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Can Tesla's $5 Billion Bet Pay Off?

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Rob Spiegel
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Any bets on location
Rob Spiegel   5/7/2014 7:56:26 AM
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Nice story, Chuck. I know it's early in the process, but has there been any talk about location for this factory? 

Charles Murray
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Re: Any bets on location
Charles Murray   5/7/2014 10:52:22 AM
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Last I heard, Rob, Tesla had narrowed it down to four states -- Arizona, Nevada, New Mexico and Texas -- according to multiple news reports. The news reports are saying that Musk plans to move forward in two states, all the way to the point of breaking ground, "just in case there's last-minute issues."

Rob Spiegel
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Re: Any bets on location
Rob Spiegel   5/7/2014 11:37:45 AM
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I'm glad New Mexico is on the list. Our state needs the jobs. I'd place my bet on Texas, though. They're very agressive in attracting business. Lately, they've been stealing existing business from California.

sbkenn
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Manufacturing and marketing flexibility
sbkenn   5/8/2014 8:49:05 AM
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As a complete moron in relation to finance and, marketing, I wonder is this venture will encompass other industry sectors such as renewable energy, other forms of transport, or whether the manufacturing facilities will be flexible enough to use new battery chemistries or power storage as they are discovered or developed.

  PV technology is coming down in price, but energy storage is still expensive.  Could trains use batteries ?  With better streamlining and regenerative braking, energy conversion to heat could be cut dramatically, making them very efficient.  Weight is not nearly as important here as in cars or aeroplanes.

naperlou
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Not viable
naperlou   5/7/2014 3:08:54 PM
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Cap'n, I don't think this whole effort is viable.  The key is that the current battery makers are running at such low capacity.  Is the cost really driven by logistics?  If this were the way to go, then why don't auto manufacturers still operate the way Ford did originally.  In that case the raw materials were brought in and the steel, glass and rubber were made on-site.  Does anyone really believe that will happen again? 

Charles Murray
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Re: Not viable
Charles Murray   5/7/2014 6:31:49 PM
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I know what you mean, naperlou. To paraphrase bonjengr's statement above, Musk must have nerves of steel. There's a pile of factors that are right on the edge of reality here -- the massive investment and the complete reliance on unproven sales numbers being prime among them. Whether it works out or not, though, I think this will make an incredible ongoing business story over the next few years.

Charles Murray
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Re: Not viable
Charles Murray   5/7/2014 6:35:03 PM
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One more thing, naperlou. You raise a good point about our current auto industry. Vertical integration, as it's called, has gone completely out of vogue. Notice all the suppliers -- two that come to mind are Delphi and Visteon -- who are no longer part of the big automotive companies. There's a reason the automakers have abandoned that corporate strategy.

Cabe Atwell
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Re: Not viable
Cabe Atwell   5/7/2014 10:24:43 PM
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My money is on Texas for the new plant. That state is like a sponge when it comes to businesses relocating. But since Tesla lost $50mil this first quarter... mayber not

benmlee
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Re: Not viable
benmlee   5/8/2014 9:02:12 AM
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Texas has outlawed the direct sale of Tesla to consumer along with New Jersey. That is a sticking point for Tesla to build their factory to a state that effectively outlawed their product.

sbkenn
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Re: Not viable
sbkenn   5/8/2014 10:05:28 AM
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Direct sales banned ?  An outdated law.  So much for a free market !

GTOlover
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Re: Not viable
GTOlover   5/8/2014 10:59:20 AM
sbkenn, you assume we have a free market. It is now, more than ever before, a mercantile system. You have money and lobbiest, then you can get dumb laws enacted. Look how it has exploded in the last six years and particularily in the renewable energy business! Do I need to list the companies that got government loans and grants and went bankrupt?

sbkenn
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Gold
Re: Not viable
sbkenn   5/8/2014 11:25:21 AM
One man, one vote has gone by the board too.  Any country where lobbyists can make a living is not a democracy.  Ditto, when the Supreme Court judge fails to recuse himself when a case from his previous (before he was appointed to the bench) employer comes before the court.

