On March 1st (local time), Tesla CEO Elon Musk held an ‘Investor Day’ event at the Austin Gigafactory in Texas and announced future plans. Previously, rumors that Tesla would release a half-price electric vehicle and cybertruck release schedule soared. Stock prices, which had soared, also fell. However, there were also meaningful contents that could detect changes in the automobile market in the future. For example, energy It goes without saying that energy will become more important in the future, but Musk presented a specific model for how to manage the energy needed for electric vehicles. Emphasizing the transition to a sustainable energy economy, he mentioned that an investment of 10 trillion dollars (approximately 1.32 trillion won) is needed to target the production of 240 terawatt-hour (TWh) batteries for electric vehicles and energy storage devices. It is unclear whether the goal will be achieved with an amount exceeding 1 trillion won. Again, this announcement is meaningful in that it presented a detailed business plan. He also didn’t reveal a half-price electric car, but revealed plans to further diversify the segment in the future. It seems that we can expect a new type of mobility that has not existed before.
The most important topic in this presentation was cost reduction. Already, Tesla’s operating profit is in the upper 10% range, which is overwhelmingly higher than other finished car brands. If production costs are further reduced here, vehicle prices will gradually decrease and market share will expand. Then, will the $10 trillion investment that Tesla wants come true? No one knows what will happen in this world. The same goes for the plans Musk confidently announced on this day. Still, one thing is certain. Tesla is building a gigafactory in Mexico.
Tesla announced plans to produce a high-end electric sports car in its first master plan in 2006. And in the 2nd plan in 2016, energy production and storage, and self-driving car business visions were revealed. The core of the third master plan was to improve the manufacturing process and reduce production costs by 50%. It means to maximize productivity, but the goal is quite ambitious.
Last year, Tesla shipped 1.31 million electric vehicles. This is about 10% of Japan’s Toyota’s annual production of 10.5 million units. Nevertheless, Musk announced a plan to produce 20 million units by 2030, seven years later, twice the annual production of Toyota. Currently, Tesla produces 2 million units per year in four gigafactories, so does that mean that it will produce 18 million units a year at the gigafactory in Mexico? Musk said he would increase the number of sales models to 10 and make 2 million units per year per model. Here’s how. It is an unboxing process in which assemblers assemble each module of a completed vehicle instead of the traditional method of assembling parts to the vehicle frame on a conveyor belt. This is a manufacturing innovation that cuts the manpower, space and cost required to manufacture a vehicle by less than half.
The parts used in the vehicle are also produced in-house. In the case of Model S, 20% of parts developed by Tesla were used, but 61% are applied to Model Y. The Cybertruck uses 85% of Tesla-developed parts, and the next-generation vehicle will be produced with 100% of Tesla-made parts. The parts made by Tesla are electronic and outperform the conventional fuse method. It is clear that self-manufactured parts and half-price production prices will be applied to vehicle prices in the future.
Tesla is already lowering the price of its cars. On March 6, Tesla cut the selling price of the Model S by $5,000 (about 6.6 million won) and the Model X by $10,000 in the US market. After adjusting the price in January, another discount was applied two months later. The reason for the price cut is to increase sales in the first quarter by melting the hearts of consumers who have closed their wallets due to the interest rate hike. Even if the interest rate has risen, Tesla is said to have been able to offer a full discount due to its large operating profit.
If you turn your gaze to a wider place, Tesla’s largest market, China, is preoccupied by the local electric car brand BYD. BYD has grown rapidly with low prices close to half the price, and the reason BYD was able to lower the price is probably because China is the world’s largest battery producer. Batteries account for half of the price of an electric car, so the battery’s share in the production cost of an electric car is very large. If Tesla wants to secure the Chinese market again, it must compete at a lower price than it is now. Another reason Tesla should make half-price electric vehicles.
Tesla is expected to increase productivity and lower product prices through manufacturing innovation. Tesla’s discount move may also affect other electric vehicle manufacturers, leading to a craze for low-cost electric vehicles.
If you think about it, Tesla has created a genre that did not exist in the world. The Model S looks like a typical 5-seater sedan, but with two hidden seats it becomes a 7-seater sedan. The SUV (Sports Utility Vehicle) Model X with wing doors, the roadster with performance close to a hypercar, and the Cybertruck, although not yet out in the world, are distinctly different from existing off-roaders. On ‘Investor Day’, Tesla sneakily presented vehicles that were covered in veil. It is unknown what kind of vehicle it will be, but it is possible that it will be a next-generation low-cost electric vehicle known as ‘Model 2’ or a completely different type of new model. The important thing is that Tesla proved that electric vehicles can be transformed into various forms unlike internal combustion engine vehicles. And other automakers are designing and sometimes releasing electric vehicles that are distinct from existing segments such as sedans and SUVs.
Since we do not know what the veiled model is, what we can do is to use our imagination to infer the shape. It can be a small SUV, a crossover, or a completely different kind of model that is not on the market. Whatever it is, there is a possibility that a new segment will emerge, led by Tesla. If a new genre suits people’s tastes, there’s no reason other manufacturers won’t create it.
The plan to supply electrical energy to homes has been in place for a long time. In 2015, Tesla entered the home battery market. Lithium-ion batteries are installed in homes to store solar power during the day and use battery power at night to save household electricity. In the home battery market, there are several companies other than Tesla in the US alone. What has evolved here is the home charging service.
At the ‘Investor Day’ event, Musk announced a monthly flat-rate home charging service, explaining that for $30 a month, you can recharge your vehicle at night without limit. Electric vehicles require a lot of power that is incomparable to other home appliances. As the spread of electric vehicles increases, the amount of electricity required for households increases rapidly, which leads to an increase in energy prices. Electricity will become more valuable. Therefore, opinions have been continuously raised about the need for a way to store and conserve energy. A monthly flat-rate home charging service seems to be one of the solutions.
Until now, electric vehicles have been focused only on the supply of charging infrastructure, but now it is necessary to focus on the next step, power management. An increase in electric vehicles means a rapid increase in power consumption, and an increase in energy costs comes back as a social burden. Systems that store sustainable energy, such as solar power, wind power, and late-night electricity, will need to grow along with electric vehicle charging facilities.
The automotive industry is changing rapidly. Now, the time has come to lead social change with electric cars beyond discussing how fast and comfortable electric cars are. Electric cars are no longer a novelty. It is time to think about lowering the price of transportation and sustainable energy development. At the ‘Investor Day’ event, Musk did not reveal the products fans wanted, but through his vision, he evoked the points we should pay attention to. Of course, the vision was to attract investment, but it had social meaning.
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Cho Jin-hyeok freelance writer
Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.