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Calling all Actuaries: One size battery pack?

Discussion in 'Design' started by 17.088 ^2, Sep 17, 2017.

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  1. 17.088 ^2

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    Someone(s) likely has already discussed the issue of IF the Model 3 actually has only one size battery pack (the smaller one being software locked out).

    I however would like to ask a slightly different question, but first a diversion...

    For those of you who are not familiar with what an Actuary is, I suggest a quick look at this Wikipedia article:
    https://en.wikipedia.org/wiki/Actuary



    I can easily imagine that at some point there must have been an Actuary at Tesla who sat down with all the available numbers, forecasts, costs, and so forth and crunched the numbers to figure out if it would make more sense to...
    * sell two entirely different battery packs for the model 3 (as we now believe is happening)
    _OR_
    * market/sell two battery packs, but in reality it's just ONE battery pack that is software locked into two sizes.

    What I'd like to know is...

    What are those types or categories of numbers that an Actuary would use for such a calculation?
    and
    What are the actual values in each of those categories?


    i.e.: How do we the members of the general public try to replicate how such a decision could have been made?



    17.088 ^2
    .
     
  2. SoFlaModel3

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    In my opinion (as a non actuary) you would take into account a few things...
    1. Projected sales of each battery pack
    2. A projection of how many people could potentially upgrade down the road.
    So let’s say the minority of cars sold are long range battery. Now take your cost differential for long range battery over standard battery with some calculation to account for efficiency loss in making 2 packs over 1 and you come up with a still massive and ungodly number for the production of one larger pack the majority of consumers don’t buy. Further, the likelihood of a consumer in a $35-40k car spending $10k after delivery to upgrade the battery is incredibly limited.

    It had to be a no brainer to produce 2 different packs in my opinion.
     
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  3. garsh

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    In this thread, I estimated Tesla's battery pack cost at $124/kWh.
    That gives us Model 3 battery pack costs as:
    • 50kWh pack: $6200
    • 75kWh pack: $9300
    If you plan on outfitting every car with the larger pack, then you've reduced incremental profit on each low-range car by $3100. That's a LOT of money to lose on a $35,000 car.

    The idea behind the one-pack-size model is that you could forgo the engineering expense of developing a second pack. You could also save a little on the production line, as you wouldn't need storage space and logistics to handle two types of packs. The engineering expense is a one-time charge, so I think we can ignore that as it gets spread out over an increasing number of cars as time goes on. The production line savings are on-going, but I can't imagine that it would really save all that much money for each car. I would guess on the order of $400,000/yr. If they're building 400k Model 3's every year, then you've saved a dollar on every car. So I'll ignore that too.

    Aside: I think this tradeoff was worthwhile for the Model S for a couple reasons. First, it's a much more expensive car, so the battery cost is a lower percentage of the profit. Second, it was a time-limited stop-gap to allow Tesla to quickly make a lower-price car available without a lot of time spent on engineering.

    Ok, so if we assume that engineering and production line expense savings can both be ignored, then we're left with considering if it's still worthwhile given that we expect some number of short-range buyers to upgrade to long-range after the sale.

    There are *some* people who will choose the short range car if they know that an upgrade is available in the future if they need it, but who otherwise would buy a long-range car if they knew it wasn't available. Likewise, there are *some* people who will buy a short range car if there's an upgrade, and who otherwise will NOT buy a Model 3 if an after-sale battery upgrade is not available (ex - a Model 3 is barely affordable, but they want more range - they'll decide to wait a few more years to make a purchase). I'm going to ignore these two sets of people - I feel that they will mostly cancel out.

    Now we can just perform some simple math. We need to figure out what percentage of short-range car buyers we need to upgrade to long-range after the sale in order for profits across all short-range sales to be even with selling a smaller battery.

    Profit difference on a single short-range car due to delivering smaller battery: $3100
    Profit difference on a single short-range car sold with software-locked larger battery: $0
    Price charged to software-unlock a larger battery: $X
    Average differential profit obtained from software-unlocking M percent of batteries: $X * M

    We need to figure out when $X * M == $3100. That's the break-even point.
    So I think those two variables are the main columns in your actuarial table.
    As $X goes up, M will go down, as more people will not think that the upgrade is worth the price.

    The upgrade needs to cost at least $9000, otherwise it's cheaper for everyone to buy a short-range car and upgrade later. If the upgrade costs $10,000, then Tesla would be thinking that at least 31% of *all* short-range buyers would choose to upgrade later at that price.
     
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  4. Badback

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    I could maybe see a scenario where Tesla sold a software locked SR model at a slightly higher price (say split the difference and add half of the $9000 or add the incremental cost) with the availability to temporarily unlock the battery for long range driving convenience, for a fee, of course.
     
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  5. John

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    Nobody outside of Tesla has good data on Tesla's marginal costs, which are really what you want to know when figuring out how much sense doing something like giving away extra battery cells would be at high volume. We can look at financials and see the computed COGS, but those include allocations, and aren't fully reflective of just the marginal cost of the current cars if built at higher volumes like the ones Model 3 will enjoy.

    A couple of bits of data to think about:

    JB Straubel was quoted as saying four years ago here that the cost of a battery is "less than a quarter" of the total car "in most cases." If you apply that factor to the COGS in the financials, it implies something like a cost of $235/kWh. Most people think the average cost was < $190/kWh in 2016, a figure put out on a financial result call and mentioned here.

