By Azam Alonaizy
Starting from this year onwards, I will place my predictions for the next 12 months in article form. Most of these predictions are based on historical facts or behavioural economics, and I would be happy if I am 50% correct by end of next year. My purpose for doing this is to mainly get a much broader critique to my predictions in the comments section, so please leave a comment whether you agree or not. [Editor’s note: This article was written on December 25, 2019.]
1. Terawatt roadmap on Battery Day
I expect Tesla to provide a roadmap to reach one or even two terawatt-hours of production. To scale future vehicles or energy storage products exponentially, Tesla probably will invest significant capital just to be in full control of its production ramp. However, the drawback is that historical returns on investment for battery suppliers have not been great. Details about energy density, chemistry, cost, production process, and vertical integration including lithium mining are expected to be discussed.
2. GF3 will ramp Model 3 to 3,000 units per week by Q1 2020
Ramping Model 3 to the targeted volume production of 3,000 vehicles per week will be one of the main events of 2020. In trying to determine how the ramp will shape up, we have two indicators that we can utilize. First, the current production as seen by drone footage does indicate a production of approximately 1,000 units per week. The second indicator is the expected ramp of Model 3 in 2017 prior to production hell. As per these indicators, the expected 3,000 target should be met by the end of Q1 2020. In a bear-case scenario, this should happen by the end of Q3 2020.
3. Fremont will ramp Model Y to 5,000 per week by Q3 2020
Based on Elon Musk comments, the targeted global production for Model Y is 750,000 vehicles. I expect the North American production target for Model Y to be between 250,000 and 350,000, which leaves 400,000 to 500,000 between China and Europe. Model Y shares 76% of the components of the Model 3, and the remaining 24% probably utilises better components such as better stamping (as per Sandy Munro) and better wiring (as per patents filed). I expect Model Y to ramp to 5,000 by Q3 2020 for the bull case and by Q1 2021 for the bear case.
4. GF3 will ramp Model Y to 5,000 per week by Q4 2020
Although it will start later, GF3 will be in better position for the Model Y ramp. First, construction speed seems much faster than in the US. Second, starting with a flat plot of land, manufacturing processes along with space will be optimised for better output efficiency. I expect the ramp to reach 5,000 units per week in Q4 2020.
5. Model X & S interior refresh unveil in Q3 2020
The rumours of a Model X & S interior refresh combined with the introduction of Model 3 and future Model Y have cannibalised sales of Model X & S. I doubt these rumours will recede and expect Tesla to unveil a Model X & S refresh in Q3 2020. I expect higher luxury specs to provide a higher value proposition than the Model 3 & Y. Combined with favourable seasonality, this will assist in sales picking up in Q3 and Q4.
6. GF4 will face delays
Even to the best managed businesses, some unforeseen setbacks are to be expected. In 2019, it was the international rollout of Model 3 in Q1 combined with cannibalization of Model S & X. In 2020, I do expect Gigafactory 4 in Germany to face delays from the regulators. There are multiple independent decision makers in Germany, and I find it hard that to believe that all of their motives are aligned with Tesla.
7. ICE OEMS accelerate promotion of EVs
Facing European penalties in 2020, and after spending billions developing genuine EVs, ICE (internal combustion engine) OEMs have no choice but to significantly shift sales and marketing tactics towards selling these EVs, demolishing the public perception of ICE superiority. Upon comparing all offerings, I expect a good portion of potential shoppers to choose Tesla. We should see more R&D partnerships between auto manufacturers similar to Daimler & BMW or GM & Honda.
8. Credit Rating Raise
Fundamentals should improve significantly by the end of 2020. Credit rating companies focus mostly on the quality of the Interest Coverage Ratio (EBIT divided by interest expense). I expect this ratio to be around 3.5 times, which if sustainable should raise Tesla’s Credit Rating from B3 to A3, which translates to 400 to 500 basis points in savings. For Tesla’s valuation, this lower cost of capital rate has even a bigger impact when plugged into analysts’ discounted cashflow financial models.
9. FCA will pay Tesla up to 2 billion dollars
According to the website JATO, FCA would be paying penalties of €3.24 billion assuming current European sales. However, as per the disclosed FCA/Tesla European pooling agreement, I expect Tesla to receive compensation of up to $2 billion while saving FCA approximately $1.6 billion. Kindly note that regulation 2019/631 was adopted by the European Parliament (not Germany) and it would be very hard to water down the emission targets or penalties.
10. Tesla will unveil an energy-saving HVAC product
Elon Musk tweeted in November that there will be some “unexpected technology announcements” in 2020. In line with its mission, Tesla research and development efforts probably include energy-saving programs. Approximately 60% of energy consumed in buildings, whether residential or commercial, is through the HVAC system (depending where you live). It makes perfect sense that engineering efforts at Tesla shift towards HVAC.
11. Once Tesla achieves full FSD feature-complete rollout, Tesla will shift FSD pricing option from being a one-time purchase to subscription model
One full year late, but still way ahead of the competition, FSD is about to be feature complete and released to owners in specific countries. With its balance sheet looking much better, and regulators assessing the effectiveness of FSD to give the green light for actual use, Tesla will shift its strategy from a one-time purchase to a subscription model, setting a final deadline for FSD purchase beforehand. This would signal that FSD regulatory approval and robotaxi rollout is near, leading to most owners without FSD rushing to purchase FSD prior to deadline.
12. Tesla Solar Roof will reach 3,000 installations per week in Q3 2020
According to Pew Research Center, 46% of people surveyed in December considered solar panels in the last year. Combine that with California’s solar mandate requiring all new homes to have solar panels, and I predict Tesla solar panels and SolarRoof to be supply-constrained for a very long time. I expect engineering capabilities to shift towards ramping the solar products, reaching 3,000 SolarRoofs per week in Q3 2020.
Azam Alonaizy is a business investor with a passion for all things sustainable. He received a B.S. in Computer Science from the University of Dundee and an M.B.A. from the University of South Florida. Azam is currently a resident of Dubai.
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