Should Tesla Make Batteries Instead of Electric Cars?

cartechboy writes: "Tesla seems to be doing quite well these days, but one bond trader thinks the company should quit making electric cars and focus efforts on making batteries instead. Bond manager Jeffrey Gundlach says he's already tried to meet with Elon Musk to persuade him to take the battery-only route. Speaking to Bloomberg, he said Tesla could be 'wildly transformational' in the same way electricity and electromagnets were at the advent of their discovery. Enough people are interested in Tesla's vehicles that Musk probably won't take Gundlach's advice. Should he?"

Comments

He probably only needs 640K in his computer, too

[boristdog]

I mean, these electric car thingys are just a fad, right?

They've been pushing this angle for a while

[Anonymous Coward]

The analysts are pessimistic that a newbie can outperform the established automakers. I disagree. What better way to make a market for your battery factory than proving the technology that they will be used for? This is the type of thinking that kills companies traded on Wall Street.

Re:They've been pushing this angle for a while

[GameboyRMH]

They've also been doing a great job of building the cars themselves, making it even more baffling. It's not like they were putting good batteries in crappy cars.

Re:They've been pushing this angle for a while

[AndrewBuck]

Yeah, this is pretty laughable. I don't remember the exact figure but his battery factory (not built yet but planned) is estimated to be something like 25 to 50 percent of the current world output for these batteries; and it is expected that the battery factory will sell almost entirely, if not exclusively to his electric car operation. So this "genius" of a bond investor thinks to himself "gee, if there is such a big market for batteries he should just sell the batteries". Only problem with this line of thinking, if he quits making cars then the battery market dries up. With people like this running our economy it is little surpirse that we fell into an economic collapse, and are probably setting up the next one as we speak. Explain to me again why people like this deserve to be paid millions a year.

-AndrewBuck

Re:They've been pushing this angle for a while

[hsmith]

Or he could just do both, build cars and sell batteries. Plenty of car manufactures sell tech and parts to other car manufactures. So many car parts are outsourced in a vehicle it is absurd.

He is doing all right pushing his cars so far and advancing his tech, why stop doing something that is working?

Re:They've been pushing this angle for a while

[Grishnakh]

And it's not like there's many other electric cars to put them in. The only one I can think of is the Leaf. All the other EVs out there are just conversions from gas-driven vehicles, rather than purpose-built EVs, so they end up with very compromised designs. Many of them aren't even serious vehicles at all: the automakers are just slapping them together to satisfy government regulators, to say "look! we have EVs too! But no one wants to buy them!" Yeah, no one's buying them because they suck ass. The Tesla by contrast is actually really good, so they're selling like hotcakes, since it isn't a half-assed attempt like what the other automakers are spewing out.

There was another company that tried what this dumb bond manager suggests; it was called "Ovonics". It supplied batteries to GM's EV1 electric car, which was famously ill-fated. Ovonics has disappeared now after being bought up and then shut down. I guess that's what this bond manager wants to happen to Tesla.

Re:They've been pushing this angle for a while

[lagomorpha2]

Only problem with this line of thinking, if he quits making cars then the battery market dries up.

Except that VW, BMW, GM, and others are beginning to produce cars with these batteries. If Tesla expands battery production enough they could make money not only from their own vehicle sales, but also get a cut of the profit from each of their competitors cars sold because they made the batteries.

Think like how Microsoft gets a cut of each Android device sold. "If our products sell, we win! If our competitors products sell, we win!"

Re:They've been pushing this angle for a while

[khallow]

The bizarre thing is that the obvious better solution here is to spin off the battery manufacture business.

Personally, I think the best approach here is to keep the battery manufacture in house for now (since it provides a powerful advantage over competitors) and build up electric car market share to the point where you're triggering anti-trust. Then use the spin off of the battery business as a playing chip to keep the rest of the business together.

Finally, if Musk wishes to exit this job at some point, that would be a good time to do so. He could appoint a competent successor and gradually divest himself from the business.

Re:They've been pushing this angle for a while

[plover]

Absolutely. It's a mistake to assume that just because 99% of lawyers are corrupt scumbags, that all lawyers are corrupt scumbags. For example, some stopped taking bribes after their funerals.

