Elon Musk has a grand vision. Many write the guy off because of his quirky personality. A lot of critics claim that Tesla would be better off without Musk as CEO. At a minimum, someone should be put in charge to deal with Wall Street and handle operations. Musk, at times, seems completely lost in this area.
That said, he is providing some insight into what he is thinking. Personally, I think he should be listened to simply for the fact that he keeps pulling off what he claims. While his time frames tend to be a bit aggressive, he eventually does get there.
The thing about disruption is the difficulty in projecting when things will take off. When the day does arrive, it hits everyone like a sledge hammer.
So what is the hammer Musk is wielding? Many believe it is electric but that is not the true game changer. If we pay attention, we will see what the automobile future looks like according to Elon Musk.
The holy grail is autonomous driving. Musk claims that Tesla will have the ability to put out a fleet of robotaxis in 2020. This is a claim I find a bit off but, then again, we are living on Musk time. Since he believes it will be here in a year, we can convert it to 3.
That means Tesla will have the ability to put fully autonomous vehicles on the street in 2022. It is vital to remember that all Teslas sold since 2016 will have the ability to be upgraded to this feature. Tesla presently is sitting on around 500K cars on the road.
There are roughly 80 million cars sold each year. The planet has in the neighborhood of 1.3 billion vehicles on the road. One vital question is how many vehicles will be needed long term if autonomous is part of our daily lives?
Coming up with an answer is a mere guess. However, we can figure somewhere around a billion cars will be required. Moving from car ownership to rides will reduce the amount in the developed countries. Of course, as third world nations come online, it is likely the numbers will grow in those areas.
If the number is a billion, we will see the entire fleet of vehicles in the world replaced in a little over a decade.
Tesla is looking at producing around 350K cars in 2019. With the addition of China coming online, we could see this number grow to near 1M by 2021. This still is far short of the amount needed even to dent what is out there.
A big supposition in all of this is that Tesla has an incredible lead in the autonomous field. Many are buying into Musk's vision of cameras as opposed to LIDAR. The drop in price simply has not kept pace with the advantage in recognition software. This is putting Musk in the proverbial driver's seat.
So how is he going to produce enough cars?
The answer lies in giga-factories. With China, there is the second one being constructed. All expectation is a third one will be announced later this year for placement somewhere in Europe.
Here is where it gets interesting.
Musk stated, in the past, to pull off his vision, it will require a couple hundred giga-factories. How in the world is that going to be funded at the price tag of $2B apiece?
The answer could lie in the "Omega". This is a new model car that could be produced starting in 2023. The vehicle would cost about $50K to make and would sell for $100K. Why such a market up?
Because cars would not be for personal ownership. In fact, the new ones would be a full on ride sharing vehicle without a steering wheel, brake pedals, or any other human required accessories to operate the car. They will be full autonomous.
The product line would be designed for fleet sales. Tesla's goal is to get cars that can go 1M miles, about 5 times the distance of cars today. This will cut down the cost of operation to fleet owners, providing them with a better return.
Here is where Musk's statement about people still being able to personal buy a Tesla enters the picture. When he made the claim that Tesla would stop selling cars, many were upset. This idea behind this is that those who want the car will pay a premium, hence the $100K price tag.
The "Omega" is the end of personal vehicle ownership. To be able to purchase this, 100K people will have to pony up big money for this privilege. This would give Tesla $50B in gross profit on the vehicles.
That is the funding required for 25 Gigafactories.
It still does not get Tesla to the goal of where it needs to be but this is a single year's funding. They would have to produce these factories simultaneously to get efficiencies across all of them. Of course, similar results could be seen the next year.
Hence, Tesla could build out the entire gigafactory network in about a decade. This would give them in the neighborhood of 100 of them, each churning out about 500K cars. It would provide about half the total autonomous vehicle requirements for the planet.
Of course, there are a lot of challenges with this. To start, there would need to be enough raw materials, especially with the batteries to even begin to achieve this. Also, advancements would need to continue in the production process to keep squeezing more efficiencies out. Without that, the costs get too high.
At this point, competition is waning but that might not always be true. The advantage Tesla does have is 500K cars are feeding its hivemind data on a daily basis. This is much different than a couple of engineers monitoring a car as it is driving on its own.
Will this be enough to push Tesla ahead of all others? Time will tell. The automobile industry is open to great disruption. Musk is playing a game of high stakes and, ironically, he might be the one holding the aces.
Just like with cryptocurrency, one has to dig deeper to understand what is taking place.
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