78RPM
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Re: Not viable
78RPM   5/8/2014 12:46:12 PM
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GTOlover, You forget that Tesla Motors was one of those companies that got a $400 million loan from the government and paid it off early while making a profit.  General Motors is still alive and, while sale of the government's stock might fall slightly short of break even, the tax revenue from the company and its employees will be a net gain.  I would not bet against Elon Musk.  His track record is pretty amazing.  How many people could start a space ship company like SpaceX?  He started PayPal. There is no such thing as a purely Capitalist country, nor a purely Socialist country. It's a sliding scale.

sbkenn
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Politics
sbkenn   5/8/2014 12:56:49 PM
Purely capitalist or purely socialist.

Regardless of the system, the powerful look after themselves and leave the scraps to the electorate.

GTOlover
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Platinum
Re: Not viable
GTOlover   5/8/2014 1:10:58 PM
I do not want the sliding scale to keep sliding to the left. Governement picking winners and losers is a recipe for tyranny. I applaud Elon for going for it. But 17 trillion in debt and climbing means we are not doing a very good job of picking the winners. We are just good at protecting the rich and the big corps.

CharlesM
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Silver
Re: Not viable
CharlesM   5/9/2014 10:08:06 AM
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Either you get it about the need for more investment in clean energy or you don't. Some obviously don't. Government is in the business of picking winners and losers, GTOlover. They do that all the time as a matter of course. It's just that some people are afraid they will be among the losers. Their precious gasoline, which is subsidized by wars, billions in taxes, and offloading its environmental problems onto future generations, may need to be priced more realistically, sooner rather than later, and these people somewhat understandably feel threatened.  If you look long term, though, the best way to ward off major economic and other calamities later is to start making the necessary investments to move beyond fossil fuels now. It will be much cheaper in the long run and borrowing is especially cheap now. The federal debt is not a problem.  Moreover the reason for all the stimulus programs was because the economy collapsed and the free market was broken. If you studied economics, you'd know it really didn't matter if the stimulus took the form of hiring people to dig ditches for no reason. It had its intended effect and also saved the domestic auto industry which is now thriving.

I agree with your last sentence, however. The rich and the big corporations are the problem. They are behind political sound bites like "government picking winners and losers" and they encourage distractions like fake outrage over federal debt. (edit for clarification: Musk bucks that trend, though, just like his businesses are disruptive.) I hope you at least were as consistently vocal during previous administrations about your wishes for fiscal restraint.

ttemple
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Platinum
Re: Not viable
ttemple   5/12/2014 10:12:38 AM
 

 

"Federal debt is not a problem."

Really.  Please enlighten me.  Is there a level at which it becomes a problem?  Is more federal debt better?

CharlesM
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Silver
Re: Not viable
CharlesM   5/12/2014 1:38:59 PM
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No, it's not a significant problem, at least not now. Here's a little video to explain it:

http://www.vox.com/2014/3/28/5559052/stop-freaking-out-about-the-debt

With bonus factoid: 

http://www.slate.com/blogs/moneybox/2014/02/27/debt_alarmist_chart.html

And here's an essay written by someone who knows a thing or two about the subject, wherein it's explained that if this country were to instead focus on ways to increase economic growth, a mere 0.2% growth per year would completely eliminate long term debt.  

http://larrysummers.com/the-battle-over-the-us-budget-is-the-wrong-fight/

It's interesting to note that the political party that ran up most the debt would brush aside the problem when they were in power with the excuse that debt was still low as a percentage of GDP, and that they are the champion alarmists when they're out of power. Turns out they are correct that % of GDP is what matters most. They just don't want you to know that when they're not the party that gets to "pick winners and losers."

ttemple
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Platinum
Must have felt different before he was doing the spending
ttemple   5/12/2014 7:08:58 PM
"The fact that we are here today to debate raising America's debt limit is a sign of leadership failure. It is a Sign that the US Government cannot pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government's reckless fiscal policies. ...Increasing America's debt weakens us domestically and internationally. Leadership means that 'the buck stops here'. Instead, Washington is shifting the burden of bad choices today onto the backs of our children and Grandchildren. America has a debt problem and a failure of leadership. Americans deserve better."

SENATOR BARACK HUSSEIN OBAMA, MARCH 2006

CharlesM
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Silver
Re: Must have felt different before he was doing the spending
CharlesM   5/13/2014 9:28:52 AM
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Do political speeches always have such a profound effect on you?

NadineJ
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Re: Must have felt different before he was doing the spending
NadineJ   5/17/2014 12:56:47 AM
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@ttemple - can you elaborate?  How does this quote add to the discussion?  Help us see the connection you're making.

