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?"

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?)

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.

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

[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

[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.