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Elon Musk

GigaFactory Proves that Tesla is Ahead of the Clean Energy Curve, But Does Texas Stand to Benefit?

Disruptive technologies tend to follow a certain trajectory. First, they are outliers, often ignored, and typically on the cusp of never entering the market. But, for the successful ones, a tipping point is ultimately reached, after which the technology goes viral and changes the status quo it was designed to replace. In the new energy revolution, Tesla is one such company that has surpassed the tipping point and threatens to change the way we produce, distribute, and consume electricity.

It isn’t just Tesla’s sleek and beautiful electric vehicles that will be key to disrupting the status quo. At a current price point of around $80,000, most people en masse won’t be able to afford a Tesla, even though the company has plans to develop more affordable models. But what makes Tesla unique, besides the strange genius of CEO Elon Musk, is the potential diversification of its offerings, highlighted recently by the company’s announcement to build the GigaFactory, a $5-billion battery factory that will employ 6,500 workers.

Set to open in about three years, the new GigaFactory will be large enough to manufacture more lithium-ion batteries than the entire industry produces now, and due to its sheer scale, is expected to reduce the cost of batteries by almost one-third.

Tesla batteries and renewables

Tesla’s move to build the largest battery factory in the world is significant for the electricity market – and not solely for the large-scale adoption of electric vehicles.

Energy storage is the missing link for realizing the full potential of renewable energy. Storage guarantees that the energy produced by renewables is available at all times, even when the sun isn’t shining or the wind isn’t blowing. For example, storage can capture West Texas wind power at night when wind energy is most abundant and release that stored energy during the afternoon hours when demand for electricity is high.

But, to date, storage has been lagging in its availability and cost-competitiveness.

Worldwide, there were only 420 storage projects at the end of 2013 and only 34 megawatt hours’ worth of lithium ion battery projects built for the grid by the end of 2012. For comparison’s sake, there were 23 gigawatt hours’ worth of lithium ion batteries made for consumer electronics, like cell phones, over the same period (1 gigawatt is equal to 1,000 megawatts).

Tesla’s current costs for lithium ion batteries (supplied by Panasonic) are around $200 – $300 per kwh. If the factory could reduce those battery costs by 30 percent, prices could drop to $140 – $210 per kWh. Navigant analyst, Sam Jaffe estimates that battery packs will end up at around $180 per kWh. “They are definitely setting the bar for battery costs,” Jaffe said. “By 2020 every other battery manufacturer will have to get close to or beat the sub-$200 per kwh number that Tesla will be able to accomplish if they meet their goals.”

This is not to say that lithium ion batteries are the only option for energy storage- especially when it comes to renewables. A diverse portfolio of choices, including technologies like compressed air caverns and hydro pumping to sodium-sulfur batteries, will play an important role in the application of storage for both utility-scale and distributed generation energy storage.

Location, location, location

Tesla has not yet decided on a location for the GigaFactory, and many states are vying for the economic benefits of this development. The automaker is looking in Arizona, Nevada, New Mexico, and Texas, but at least two of these states (Texas and Arizona) are at odds with the company over its direct-to-customer selling strategy.

Because of long-standing state laws protecting and regulating auto dealerships (and the lobbying power of the Automobile Dealers Association), Tesla cannot sell directly to consumers in these states, or New Jersey, the latest state to effectively ban Tesla under their current business model.

Instead, Tesla can only showcase vehicles at “galleries” and state law prohibits employees from discussing the price or any logistical aspect of acquiring the car. Prospective buyers must order the cars from California, which are “delivered in a truck with no company markings, per Texas law, and customers even have to unwrap their new automobiles themselves, because the law prohibits Tesla’s in-state representatives from doing, saying or touching anything related to selling or delivering cars.”

Ironically in a letter attempting to woo Tesla to the Lone Star State, Rep. Jason Villalba stated, “I can attest to you that there is no better state in the Union to begin, grow and expand a new and thriving business such as Tesla Motors.” Tesla begs to differ.

According to Diarmuid O’Connell, Tesla’s Vice President of Business Development, “The issue of where we do business is in some ways inextricably linked to where we sell our cars. If Texas wants to reconsider its position on Tesla selling directly in Texas, it certainly couldn’t hurt. In an interview in April with The Texas Tribune, Tesla CEO Elon Musk went as far to call the state’s auto franchise laws “very un-Texan.”

