Model X launches were delayed due to difficulties in manufacturing. Tesla has never made 200,000 cars per year. Delay in shipment may lead to disappointed customers which will not be healthy in the long run. Ramping up production will also mean retooling of factories which inturn will mean more downtime for Model S and Model X production. 

Profitability
Tesla may be doing cool stuff but they lost more than $450 million last year and will lose more money this year as they ramp up the Model 3 production. Although there is no immediate danger of having a cash crunch, you cannot continue to lose money if you want a sustainable business. People compare Tesla to Amazon but Amazon makes tremendous amount of money on their cloud business. Tesla does not have that high margin product to support electric car business. General motors have gone through one bankruptcy and same is the story with other auto makers. So Tesla will need to focus on profitability very quickly once Model 3 hits the road. 

Dealership network
Disrupting the industry is great but that also means you have far more enemies than friends. Tesla’s constant fight with dealership networks means that they will face resistance in expanding all across US. Running company owned stores is manageable when you have 1000 or so stores but Tesla will need tens of thousand of dealerships to leverage the potential of Model 3. So they will have to find a way to work with dealership industry.

Lithium battery pricing
People like to use Moore’s law for price of battery to predict $100/kWh. But you have to realize that batteries are not semiconductors. Batteries require advancement in chemistry and material science to achieve lower cost, this will take time. Commodity pricing of copper, aluminum and steel may rise in the future as world economy grows which will increase the battery cost. That poses a risk to Tesla as they are taking reservations at $35,000 for their car. 

Wild Card of Apple
Rumor mill is on for a long time that Apple is building electric car under project Titan. Tesla may have fans but if Apple enters the market then it will be a different game. Apple will not care about losing money for few years as their iPhone and Mac business brings in profit and competing will be tough for Tesla. Apple has tremendous brand loyalty, brand recognition and manufacturing capabilities.   

These challenges are not trivial but we have seen Elon Musk drive past many such challenges. As an industry participant, I congratulate and admire energy and dedication of the company to make electric car for everyone. Next few years will be exciting for the industry and I will like to wish Tesla best wishes. Tesla’s success is critical for entire electric vehicle industry. 
12 Comments
Raphae Halim
7/4/2016 04:05:33 am

This is an inspiring article. One would add, while quoting Elon Musk at the same time that, "Tesla's success is critical for humanity." not just the EV industry. :-)

Reply
PlugInCaroo
7/4/2016 10:07:55 am

Any vehicle that cannot BETTER the regular vehicles in BOTH price AND performance... is an inferior vehicle.

Reply
Sunny Chawla
7/4/2016 11:17:54 am

@PluginCaroo - can u elaborate on your statement?

Reply
Satish Reddy
7/4/2016 11:21:24 am

This is really well written and thought inspiring.
This is just the beginning. The challenges Tesla face are huge.

I still don't see them working with dealers. After snubbing them all these years, do you think they will sit with Dealers and work with them ?

Reply
Nikhil link
10/4/2016 12:23:31 am

I agree but I think money ultimately brings enemies together. They don't have to be friends. I think Tesla will need them after 5 years to reach all geographic regions. Else many people who want to buy it will have to compromise to a competitor like Chevy Bolt as there is no service support in 100 mile of his/her home.

Reply
PlugInCaroo
7/4/2016 03:10:16 pm

Sunny Chawla... Performance wise Tesla is ahead but price wise it is still MILES BEHIND... in the masses league

Tesla even with Model 3, is the anti-thesis of the very sprite of Electric Vehicles...

Tesla is still in the luxury league... its a toy for the rich not a peoples car which is the essence of an electric vehicle.

Nikhil Parchure has done an excellent job of laying down the details of the car...

There is no doubt that Apple will upset Tesla's "Apple Car-t" with the project Titan... so even half of the potential customers will wait for the Apple cars.

For the rich... an expensive car is good news... because they can buy it on their company name, and then save tax by way of depreciation...

Reply
Sunny Chawla
7/4/2016 03:28:37 pm

@PluginCaroo - This is only the beginning of a real EV revolution but not there yet. When or if Tesla launches an economy compact EV car/minivan which is really affordable for the masses, then automakers will be forced to compete.
Model 3 is competing with other mid priced luxury automakers and getting the EV movement forward.

Reply
Kiran Bhat
7/4/2016 03:29:45 pm

The other auto makers have to step up as they can't ignore 230k orders 2 yrs in advance!!!

Reply
PlugInCaroo
9/4/2016 11:34:32 am

Whats bad about Tesla is... if it can make a 230 mile (346km) car for $35,000 it can easily make a170km car for $ 18,000... but will they?... NEVER... That is the ONLY problem with Tesla.

And the NAUSEATING fact is Tesla has BECOME SOME SORT OF STANDARD for electric cars... an expensive model for the most basic of technology... something so basic that kids play with battery cars...Now if they close down after Model 3... the world will say Electric cars have no future... we gotta try something different...like hydrogen cars...

So its like if Tesla succeeds...then Electric cars are do-able... if Tesla fails... Electric cars are not do-able... and expensive technology... The whole plan could be to showcase...that.... see this stuff doesn't work...

20 years Chetan Maini could make and sell electric cars... whats the big deal about electric cars?... With social media today it is 100 times easier...and people are willing to buy it... but nobody wants to make it... other than Car companies...

This whole concept of BUILD IT BIG and then destroy it... is a concept that was done before... the biggest example being UAE's work of art Masdar Solar City... construction of which was started in 2006 using the best mix of traditional and modern technology... built only to show that such a solar city is not profitable or workable and work completely stopped by 2009 showcasing it as "expensive & flop" technology... 6 years later in 2015 they wake up to the Paris Summit binding them to stop selling their Oil by 2050... (Modi protested and elongated it to 2100: http://atimes.com/2015/11/climate-protesters-clash-with-police-in-paris-before-talks/) and use clean energy... during which time 2006-2016 the west & Europe were implementing this technology... UAE could have become a 150% renewable energy nation had they spent that time and money on implementing renewable energy in the life of its citizen.... and also increased their agriculture output 400%

So the danger of Tesla being just a pretender is always there! ;-)

Reply
Nikhil link
10/4/2016 12:28:22 am

Hi, Thanks for active participation. I kind of agree that they will not be able to launch $18000 car but I guess the reason will be production scale. Toyota, Honda make same number of cars per Day that Tesla makes in an year. As volumes grow you face a lot of challenges but you have to remember Toyota was horrible with its quality 20 years ago. There is a learning curve that each company has to go through. The advantage Tesla has is the ecosystem they are building. It is the only company that is planning and deploying electric ecosystem to challenge gasoline ecosystem. Challenges are huge but Tesla will push all other OEMs to come up with better EVs. I don't think failure of Tesla will have negative impact on EV revolution. Nissan, BMW and GM are all committed and moving forward.

Reply
Shaakshi link
30/9/2016 06:48:35 pm

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