Re:They've been pushing this angle for a while

[rjstanford]

Interestingly Musk recently said that in retrospect that's one of the things that he'd do differently; they ended up changing so much of the chassis that they didn't really get a lot of benefit from it, but used enough of it that they were still bound to it.

Re:They've been pushing this angle for a while

[MozeeToby]

Yeah, but manufacturing is only one piece (admittedly a big piece once you start moving tens of thousands of cars per year). What doesn't make any sense is how Tesla has innovated in car design outside of the electric aspects. Anyone could have put a huge glass cockpit in their luxury car. They could have negotiated lifetime data plans with cellular carriers. They could have auto-retracting door handles. They could have done OTA updates to fix SW updatable components of the car. They could have designed gullwing doors for SUVs that take just a few inches to open.

No one ever did. The major automakers got lazy, they stopped even trying to innovate decades ago.

Re:They've been pushing this angle for a while

[lgw]

They certainly could and should have let GM die, though. The biggest flaw in Americas take on capitalism is bailouts. Companies like GM need to die and be replaced by companies like Tesla. I've had quite enough "government propping up failed business models" for one lifetime, thanks.

Re:They've been pushing this angle for a while

[LordLimecat]

Whats baffling is that Bond manager Jeffrey Gundlach thinks hes a better judge of investment than a many-times-over millionaire who has launched 3 wildly successful businesses-- paypal, Tesla, SpaceX.

Re: They've been pushing this angle for a while

[Scowler]

Automakers get kind of trapped in iterative design on established product lines. Any changes to a car line already selling in the hundreds of thousands obviously has to go through extensive reviews with suppliers, marketers, dealers, etc. Any big change requires Herculean effort (the recent change to all-aluminum body in the F150 is a good example.). But new products, often built on a new key technology, often quickly become engineering playgrounds. The first Prius was like this... Even though the new thing then was hybrid drivetrain, Toyota poured a whole lot of other unrelated ideas into that car, many of which succeeded and migrated to other Toyota product lines.

Re:They've been pushing this angle for a while

[ericloewe]

The Roadster is essentially irrelevant as anything other than a prototype for Tesla's propulsion system. Generally stating that Lotus is significantly responsible for Tesla's success (as was claimed, despite the fact that the hard part was not done by Lotus) is absurd.

Additionally, the Model S has literally sold more than 10 times as much as the Roadster, and it is the car that is viewed as truly significant.

Discussing the Roadster as if it were truly significant as anything more than a prototype is about the same as discussing the Ford Galaxy as proof that Ford typically rebadges other manufacturers' vehicles as their own.

Why can't it be both?

[ArcadeMan]

Even if Tesla becomes the best and largest car battery manufacturer in the world doesn't mean they can't make cars as well.

IMHO somebody's being paid by the other car manufacturers to steer Tesla away from making cars.

Then again, the "low-cost" electric cars sure aren't coming from Tesla any time soon, so I don't really care.

Re:Why can't it be both?

[Fulminata]

I actually understand his point. If Tesla just makes batteries for other companies, then they don't see Tesla as competition. If Tesla's also producing cars, then they are far less likely to do business with them regardless of how good their batteries are.

It's still a terrible idea. For the most part, the other car companies won't innovate unless they have competition. Tesla is far more likely to create real change by existing as a car company than they are by existing as a parts company.

Re:Why can't it be both?

[michelcolman]

I actually understand his point. If Tesla just makes batteries for other companies, then they don't see Tesla as competition. If Tesla's also producing cars, then they are far less likely to do business with them regardless of how good their batteries are.

Yeah, that would be like Apple buying chips from, say, Samsung. Ain't gonna happen.

Re:Why can't it be both?

[Ranbot]

Bingo. Last time I heard, he also owns a company that makes rockets too.

Clearly, SpaceX should stop building rockets and just sell rocket fuel.

Make batteries?

[jonnythan]

I was under the impression that Tesla vehicles used banks of off-the-shelf 18650 Li-ion batteries. Panasonic is their current supplier if I recall. Even their proposed battery plant in the southwest is really a place for Panasonic to manufacture batteries for Tesla. Yes, they package them well and I'm sure they have some great controls and associated hardware and software, but is there really something groundbreaking about their batteries specifically? They already make a powertrain for Toyota - a move that hasn't produced a fraction of the buzz and money as their own vehicles. Not sure I understand this suggestion.

