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Tesla guides EV industry’s shift from niche production to mass market

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As Tesla continues to push the boundaries on automation in its factory production line, 2018 could be the year when the company and the electric vehicle (EVs) industry shifts from being seen as niche production to the mass market. Noting that roughly 1.3 million EVs were sold around the world in 2017, a 57 percent increase over 2016 sales, global consultancy McKinsey predicts that EVs’ share of total passenger vehicle sales could reach 30 to 35 percent in major markets like China, Europe, and the US by 2030. In partnership with automotive benchmarking specialist A2Mac1, McKinsey took a deep dive into EV technology, and identified four strategies that automakers should follow to remain relevant as the industry transforms itself.

EVs reached a major milestone in 2017. The main obstacles to mass market adoption have been driving range and price. With the launch of Tesla’s Model 3 and GM’s Chevy Bolt, both of which offer a range of over 250 miles, McKinsey believes that the range issue has basically been solved, and that automakers can now focus on reducing price points, either by increasing design efficiency or reducing manufacturing costs. To be successful at this, McKinsey believes they will need to follow four technical strategies.

1 – Build native electric vehicles

Native EVs – cars built on a custom electric platform, rather than adapted from legacy fossil-fuel vehicles – cost automakers more to develop, but offer multiple advantages. A native EV doesn’t have to be designed around bulky components that are no longer needed, such as drive shaft tunnels and exhaust systems, so it can accommodate a bigger battery pack. The pack can also be placed where it makes the most sense – at the bottom of the vehicle. This “skateboard” design, made famous by Model S designer Franz von Holzhausen, has since been copied by other automakers. Not only does it improve handling by giving the vehicle a lower center of gravity, it also opens up much more space for passengers and cargo.

2 – Push the boundaries of powertrain integration

McKinsey’s benchmarking revealed a continuing trend toward EV powertrain integration: EV-makers are integrating components such as inverters, motor controllers, etc, into fewer modules. One indicator of the increased level of integration is the design of the electric cables connecting the main electric powertrain components (battery, motor, power electronics and thermal management). McKinsey observed a decrease in both cable weight and the number of parts in the latest electric models compared with earlier vehicles.

EV powertrains are inherently more flexible, as the components are smaller, and designers have more freedom to place them in the best positions to optimize space. McKinsey found that the Chevy Bolt seems to use an ICE-like positioning of its powertrain electronics, whereas the Tesla Model 3 integrates most components directly on the rear of its battery pack and rear axle.

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3 – Stay ahead in the technology game

Electric vehicle customers tend to be tech-savvy – they expect to have the latest driver-assistance systems, connectivity features and infotainment goodies. This almost obligates EV manufacturers to equip their vehicles with the highest levels of technology available. However, McKinsey sees this as an opportunity, as it creates a great testing field for the new technologies that OEMs and third-party providers are developing.

Vehicle controls are steadily migrating from physical knobs and switches to a more central, smartphone-like user interface. Of course, Tesla’s Model 3 is the ultimate example of this, but most EVs are following the trend of clearing the clutter. “We observed EVs in our benchmark that have as few as seven physical buttons in the interior, compared with 50 to 60 in many standard ICEs,” says McKinsey.

Rimac Concept_One digital controls being demonstrated at Monterey Carweek

Behind the scenes in vehicles’ electronic control units (ECUs), the trend is also toward more consolidation. Legacy autos are controlled by a jumble of different computer systems, often from different suppliers, that talk to each other in limited ways or not at all. Once again, Tesla led the way. In a 2014 interview, Tesla founder Ian Wright told me that his 2008 Volkswagen probably had “sixty or seventy electronic black boxes, 300 pounds of wiring harness, and software from 20 different companies in it.” Tesla’s vehicles use one central computer system. “The major reliability problem with those cars is the electronics and software,” said Wright. “I think Tesla did take a real Silicon Valley systems architecture perspective in designing all the electronics in the Model S.”

In an EV, electronics and software are the heart of the vehicle, and Wright predicted that, as the majors began to produce EVs, they would eventually be forced to adopt a more systems-oriented approach. McKinsey found that this prediction is coming true. Automakers are finding that a centralized approach gives them the chance to own a key control point in the vehicle, helps to save on weight and costs, and may improve reliability. Central, high-power ECUs “could also be the backbone for developing fully autonomous driving.”

