Martin Viecha, head of investor relations for Tesla, was invited to a technology conference hosted by Goldman Sachs on Monday, Sept. 13, to present Tesla’s growth plans for the next five years.
Wicha focused on the fact that the cost of manufacturing each electric vehicle will continue to decline. He began by addressing two big themes that will be critical to Tesla and the entire electric vehicle industry over the next five years: battery supply and technology, and the cost of building cars.
He said that car manufacturing will eventually grow as fast as the battery industry. This will affect the manufacture of batteries and battery packs, as well as battery design, lithium, nickel and the mining and refining of other raw materials.
“The third revolution in automotive manufacturing.”
The cost of manufacturing each electric vehicle is the most important metric to monitor in the coming years, Wicha stressed. Ultimately, he said, this will be how many vehicles car companies can produce and how large they can grow.
In 2017, Tesla’s average cost per electric vehicle was $84,000. In recent quarters, the cost per vehicle has dropped to $36,000. Almost none of the cost decline is due to lower battery costs. Instead, Tesla has benefited from better car design and an updated factory design that makes it easier and easier to build cars.
Tesla’s first car manufacturing plant is in Fremont, California, near Silicon Valley, not a good place to build a car, Vichar added. He said factories in places like Shanghai, China, and Berlin, Germany, are cheaper to manufacture.
Tesla hopes the cost of manufacturing each electric car will continue to fall.
The Fremont, California, plant accounts for about half of Tesla’s total vehicle production. As the new factory produces more electric cars, the production cost per vehicle will be less than $36,000, which will help improve the company’s profitability, Vichar said.
In the 120 years that the auto industry has been in development, there have only been two major revolutions in auto manufacturing, according to Wichita. One was the introduction of the Ford Model T, he explained, and the other was the cheap production method created by Toyota in the 1970s.
Wicha said, “The electric car, with its completely different internal architecture than the fuel car, will bring the third revolution to the auto manufacturing industry.”
A cheaper Tesla electric car?
When asked about the possibility of Tesla producing a cheaper electric car, Wicha said the company would eventually like to produce a more affordable electric car. He explained that if a company wants to produce more volume, it needs a portfolio that reaches a wider audience, and Tesla needs to offer a cheaper car product before the company-run self-driving cab service comes online.
He said market demand for the Model 3 and Model Y electric cars has been stronger than expected, so there is less incentive for Tesla to launch new models in the short term.
“The Model Y is basically going to be the best-selling car in the world ever next year,” Veach added, taking into account rising costs at the Fremont, California, plant and the shrinking car rental business.
“It’s a significant sales lever that we’ve never encountered before, but it could boost demand in other ways going forward,” Veacha said.
The future of Tesla’s fully self-driving software
The discussion then shifted to Tesla’s Fully Self-Driving (FSD) software service. About 100,000 people are using a beta version of FSD on U.S. city streets where drivers can intervene at any time, said Wichita, who expects the beta version of FSD to be rolled out to all Tesla vehicles on U.S. roads by the end of the year, based on data Tesla has seen. Wicha stressed that this is a “supervised autopilot” system and that drivers still need to pay attention to the road or they may not be able to use the service.
Tesla can gather more data from driver interventions to help solve Autopilot problems and improve the system through software updates, Vichar said. He added that this iterative process will eventually allow Tesla to achieve fully autonomous driving.
“We strongly believe that large-scale data collection and artificial intelligence is the only way to solve the fully autonomous driving challenge,” Vichar said. “That’s the path we’re going to take.”
Wicha described the Model X and Model S as Tesla’s first-generation platforms, with the Model 3 and Model Y as the second generation. Self-driving cabs, he explained, are the company’s third-generation platform.