Too late for a Texas GigaFactory?

During the last Texas legislative session, House Bill 3351 introduced rules to allow manufacturers of 100 percent electric cars to sell directly to consumers, but it did not pass. Arizona is also lobbying aggressively for the factory and lawmakers are pushing legislation that would allow Tesla to sell direct. And automakers in Ohio just struck a deal with Tesla easing the battle over its direct-to-consumer retailing model. Governor Perry has voiced support for HB 3351 and went so far as to admit in a recent Fox Business Today interview that Texas needs to revisit its “antiquated rules” prohibiting Tesla from selling electric vehicles in the state.

Perhaps Texas legislators should reevaluate their principles for the upcoming legislative session. Waiting till next year may be too late to sweeten the deal for a Texas GigaFactory, although it does appear that Texas leaders are making moves behind closed doors to secure this project.

The Texas Tribune reported that a secret meeting took place on Wednesday, where Tesla executives met with leaders in San Antonio, causing further speculation about the lone star state’s chance of landing this coveted project. Either way, Texas leaders should act fast or risk losing the opportunity for thousands of jobs in Texas. As Tesla breaks down many barriers with its innovative products and business models, it will be met with resistance. But the agility of the company to overcome the odds has already been proven.

Article by Marita Mirzatuny, appearing courtesy EDF Blog.

March 31, 2014 0 comment

Big Hurdle for Tesla: Building a Charging Network in China

written by

I wrote the piece below for Automobile and Parts, a Chinese publication. Since I wrote it news came out that the State Grid will allow private investment in charging networks. But no timeline was mentioned. And no news regarding whether South Grid will follow suit. Allowing private investment offers a sliver of hope for Tesla. But as always in China, implementation will be the tricky part.

Tesla’s business model – a non-automotive company that has successfully produced and marketed a pure electric luxury vehicle – seems to be much admired by some parties in China. And despite disputes regarding its distribution model with automotive dealers in some states in the U.S., Tesla has sold well here. Based on that popularity, Tesla founder Elon Musk and his representatives in China are confidently predicting that Tesla will sell around 5,000 Model S electric sedans in China in 2014 and as many as 22,000 in 2015.

Those sales numbers are based on an underestimation of the difficulties Tesla will face in China, however, and won’t be achieved. Furthermore, Tesla will likely have trouble making a profit in China if the costs and difficulty of building out a distribution network and charging network are considered.

First, there is the price of the car itself. Tesla made a big deal out of the fact that it will charge “only” 734,000 RMB for a Model S sedan with an 85 kWh battery. That is the cost of the vehicle plus shipping and handling, customs and duties, and a value-added tax. Tesla’s electric vehicles come with several optional battery sizes; larger batteries cost more but provide more range. A car with an 85kWh battery provides about 300 miles per charge.

Tesla says it goal is to make the same level of profit per car no matter where it is sold. Even if Tesla isn’t making more profit, however, the price for the Model S is still more expensive then the majority of luxury cars sold in China. That price is not set in stone, by the way. Tesla will adjust the cost of the Model S in China when the USD/RMB exchange rate fluctuates, according to a Tesla spokesperson. Would someone prefer to buy an electric vehicle, even a Tesla, over say a similarly-priced gasoline-powered Porsche 911? Only a few would.

If someone does want to buy a Tesla in China, they first have to find a Tesla store. Tesla’s distribution model relies on company-owned stores rather than franchised dealerships. In the U.S., cars are sold through dealerships owned by individuals rather than the automakers themselves. That has made Tesla the target of a handful of lawsuits here in the U.S. by the owners of dealerships. Those lawsuits claim Tesla violated the state laws governing auto dealer ownership (each of the 50 states in the U.S. has its own auto franchise law.).

In China, Tesla may not run into such lawsuits, but will need to build out a nationwide Tesla store network to even begin to reach the sales numbers it predicts.

So far, it has one store, in Beijing. Elon Musk has said Tesla will have stores or service centers in six metropolitan areas in China by the end of 2014. Let’s say Tesla succeeds in opening those stores by then. Will each of those stores manage to sell nearly 1,000 units each? Let’s assume they will. To achieve sales of 22,000 in 2015, Tesla will have to quadruple the number of stores it has in China, and each will have to sell nearly 1,000 units each.