    One SpaceX engineer made a video blog and it he commented in it (link here)that Elon had quipped to him when they were trying to lower the cost of Merlin engines that the marginal cost of a Model S was $30,000. How does it change your estimate of battery costs if you knew that to be true? It's not really apples-to-apples, but if that cost ratio and that marginal cost could be applied together, they would imply battery costs of just below $100/kWh. Most recent estimates have put the cost at "below $125/kWh," based on planned cost reductions of "about 35%" quoted in promotional videos for the Gigafactory.

    JB and Elon have said before that battery cost is one of their most guarded secrets, so without privileged info, one would have to do estimates like this to figure out the value of what Tesla is "giving away" when they put battery cells in cars that people choose not to unlock and use.

    I think once the Model 3 has effectively reached "high volume"—say, a run rate of 200,000 cars/year—they may share more info on their battery cost, especially if they need to defend the company against claims of lower costs from competitors like VW who are starting to think about beginning to tentatively plan battery factories.
     
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  6. Fun_for_the_grandkids

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    I like the idea of buying a shorter range vehicle with access to temporary long range capacity when needed (I do not need long range more than once or twice a year). Conceptually that would be the equivalent of Tesla providing a short-term battery leasing option when required. But that means you cart the extra weight of the battery around against the day you need your short-term lease and Tesla can only access income on the battery when you (the holder of the battery) chooses to use it.
    It might be more economic for Tesla to develop a 'temporary plug-in modular upgrade' battery option. The concept has been floated in the context of recent discussion on the Samsung 'modular' battery peddled at the Frankfurt Motor Show this week. That way the 'temporary upgrade' batteries are utilised continuously and the weight is added only when the range is required.
     
  7. John

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    I have always thought that it would reassure folks if there was a tiny trailer you could occasionally rent and tow behind you when you want to have extra battery for a long trip.

    Maybe an extra 40 kWh? In fact, it could also hold your luggage. "Tesla Road Trip Trailer." They don't take up a full charging stall when being recharged, and they are easily swappable.

    Is it necessary? Not really. Would it reassure people, even if they never ended up using it? I think so.
     
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  8. JWardell

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    Love this idea? Or a big battery you could add to your trunk or your roof rack.
     
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  9. John

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    Except 40 kWh would weigh 400 lbs just for the cells. Maybe 500 pounds total.
     
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  10. Badback

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    See my previous post: https://model3ownersclub.com/threads/accessories-for-model-3-thread.1996/#post-11664
     
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  11. John Slaby

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    The problem I have with a range extender is that it sends a really bad message about EVs: they're not good enough on their own. The anti-EV press would go wild if something like this were ever announced. I certainly can't see Tesla doing something like this, and I would think it would be hard to have an after-market solution that can integrate with the car's primary electronics without some significant mods.I also think we will see enough improvements in batteries in the next decade to make it simpler to just upgrade to a newer vehicle if you really need the extra range.

    Wow, we're quite a ways from an actuarial discussion, aren't we :)
     
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  12. G. David Scott

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    It is most definitely TWO different battery packs. The Model 3 Press Kit clearly lists the curb weight between the 2 cars. The long range car is almost 300 lbs heavier.


    • Curb weight:
      • 3549 lbs. (Model 3)
      • 3814 lbs. (Model 3 Long Range)
     
  13. garsh

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    Read the OP more closely. @17.088 ^2 was quite aware that there are two packs. He's asking a different question.
     
  14. Joseph F

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    I think as far as long range battery vs short range you may be overlooking a few issues, not that I am trying to sell you on one or the other battery option. The first is you would be able to do more of your driving off the charge you got at home in my case 11 – 12 cents a kWh vs blink 39 - 49 cents, EVO 26+ cents also the convenience of leaving home with 240+ miles vs 160+ at 80%. Also lower charge cycle rate of a larger battery which is why both Nissan and Tesla have longer warranty on the larger battery. I just wish I had the option for a larger battery in my Leaf also the ideas of range extender are same in the leaf owners forum. Tesla went to a lot of work to decrease drag putting a roof rack or towing a trailer just to try to extend your range let me know if it works for you.
     
  15. KarenRei

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  16. garsh

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    #16 garsh, Nov 19, 2017
    Last edited: Dec 13, 2017 at 1:05 PM
    Read the OP more carefully. He's asking about the types of calculations that go into deciding whether to go with one or two battery packs.
     
  17. Red Sage

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    I'm pretty sure that JB Straubel was speaking of 25% of Tesla's internal cost to build the vehicle, not 25% of its retail cost. So it really depends upon what you feel Tesla's targeted profit margin would be. In 2013 Elon Musk said they should be able to attain 10%-to-15% with Generation 3 vehicles, then corrected that to 'about 12%', which was pretty obviously half of their reported retail margin on Model S. So, at a $35,000 price point that would be $30,800 to build the whole car (88%).

    The automotive industry as a whole admits to a 6% margin. Car companies that drop below 5% go out of business in the U.S. (like Suzuki, who were at 4% when it ended operations here). Lexus is reported to be at about 14%. Porsche is said to be near or over 50%, though that may include merchandising and apparel sales in addition to cars.

    I think it is highly unlikely that Tesla's margins will be 'razor thin' or 'losing money' as some intimate repeatedly regarding Model 3. Without the burden of traditional paid advertising or 'independent franchised dealerships' taking a cut of each sale, Tesla will easily manage the 6% gross margin amount at the very least. So building a $35,000 car for $32,900 (94%) should leave them with up to $8,225 to use toward the battery pack. And if they manage a 12% margin at $35,000 MSRP, then the battery pack might cost them as much as $7,700 out of a $30,800 build cost. Coincidentally, $123.50 × 60 kWh = $7,410 ... Close enough for government work. And that doesn't even include the $1,000 Delivery Fee that sweetens the pot a bit more in Tesla's favor.
     
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