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Significant Breakthrough I

As of a few decades ago a common retort was “What is good for GM is good for the country”. The notion was that the company’s and country’s interests were closely aligned and that the prosperity of one led to the prosperity of the other.

Our view is that the auto manufacturing industry is undergoing sweeping changes and will look very different by the end of the decade if not sooner.

One of the major catalyzing developments is the introduction of the Cybertruck and shortly the Next Generation (NextGen) vehicles. In the case of the Cybertruck, it is priced competitively with the leading truck brands, but is expected to be far less expensive to operate and more durable. The usage of a stiff unibody composed of stainless steel, drive by wire, and a shift to a 48-volt system, are likely to prove far more attractive to vehicle owners than offerings from other firms².

A milestone was reached with the casting of the bulk of the undercarriage via the gigapress, which has the potential for massive cost savings. Watch for significant price reductions over the next couple of years.

Significant Breakthrough II

While the release of the Cybertruck is impressive, the more relevant fact is likely to be the technology used in the production process, which is expected to enable the NextGen vehicle to be priced near $25K (before tax credits). Given the projected price point, travel range, and vehicle features, NextGen is likely to have a massive and broad audience.

Significant/ Why it Matters
The domestic automakers make most of their money on truck sales with the leading manufacturer, Ford, selling 700k new F-series trucks in 2023³ . Tesla is expected to produce 260k CyberTrucks in 2025⁴. Regarding the NextGen vehicle, it is likely to become a massive seller, ultimately outpacing Model 3, which is expected to reach a total of 700k units produced by early 2025⁵

For all the progress Tesla has made, BYD is producing even more vehicles and is likely to place additional pressure on the traditional manufacturers. These developments have already impacted some of the legacy manufacturers with Volkswagen announcing a $10.9bn cut in costs⁶, leaving little room for new development. Assuming the average new vehicle costs near $45k and its useful life is 10 years, car owners are spending an equivalent of $4.5k per annum with auto companies. With two vehicles in the average family, the amount spent per family effectively doubles. Considering spending on spares and repairs, the figure grows more still. Hence, the auto industry is massively important.

Tying it all together

Steve Jobs massively accelerated the growth and profitability of Apple by founding an ecosystem of integrated products and services (e.g., Apple Music, the App Store, iCloud, AirPods, Apple Pay, etc.) and thereby created high costs for users to exit and difficulty for competitors to replicate. Tesla has a similar opportunity. The technology associated with self-driving is massively complex and is likely, over time, to be tied with its Artificial Intelligence efforts, its “X” ecosystem, and other emerging technologies. Telsa with FSD has reduced interventions (i.e., a driver’s having to intervene to prevent and accident) to one per 3.2 million miles compared to traditional accident rates of one every 190K miles⁷. However, unlike Apple, Tesla has retained manufacturing control, which they believe is essential in the product creation process.

Conestoga Conundrum

We used the captioned title for this installment to remind readers of the difficulty many companies have in making major technological shifts. The Conestoga wagon was the premier form of transportation for settlers travelling west in the early days of the country. However, despite the brand’s dominance, it never was a presence in self-propelled vehicles. Likewise, as vehicles shift to a more technology-intensive mode, with self-driving and alternative propulsion systems, it is doubtful that the prior leaders will be the future leaders.

Caveats/ Assumptions

A key assumption is that electric vehicles will continue to gain traction. To date, sales continue to be impressive as shown below:

Battery electric vehicle sales in the United States⁸

Sources

[1] https://supercarblondie.com/cybertruck-beats-porsche-911-drag-race/

[2] https://insideevs.com/news/690829/tesla-cybertruck-production-capacity-260k-units/

[3] https://www.freep.com/story/money/cars/ford/2023/12/28/ford-f-series-…

[4] https://www.youtube.com/watch?v=6RGsp7gaS4w

[5] https://thedriven.io/2023/05/11/tesla-model-2-will-be-small-version-of-…

[6] https://www.reuters.com/business/autos-transportation/volkswagen-…

[7] https://www.youtube.com/watch?v=kCHdYpHwBDk, minute 39.52

[8] https://www.statista.com/statistics/1231872/battery-electric-vehicle-…

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