4 – Design to cost

Legacy automakers are still struggling to make a profit on their EVs, mainly because of high battery costs (not Tesla, which claims to be earning margins of over 20% on Model S and X sales). Now that the range issue has been more or less solved, McKinsey believes OEMs will need to apply design-to-cost (DTC) strategies to produce EVs at attractive price points while earning decent margins. Fortunately, this something that established OEMs and suppliers are good at, so they may be able to quickly catch up. For example, improvements in battery technology may allow automakers to switch from lightweight but costly aluminum to more cost-efficient steel (a shift Tesla has already made with Model 3).

Can the traditional automakers make money in the volume EV market? Many industry observers are skeptical – one reason for the companies’ reluctance to embrace EVs may be that they see them as a lower-profit proposition. In the first public acknowledgment of this dynamic, Daimler recently announced that it foresees an end to profit growth this year, partly due to the high costs of making the shift to EVs. Certainly, it’s difficult to imagine that any EV will ever yield the prodigious profits of a vehicle like Ford’s F-150 pickup, which has been called the most profitable consumer product in history.

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However, McKinsey believes that, if automakers heed its sage advice and take the aforementioned four EV design steps into consideration, they should be able to reduce the higher manufacturing costs of EVs and find their way to a positive mass-market business case. An era of profitable mass-market EVs could be on the horizon, and that would be good news for consumers, the environment – and forward-looking automakers that are willing to take some risks and embrace change.

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Note: Article originally published on evannex.com by Charles Morris; Source: McKinsey / A2Mac1

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Elon Musk

Tesla analyst: ‘near zero chance’ Elon Musk’s $1T comp package is rejected

“There is a near-zero chance that $TSLA shareholders will vote down Elon’s new proposed comp plan at the Nov 6 shareholders’ meeting.”

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A Tesla analyst says there is “zero chance” that CEO Elon Musk’s new compensation package is rejected, a testament to the loyalty and belief many shareholders and investors have in the frontman.

Tesla investors will vote on November 6 at the annual Shareholder Meeting to approve a new compensation package for Musk, revealed by the company’s Board of Directors earlier this month.

The package, if approved, would give Musk the opportunity to earn $1 trillion in stock, an ownership concentration of over 27 percent (a major request of Musk’s), and a solidified future at the company.

The Tesla Community on X, the social media platform Musk bought in 2023, is overwhelmingly in favor of the pay package, though a handful of skeptics remain.

Nevertheless, the big pulls of this vote are held by proxy firms and other large-scale investors. Two of them, Institutional Shareholder Services (ISS) and Glass Lewis, said they would be voting against Musk’s proposed compensation plan.

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Tesla CEO Elon Musk’s $1 trillion pay package hits first adversity from proxy firm

Today, the State Board of Administration of Florida (SBA) said it would vote in favor of Musk’s newly-proposed pay day, making it the first large-scale shareholder to announce it would support the CEO’s pay.

One analyst said that Musk’s payday is inevitable. Gary Black of the Future Fund said today there is a “near-zero chance” that shareholders will allow Musk’s pay package to be rejected:

There is a near-zero chance that $TSLA shareholders will vote down Elon’s new proposed comp plan at the Nov 6 shareholders’ meeting.”

He added an alternative perspective from Wedbush’s Dan Ives, who said that he had a better chance of starting for the New York Yankees than the comp package not being approved.

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Black’s the Future Fund sold its Tesla holdings earlier this year. He explained that the firm believed the company’s valuation was too disconnected from fundamentals, citing the P/E ratio of 188x and declining earnings estimates.

The firm maintained its $310 price target, and shares were trading at $356.90 that day.

Shares closed at $452.42 today.

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The latest predictions from betting platform Kalshi have shown Musk’s comp package has a 94 percent chance of being approved:

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Investor's Corner

Tesla analysts are expecting big things from the stock

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Credit: @AdanGuajardo/X

Tesla analysts are expecting big things from the stock (NASDAQ: TSLA) after many firms made price target adjustments following the Q3 Earnings Call.

Last Wednesday, Tesla reported earnings with record revenue but missed EPS estimates.

It blew delivery expectations out of the water with its strongest quarter in company history, but Tesla’s future relies on the development of autonomous vehicles, robotics, and AI, which many bullish firms highlight as major strengths.

The earnings call reiterated those points, along with the belief that Tesla CEO Elon Musk should be rewarded with a newly proposed pay package that would enable him to gain $1 trillion in wealth if he comes through on a lengthy list of performance tranches.

Nine Wall Street firms made adjustments to their outlook on Tesla shares in the form of price target increases since last Wednesday’s call, all of which are indications of big expectations for the stock moving forward.

