Who Will Lead The Transportation Transformation?

A moment of truth is at hand, not just for Tesla, not just for electric vehicles, but for transport generally. It is by no means clear that Tesla will ever earn any money, real money, the kind of money that makes your market cap worthy of industry leadership. Earnings matter and the time has come for Tesla to produce the goods, not just the Model 3.

The good news is that even if Tesla were to go out of business (which is neither a prophecy nor a preference) EVs are going to replace internal combustion engine autos; the only question is when? I like to think it will happen by 2030, hence: 0 to 60 in 15 Years (where 60 is percent-market-share). This claim is not as ridiculous as it sounded a year or so ago. Indeed, Bloomberg New Energy Finance just published the illuminating prediction above at their annual conference.

Furthermore, "[a] report by the Center for Automotive Research at the University of Duisberg-Essen in Germany predicts the market for new cars in China will exceed 30 million vehicles a year by 2025 and it expects EV sales to make up 30 percent of that figure.". U.S. sales are currently running around 17 million units per.

When a company is not earning money its share price is determined in large measure by psychological factors; hope and fear both get their chance to weigh in on the price (24 hours a day). However, Tesla shares, without earnings, could just as easily trade at 50 or 60 as they do at 300 or 350. Amazon has amazingly been able to take over the world without making much money, but delivering cars at $35,000 to $100,000 or so is rather different from delivering $35 books. It is a lot easier to scale books than cars. But CEO Elon Musk doesn't seem worried: "I don't know anything that would prevent us from starting production in July and exceeding 5,000 units a week by the end of the year."

It will be a remarkable achievement if Tesla can produce half a million cars in a year, at a price point near the new car average ($35,000 U.S.) and make money, but that is what the share price seems to be telling us. Is it priced for perfection? "A flawless launch of the Model 3 is critical to the company's future success," said Jack R. Nerad, an analyst with the auto-research firm Kelley Blue Book.

We are about to find out. American entrepreneurs are not altogether unfamiliar with remarkable achievements in auto production. Will Tesla ever get to 15 million units? When will that be? What will its share price look like along the way?

The Ultimate Mobile Device

The word itself, auto-mobile means self-moving, just like a horse. Finally, after 109 years (the Model T rolled out in 1908) engineers are about to get it right. Now we will see if the courts and regulators can too. With or without electricity, the autonomy genie has broken through the eggshell and is about to hop out onto the stage.

RMI asks the key question: How safe are self-driving cars? At this stage of the game, the answer seems to be 'pretty darn safe,' except when they are hit by cars driven by humans, many of whom have had a bit too much to drink. On the bright side, sales of liquor after midnight should skyrocket once autonomous vehicles can get you home safely assuming the locks have not been changed (which would be a boon to the hotel trade). In fact, driverless cars are becoming child's play; they almost have to.

But what happens when machines make decisions and something goes wrong? Who is responsible? Who pays? The great Oliver Wendell Holmes wrote: "The prophecies of what the courts will do in fact, and nothing more pretentious, are what I mean by the law." (The Path of the Law, Harvard Law Review, 1897.) In unsettled matters, when important new technology comes on the scene, the courts decide the new rules of the game (which is why Buick had to pay Mr. MacPherson a hundred years ago).

The case of Waymo LLC v. Uber Technologies Inc. (17-00939, U.S. District Court, Northern District of California -- San Francisco), naturally comes to mind. Waymo used to be known as Google's Self Driving Car program. (Google, Waymo and Alphabet are all names for the same team.) In Federal Court, Alphabet has claimed that Uber's driverless project relies on trade secrets taken by an engineer Uber recruited who once worked for them (Google). They claim he took 14,000 files when leaving the company to start his own (called Otto); that start-up was acquired by Uber for $680 million.

