20 Years of Tesla :: 2003 to 2023

Twenty years ago, on July 1st, 2003, Martin Eberhard and Marc Tarpenning incorporated Tesla Motors! Elon Musk, JB Straubel, and others joined and helped make it the incredible business it is today. The company's name is a tribute to inventor and electrical engineer Nikola Tesla, specifically for his polyphase electric induction motor design.

Tesla Inc. (previously Tesla Motors Inc.) turns 20 this year. The traditional 20th-anniversary gift is China dinnerware. Considering the significance of Tesla's presence in Shanghai, this seems apropos. We'll discuss how they got to where they are today and where Tesla could be 20 from now.

Today, Tesla is one of the most valuable car companies in the world, with a market capitalization of over $800 billion as of early 2023. In addition to electric vehicles, the company is also focused on renewable energy, energy storage, and AI-based autonomous driving technology.

In this post, we'll cover the founding, internal strife, product introductions, and finally conjecture about what the company may deliver over the next 20 years.

The Founding

In February of 2000, Eberhard and Tarpenning sold their e-reader company for $187 million. While developing and revising their e-reader, the Rocket ebook, they saw that lithium batteries were making great strides. Each iteration of these fancy new batteries made their e-reader lighter and allowed it to run longer.

With the windfall from the sale of their company, Eberhard and Tarpenning started wondering what they could do for their next endeavor. Eberhard, like many who strike it rich in Silicon Valley, wanted to buy a sports car, but he didn't want a polluting gasoline vehicle. California was in the shadow of the electric car's murder, so buying an electric car (sports car or otherwise) was not an option. While car shopping, Eberhard stumbled onto AC Propulsion, an electric motor and motor controller company. Eberhard made an investment in AC Propulsion and joined their board.

Given the battery advancements that Eberhard and Tarpenning had witnessed combined with the AC Propulsion technologies and they knew an electric car company was the answer to their 'what do we do next?' question. 

Ian Wright joined Tesla Motors late in 2003 as the company's third employee.

In parallel, JB Straubel and Elon Musk had driven the AC Propulsion T-Zero prototype roadster EV and they were impressed. Musk asked them to make one for him. They said they were not making cars, the prototype was only to demonstrate their motor and controller products. If they wanted a car, they should talk to the folks at Tesla.

Straubel and Musk looked into Tesla and saw that (at that point) they had not made much progress. Musk and Straubel discussed the idea of creating their own EV start-up to compete with Tesla. From his PayPal days, Musk saw firsthand that two competitors (Confiniti and X.com) could merge, rather than compete, and the resulting company could achieve their goals faster. So, rather than creating a competing start-up, Musk and Straubel would invest in and join the fledgling Tesla.

Musk invested $6.5 million in February of 2004 in the company's series-A investment round. This made Musk the largest Tesla shareholder and chair of the board of directors. Straubel joined Tesla in May 2004 as Chief Technology Officer.

Innovation is Tesla's Lifeblood 

The legacy automakers are being disrupted by 4 simultaneous megatrends (Electrification, Mobility as a Service, Self-driving Cars, and a Relentless Pace of Innovation). If the legacy automakers cannot navigate all four of these, they will not survive. 

Whereas, Tesla is in a position to be propelled by each of these trends. Tesla has a culture of innovation. Their very first product was one that the auto industry said no one wanted. Then Tesla made their second vehicle, the Model S, and again the auto industry forecasted Tesla's demise. These waves of doubt have preceded each of Tesla's products (the Semi was called impossible by multiple "experts") and doubt still precedes planned product introductions like the Cybertruck and the Robotaxi.

Tesla has a series of moats, but they frequently actively work against their own selfish interests to move the entire industry forward such as opening the Supercharger network to EVs from other manufacturers and open-sourcing their patent portfolio.

More on how they perform these marvels of engineering later, let's get back to the founding storyline.

Internal Struggles 

Wright and Eberhard could not agree on the Roadster engineering direction. How much should they rely on external vendors like AC Propulsion and Lotus, and how much should they do themselves... The disagreements between Wright and Eberhard became heated to the point that the two men could not be in the same room without a firestorm erupting.