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Here are the nine firms that made moves:

  • Truist – $280 to $406, reiterated Hold rating
  • Roth MKM – $395 to $404, reiterated Buy rating
  • Cantor Fitzgerald – $355 to $510, reiterated Overweight rating
  • Deutsche Bank – $435 to $440, reiterated Buy rating
  • Mizhuo – $450 to $485, reiterated Outperform rating
  • New Street Research – $465 to $520, reiterated Buy rating
  • Evercore ISI – $235 to $300, reiterated In Line rating
  • Freedom Capital Markets – $338 to $406, upgraded to Hold rating
  • China Renaissance – $349 to $380, reiterated Hold rating

The boosts in price target are largely due to Tesla’s future projects, as Roth MKM, Cantor Fitzgerald, Mizuho, New Street Research, and Evercore ISI all explicitly mention Tesla’s autonomy, robotics, and AI potential as the main factors for its price target boosts.

Cantor Fitzgerald raises Tesla PT To $510, citing Cybercab, Semi, and AI momentum

It is no surprise that many firms are adjusting their outlook on Tesla shares considerably in an effort to prepare for the company’s transition to even more of a tech company than a car company.

The issue with many analysts is that they treat the company’s vehicle deliveries as the main indicator of value.

However, Tesla has a robust energy division, which was a major contributor to the company’s strong margins and gross profit in Q3, as well as its prowess in robotics and AI.

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Additionally, the company is seen as a key player in the autonomy field, especially after launching driverless rides on a Robotaxi platform in Austin and expanding a similar program in the Bay Area.

Tesla shares were up over 5 percent at 12:18 p.m. on the East Coast.

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Investor's Corner

Tesla warns Elon Musk could step down if shareholders reject pay plan

Denholm’s letter emphasized Tesla is at a “critical inflection point” as it scales AI-driven projects such as Full Self-Driving (FSD) and Optimus.

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Wcamp9, CC BY 4.0 , via Wikimedia Commons

Tesla Board Chair Robyn Denholm has urged shareholders to approve CEO Elon Musk’s new 2025 Performance Award ahead of the November 6 Annual Meeting, warning that rejecting it could risk losing his leadership. 

In a letter posted on Tesla’s official handle on X, Denholm stated that the company must “foster an environment that motivates Elon to achieve great things,” or risk losing “his time, talent, and vision,” which she described as essential to Tesla’s success.

Retaining Musk amid Tesla’s critical transition

Denholm’s letter emphasized Tesla is at a “critical inflection point” as it scales AI-driven projects such as Full Self-Driving (FSD) and Optimus. She argued that Musk’s leadership remains vital as Tesla pushes toward becoming “the leading provider of autonomous solutions and the most valuable company in the world.” Without a new performance-based plan, Denholm warned, Musk could step away, potentially costing Tesla significant long-term value.

“If we fail to foster an environment that motivates Elon to achieve great things through an equitable pay-for-performance plan, we run the risk that he gives up his executive position, and Tesla may lose his time, talent, and vision, which have been essential to delivering extraordinary shareholder returns,” the Tesla Board Chair stated.

The board’s proposed 2025 Performance Award aligns Musk’s compensation with ambitious targets while extending his commitment for at least 7.5 more years. Denholm stated that the vote is a defining moment for Tesla’s future direction, adding that the plan was designed to keep Musk focused on innovation while maintaining governance discipline. “A vote here is both an endorsement of Elon’s vision and a vote for Tesla’s carefully tailored strategy,” she said.

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Musk’s pay history is rooted in performance

Elon Musk’s pay history with Tesla has long been unconventional. For years, he has declined a regular salary, instead directly tying his earnings to Tesla’s ability to meet ambitious production and market-value goals. His 2018 performance award, approved by shareholders at a time when Tesla had a market cap of just about $59 billion, granted him stock options only when Tesla reached aggressive growth milestones, such as growing the company’s market cap to $650 billion. 

At the time, the milestones included $50 billion additions to Tesla’s market cap, which were considered by many to be unrealistic. Those goals were ultimately met by the electric vehicle maker, but a Delaware court later rescinded the plan in January 2024, calling it an “unfathomable sum.”

Tesla shareholders reaffirmed support for Musk’s pay in 2024, even as legal disputes continued. The board then issued an interim equity package valued around $29 billion while developing a new long-term plan earlier this year. Since then, Tesla’s Board has proposed Musk’s 2025 CEO Performance Award, which could be worth nearly $1 trillion, but only if Musk were to grow Tesla into the world’s most valuable company with a market cap of $8.5 trillion, among other aggressive and ambitious targets.

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