Tesla, Inc. (NASDAQ:TSLA) is known for its quick technological advances, but it seems that the firm has decided to go back on an innovative decision it made long ago. The Tesla Model 3, the firm’s upcoming affordable EV, involves a 180 degree turn on motor design at the firm. Once labeled as inferior by the company, Elon Musk is embracing permanent magnets.
The new motor design was discovered in a listing with the Environmental Protection Agency. The certification papers for the Tesla Model 3 show that the car will sport a permanent magnet (PM) motor instead of the AC induction motor used in the Model S and Model X. That’s not a change many drivers will notice, but it does belie a big shift at the operation.
The EV motor revelation was picked up by Dan Edmunds over at Edmunds.com.
Why is the Tesla Model 3 motor so important?
There’s an argument to be had over what type of motor should go in an EV. When Tesla was designing the Roadster and the Model S it had that argument. The firm’s original mavens, before Elon Musk became CEO, decided an AC induction motor was preferable because of the higher performance.
In the early cars from Fremont, performance was key. With the Tesla Model 3, however, efficiency appears to have the upper hand.
Back in 2007 EV giant
There are also questions about efficiency. A PM car is intrinsically more efficient because the motor needs less power to run. It also produces less heat, adding to the efficiency.
The choice of original Tesla founders Martin Eberhard and Marc Tarpenning to use the AC induction motors was one of the things that set it apart. Now Elon Musk, who took an interest in the firm in its first funding round, wants to change that direction.
Why did Tesla change its motors?
We know that the cost of permanent magnet motors has been on the minds of Fremont boffins in recent months. An April interview with Konstantinos Laskaris, head of motor design, undertaken by ChargedEVs.com, may have given the game away early.
When asked about motor cost he said, unprompted, “When we’re talking about permanent-magnet motors, the magnet price in the past has fluctuated so much that maybe this is not very representative of a general discussion about motor cost.”
At the time, as far as anyone could see, the firm didn’t put that kind of motor in anything. Despite that, Laskaris continued, saying that costs of motors were still going lower because of optimization. The entire piece is full of interesting ideas about the future of Tesla motor design. Given that it appears to have pointed to this revelation, there may be more secrets hidden in his answers.
What we can take away from the discussion is informative, however. Tesla has likely made the permanent magnet style motors cheap enough to be worth using. When it comes to the Tesla Model 3, after all, cost and margins are the most important part of the equation.
Tesla Model 3 is iconoclastic
One interesting result of the change in motor tech is the effect on the image Tesla uses to identify itself. As CEO Musk confirmed back in January, the firm’s logo is actually supposed to represent the precise motor that’s being removed from the Tesla Model 3. That’s not anything damning for the firm’s future, of course, but it is an interesting result of the change in technology.
The logo is so abstract and stylized to start with that only a very small portion of fans will be able to see it for what it is.
Despite the effect, the anachronism of the logo design, should Tesla, Inc. (NASDAQ:TSLA) decide to continue using permanent magnet motors, is noteworthy. The motor it is based on actually dates from way back at the end of the nineteenth century. That’s when the company’s namesake, Serbian-American scientist Nikola Tesla, was developing his EV motor designs.
The Tesla Model 3 is bound to be an iconoclastic car, at least for the communications folks in Palo Alto. The design departs from that of all previous vehicles put out there by the firm, and it shows a willingness to return to the norm.
We don’t know the ins and outs of the motor design, but it seemingly makes the car like the Chevy Bolt and most other EVs on the market right now. It’s a big move for Tesla, Inc., (NASDAQ:TSLA) but you shouldn’t read too much into it. Confirmation bias will allow bulls to read it as “informed flexibility” and bears to read it as “commodification” of the Tesla Model 3.
Measuring Tesla, Inc.
At the end of the day, or at the start for that matter, motor design won’t matter much to investors or consumers. Both groups simply want the Tesla Model 3 to be the most impressive car possible. Whatever technological decision the firm has to make in order to get there doesn’t really matter.
What consumers want is a lower priced, high quality EV. The Tesla Model 3 isn’t exactly “affordable” by most measures, but the reviews look good so far.
What investors are looking for is high margins. They want CFO Deepak Ahuja to be able to record a massive profit on each car sold. The firm promised that 25 percent of the cost of each car will eventually be gross profit. That’s an impressive margin that is essentially unheard of in the auto industry.
Changing motors may change the firm’s image and its origin story, but it doesn’t change the valuation story. If the firm can get to mass production without cost over runs, it will have won over investors.
Right now Tesla, Inc. (NASDAQ:TSLA) stock appears to be trading in a broad, but well defined, range. Since April shares have rarely traded outside of the $300-$350 range. On Wednesday evening, however, the firm’s shares closed selling for over $360 each.
That’s on the back of positive Wall Street research on its future. A report from Citigroup published on Thursday morning summed up the neutral case for Tesla stock. Analyst Itay Michaeli set his price target at $371 but didn’t advise clients to Buy shares.
He reckons the firm’s basic business is sound and projects lower costs through the end of the decade. There’s still high risks, though, so now is not, at least in his view, the right time to buy into the story.