I think distribution i.e. a network of stores will be the easy element of achieving Tesla’s ambitions in China, however. I believe the biggest barrier to its success will be its inability to construct a nationwide charging network. Rather than rely on public charging, Tesla constructs a network of Superchargers that only owners of its EVs can use. To date it has installed 74 Supercharger stations in North America. Each station costs US$150,000 to build, according to a Tesla spokesperson. This does not include maintenance or monthly energy costs. “We cannot yet speak to cost of location of Supercharger stations in China,” said the spokesperson. “Elon plans to visit in March and more details will be unveiled at that time.”

Elon may find that building Supercharger stations in China will be not only expensive, but very difficult. For one, each station charges at 120kw. “That is more power than an electric bus consumes,” exclaimed an executive working on EV charging networks at a foreign automaker in China.

He also asked if Tesla has approval from the State Grid and the Southern Grid , China’s two largest utilities, to construct the Supercharger network. That is, are they willing to provide the power? What’s in it for them? Then there are the Supercharger stations themselves, said the executive. Have they been approved by Chinese regulators?

Elon Musk has succeeded when others have thought he would fail, and his self-confidence is well-earned. He founded and sold Pay Pal, an online money transfer service, for $1.5 billion. Musk also founded and still runs SpaceX, a company which designs and launches rockets. In China, however, he may meet his match.

Article by Alysha Webb, a freelance automotive journalist and founder of ChinaEV Blog.

March 20, 2014 1 comment

Bullish on Tesla Motors?

written by 2GreenEnergy

It seems that almost every day, there is news, most of it incredibly good, about what Tesla, driven by charismatic entrepreneur Elon Musk, is up to. Recently, the news is the “Gigafactory,” to be located somewhere in the U.S. southwest, in which the company plans to build huge volumes of low-cost batteries.

When I sold the ExxonMobil that my father bequeathed me, I considered buying stock, which, at the time, was trading under $30. As of this morning, I would have made almost nine times my money.

The interesting news here, however, isn’t crying about the past, it’s the lack of predictability about the future. Wedbush sees a $295 target for 2017; Bank of America Merrill Lynch reaffirms its predicted crash to $65. Someone’s going to be far more embarrassed here than the folks who picked the Denver Broncos to win the Superbowl.

February 27, 2014 0 comment

Elon Musk Takes on Sustainable Transportation and Energy

written by Walter Wang

When we look at the people whose life’s work revolves around improving conditions for humankind, we observe that most of these individuals are not wealthy. Not only are their endeavors not focused on profit, but in many cases, their efforts actively fly in the teeth of the most profitable industries on the planet – whether that means Big Energy, Food,

March 21, 2013 0 comment

Tesla, the Darling First Child

written by Walter Wang

Though many startup companies in the electric vehicle (EV) industry have either struggled to survive produce a profit, or insure investors of their products’ worth (or all three), one company has consistently bucked the trend of disappointing news: Tesla Motors. In 2008, the company first began selling its first-generation all electric Tesla Roadster and since then

June 26, 2012 0 comment

Tesla’s Elon Musk Calls Carbon Tax “Ideal”

written by Walter Wang

The most common narrative spun by opponents of regulating of carbon dioxide is that doing anything to intentionally raise energy prices is tantamount to crushing the American economy. Some of the loudest supporters of that narrative are titans of industry who argue that putting a price on carbon would effectively drive America back to the age of the horse and

March 27, 2012 0 comment

Tesla Promises an Electric SUV Model After Their Sedan Hits Markets

written by Justmeans

In the world of electric vehicle manufacturers, Tesla Motors is known for their sporty and speedy Roadster that came onto the scene all at once and surprised even the most negative onlookers with their success. Now with the Roadster at their back, the Model S sedan in the works, and the partnership with Toyota still fresh in people’s minds, Tesla is taking their

February 1, 2011 1 comment

Tesla Skyrockets in Debut

written by Paul Schwartz

On a day when the rest of the stock market was tanking, Tesla Motors cruised to an IPO win worth $226.1million.

Concerns over consumer confidence, the European economy and growth in China brought the market to its lowest level of the year finishing down 268 points. Don’t tell Tesla. In a clear testament to the position the automaker has already achieved as a brand, investors lined up for a ride as the company became the first American car manufacturer to go public since Ford in 1956.

June 30, 2010 0 comment