Tesla is not (just) an automaker. Nor is it (just) a battery, solar, or software company. Tesla is an agent of change. Its mission is to accelerate the transition to sustainable energy – and its story is about engineering a different future. Each move the company makes lends itself to a higher-order goal, and, as you zoom out, the picture becomes clearer.
It is fairly common knowledge that Tesla does more than make cars. Though the company has garnered a powerful media presence, primarily based on its work in the electric vehicle space, we think the bulk of this attention is misguided, focusing on too narrow a scope and too short a timeframe.
The Master Plan. In a 2006 blog post entitled The Secret Tesla Motors Master Plan (just between you and me), Elon Musk outlines most of this vision. In it he writes, “the overarching purpose of Tesla Motors (and the reason I am funding the company) is to help expedite the move from a mine-and-burn hydrocarbon economy towards a solar electric economy, which I believe to be the primary, but not exclusive, sustainable solution.” The master plan, which was actually written as a bulleted list in the 2006 post and extended ten years later in Master Plan, Part Deux, goes something like this:
- First – build an indisputably excellent, fast, and expensive electric sports car to kill the existing stigma around EVs (Roadster & Model S).
- Then – use that money to create an affordable, high-volume, EV that is fundamentally better than the average consumer car (Model 3).
- In the meantime – while demonstrating the superiority of electric vehicles, provide zero emission power generation and storage options (solar & battery) to power those vehicles and all other activity.
- Later – widespread implementation will only be possible at a reasonable cost to consumers, so operations must be vastly scaled up to apply economies of scale (Gigafactory).
- Eventually – help power the globe with energy that is generated from renewables and stored in batteries for optimal deployment.
Musk concludes the first post by saying, “Don’t tell anyone.” And he’s only half kidding. At least early on, Tesla seems fine with investors and the public thinking they are an automaker. Musk knows that his ambitions to manufacture electric vehicles, develop autonomous driving software, double the world’s output of lithium-ion batteries, be the largest solar panel installer in the U.S., and modernize energy production, storage, and consumption, must be executed in steps, each building on the last.
The Silicon Valley approach. Tesla, like others in technology today (e.g., Amazon), is attacking non-tech sectors with a thoughtful, albeit unconventional, commercialization plan. If your goal was to accelerate the world’s transition to sustainable energy, you might get a degree in chemistry or electrical engineering, go on to study environmental engineering or law, assert yourself as an expert in the field, create an interest group, lobby congress, get approved to test a project; you get the picture. Tesla, however, figured that most efficient way to exact the greatest change is with a consumer-facing, product-focused approach. Maybe people would drive an electric car if it were faster, safer, and sleeker than the one they owned. Maybe people would put solar roofs on their homes if they looked great and were more durable than traditional materials. People are drawn to better products; not to intangible environmental and sustainability benefits.
“The future has already arrived – it’s just not evenly distributed.” – science fiction author William Gibson. This quote applies broadly to many themes within tech, but is particularly pertinent to Tesla’s situation today. Right now, using Tesla products, you are able to consume energy in an entirely sustainable manner. With a Solar Roof and Power Wall, you can generate and store enough energy to power your home and your Model S, effectively removing you from the grid and reducing your carbon footprint to zero. Further, Tesla Energy has embarked on a handful of projects around the world. Some of these include building the world’s largest battery storage facility in South Australia, powering the entire Samoan island of Ta’u with solar and batteries, relieving the grid during peak demand in California, and several others. Unfortunately, these solutions are few and far between, and the technology is not accessible to everyone because of the upfront cost. The uneven distribution, however, is largely an issue of manufacturing scale.
A word on scale. Scaling their operations is perhaps both Tesla’s largest hurdle and the single most important determinant of their success. Their goal is not to help the rich save on their energy bill or give them a fun car to drive. In a recent interview, CTO J.B. Straubel said, “we work incredibly hard every chance we can to reduce cost. Most of our effort is focused on how do we reduce cost so that we can grow volume and reach a broader customer base.” There is no agenda or desire to sell to wealthy customers only – it is a necessary step in the economics of scaling up operations. Scale is currently Tesla’s core focus. While the Nevada Gigafactory will effectively double the world’s output of lithium-ion battery cells, Musk has said he wants to build 10 or 20 of them, and that to power the globe, we would need 100 Gigafactories (begs the question if there is enough lithium in the world to supply 100 Gigafactories). Tesla has focused on creating “the machine that builds the machine,” and thinks of the factory as a product, carefully crafting and optimizing it like they would a Model S. We suspect that people will be shocked by Tesla’s manufacturing output ability in the coming years.
From paper to practice. The concept is simple on paper; we have, as Musk says, “this handy fusion reactor in the sky called the sun,” and enough of its energy hits the earth every hour to meet the world’s energy demands for an entire year (MIT Tech Review). So how can Tesla accelerate the process of capturing, storing, and utilizing this energy?
- Grid-scale energy storage – in our current system there is virtually no storage, so power plants that feed the grid are constantly adjusting output to perfectly meet demand. In most cases they fire up extremely dirty and expensive “peaker plants” to meet peak demand each day. By adding batteries to the grid, which are essentially an infinitely scalable, plug-and-play technology, Tesla could smooth out production and deploy stored energy as needed. This idea has come to life in several locations, most notably in Mira Loma, CA, where Tesla has installed 396 Power Packs to assist the over-stressed grid in meeting peak demand each day.
- Renewables + batteries – energy storage enables mass adoption of renewables of all kinds because it solves a core issue; there is a disconnect between when solar and wind power is generated and when it needs to be deployed. Batteries can be charged during the day when the sun is shining, then deploy energy at peak demand and throughout the night. Tesla is currently installing a battery storage facility tied to a wind farm in South Australia that, when finished, will be the world’s largest by a factor of 3.
- Microgrids – whether it’s a single-family home, a rural community in Brazil, or an entire Pacific island, the combination of solar and battery storage offers the unique opportunity to create smaller, self-contained power networks and spread clean energy to new areas. Rural areas will be able to leapfrog traditional infrastructure, and urban areas can reduce the burden on the existing grid. Tesla has built a microgrid in American Samoa that powers the entire island of Ta’u, able to capture and store enough solar energy to meet demand even if the sun doesn’t shine for 3 days.
The faster Tesla reaches economies of scale in its existing businesses, the sooner we could see Tesla tackle these important issues, extend its operations to their fullest potential and, most importantly, further accelerate the transition to sustainable energy.
Special thanks to Will Thompson for his work on this note.
Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.