Wright approached the board attempting to oust Eberhard and name himself as Tesla's CEO. As chair of the board, the decision fell to Musk. It was clear that one of them had to go. Musk chose Eberhard to stay and continue as the CEO. Wright was asked to leave the company. Wright left Tesla in 2004 to start his own EV company, Wrightspeed. 

This was not Eberhard's only struggle with Musk and Tesla's board. In August 2007, Eberhard was asked to step down as CEO. Eberhard did step down and ultimately left the company in January 2008. Co-founder Marc Tarpenning also left the company at the same time. 

When Eberhard stepped down as CEO, Michael Marks was brought in as interim CEO. Just 4 months later, Ze'ev Drori replaced Marks. Nine months later, in October 2008, Musk succeeded Drori, becoming the 4th person to hold the title of CEO at Tesla. 

Founder Lawsuit

Eberhard may have left Tesla in 2008, but his scrap with Musk was not over. In June 2009, Eberhard filed a lawsuit against Musk for allegedly forcing him out. Of all of the allegations thrown back and forth during the lawsuit, one of the more trivial and heated fights during the lawsuit was about who gets to refer to themselves as a founder of Tesla. Eberhard argued that there were only two people there when the company paperwork was filed, founding the company. Musk argued that the company was just two people with an idea on a napkin (more likely engineering paper) before he funded it. The net result of the lawsuit was that five people were named by the court as official co-founders of Tesla (Eberhard, Tarpenning, Wright, Musk, and Straubel). 

Roadster

Despite the fighting within the C-suite, the mission moved forward and on July 19th, 2006 in Santa Monica, California, Tesla unveiled the Roadster! 

Tesla began production of the Roadster in 2008.

Tesla faced many doubters

After the launch of the Roadster, it was not immediately obvious to the industry, media, or most of the public that EVs were the future and that Tesla would change the auto industry forever. Instead, they were met with skepticism and derision. 

This attitude also applied to many auto parts suppliers too. This meant that many suppliers would not return Tesla's calls, or if they did, Tesla did not receive top-shelf service. Why would a supplier put their best team on a niche, small-volume player that is likely to be out of business soon? They didn't. This made it painful for Tesla, but it also meant that they developed the muscles(skillsets) that they'd need to do that no one else was doing. Tesla makes their own circuit boards, writes their own software, and even makes their own seats. This in-house design, engineering, and vertical integration allows the company to have more control over the driver experience, adapt to supply-chain issues, and innovate more quickly. The lack of support from the industry forced Tesla to vertically integrate and now vertically integration is one of their greatest strengths.

Despite the auto media's mockery of the Roadsters and the EV market in general, Tesla persisted. Two thousand ten was a big year for the company, they purchased their first factory and the company became publicly traded. 

What Makes Tesla Different?

We'll cover more about the internal workings (and occasional dysfunction) of the company but (as interesting as that may be) that's not the north star of the company. Then what does make Tesla different?

• Tech company first: Tesla comes to the automotive industry from a very different angle than every car company that preceded them. Tesla is a technology company first. A technology company that makes cars (and other things), rather than a car company that uses technology. One obvious example of this is the connected car. Every car that Tesla has made since 2012 has cellular wireless connectivity. Over-the-air updates are pushed to the car several times each year. This allows Tesla to add new features, improve performance, fix bugs and address recalls, all without bringing the car in for service. Even though this has been a standard feature from Tesla since 2012, it is still highly uncommon for legacy automakers.
• Mission Driven: Tesla has a long-term plan to use their technical prowess to move planet Earth from fossil-fuel energy sources to renewable energy. This includes energy production, energy storage, and energy use. This is not a plan that requires you to drive a limited short-range vehicle, or huddle under a blanket for warmth while wearing multiple layers in the winter. Instead, this is a plan where humanity has more comfort and more conveniences. With renewable energy, when done right, energy will be more abundant. With renewable energy, every kilowatt-hour does not require mining, drilling, or some other extraction process. Humanity can move beyond "mine & burn."
• Customer Experience: All automakers manufacture vehicles and parts, but usually sales and service are handled by dealerships, not the automaker themselves. Dealerships are independently owned and while they have contracts with the automakers, they are their own business and they may have a very different agenda than the automaker's banner that flies over their lot. Tesla, on the other hand, provides the sales and service directly via service centers that they own. 
• Charging Network: When you fuel up an internal combustion vehicle, you are generally buying gasoline from an oil company, rather than the company that made your car (you don't go to a Toyota or Ford branded gas station). Tesla, on the other hand, has a vast network of Superchargers where owners can recharge (while paying Tesla directly).
• Insurance: Similar to service and recharging, Tesla also offers insurance in some regions. Allowing another option for owners and another revenue stream for Tesla
  
