Game Design, Programming and running a one-man games business…

Legacy car companies and the shift to EVS. Why they cannot win.

cliffski

BTW if you followed my tip on tesla stock last year, you would have tripled your money…

Yesterday General Motors gave a presentation about Electric Vehicles and how they were a big part of GMs future. They rolled out a long line of executives onto a stage to make passionately written (but embarrassingly delivered) speeches about how they were going to continue to be the world leaders in EVs. The CEO even wore a leather jacket. It was excruciating, but the presentation is not the problem. The problem is the facts, and the facts are harsh.

Image result for GM EV day

There is a very powerful attempt to drive down the price of tesla stock (an attempt that is failing, but nevertheless, well funded by oil companies). part of the narrative is that tesla is doomed because ‘competition is coming’. This was a claim first made when tesla produced the model S. It was repeated for the model X, then for the model 3, and the model Y gets released this week, and we are hearing it again. So far the claim has turned out to be bullshit, because 58% of EVs sold in the USA are made by tesla still. Thats bad enough, but the future is even worse for the ‘competition’.

There are a bunch of reasons why big legacy auto companies cannot compete, and they aren’t all obvious. I thought I’d list them here for anybody considering selling tesla stock and buying GM or Ford.

Software/hardware expertise

EVs are just TOTALLY different to conventional cars. The expertise in making petrol or diesel engines is useless when it comes to an EV. the actual body design has to be different too. Tesla puts the battery in the floor and the motors between the wheels, but trad companies are still putting the motors in the front because…thats where the engine used to go. This means zero front crumple zone, and no frunk storage, but they do it anyway. A bottom heavy car is safer, as it rarely (if ever) flips, but even now the big gas-car companies don’t get it. They are stuck in gasoline car hardware design mode.

Software wise its even worse. tesla make their own software, and are even now making their own self-driving AI chips. Thats right, they are designing the silicon for their cars in-house. Thats a crazy amount of expertise. Legacy companies instead use dozens of chips each from different manufacturers, with virtually no in-house software expertise, and have a nightmare hiring decent auto-experienced software devs, who all clearly want to work for elon musk.

Image result for tesla autonomy day

BTW that self-driving chip is not just a prototype, they have been shipping it in cars for months already.

Factory Design

Teslas fremont factory used to be a legacy car factory and its a MESS in design terms. It was originally built to make ICE cars a long time ago, and is far from optimal design or layout for modern production. EVs require a totally different approach. This is why their chinese factory is built from scratch as a huge EV-only factory to produce super-modern cars. Legacy firms can’t demolish old factories and re-start, they have neither the time, money or the support of unions/governments to do so. Teslas 2nd purpose built factory (Germany) is breaking ground this month.

Workforce

Legacy auto is heavily unionized and unions HATE EVs. They have good reason to, as an EV is much, much simpler to build, and requires a much smaller workforce. A shift from legacy cars to EVs threatens jobs and the unions know it. Teslas workforce is, and always has been EV-only.

Dealerships

Tesla sells direct, but legacy is stuck with a dealership network they have to support for legacy cars. The dealerships HATE EVs, because so much dealership income is from maintenance and servicing, and EVS require almost none (My own EV has been serviced once in 4.5 years. Nothing was wrong). Also virtually nobody at any dealership knows anything about EVs. Consumer feedback from dealership visits is highly critical. often the customer knows more than the sale staff, who want to sell you an ICE car anyway. You are lucky if 1/10 cars in the ‘showroom’ is an EV anyway.

Late to market

Make that VERY late. Tesla made it clear EVs could be cool with the roadster in 2008. Then came the model S in 2012. Thats eight years ago. EIGHT years after the first mass-market electric vehicle, and the legacy auto firms are talking about delivering a certain number of cars in five years (optimistically). Its WAY too late. Many people already equate electric car with Tesla. 58% of USA EVs are Tesla. Their market lead is huge.

