Tesla Motors Inc Ex-Chief Engineer: Regulations Driving EV Demand, Not Consumers

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Tesla Motors Inc Ex-Chief Engineer: Regulations Driving EV Demand, Not Consumers
Unsplash / Pixabay

Tesla Motors Inc (NASDAQ:TSLA)’s former Chief Engineer Robert Feldmaier, who worked on the Model S, says that electric vehicle demand is largely driven by regulations rather than consumers. During a conference call with UBS analysts Colin Langan and Philippe Houchois, Feldmaier said he wouldn’t be surprised if Model S demand in the U.S. slows after initial adoption. Offering a cautious outlook on sales volume, he said that Roadster demand too fell after early adoption.

Fuel cells pose little threat to Tesla

Notably, Barclays analyst Brian A. Johnson has previously stated that the Model S demand may already be slowing in the United States. Feldmaier said about 30% of vehicles will need some kind of electrification in the long-run based on the current corporate average fuel economy (CAFE) standards. This penetration level is in line with the EU targets of 95gm of carbon emission per kilometer. However, the CAFE rules will be re-assessed in 2017, which would have a significant impact on the demand outlook.

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Anyway, Robert told UBS analysts that the current 4%-5% per year reduction in battery costs is sustainable, and the $200/kWh is achievable. He believes Tesla should be able to launch its mass market Gen III car at the starting price of about $35,000. That’s almost 50% less than the price of Model S sedan. Tesla will have to use smaller battery packs, which would reduce range, to bring down the cost.

Tesla’s mass market car may have a different battery chemistry

Battery chemistry is still evolving. So, it may change by the time Gen III car hits the roads. The initial selection of lithium-ion battery was mainly due to availability. Lithium-air, lithium-sulfur and solid state batteries’ characteristics resemble that of lithium-ion. Any of them could win out. However, Robert Feldmaier doesn’t see fuel cell as a big challenge due to their high infrastructure costs. A hydrogen station would easily cost more than $1 million, compared to just a few thousand dollars for electric vehicle charging stations.

Tesla Inc (NASDAQ:TSLA) has limited expertise in battery component technology. So, the company is likely to work with partners for its Gigafactory.

TeslaTesla Inc (NASDAQ:TSLA) shares jumped 0.90% to $231.50 in early trading session Thursday.

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3 COMMENTS

  1. Vikas Shukla wrote, “Tesla Motors Inc (NASDAQ:TSLA)’s former Chief Engineer Robert Feldmaier, who worked on the Model S … said he wouldn’t be surprised if Model S demand in the U.S. slows after initial adoption.”

    Meh. Whatever. I believe that the only ‘slowing’ that will occur with Tesla Model S sales will be: 1) as a result of Tesla Motors ramping up sales of Tesla Model X; and 2) due to impending production of Tesla Generation III. There will not be a decrease in demand for the Model S at all. People will still want to buy it… they’ll just have to wait for it. And they will.

    Tesla Motors will purposely limit annual production on Model S to around 50,000 units. They will halt annual production on Model X at perhaps 150,000 vehicles. All the rest of their annual production will be dedicated to the rollout of Generation III cars.

    In other words, all the capacity of the Fremont facility above 200,000 units will be dedicated to GIII. Don’t expect an increase of worldwide sales on Model S and Model X beyond a combined 200,000 units annually until there is at least one new factory built in Asia, Europe, or the Americas — and a Gigafactory (or two) is in full form.

  2. Vikas Shukla wrote, “Tesla will have to use smaller battery packs, which would reduce range, to bring down the cost.”

    Tesla Motors uses battery packs that are filled with 18650 form factor lithium-ion battery cells. In the four years between the launch of the Tesla Roadster and the Tesla Model S capacity of individual cells improved by 40%. So the number of battery cells that yielded only 53 kWh capacity on the Roadster allowed 85 kWh capacity in the Model S. With a similar increase in capacity prior to the release of Tesla Generation III vehicles, it would require fewer battery cells to achieve a 60 kWh capacity — the lowest capacity used currently, in the Tesla Model S 60.
    Vehicle # Cells
    S 85 ~7000
    S 60 ~5000
    GIII 85 ~4200
    GIII 60 ~3000
    Combined with a projected 30% lower cost of batteries with the opening of the Gigafactory, that means that as time goes by, Tesla’s margins on the GIII will go up. That will allow the cars to be affordable, while allowing Tesla to put more cars on the road per cell count.

    In this example, the GIII 60 would use only 60% of the battery cells that were originally in the Model S 60, while the GIII 85 would use only 60% of the battery cells that were originally in the Model S 85. That would make for a weight savings of around 500 pounds with the 85 kWh version and over 350 pounds off the 60 kWh version.

    Since the GIII 60 would also weigh substantially less than a Model S 60, it would also have a longer range — not shorter. So instead of an EPA rated range of 208 miles, it would be closer to 250 miles instead. No Tesla Motors vehicle will ever be released with a range less than 200 miles minimum ever again.

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