  

First Factory

In May 2010, Tesla purchased a factory in Fremont, California from Toyota that would become the Tesla Fremont Factory. Tesla paid $42 million in cash and stock for the plant and opened the facility in October 2010 to start production of the Model S.

IPO

On June 29, 2010, Tesla became a public company via an initial public offering (IPO) on NASDAQ with the ticker symbol TSLA. Tesla was the first American car company to IPO since the Ford Motor Company had gone to market more than five decades prior in 1956.

The IPO price was $17 per share. Today, the stock trades at around $200 per share; but that's only part of the story. The stock has split twice since its IPO. The first split was 5 for 1 and the next was 3 for 1. So rather than $200 per share today, the split-adjusted share price is around $3,000 per share. If you bought Tesla stock in the summer of 2010, you'd have 15 times more shares than you bought and the split-adjusted share purchase price would be only $1.13 per share and you'd be up 175 times or 17,500% on your investment. 

Vehicle Introductions

If Tesla had only made the Roadster, they could have been a niche high-end electric sports car maker, but they had much bigger plans. The Model S luxury sedan was introduced in 2012 (and won Car of The Year), the Model X SUV in 2015, the Model 3 sedan in 2017, the Model Y crossover in 2020, and the Tesla Semi-truck in 2022. They also plan to start production of the Cybertruck later this year (2023).

The Model 3 is currently the all-time bestselling EV car worldwide. In June 2021, Model 3 became the first electric car to sell 1 million units globally. Model Y sales have ramped even faster than the Model 3 and Model Y is on track to usurp the bestselling crown from its older sibling this year.

Tesla's 2022 full-year deliveries were 1.31 million vehicles, a 40% increase over the previous year. The company's cumulative sales from the first Roadster (2008) until Q1 202 is 4,061,776 vehicles. This year, 2023, will likely be Tesla's 2 million production year. If things go according to plan, Tesla will have produced about 4.5 million EVs when they slice the 20th birthday cake and about 5.5 million by the end of the year.

SolarCity

In November 2016, Tesla acquired SolarCity, in an all-stock $2.6 billion deal. This launched Tesla into the solar photovoltaics market. The solar installation business was merged with Tesla's existing battery energy storage products to form the Tesla Energy division of the company. 

This was a major step in Tesla's progress to become more than "just a car company." Soon after the acquisition, the company changed their name from Tesla Motors to just Tesla; indicating the broader scope of the company's ambitions. Some investors sued Tesla because of this merger. In my opinion, these investors never truly understood the company. The original 2006 Master Plan states that Tesla's goal is to "expedite the move from a mine-and-burn hydrocarbon economy towards a solar electric economy..." So it should not be a surprise to investors that understand the company, that they would move into solar energy production products. The vision of Tesla as a full-cycle energy company has only recently been laid bare, front and center in Master Plan 3.0. 

S&P 500

Tesla reported four consecutive profitable quarters in the second half of 2019 and the first half of 2020. This made them eligible for inclusion in the S&P 500. Tesla was added to the index on December 21, 2020. Tesla was the largest company ever added and the sixth-largest company in the index at the time its of inclusion.

What Makes Tesla Different - The Agile Manifesto 

We've covered Tesla's product development in some detail recently (here). Tesla fundamentally designs and develops vehicles differently than legacy automakers. Tesla uses technology development methods and deploys improvements as soon as they can. This means there are no model years for Tesla's products. 