(BTW I didnt forget the Audi E-tron, Jaguar I-Pace and Nissan LEAF in that chart, they just dont even make the top 5… BTW this is not the end-game, tesla is still growing like crazy:

Batteries

Tesla make their own batteries in Nevada (and soon in China too). They partner (for now) with Panasonic to do this, but the tech is owned by tesla. They are the first company to go all-in on building a massive EV-battery production facility. other companies rely entirely on outside suppliers. Tesla have the best battery management technology in any EV. (See chart below),

Image result for tesla battery efficiency chart

If you want to work in EV battery research, its absolutely clear who you go to work for, and its not GM or Ford. Batteries are VERY expensive. Anybody can make a 400 or even 600 mile EV, you just have to put a staggering amount of batteries in it, but making an affordable 300 mile car is VERY hard, and its purely about battery tech.

Tesla Model 3

Marketing

Tesla tout EVs as the future, and ICE cars as the past. They are right. Everybody knows it, but the legacy autos cannot say it. They make the overwhelming amount of their profit from ICE cars. Even GM admit that the bolt loses them money. They cant market their cars as the future or superior without admitting 99% of their lineup is inferior and the past. They HAVE to be pro-ICE cars because thats what they make, but in doing so, they have a conflicted marketing message. Meanwhile Teslas advertising budget is still ZERO dollars.

So to sum up..

Legacy autos have a workforce that hates EVS, assembled in factories designed for ICE cars, Their sales people hate EVS, and their hardware and software experience is minimal or actively damaging. They outsource the most important components, they are woefully behind, and their own product line prevents them from marketing EVs successfully.

TL;DR: Don’t believe the bullshit. The ‘competition’ for Tesla is fucked. There is way more chance that BYD or even Google/Apple could be a serious EV player than any of the old auto companies.

4 thoughts on Legacy car companies and the shift to EVS. Why they cannot win.

  2. Agree with you on everything but software. As far as I’m concerned, most of Tesla’s software and tech gizmos (read: app for the car) is useless bloat I neither need nor want in a car and which ends up driving the price higher for no reason that would make me consider paying the increased amount of moolah. I don’t even own a cellphone!

    Also, almost entirely unrelated to everything else you talked about, Tesla still doesn’t have a small hatchback-type car and I’m 100% a small hatchback car man…

  3. And I tell you cowpokes this Company is going to do away with all your vehicles, no more nasty environmental waste dirtying the air, and this company is so far ahead of the competition that no other company will be able to compete.

    So buy Duryea Motor Wagons before the rush and enjoy the smell of fresh air!

    Unknown Quote Circa 1893.

  4. Before starting, English is not my mother tongue so I will try to be as clear as possible.

    Legacy car companies are not scared by Tesla. And that is a conclusion from talking to many executives. But you are right about electric cars, they are a bit scared. I remember a discussion with a German big wig 18 months ago. Brexit was everywhere, but that guy told me the board did not give a shit about it. It was not the first time they had a tariff problem and they had dealt with it several times in the past.It would be just many boring financial meetings to deal with it. The big scare was the electric car. The electric cars are costly to make and you can not pass that cost to the consumer. They also require less workforce, so carmakers will have to deal with it. But, it is something they dealt with in the past and will likely deal with it again. Some of them will die, but not all of them are fucked as you say (GM is fucked for sure, but GM is surviving thanks to the Chinese authorities).

    Software/Hardware expertise

    “EVs are just TOTALLY different to conventional cars. The expertise in making petrol or diesel engines is useless when it comes to an EV.” That was exactly the conclusion by the Chinese authorities 20 years ago. They knew the Chinese carmakers would never compete with Western carmakers on ICE cars and pushed the Chinese carmakers to invest in EV cars. Easier said than done.

    “A bottom heavy car is safer, as it rarely (if ever) flips, but even now the big gas-car companies don’t get it. “ They get it, believe me, but nobody gives a fuck about a bottom heavy car, people want SUVs. That’s a reality. Tesla builds cars for a niche. 367 500 vehicle production in 2019 is nothing. That’s a bit more than the number of Toyota Camry sold in the US in 2019. Toyota sold 448,000 RAV4, Honda 384,000 CR-V, Nissan 350,000 Rogue (Qashqai/X-Trail)… And I don’t mention the pickups. And it’s just for the US. Have a look at the Chinese market for example.

