TSLA & EVs: Where the Rubber Hits the Road

TSLA & EVs: Where the Rubber Hits the Road

Tesla is going mass-market, which means more heartburn for investors and “at least six months of manufacturing hell,” according to CEO Elon Musk.

As the controversial carmaker shifts from small-batch production runs of approximately 20,000 cars per quarter to a more Detroit-scale 10,000 cars per week output level, the company’s cash burn rate has once again come under scrutiny. In 2Q17 alone, the company spent roughly $1.16 billion to bring the reasonably priced Model 3 to market, and as Musk’s ambitious plans move ahead on the heels of an oversubscribed junk bond raise in August 2017 (with the notes now trading under par), investors are bracing for another $1.5-$2 billion in incremental cash costs to push the Model 3 program forward.

According to analysts at Teslanomics, the market should expect production of approximately 83,000 TSLA Model 3s in 2017, which would represent a 40% increase in total annual U.S. EV sales. At the same time, with Hyundai ramping up its efforts to sell more battery electric Ioniqs in the U.S. and with Handelsblatt reporting that BMW is getting ready to unveil an all-electric 3 Series at the Munich Auto Show in September, the competition is also heating up. It remains to be seen whether Tesla can keep its foot on the gas, so to speak, for the remainder of the year, a debate which Coleman’s Hosted Events Research team recently examined with TSLA’s former head of supply chain in a wide-ranging discussion on pricing, output, ZEV credits, and factory preparedness.

In parallel, as more connected cars hit the highway, Detroit and Silicon Valley are teaming up like never before. With Ford appointing Jim Hackett — formerly the company’s mobility chief — CEO, Intel acquiring Mobileye, nuTonomy teaming up with Peugeot/PSA, and Samsung working to integrate infotainment giant Harman International, the car convergence trend is accelerating. Looking down the pike, 5th generation wireless systems will be key, with Toyota launching a bold 5G partnership with NTT. U.S. carriers AT&T, Verizon, and T-Mobile not far behind in developing new car-centric data plans of their own, and IBM’s Watson division is working with GM OnStar to develop new algorithms for a smoother drive, safer route, and more efficient gas station checkout. Over in Wolfsburg — Germany’s answer to Detroit — Volkswagen has been partnering with LG on R&D to develop more advanced infotainment and smart device management platforms. As the competing heavyweights look to push connected car investment forward, it remains to be seen which players, parts, platforms, and technologies will outperform on this increasingly crowded highway, a topic which Coleman’s Automotive Research team discussed with the Former Chief Technology Officer at General Motors in early June.

Finally, on the battery front, SQM and GXY shares keep getting jolted higher by growing lithium demand for EVs. With Chinese private equity interests eager for a one-fifth stake in Chilean juggernaut SQM, and with officials in Santiago warning of potential lithium shortages down the line – even if Albemarle picks up the slack for SQM – many investors looking for a bullish commodity play are taking an interest in the high-conductivity alkali metal. In parallel with Bolivia, Argentina, and Chile’s so-called “Lithium Triangle” — where SQM plans to double lithium hydroxide capacity by the end of the year — attention is also shifting toward Clayton Valley, NV – the only producing lithium brine operation in the U.S.- where Albemarle has been investing heavily. Looking ahead, with Argentina’s President Mauricio Macri voicing strong support for the Cauchari-Olaroz lithium project, Tesla overtaking Ford in terms of market share, the average Tesla vehicle now containing approximately $500 worth in lithium content, and Tesla’s new gigafactory on track to soak up more than 17% of global lithium carbonate supply, many analysts expect competition between brine evaporators and pegmatite producers to intensify with fewer new reserves and more consolidated demand up for grabs, a market dynamic which Coleman’s Hosted Events team discussed in mid-August with one of our top lithium consultants