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Where Tesla skeptics are misguided

Data: BloombergNEF; Chart: Axios Visuals 

Tesla surged 4.6% on Wednesday — more than $10 a share — on a burst of new confidence after it announced record production of its electric vehicles in the second quarter. But this was insufficient to satisfy the new doyens of death who hover over and analyze every hiccup from Tesla and CEO Elon Musk. As a group, they responded, "Eh."

What's happening: After hours yesterday, Tesla announced that it delivered 95,200 cars last quarter. When you add the cars that were on their way but not yet with the customer, the total surpassed 100,000, an impressive number given the company's age. It puts Tesla on track to reach Musk's 2019 production forecast of 360,000 cars.

  • The skeptics are asking, "Yes, but what about profitability?" Which is a great question if your focus is this year's stock price.
  • But if your concern instead is the future of the company (still by far the electric car industry leader), you should be querying differently. And that's whether Tesla can endure the costly, developmental Valley of Death it has been crossing for another four or five years — until 2023 or 2024.
  • Because that is when scaleup may push average manufacturing costs for mainstream electrics — including Tesla's — below that of rival gasoline-driven vehicles, according to BloombergNEF, a leading research firm in energy tech.

Look at the chart above: By 2030, the average gasoline-driven car will cost some $3,000 more than the average electric, a 12.5% difference, BloombergNEF says.

  • The price plunge, reflecting plummeting supply and manufacturing costs, should materially raise the profitability of mainstream electric SUVs and sedans.

Why this is happening: Much of this cost drop flows from the battery, says Nikolas Soulopoulos, a BloombergNEF analyst. By 2023, the cost of lithium-ion batteries are forecast to drop to $100 per kilowatt/hour, the holy grail of the industry, from north of $1,000 a decade ago.

  • "It will be a few more years to reach that level. However, if you think about it in terms of 'model cycles', it is really quite nearer," Soulopoulos told me.