Bad idea

[Animats]

Manufacturing auto batteries should be a low-margin business. They're a commodity. Others can enter the business. Over time, margins will decrease. There's not much brand value. (Who made the battery in your phone?)

No

[Fulminata]

This is an example of why listening to "investors" is a terrible idea. It's like listening to a gambler advise you on how to coach a sports team.

Short term thinking

[jandrese]

This guy is looking at the market and going "Electric cars are scary, batteries are a sure thing. Ditch the cars and take the safer investment." It's investor thinking, but Musk isn't an investor, he's an inventor. The battery route would probably be good for long slow growth, but it wouldn't revolutionize the world the way he intends to with the cars. It's a riskier position, but one with much bigger potential payoffs. One where he crashes through the stodgy old boys club that is the existing automakers with his disruptive technology and becomes a dominant automaker in the world.

Yo Gillette

[rolfwind]

Stop making those stupid low margin shaving handles and FOCUS SOLELY on cartridges!!!!

WELL THANK GOODNESS...

[Anonymous Coward]

.. finally, some fucking "bond manager" had to come out and tell Elon Musk what HAS to happen.

Re:No, But Someone Should

[bluefoxlucid]

You nailed it. Tesla is not operating at a comparative disadvantage: they can produce cars more effectively than anyone. A $90k top-end Cadillac won't have the features of a $90k top-end Model S. They're comparable, but edged out by trim and safety features (what Cadillac warns you that it's on fire, and then doesn't burn the driver's compartment?).

The auto manufacturers are competing with each other; Tesla, a new entrant, clearly has gotten a step ahead. Detroit can catch up readily, but they're already in competition with Japan and Germany: it's unlikely they can just leave Tesla in the dust and build much better cars for the same price. That means Tesla is at worst a highly competent auto manufacturer, and possibly the top-tier American auto manufacturer.

It means GM and Chrysler should get out of the auto manufacturing business more than Tesla. If the big three keep trying to squeeze Tesla out, they might get kicked out themselves: a $20k Tesla offering could easily send the Ford Focus and Chevrolet Cobalt packing.

Notice something about that article?

[Weaselmancer]

Some quotes from the article:

According to Bloomberg, Gundlach has suggested the Tesla Motors [NSDQ:TSLA] CEO get out of the car-making business, and concentrate fully on developing batteries for use in other vehicles.

In contrast to those traders though, Gundlach says he'd much rather buy Tesla shares than invest in a company like Twitter--and is much more concerned about the "killer" return speculative investors could get from Tesla becoming a battery-only business.

He sees Tesla as a better investment than technology companies like Twitter, whose shares recently dropped to their lowest point yet, less than a sixth the price of Tesla shares.

This article has nothing to do with technology and everything to do with maximizing third party investments. This is exactly what's wrong with the world right here, in a nutshell. Here we have an honest-to-goodness NEW thing. The Tesla car company. Finally a viable alternative to gasoline cars. The future. Less carbon emissions. Something to help the world. It's a beautiful vision.

So of course some day trading jackass wants to strip the future of that vision so he can get a better return on his stocks. To hell with the future, money is involved!

Makes me sick.

Re:He probably only needs 640K in his computer, to

[Teancum]

The funny thing is that Telsa was originally founded on the idea they would purchase drop-in replacement power trains from AC Propulsion and put them into Lotus bodies as an integrator. That was their original goal, but it didn't quite work out the way they intended and it turned out they needed to get their hands dirty on a whole bunch of other manufacturing just to get even that to work out.

One thing I admire about Elon Musk is that he is able to see some inefficiencies in his companies and root out a way to make them much more efficient. That is definitely how Tesla has been able to turn a profit from a company that simply should have gone bankrupt a couple of times in the past. His way of rooting out inefficiencies is usually by not cutting corners with employees or feeding them shit in a mushroom management system, but rather by looking for components that are costing far too much compared to the raw materials price and taking over the manufacturing of those components in a vertical integration of manufacturing. Every one of his companies that he is currently running is now making much more stuff in-house than was the case even a year ago.

Mr. Musk once started to complain about the cost of raw Aluminum and IMHO Alcoa ought to be concerned he might just start a Bauxite mining & processing operation.