In the midst of a pandemic-led slump for the global auto industry, shares of the world’s carmakers are down — except for Tesla’s, whose stock has quintupled, including 74% last month alone. Even after a 34% plunge in its share price this week, Tesla’s price-earnings ratio is still at an orbital 948. Which is to say that the electric vehicle industry is superlatively hot, and Musk is the gasoline.
Over the next three to five years, the world’s major automakers will debut scores of new electric SUVs, pickups, and sedans. Among a slew of high-dollar deals involving EV startups, GM said Monday that it will take a $2 billion, 11% stake in Nikola, an EV unicorn competing with Tesla’s future Cybertruck and Semi. And last week, VW-backed QuantumScape, an EV battery startup, said it will go public in a $4.3 billion reverse merger with Kensington Capital, a listed shell company. The share prices of all four companies — GM, Nikola, VW, and Kensington — surged in response.
The result has been obsessive speculation on Wall Street and among EV and battery nerds as to what he will say, including a forecast that he intends to create a business feeding the electric grid.
The incitement to all this activity, beyond pure and primordial desire to get in on a presumed coming electric vehicle boom, is a cold fear of being overtaken by an iPhone moment — a runaway Tesla sales craze that leaves everyone else a wannabe.
Musk knows how to seize on that anxiety. On September 22, he will appear in a live webcast for Tesla “Battery Day,” a first-time-ever promotional event linked to the company’s annual shareholder’s meeting at its Fremont, California, factory. Batteries do not ordinarily excite mass anticipation, but Musk has teased that what he will reveal will “blow your mind.” The result has been obsessive speculation on Wall Street and among EV and battery nerds as to what he will say, including a forecast that he intends to create a business feeding the electric grid and another that he will start selling his batteries and power train to competitors. Musk’s Twitter feed has made things more fraught, with vague comments that followers have treated as a suggestive trail of crumbs to be followed.
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But if one sticks with Musk’s actual declarative sentences — that what he says will “blow your mind” — there is only one message to be gleaned: that he intends to make a dramatic assertion that the newest Teslas will achieve cost parity with similar combustion vehicles. That is, Tesla buyers will no longer pay a large premium over gasoline-driven models with more or less the same features. If that is Musk’s headline announcement — and he provides validating data that passes muster with experts — he may rattle the whole of the auto industry.
“We are at the point where carmakers are just about catching up to where Tesla is now. And now Tesla will move ahead again, and they will need another three to five years to catch up,” says James Frith, head of energy storage at BloombergNEF, a renewable energy research group. It would be almost as though Musk were rendering rival electric vehicles obsolete just as their makers are getting started.
In the first electric car age, from the 1890s through the first two decades of the 1900s, many motorists preferred them to steam and gasoline: You did not have to crank-start the engine, change gears, tolerate ghastly smells, nor endure a constant, loud roar. But when roads became better, gasoline cheaper, and motorists’ desire for distance greater, combustion overtook electrics. In the 1910s, Thomas Edison and Henry Ford, working together, made a go of electrics, but even they could not pull it off. In a bizarre episode several decades later, in the 1990s, GM briefly resurrected electric cars with its EV1. But, in a story recounted in the feature-length film Who Killed the Electric Car? it ultimately ended up inexplicably retrieving and destroying all the vehicles it produced and dropping the idea.
The new electric age was born just a few years later. In 2004, Musk invested $6.5 million in an early, three-man startup that its founders called Tesla Motors. By 2009, Musk was running the company, and it had produced a souped-up electric car called the Roadster. The car — ultra-cool, quiet, and fast — sold for $109,000 without any fancy upgrades. Musk sold 2,450 of them, initiating the mystique that he has ridden until today.
But always at the core of Tesla vehicles — the secret to its success — was the battery. J.B. Straubel, an EV fanatic and Musk’s first hire at Tesla, had a killer insight, as noted in Elon Musk, Ashlee Vance’s biography of the entrepreneur: You did not need to invent a new lithium-ion battery suitable for EVs. Instead, you could assemble a pack of off-the-shelf, cylindrical cells — lithium-ion batteries a bit larger than AAs and known as 18650s — would do just fine. You would thus save millions of dollars of research and development money associated with invention and could spend a far smaller sum on inventing a management system to prevent them from overheating and exploding.
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Ultimately, Straubel’s team packed some 6,800 individual 18650s into the Roadster, and every Tesla since has had a similar system. Over the subsequent years, though, no other automaker has bought into the strategy. All have bought or invested in custom batteries shaped into pouches. This distinction is how — whether he announces it this month or later — Musk is reaching cost parity with combustion before anyone else.
Since the Roadster, electric vehicles have been largely targeted at a niche market — the green- and cool-minded. A major reason has been the cost of the battery, which can soar to half the total price of the car.
Making electrics affordable has been so important that, in the Obama administration, it became government policy. In 2009, President Barack Obama’s Department of Energy fixated on electric cars and lithium-ion batteries as the vanguard of new industries that could carry the U.S. out of the depths of the Great Recession. So it was that the two industries were allocated $2.4 billion of federal stimulus spending voted by Congress after the financial crash. Of the money, a $465 million loan went to Tesla to create the Model S, the flagship electric that the company built after the Roadster.
