Whitney Tilson’s email to investors discussing his friend’s comments on battery pricing and quality testing the Audi eTron compared to Tesla Inc (NASDAQ:TSLA).
A friend’s take on battery pricing and quality testing:
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Battery prices may or may not be falling from this point. Considering that all battery manufacturing has been fully automated already, the scale efficiencies beyond a certain limited point are very modest. There is not a lot of labor involved. You capture almost all automation/scale benefits already at a fairly small scale.
Three has been a lot of advancements in terms of battery PACK design. That includes thermal management (heating, cooling) and the way that the pack is integrated into the body of the car, how it handles a crash, and so forth. That’s where most of the cost reductions have originated in the last 5-10 years.
Most people I know in the auto industry say that the battery prices are not falling much from here, if at all. Any movement from here will be mostly dependent on raw material prices, such as cobalt and all the other ingredients that go into a battery. If those costs go down, battery prices go down. But not very much otherwise.
The overall cost of the vehicle will decline somewhat from here because of dedicated BEV production lines with slightly simplified assembly processes. See both Tesla and Volkswagen’s MEB-based factory in Zwickau, for example, as they are 100% BEV. Or see Audi’s factory in Brussels, which is also 100% BEV. In China, already dozens of examples, rapidly approaching hundreds.
Tesla has indeed pioneered some battery pack and software techniques. They have two good motors, with industry-leading efficiency. So let’s say that buys them 2% or even 3% on those parts. Who is a more efficient manufacturer overall? Who buys steel and aluminum at lower prices? Who buys tires and all other components at lower prices?
The other automakers can also afford to outright subsidize their BEVs, because they actually have profitable product lines (gasoline, diesel) from where they can subsidize.
This is Audi’s 100% electric car factory in Brussels, Belgium:
You may ask yourself why Audi’s former production boss -- Peter Hochholdinger -- who left Audi 3 years ago to join Tesla -- left Tesla as soon as his 3 year contract was over. That was just over a month ago.
There is a world of difference between the way in which an Audi eTron is assembled, and the way in which a Tesla is assembled, from a quality and professionalism perspective. In addition, guess to what standards the Audi eTron was tested before being released for production, compared to the way a Tesla is tested (barely) before it goes into production. The level of quality control is in a different league.