Bloomberg calls the case "a showdown that may decide who controls key technology in the race to market autonomous vehicles -- a business that both companies believe will be worth hundreds of billions or even trillions of dollars a year." Nor do they underestimate what may be at stake for 'the world's most valuable start-up'. "Uber [CEO] Travis Kalanick calls driverless cars an 'existential' necessity for his company. If he's right, Uber can't afford to lose in its court fight with rival Waymo."

Whatever the courts decide (an update on the case can be found here), there are other players working on the key LIDAR technology that makes it possible for the car to "see" what is going on around it. LIDAR is an acronym for Light Detection and Ranging. (It is analogous to RADAR – Radio Detection and Ranging).

Is a worldwide fleet of autonomous EVs running on renewable power merely a millennial socialist fantasy? ( Sunshine, Megawatts, and Windmills everywhere -- with apologies to the estate of Lesley Gore.) Is never ending production growth from oil wells to feed the next two billion gas burning cars a free market delusion? (Is CO2 really 'free'?) Which is closer to the truth?

On your spreadsheet, what will the market share of EVs be over the next twenty years? What percent of the rising generations will own their own cars (ie, the autonomous market)? What percent of electricity will be renewable? When will world auto demand peak? (Will it ever?) Knowing those four variables will cast much light on other ones that are growing in the shade of these great and strengthening forces.

Smarter than a Box of Rocks

It would be ironic if Elon Musk's wealth and legacy were preserved and passed on for generations, not because he built great electric cars or because he set a colony firmly on the surface of Mars (Elontown), but rather, because he had the best box of rocks, the terrestrial kind: Lithium, element number three. These little boxes, make that batteries (mostly cylindrical), will determine the pace of the EV rollout as the correlation between the price, as measured in fewer dollars per kilowatt-hour, and the time it takes for EVs to rule the world is sure to be very high.

Muskpad Number One – Do these scale?

Even if Tesla can't make money building cars, it may turn out that most of the money is to be made selling batteries, and not just for cars. One of the most remarkable business decisions in recent history (if not ever) was made by Andrew Grove and Gordon Moore, the CEO and Founder of Intel, to abandon a technology they invented, memory devices, and bet the company (arguably the most important company in the world over the last 50 years) on microprocessors. It turned out to be a good bet. (It also didn't hurt that the other Founder, Robert Noyce, mentor to Steve Jobs, invented the integrated circuit.)

Above and beyond filling up EVs, batteries have already started to matter at the grid level. California responded admirably and quickly to a crisis which developed in the wake of a leak at the Aliso Canyon gas storage facility near LA, which constricted fuel supplies throughout the region. (And you didn't think gas was intermittent.)

According to UtilityDive: "Fearing blackouts, the California Public Utilities Commission quickly mandated a series of mitigation measures, including an expedited procurement for local energy storage resources. The more renewable energy that can be stored during the day, the reasoning went, the less need to fire up fossil fuel generators as electricity demand increases in the evening."

Some utility executives already talk in glowing terms about the long-term effects of low cost battery storage systems. At the 2015 Energy Storage North America conference, the utility's chief development officer Jim Avery captured the attention of the industry by dreaming of a future "where there will be no more gas turbines." While it won't happen overnight, Avery said "long-duration storage could eventually obviate the need for natural gas peaker plants that today help integrate variable renewables."

Of course, if the Martians land here first, and look around, they may be forgiven for thinking that cars are the most important life form on this planet. They would notice (in the USA, anyway) that the biggest room in most buildings is the garage. They would also notice massive structures in cities filled with these creatures. Clearly, the shiny metal objects stored in the great room, and well attended by two-legged creatures that serve them faithfully, have godlike status (which isn't far from the truth).

The cars come in all shapes, sizes and colors; the attendants pretty much all look alike. (Occasionally, smaller four-legged creatures jump into them, but it is not clear what their function is, other than possibly to provide irrigation when they emerge.) The good news, from the Martian perspective, is that at least some of these enlightened beings are drawing energy from the sun, via silicon on the rooftop. Maybe there is intelligent life on Earth after all.

"Greetings, Earthling. We come in peace."

By Henry Hewitt of Oilprice.com