JimT@Future-Product-Innovations
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Re: Must have felt different before he was doing the spending
JimT@Future-Product-Innovations   5/20/2014 12:45:33 PM
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Somebody needs to support your contempt for the Oval office, so let me stand at your side. The president is a hypocrite.

careyfelix
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Silver
Re: Not viable
careyfelix   5/9/2014 9:40:22 AM
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For the Detroit Three selling off the parts suppliers as independent companies generated cash flow through the IPO's and sell of stock, which those companies needed.  GM had a huge pile of cash in the late 90's and early 2000's and owned many majority shares of companies like Hughes Satellite but now they don't. They had to sell it off for cash flow to prop up the automotive side.  

Henry Ford was all about vertical integration it gives you control, it's not always about cheaper.  It's also more complex to manage and many mangers and executives don't have the capability for such complex interactions of internal systems. It's easy to make a contract and force the supplier to uphold it but it's more difficult many times to deal with internal interactions because there isn't such contracts to enforce only executive will and pressure from the top.  The steel companies come to mind when talking about automotive.  They produce a inferior product to Japan mills (by inferior I mean they use to complete tolerance band for properties (chemical and physical) which is an issue for reducing a stamping processes variation) and won't change to provide their customers with better product.  So, if you need your material to have improved formability your out of luck you have to scrap a lot of parts or import material because the US mills are completely indifferent.  So, Tesla's issues with suppliers aren't secret and that along with cost is more than likely what he is trying to correct and he could also very well become a supplier of batteries to Toyota, Mercedes and other larger automotive companies that invested in his company.  It's hard to control quality and cost if you don't own the process.  Because if you want quality the supplier will says that's going to cost you and if you what lower cost you typically end up with a lower quality or delivery or both.  But if you view the battery plant like and engine or transmission plant they aren't much different.   and with an electric motor and simple gearbox in an all-electric vehicle the most complex part of the drivetrain or costly is the batteries, vs. the engine and transmission in a gas/hybrid car.  Toyota has control of key items in their hybrid systems it just makes since for Tesla to do the same, you have to look past the surface.

DVanditmars
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Silver
Re: Not viable
DVanditmars   5/8/2014 1:54:35 PM
Wow, thinking like this is why real manufacturing is not around North America as much as it used to.  By real manufacturing I am talking about raw material to the final product.  Not buying something offshore and sticking a label on it.

I like Tesla's thinking from a scale perspective and the attitude.  We need more people like this leading industry to ensure that we all live in a great society, from both a security and lifestyle perspective.

naperlou
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Re: Not viable
naperlou   5/8/2014 2:27:26 PM
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It's not really a matter of being bold.  It is about being practical. 

I once worked at an aerospace plant where we made our own composites from scratch.  The volumes were low and the applications really specialized.  It made sense.  One of our competitors, who was later merged with us, made more high volume satellites.  They got their composite bodies from a manufacturer whose main business was railcars.  Who was right? Both, each in their own application area.  What is the answer for Tesla?  My answer is that they are moving in the wrong direction.  If they sell batteries for other markets, then the economics will be very different.  If you look at the recent downward move in their stock price, the marker believes that they may not be on the right track.


I don't know what the issue with US manufacturers is.  If you will notice, half the automotive industry employment in the US for foreign firms.  In the UK, which has a similar issue, much of the auto industry has been taken over by Asian firms.  Some of that was bought from US firms (e.g., Jaguar from Ford).  Now manufacturing in the UK is going great guns.  I have a nephew who is studying Mechanical Engineering.  He has done two paid internships with Bosh in the Carolinas. 

What matters is not who the owner is, but the level of activity.  The current expansion of manufacturing in the US is driven by low energy costs, flexible labor and a large market. 

bobjengr
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Platinum
$5 BILLION BET
bobjengr   5/7/2014 6:19:56 PM
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Mr. Must is truly a man of steel.  I would nervous as a cat over this one.  I can certainly see the need but I doubt the sales number will be there to make the project viable and provide the necessary ROI.  I would expect federal rebates will continue to be necessary to attract "rank and file" consumers no matter how many cars are sold when addressing alternative energy and improving MPG usage.   With that being said, I would love to see his company locate in east Tennessee.   Excellent post Charles.  

Battar
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Re: $5 BILLION BET
Battar   5/8/2014 9:15:24 AM
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There is a huge potential here.