    Factory Design

    Tesla Fremont factory is a mess because perhaps Tesla is not that efficient. Toyota could produce more than 400 000 cars a year. Why can’t Tesla ? Why didn’t Tesla build a factory from scratch at the beginning ? Is it because Tesla was given the Freemont factory almost for free after the Senate put pressure on Toyota to do so ? Converting an ICE factory to an electric one is the same as building a new factory from scratch. The main problem ICE carmakers have is that they also have to build ICE cars. For example, the Audi A3 e-tron, plug-in hybrid, is built on the same line as the other A3. So, when they need to install the battery pack, the main production line has to be stopped shortly to move the e-tron to another small production line to install the battery pack, and then the main production line has to be stopped again to bring the A3 e-tron back. Not very efficient.

    About the Chinese car factory, I still have to see it mass-produce cars in China. My own view is that Tesla was allowed to build a factory in China, because the Chinese authorities saw that Musk was listened by Trump. Tesla will never be big in China, because the day it becomes big, the Chinese authorities will find thousand ways to make Tesla life harder. This is Chinese reality.

    Dealerships

    Electric cars require as much servicing as ICE cars. Your own example is not a good one. As you often write yourself, you don’t use your car often as you are a workaholic. My old Italian car with its V8 does not need a lot of maintenance either because I use it a few times a month. Tesla cars are not famous for being reliable. So, this is not a good example.

    Dealerships don’t really hate EVs. They just don’t care about it because the demand is not here. Sales people know nothing about electric cars. Sales people go where the money is. If there is a lot of money to make with EV cars, they’ll learn to sell them. EV market is still an early adopter market. Sales of EVs and PHEVs in the US declined by 9% in 2019. Electric vehicle sales increased was about 1.4% of the total US car market in 2019.

    Late to Market

    True, Tesla launched the roadster in 2008. But French carmakers made electric cars before. I remember driving one in the 90s and you can still see them used by the local councils. And in the early 90s, a lot of carmakers were building prototypes. Still, the Tesla Roadster was sexier and much nicer to drive (drove one). And when Tesla launched its roadster, Nissan and Renault had already announced the Leaf and the Zoe. Now, you probably refer to German carmakers. Well, I remember a discussion with a big wig from Renault in 2009, telling me how the company VPs were relieved that Volkswagen Group had announced its intention to build electric cars. Still, they have nothing to show 12 years later. They make so much money with the SUVs, why would they ? Because the average car guy doesn’t want an electric car. He wants a SUV. Even the Millennials. For many years, executives had sleepless nights because Millennials didn’t buy cars. And then they started two-three years ago. And it is even better, because they buy the larger SUVs, cheap to make and sold at a high price. Millennials didn’t buy cars because they didn’t have money. Now that they have some, it’s a big middle finger to the environment !

    Batteries

    One comment to add about your table. The Porsche Taycan, the Audi e-tron and the Jaguar i-Pace have a 600 lbs overweight because the batteries are stored in a armoured tank to prevent a battery fire from burning the car down (I did not check for the Mercedes EQC). Tesla made the decision to avoid the armoured tank to reduce weight and cost.

    As you said correctly, anybody can make an expensive 400 or 600 mile electric car, and making a 300 miles EV car for 50 000 is hard (Model 3 for example). What is very hard is to make a 300 miles car for 25000-30000. And it’s not purely battery tech.

    You could think that I am pro-carmaker and anti-Tesla, but for me this is not even a debate because Tesla does nothing better than the traditional carmakers. Tesla doesn’t try to save the planet, it just tries to carry on having the same way of life, which is no longer possible. Electric cars could have been a solution 30 years ago (actually when carmakers were building prototypes and few thousands EVs), now they are part of the problem. We don’t need electric cars, we need to rethink our transportation model and when you talk to carmakers’ big wigs, that is what they are really scared about.

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