One of the bolder and perhaps more surprising targets announced by Tesla CEO Elon Musk last year was the target of reaching a 20 million-vehicle-per-year production capacity before 2030.
That followed a statement forecasting that the broader auto market will hit 30+ million vehicles per year in 6–7 years. “Seven years for sure to 30M+ new fully electric vehicles per year, six years maybe. Five years is possible, but unlikely,” Elon tweeted in a response to somebody on Twitter.
To put these numbers in a little bit of context, the top selling automakers in recent years (pre-covid) were hitting slightly more than 10 million sales a year, overall global auto sales were at around 74.9 million in 2019 and 63.7 million in 2020 (with an average of 69.5 million from 2010–2019), and Tesla produced a bit more than 500,000 cars in 2020.
So, not only does Tesla need to increase production 40-fold, but it also needs to end up selling about twice as many vehicles per year as recent top sellers (Volkswagen and Toyota) have been selling. To throw in one more twist, those legacy automakers sell dozens upon dozens of models, tweaking this and that to find different specific markets. By 2o30, it’s not clear how many different models Tesla plans to sell, but I think it’s safe to say there will be much less variation in its lineup than Volkswagen and Toyota have been offering in their lineups.
Just looking at those numbers and generic historical context, it may seem impossible for Tesla to reach 20 million vehicles a year by 2030. And it may well end up being impossible, but as I’ve pointed out before, Tesla has a track record of accomplishing what others considered to be impossible. And Elon Musk himself has an even greater track record, if you look over at SpaceX and some of his other ventures.
— TESLA_saves_lives (@SavedTesla) January 2, 2021
Also, the key thing is this: there are one or two big transitions underway, and many (including Elon Musk) expect that Tesla is heavily favored/advantaged in these transitions.
The biggest factor is potential 100% autonomous driving — or, more specifically, whether or not Tesla achieves this soon, if it is first to achieve it, how long others take to achieve it, and how much demand for robotaxis increases Tesla demand and production capacity. I dove into that debate recently just to lay down some markers of where we stand, and we return to that topic on a regular basis here on CleanTechnica (also see my fresh new interview with NVIDIA Senior Director of Automotive Danny Shapiro, for example), so I’m not going to go into the details of that debate, but the 20 million/vehicle a year target certainly takes this matter into account since we know that Elon thinks Tesla is very close to achieving that capability, that it will be achieved technologically by the end of 2021, and that Tesla will be far ahead of the competition. Naturally, if you don’t think Tesla will lead on this, Tesla’s 20 million-vehicles/year production target is ludicrous.
The other big factor is that electric vehicle technology costs have been consistently coming down while non-electric costs have gone up or remained steady, and Tesla has been leading in those cost reductions and is expected to continue doing so (see: Tesla Battery Day). A little more than a year ago, ARK Invest wrote:
“We believe that gross margins are key to Tesla’s viability and value. In the fourth quarter of 2019 Tesla reported auto gross margins of 20.9% excluding regulatory credits. Based on Wright’s Law and expressed in ARK’s model, Tesla’s auto gross margins could approach 40% in 2024, though they are unlikely to increase in a straight line as new models launch and production scales.
“Wright’s Law has forecast cost declines successfully in more than 60 technologies ranging from solar power to televisions, and from semiconductors to ovens. As shown below, Tesla’s Model 3 already has demonstrated cost declines in line with Wright’s Law.”
ARK Invest also wrote about improving capital efficiency, lowering production costs (per unit produced). Clearly, that is an important part of the whole plan for Elon. He has spoken and tweeted repeatedly about the machine that builds the machine and about Tesla’s most critical area of advantage relative to other automakers being improved manufacturing in the long term. Increasing capital efficiency and lowering costs is a crucial aspect of Elon’s 20m by 2030 target. For more on that topic, see:
Here are some of ARK Invest’s thoughts on this matter:
“Capital efficiency sparks and accelerates the Tesla flywheel. If expanding capacity is prohibitively expensive, then the cumulative doubling of production – necessary to lower costs, generate cash, and reinvest in expanding production – becomes uneconomic. If Tesla were to be capital efficient, then it could expand production rapidly and affordably, lowering unit costs, increasing returns on invested capital, generating cash for future factories, and attracting more capital.
“ARK assumes that Tesla will be more capital efficient than traditional automakers. The amount of capital required to produce a car powered by an internal combustion engine in the US has been rising steadily. In the last five years or so, the auto industry has invested more than $14,000 in fixed assets for every car produced per year.
“With a fraction of the moving parts, electric vehicles should be manufactured much more efficiently than gas powered cars. Indeed, Ford and other automakers have suggested that EVs could be produced at 50% of the capital investment necessary for gas powered vehicles. A straightforward calculation – 50% of $14,000 – suggests that an EV factory could be built for $7,000 per unit volume of capacity.”
What Does the Future Hold for Tesla? What Does Tesla Hold for the Future?
With all of this in mind, one of the big questions we’ll be tracking in the coming decade is how well Tesla rises in production capacity to reach that 20 million-vehicles-by-2030 target and whether the target is adjusted.
In a visual snapshot, the question is, how do the following chart and graphs extend into the future?
What do you think?