Everyone and his dog is doing research into battery technology, and when some research team makes a breakthrough, they are going to look for manufacturing capacity to commercialize it. I don't see manufacturing limited to EV batteries, either. There are huge markets for smaller devices, too.

ChasChas
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Cross Country Market
ChasChas   5/8/2014 9:15:04 AM
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Is 200 mile range so much better than the 100 mile range for the local commuter?

No.

Tesla is shooting for the cross country market (with free charging stations).

That's where they feel it's at.

They could be right.

No electric car for me until it can really go places.

naperlou
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Re: Cross Country Market
naperlou   5/8/2014 1:17:34 PM
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Free charging stations will only be free for a short time.  If electric cars take off it will be becuase the batteries get a lot cheaper, the range goes up and there are sufficient charging resources.  At the price of the current vehicles Tesla can, perhaps, afford to provide free charging.  When the price comes down to the point where they are mainstream, companies like Tesla will not be able to afford to provide free charging.

ChasChas
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Re: Cross Country Market
ChasChas   5/8/2014 1:34:26 PM
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Battery swaps can't be free, but the cost of charging as you wait may be picked up (or alleviated) by the restaurant, casino, or amusment establishment getting the forced business. (They will probably want slow chargers.)

Charles Murray
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Re: Cross Country Market
Charles Murray   5/8/2014 5:23:50 PM
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I agree wholeheartedly, naperlou. If (pure) electric vehicles take off, it will be cause of the batteries. The batteries still need to get better -- a lot better -- or we will never really see widespread adoption.  

NadineJ
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Re: Cross Country Market
NadineJ   5/11/2014 2:59:20 PM
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naperlou makes a good point, as usual.  Batteries are critical to EV success.  Panasonic's role in downplayed in the press here in the U.S.

I wonder what other companies were in the running and why Tesla chose to partner with Panasonic.  Did Panasonic leap on this as an answer to Samsung's partnership with XG Sciences?  Why not link up with American LIB manufacturers?  There are several. 

I have too many questions.  But, Musk does like to create mystery.

Charles Murray
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Re: Cross Country Market
Charles Murray   5/16/2014 6:57:19 PM
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Panasonic has been Tesla's partner for awhile, NadineJ. Tesla has singlehandedly vaulted Panasonic to the top of the market in sales of EV/hydrid batteries over the past two years. Panasonic now makes 39% of the EV/hybrid batteries, almost all of which are the 18650 variety.

NadineJ
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Re: Cross Country Market
NadineJ   5/17/2014 12:53:46 AM
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That's really interesting Charles.  You'd never know based on the press coverage and blog comments.  Thanks!

ttemple
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Platinum
Re: Cross Country Market
ttemple   5/20/2014 2:09:35 PM
@NadineJ - In a post dated 5/9/2014, 10:08:06, CharlesM was making a series of points about clean energy and government subsidies, etc. In the middle of the post he stated as an unqualified fact: "The federal debt is not a problem."  I took issue with that statement, and posted then Senator Obama's quote as my final response.

 

@JimT, Thanks, I appreciate it.

MikahB
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Iron
Were I A Bettin' Man...
MikahB   5/8/2014 11:05:35 AM
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I would not bet against Mr. Musk.

The unit sales volume they're talking about is ambitions but absolutely achieavable.  Maybe not necessarily by 2020 and clearly not just in the US, but worldwide auto sales were >80M units in 2013, and from that perspective 400k units doesn't seem quite so outlandish.  Thinking about Tesla's market as US-centric is already outdated - they are already selling well more volume in Europe and Asia than in the US, and my gut feeling is that (ever-increasing but still limited) BEV range is less of a concern in those markets.

Further, few segments of the transportation industry (if any) will be using LESS battery capacity in the next 2 decades.  Regenerative braking on train locomotives, diesel-electric hybrid Class A trucks, etc. will all require the same improving battery technology that Tesla will be using in their cars and building at their new factory.  I would be shocked if Musk isn't counting on capturing a significant chunk of that business going forward as well.

Anyway, it's encouraging to see a company betting big on manufacturing in the states, and in the automotive sector even more so.  If the plant ends up in TX, I somehow expect the sales channels there to open up simultaneously.

ChriSharek
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Gold
Re: Were I A Bettin' Man...
ChriSharek   5/8/2014 12:40:37 PM
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I would never bet against Elon Musk.  His dreams, visions, and achievements will be historic in American Business for decades or centuries. 

If you're not thinking about EVs, you better start!  They are here to stay! 

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