Tesla’s path to $100 kWh appears to be the sum of a handful of small money-savers.
But it was the battery, and not the vehicle itself, that was key to bringing down the cost. At the time, battery costs were $1,200 kWh and more, an order of magnitude higher than the presumed crossover point with combustion vehicles of $100 per kWh. The Department of Energy began to fund battery research with the explicit goal of reaching $100/kWh.
Even a few years ago, battery experts treated the goal as preposterous. The central reason was that battery advances do not arrive on the same invention scale as transistors, whose performance doubles every 18 months or two years. Battery efficiency improves by an average of just 7% to 8% every year.
Yet, after a decade, that incremental annual progress has put the field within striking distance of the $100/kWh inflection point. Frith, the BloombergNEF analyst, said the current industry average battery pack cost is at $130 kWh. If Musk in fact does have an announcement about cost parity in mind, the question is how does he get another 30% of savings out of the battery?
Tesla’s path to $100/kWh appears to be the sum of a handful of small money-savers. In May, the company filed for a patent for a battery design that omits small pieces of metal, called “tabs,” that connect the battery ultimately to the power train. The Tesla design replaces one or both of the tabs with a bump or a ridge, cutting costs and increasing the cell’s chemical efficiency. Arcane, right? Not if you ask Musk. In a tweet in May, Musk said this advance is “way more important than it sounds.”
Then, last year, Tesla made two important acquisitions. First he bought a San Diego company called Maxwell, which had pioneered a new battery manufacturing process that reduced the space required for equipment and increased energy density. Then Tesla bought Hibar, a Canadian company that had automated battery production. The larger picture is that the biggest bottleneck in Tesla’s growth, according to Musk, has been that he can’t buy batteries fast enough. He had been relying on a single maker — Panasonic. Then he broadened out and started buying from South Korea’s LG and China’s CATL, the country’s largest lithium-ion battery producer. But they turned out not to be enough either. Now, Musk will start to produce his own cells in automated factories.
Last year, the company filed for a patent on a battery that will last a million miles in an electric car, enough for the average driver to keep going for 76 years.
In 2016, Musk invented the word “gigafactory” for the huge battery plant he built near Reno to supply Tesla. Now he is talking about a “terafactory,” a plant that can produce at 20 times the scale of the gigafactory. The Maxwell and Hibar technologies mean he can do that without requiring a massive increase in space while also producing batteries faster with far higher density. He calls this turn to the terafactory “Roadrunner.” In a January call with analysts, he said that going big is the only way to get the magnitude of cost savings he needs. “We’ve got to scale battery production to crazy levels that people cannot even fathom today,” he said.
In China, CATLsays it can already produce an $80 kWh battery at the pack level, Reuters has reported, a system developed with Tesla. But it did so with a relatively low-energy battery chemistry called lithium iron phosphate, or LFP. LFP has no cobalt, making it relatively cheap and long-lasting, but it also can’t take the car very far before it requires a recharge. That makes the battery suitable for China’s electric urban taxis but not for far more demanding American drivers. They may not buy an electric unless it can go at least 300 miles on a charge and probably further. The terafactories, outfitted with automated, streamlined equipment, will turn out the higher density batteries that go into Western-sold electrics.
Over the last year, Musk has gone a dizzying number of directions with his batteries. Last year, the company filed for a patent on a battery that will last a million miles in an electric car, enough for the average driver to keep going for 76 years. Why would anyone want a car with that kind of capability? The best answer is that when you add up Musk’s various moves in the electric vehicle space, you get an intention not only to challenge his rivals but to make combustion socially obsolete. That is, he wants every motorist on the planet to believe they have to get rid of their current gasoline-driven vehicle and go electric. And not because they desire to save the planet, because such individuals are relatively few, but for economic or safety reasons.
Musk is attempting to get there by making people agnostic as to what they will buy: If I no longer must choose a combustion vehicle because I can’t afford an electric, there is a higher chance I will go electric. But more importantly, the aim is to create a stigma about cars that cannot last a million miles, whose value may drop because the mechanics can’t take them that distance. “He wants you to think of the internal combustion engine like an expensive horse,” said Venkat Viswanathan, a professor at Carnegie Mellon.
On Wall Street, analysts are convinced that what Musk will announce on Battery Day will be a new, stand-alone business. Morgan Stanley’s Adam Jonas thinks Musk plans to begin selling his proprietary batteries and power trains to other carmakers. Wedbush’s Dan Ives thinks similarly: “Not initially, but that’s the goal,” he told me. But this seems highly unlikely. Musk is scrambling to get his hands on every battery he can. “Selling a great battery to a competitor sounds quite good. ‘Wow, he is a pioneer who is not interested only in money,’” said Sun-Ho Kang, a vice president at Wildcat Discovery, a battery company. “But will he actually do it? I doubt it. I don’t think he has the supplies to sell to other people.”
From the start, Musk’s goal has been to jumpstart the creation of a global electric vehicle industry. The rationale, he has explained, is to reduce fossil fuel emissions and help solve climate change. Cheaper batteries are a path to cheaper cars and for electrics to go mass market. Musk is attempting to reach his goal by getting Tesla there. As to the competition, it’s every automaker for itself.