How does Tesla gain competitive advantage from the war in Ukraine?

Two years ago when the pandemic hit the world, I predicted in 7 articles and published 7 videos why Tesla would profit from the pandemic, but most people said it was an illusion. Today we know that my prediction has come true and Tesla’s demand, supply and earnings have increased dramatically, as has its stock price.

Today, in February and March 2022, I predict that the unprovoked war that Putin and Russia have started in Ukraine will benefit Tesla and increase its lead over all other automakers. In this article, I explain the top 7 reasons why Tesla will benefit from the war in Ukraine.

Costs: Oil and gas prices

The main reason that is being talked about a lot these days is the rise in gasoline prices, which is making an internal combustion engine vehicle increasingly more expensive compared to a battery electric car.

Currently, largely due to speculation, fuel prices for cars have risen sharply and are likely to continue to do so. The immediate impact on commuters’ wallets makes it clear that driving an electric car will help cut costs.

Although electricity costs are also rising and will likely continue to do so, they will not rise as quickly as gasoline prices. Many consumers are finally realizing that their internal combustion engine vehicles are more expensive than expected, driving up demand for all fuel-efficient EV makers, with market leader Tesla having the largest supply. and the most popular models benefit the most.

The price of gasoline has an immediate impact on consumers’ wallets and is on the minds of politicians right now. Everyone who owns an electric vehicle already feels privileged to have made a good decision.

Morality: finance Russia with your thermal vehicle

Most Western countries have declared that they no longer buy oil, gas and coal from Russia or have drawn up an exit plan to put Russia under financial pressure and stop financing the war.

The United States, which relies little on Russian oil, has completely withdrawn from the market, while Europe has a clear exit plan. The price to be paid at the pump to financially prop up a regime that launched an unprovoked war and committed documented war crimes for every liter or gallon purchased will force many to reconsider driving a gasoline-powered vehicle.

Reliance on Russian oil for vehicles and heating varies, but every consumer who uses it supports Russia in one way or another, directly or indirectly. The surge in demand for BEVs is hitting many automakers who are unable to meet it.

Even before the war, automakers were surprised by the huge surge in demand in 2021, but their factories are yet to be built and they have limited supplies of batteries and semiconductors remain a shortage. Rumor has it that Tesla has seen a 100% increase in orders in recent weeks, and vehicle price increases of up to €3,000 in Europe are an indication of this.

Supply and demand of 100% electric vehicles

With the Giga Berlin factory beginning deliveries of the first “Made in Germany” Model Y on March 22, and the Giga Austin factory in pre-production, Tesla’s proposed capacity growth in 2022 and 2023 will easily exceed all other electric vehicle manufacturers.

100% capacity growth is likely, and while other automakers will try to ramp up their EV production, they simply haven’t planned enough for the hit and will fall behind on supply and deliveries. .

Auto suppliers are running out of batteries, while Tesla is in a unique position with a high level of vertical integration to manufacture its own cells and battery packs. On the demand side, no automaker in the world seems better placed than Tesla and has reached trailing speed as the world’s most sought-after BEV.

While all EV makers will undeniably grow, Tesla’s constellation of supply and demand will make them grow faster.

Automotive Supply Chain Challenges

The pandemic has caused supply chain disruptions that have mostly affected incumbent automakers, as older semiconductor technologies have been phased out and parts shortages have led to production stoppages and low supply.

For years they were unable to deliver enough cars and raised prices, which increased profits but resulted in fewer units sold.

Today, with the war in Ukraine, we are experiencing a very similar problem: wiring harnesses made primarily in Ukraine for car manufacturers in Western Europe are no longer available.

Volkswagen announced this week that its production was running at only 30-40% capacity, but BMW and Porsche, to name a few, have also had to halt production completely at their main factories. Although many thought automakers had learned their lessons from the semiconductor shortage, the same thing is repeated with wiring harnesses and electronics, which are essential to any vehicle, but even more so, suitable for BEVs.

Nickel for batteries is already in short supply, as is eon, a gas needed to produce semiconductors. The past has proven that Tesla’s vertical integration and highly flexible organization allow it to handle supply chain issues faster and better than anyone, and we can predict that will be the case in wartime as well. in Ukraine and after.

Increase in vehicle prices

Tesla and all the other manufacturers will increase or have already increased vehicle prices due to the war in Ukraine, and consumers will be forced to accept it. The price increases are partly due to inflation and rising raw material costs, but rising energy costs will also increase costs for everyone and everything.

Traditional car manufacturers already have very high prices for BEVs and each additional cost leads to lower demand. Tesla’s increasing efficiency and productivity, through its new factories and increased capacity, has delivered exceptional gross and operating margins that other automakers can only dream of.

While the Giga Berlin and Giga Austin will further accelerate this profit advantage, any price increase Tesla realizes goes directly to the bottom line, while incumbent automakers have to use more of it to cover the increases. of costs.

This is partly because Tesla’s vertical integration, with a smaller supplier base, means the company is less affected by industry price increases and less dependent on suppliers. Tesla’s competitive advantage lies in its faster profit margin growth than any other automaker, and this effect is accelerated by the war in Ukraine.

Production sites in Ukraine and Russia

While most Western European automakers have a production site or joint venture in Russia, Tesla does not. Volkswagen, Mercedes, Renault and many others have stopped production in Russia, adding costs to their results and uncertainty for the future.

Some continue to pay labor as a sign of employee loyalty, but that won’t be possible forever. In addition, the Russian government threatened to expropriate foreign companies and take over production facilities, which would cost billions.

This fact alone will seriously affect relationships and potential future business in Russia, as well as credibility. Finally, the Russian consumer market for Western vehicles is small, but it has been almost completely shut down, leading not only to costs but also to reduced revenues.

All this does not apply to Tesla, while it applies to almost all other car manufacturers and therefore represents a competitive advantage for Tesla.

Starlink communication for Ukraine

Elon Musk supported Ukraine in a very public way by maintaining independent communications through Starlink satellites and receivers that he delivered to the war zone in three shipments. Although Starlink is not owned by Tesla, but by SpaceX, the two companies are closely linked and positive public relations should not be underestimated in supporting an entire nation in the fight against the Russian aggressor.

In addition to satellite dishes, Tesla batteries are also supplied, which makes Ukraine’s communication independent. People often wonder if Tesla should have a public relations department, but in fact it does and the head of that department is Elon Musk.

While every other automaker is donating cash and VW CEO Herbert Diess traveled to the Polish-Ukrainian border this week to donate scooters to Ukrainian refugee children, the CEO of Tesla is working to meet the immediate needs of the Ukrainian military and government, including arranging a video call with Ukrainian President Zelensky, who invited Elon to come to Ukraine after the war. The mayor of Kyiv and former world boxing champions, the Klitschko brothers, posted photos illustrating the importance of Starlink communications in the country’s defense against Russia.

All of these public relations activities are important and help create a positive image of Elon Musk and Tesla among consumers. This image was and remains an important decision point for anyone buying a Tesla, because everyone wants to be associated with helping Ukraine.

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