Tesla Motors and the EV revolution

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Thanks to Rolton Group’s activity in the energy, renewables and automotive sectors, people outside the industry always ask the same three questions when I explain what I do for a living: Do wind turbines work? Should I put PV on my house? Is China doing all this ‘green stuff’ too?

The answer to all three is a conditional yes. However, in most cases, the answer tends to be irrelevant, because people have decided upon an answer before they ask the question. Thankfully though, over the past year, these three non-questions have given way to a more relevant line of enquiry: What is going on at Tesla?

Everyone who asks this question immediately follows up with a qualifying fragment of fact: “I heard they were making super-batteries out of beetroot,” or “Do you think Elon Musk is the new Steve Jobs?” and “Haven’t they just released all their patents to their competitors?”

These qualifiers are never completely correct, but they do always seem to be based on an element of truth. These half-facts typically arrive third-hand, sourced from a Buzzfeed article read on someone’s morning commute. Before we discuss Tesla as a whole, it’s essential to bust a few of these myths.

First, nobody is currently producing batteries from beetroot. There is, however, some interesting organic flow-battery research being undertaken that uses Quinone, a similar molecule that can be found in rhubarb. The research aims to develop scalable organic batteries that require fewer minerals. While this research appears to have obvious applications for Tesla, the specific energy density of the anticipated end-product makes this battery more likely to suit utility scale applications, rather than transport.

Second is this idea of Elon Musk (Tesla’s CEO) as the next Steve Jobs. There are a number of American CEOs within the technology field who are subject to this same comparison (Bezos, Page and Ellison to name a few), but few more pervasively than Elon Musk. This is unusual, because – unlike Bezos with Amazon, Page with Google, Ellison with Oracle and Jobs with Apple – Musk didn’t found Tesla. Tesla Motors was founded by two American engineers, Martin Eberhard and Marc Tarpenning. The South Africa-born Canadian Musk led the first investment round into the firm in 2004, later becoming Tesla’s CEO and chief product architect. The comparison to Steve Jobs is likely due to the fact that both Jobs and Musk are most renowned for developing hardware in addition to tech services.

Finally, the matter of patent release. In June, Tesla made an announcement that it would not initiate patent lawsuits against anyone who wants to use their technology in good faith. In a press release, Musk explained that “technology leadership is not defined by patents, which history has repeatedly shown to be small protection indeed against a determined competitor, but rather by the ability of a company to attract and motivate talented engineers.”

This strategy makes sense – global annual vehicle production is approximately 100 million and set to hockey stick. Tesla’s main competition isn’t yet electric vehicles produced by major manufacturers; their biggest competition is conventionally fuelled vehicles and the barriers created by their market dominance. Every time a consumer purchases an electric vehicle, a virtuous circle is created within the EV industry, with an increased demand for charging stations, a decrease in range anxiety and additional sales revenue being channeled into further R&D to secure future EV sales.

The patent release harks back to the company’s namesake; Nikola Telsa, who sold his Alternating Current (AC) patents in the 1880s for 1% of their value, effectively releasing them to help the buyer compete with his rival Thomas Edison’s Direct Current (DC). Edison proceeded to launch a propaganda war against AC power, during which a variety of subjects were electrocuted with AC power to demonstrate its danger. The campaign was to no avail: the economics won and now the world runs on AC.

While the three topics mentioned above are easy to clear up, the future for Tesla Motors is harder to predict. At the time of writing, Tesla has a market capitalization of over US$32bn, which makes it about half the size of Ford and three times the size of Fiat. In the year to date, Tesla’s share price has seen an increase of 75%, compared with a two-year rise of +825%. Despite this, TSLA spent a sizable proportion of 2013 as the most shorted stock on the NASDAQ. All parties predict a short-term bubble, with even Tesla admitting that its current valuation is “supercharged.” But nobody can know what will happen to both Tesla and the wider EV market beyond this point.

So, take any opinion people are willing to provide on the future of the EV market with a pinch of salt – in particular when it comes to the future of Tesla. If such commentators knew for sure, they’d probably already be on the Forbes list.

One thing is certain though: If Tesla does manage to kick-start the EV revolution, it will create new engineering challenges and opportunities across all sectors. An EV revolution will alter the engineering of everything, from individual housing and office developments to nationwide electrical and telecom networks.

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