Battery-powered cars will be a great success, providing affordable and practical transport for millions, and will save the world from global warming. Battery-powered cars are a ridiculous con-trick which will only be bought by blinkered, self-righteous early adopters with too much money who will end up being stranded by the side of the road as their penalty for buying technology which is clearly not up to the job.
The argument about the likely success of battery powered cars swirls from one extreme to the other. Some experts reckon that a miniscule one per cent of the world’s car sales will be battery-only powered by 2020. The biggest supporters like Renault-Nissan see upwards of 10 per cent of sales as battery-only. Investment banker Morgan Stanley has gritted its teeth and tried to sift all these conflicting and controversial arguments so that it can advise its clients if battery-powered cars are worth an investment punt.
The answer is a brave and firm “Buy Tesla Motors Inc”.
According to Morgan Stanley auto analyst Adam Jonas, there is a good chance Tesla, the Palo Alto, California, based start-up, will end up being America’s fourth largest vehicle manufacturer making 500,000 electric cars a year by 2025. Jonas does include some scary negative scenarios in his report though.
“We see a path to a company with $9.5 billion of sales, $1.2 billion of operating profit, based on Tesla capturing 3.6 per cent of the global electric car market by that time (2025). The risks of lagging EV adoption, launch delays and balance sheet difficulties make Tesla a highly speculative investment,” said Jonas.
“As is not uncommon with start-ups, the biggest question is if Tesla can remain solvent long-enough to capitalize on the forthcoming technological breakthroughs,” Jonas said.
Jonas lists his plus-points for Tesla. These include –
- Plug-in hybrids and pure-electric vehicles will comprise 5.5 per cent of global car sales by 2020 and 15 per cent by 2025. (Jonas doesn’t breakdown the battery-only element in his forecast to make it comparable to the Renault-Nissan prediction).
- High oil prices will persuade consumers and politicians to support widespread electrification of the automotive fleet.
- Cooperation and ownership arrangements with Daimler, Toyota and Panasonic lend credibility to Tesla’s strategy.
- Tesla’s acquisition of the old NUMMI factory from Toyota shows its high volume capability.
- Toyota has a 2.5 per cent stake in Tesla, Daimler 10 per cent, and Panasonic two per cent).The principle threats to Tesla’s future include
- Mistakes in the model roll-out programme. Currently, Tesla uses a Lotus-derived body shell for its electric two-seater Roadster sports car. It will introduce the Model S four-door in 2012, Model X in 2014 and the Gen 3 in 2017.
- Internal combustion engine technology might take a huge leap forward and marginalize electric cars.
- Other big manufacturers will provide stiff competition to Tesla, despite its Daimler, Toyota link.
“The electric car market is larger than you think. The room for entirely new market players is greater than you think, and Tesla has the attributes to be a disruptive force in the auto industry longer term. The biggest risk will be Tesla’s own execution over the next three years,” Jonas said in the report.
After the publication of the report last month, Tesla’s share price jumped about 20 per cent to around $28, after Jonas had said his target price, long-term, for Tesla was $70. (Morgan Stanley was the underwriter for Tesla’s share sale last year). The price slid back to around $27 by mid-April.
The report said the cost of batteries will be crucial to electric car success. The cost of a lithium-ion battery today is about $800 to $1,000 per kWh, meaning a typical 15kWh battery that can drive a car for 50 to 60 miles costs £12,000 to $15,000 or about 50 per cent of the cost of the vehicle. To give an electric car more useful range would cost as much as $40,000 today,” according to the report.
“Battery makers have targeted reducing cost per kWh to about $500 by 2012-13 and halving that further in the next five years. We expect a 10 per cent a year decline in battery coasts. At $200 per kWh an EV battery would cost $5,000 to $8,000, only slightly more than a typical automotive powertrain today, and potentially more competitive versus the higher cost of advanced internal combustion engines,” Jonas said.
Liquid cooled
The report said Tesla’s battery technology was different from its competitors because it uses a much larger number – nearly 7,000 – of smaller cells and liquid-cools them to increase density.
“We estimate that Tesla’s batteries cost less than half of typical competitors’ batteries at the pack level and likely has the lowest pack cost per kWh of any electric vehicle,” the report said.
Critics say these batteries are not reliable, but Jonas said over 1,500 Roadsters have used the design and haven’t had problems.
The Model S has three range options – 160, 230 and 300 miles, with the longest range version costing about $70,000 in the U.S. Jonas expects 2,000 deliveries of the S in 2012, growing to 15,000 by 2013 and peaking at more than 26,000 by 2017. The Model X, a variant of the S, is likely to launch in 2014, and to provide 20,000 to 25,000 variants as a crossover, with light-duty delivery vans and pickup trucks too. The Gen 3, should be launched in 2017 with 30,000 sales, ramping up to 370,000 by 2025.
This last model “represents the future of Tesla as a sustainable independent high-volume manufacturer of electric vehicles,” the report said.
Meanwhile, as the arguments swirl about the efficacy of battery-only vehicles, Tesla has taken one of its main tormentors to court. Last month Tesla sued the BBC programme “Top Gear”, alleging it faked a test showing its Roadster ran out of juice after only 55 miles. The BBC said it stood by its programme and would defend the case.
Neil Winton – April 15, 2011
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