$TSLA DD: competition won’t effect demand or gross margin

TL/DR upfront:

Upcoming EV competition is the driving DD behind the Tesla bear narrative: that EV competition will show up à market competition will drive EV prices (and therefore $TSLA margins) down to industry-norms. I think this reasoning is flawed. Ford’s unprofitability with the MachE provides a window into what the competition is facing, and why Tesla is very likely to retain unlimited demand and see robust gross margin growth–insulated from the effects of market competition—for several years (until ~ 2026-2028).

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Argument:

Fords issues with EV profitability (link: Ford CFO says inflation has erased Mustang Mach-E profits, but isn't hurting demand (cnbc.com) ) is a PROXY for legacy auto’s outlook writ large.

Ford’s ‘Tesla Killer’ is their Mach E, which is a BEV (full battery) crossover SUV. However, recently Ford announced that they get zero profit from sales of their Mach E. Price information is below.

• The ‘Standard Range’ RWD (68kwh battery, 230 miles EPA range, the lowest $ base model) is $42,895 before dealer markups and delivery fees
• The ‘Extended Range’ (88kwh, 300 miles EPA, the lowest $ long range model) is $52,000 before dealer/delivery

Fords lack of Mach-E profitability is VERY interesting because the car is highly priced while also benefiting from several cost-lowering factors:

• $7,500 U.S. federal EV subsidy (Ford has yet to hit the 200,000 vehicle cap for the $7500, at which point it gradually decreases). Tesla buyers do not qualify for any EV tax credits right now.
• Made in Mexico with cheaper, non-unionized labor
• Usage of large pouch-style batteries, which are cheaper but lower-quality
• A more battery-efficient Car form-factor (as compared to a truck), meaning less batteries for a desired range and, therefore, lower cost of production.

If Ford is unprofitable with a high-priced EV benefiting from $7,500, made in Mexico with lower priced components, how are they going to be profitable with the F150 Lightning? The F150 lightning will,

• Be made by Union labor at U.S. labor prices
• Have a less-efficient form factor (truck aerodynamics are very bad)
• Have higher User battery needs (towing range).
  • F150 lightning loses 50% of its range when towing a 23-foot airstream trailer. Add to this cold-weather battery reductions, heating needs, going up inclines…the trucks 230 mile range’s real drivable radius when towing can get extremely limited very quickly.
• See a gradually reduced subsidy amount ($7,500 –> $3750 –> $1875)

It is very possible that the F150 Lightning begins to see razor-thin profit margins (or none at all) over the near future.

Additionally, Ford has additional issues it has to tackle:

• Growing percentages of EV sales will reduce dealership income (most of which is derived from maintenance and repair), leading to more pervasive markups
• A need to develop a ‘supercharging’ network.
  • Look more deeply into their published numbers—if you nix Tesla’s superchargers (which they can access rn), as Tesla will jack up prices for non-Tesla’s over time (especially when the supercharger network begins to get overburdened), and eliminate low-power chargers, look closely in your area at the ACTUAL NUMBER of high power charging stations individually. There may be chargepoint nodes in your area, but at least in Atlanta, the total stalls are very low.
• Battery supply shortages –> higher prices for batteries
  • This is why Fords CEO has been talking about the need for federal support with battery raw material production

SO WHAT?

1. Ford has to raise prices—they have no other choice.
   1. None of the sub-bullets above (dealership cut, need for expanded charger network, declining subsidy $, higher priced U.S. labor, higher priced batteries with less-efficient form factors) is easily solvable. While Ford talks about separating EVs from its dealership network, that legal fight will take YEARS.
2. This same situation will manifest in other legacy automakers
3. Legacy auto debt levels (looking at Ford and VW, in particular) mean they can’t afford to produce less cars or see zero profit.
4. Therefore, legacy auto has significant pressure to maintain high prices
5. Tesla is, therefore, insulated from the price reduction and gross margin contracting effects of market competition.

Add to this several Tesla-phenomena

1. Tesla’s cost of production will continue to decline, meaning that gross margins will continue to expand
   1. Technology reasons: dime-casting, structural battery, and 4680 (if it continues to scale) batteries
   2. Economies of scale reasons: Tesla is centralizing serious production capacity in its main four factories. 50% CAGR can be achieved for several years with the current factory footprint alone. Austin is projected to eventually produce 2 million units alone, per year. I would doubt these projections if it wasn’t for Tesla’s record setting CAGR—which has surprised the entire industry over the past three years.
2. Therefore, because Tesla has more ‘buffer’ to decrease prices—in an environment that is continuing to improve and in the context that legacy auto faces), Tesla has the ability to win any price war for several years into the future

Conclusion

Tesla will be able to maintain unlimited demand for its cars and will have minimal pressure on gross margins from market competition for several years into the future. While some legacy auto (VW) MIGHT produce EVs in large numbers, this will not negatively impact Tesla gross margins.

Would love for folks to put forward a strong counter argument. I have several $TSLA 2024 leaps and, if I am wrong in my assumptions here, would muuuuuch rather know that my thinking is faulty than continue to sit on this volatile position.