To support this rapid pace of change, each vehicle has a suite of built-in self-tests. These tests know how the vehicle hardware and software are supposed to work. If a change is made and a self-test fails, you know that change didn't account for all of the interactions that it needed to.

These built-in automated self-tests allow for rapid feedback. Rapid feedback allows for experimentation. Experimentation enables innovation. This allows Tesla to do things that are impossible at legacy automakers. 

The pace of innovation allows problems to be solved, costs to be reduced, and the product to be improved. Having a rapid pace of change inherent in the system has other advantages too. When the supply chain problems hit in 2021, Tesla was able to adapt. Rapid innovation combined with their verticle integration, allowed them to change to new control chips when the ones they had been using were not available. They had to change their software, but when the built-in self-tests passed, they can have a high level of confidence in the new hardware and software components.

Tesla Energy Comes Into Its Own

Tesla's Energy Generation and Storage division brought in $1.3 billion in Q4 of 2022. This is more than 12% of the company's revenue for that quarter. To be clear, Tesla has a business, outside of electric vehicles, that brings in several billion dollars annually. Tesla's energy business is currently growing *faster* than Tesla's vehicle business (although starting at a lower level).

We've covered solar energy in the SolarCity section above. The bulk energy revenue primarily comes from selling energy storage products from industrial-scale to residential. Megapacks are their biggest industrial-scale battery systems. Powerpacks are the smaller (but still industrial-scale) units. These are well suited for critical operations, single buildings (such as a hospital). And last on Tesla's energy storage list is the Powerwall. This is for residential use. These provide blackout backup and solar energy storage (and they are a lot of fun!).  

Tesla is an electricity utility in deregulated regions of Texas. This is yet another direct-to-customer relationship that legacy automakers would never even consider. 

Tesla Becomes the Most Valuable Automotive Brand In The World

In early 2023, Tesla surpassed Mercedes-Benz and Toyota to claim the top automotive spot in automotive brand recognition. This is level of recognition is estimated to be worth a valuation of $66.2 billion. Quite an achievement for a company that spends little on advertising.  

As recognizable as the stylized Tesla T has become, most people don't know that the logo comes from a cross-sectional view of an electric motor. The "T" is part of the rotor and the curved bar across the top is a portion of the stator portion of the motor. The shield that used to surround the logo (shown at the top of this post) was dropped in one of the few updates that Tesla has made to their mark over the years.  

Making The Impossible Merely Late 

"There is…an enormous reservoir of relatively untapped genius–that is, the capacity for exceptional accomplishment–which existing systems of motivation have failed to reach.”
– Saul Gellerman, Management by Motivation

We've previously covered, how Musk and Co. focus on Class ½ Impossibilities. These are things are have been recently enabled by related breakthroughs, but the engineering work has not yet been done to put all the pieces together. The computer controls needed to land rockets, the battery advances for compelling EVs, the AI technology for full self-driving. The underlying technologies are available, this makes it possible (but that does not mean that it's easy).

Here's a list of some of the "impossible" tasks Tesla has achieved during their 20 years: 

1. Roadster: Both creating it and, perhaps more impressive, finding a market for $100k electric sports cars from a startup.
2. Model S: This moved Tesla into the luxury car market and gave Tesla sales around the world.
3. Supercharging: EVs were considered slow. The Roadster disproved that. There's no place to charge an EV. The Supercharger network solved that. 
4. Energy Storage: Vehicles are just part of Tesla's business. Tesla's Megapacks have 3.9MWh of capacity. This is enough to run the average home for over 130 days. This is now more than 10% of Tesla's revenue and growing fast. 
5. Semi: Multiple "experts" deemed long-range class 8 semi-tracker trailers to be impossible for at least another decade. Tesla ignored them and just did it. 

"Those who work to solve problems are more highly valued than those who merely label them.” 
– Robert Mager and Peter Pipe in Analyzing Performance Problems

Tesla's Future 

Tesla has no shortage of audacious goals. If they achieve even a third of them, they'll be far (or should I say farther) ahead of competitors. 

 

Tesla has outlined several key goals and initiatives that it plans to pursue over the next several years:

Increase electric vehicle production: Tesla's primary goal is to accelerate the world's transition to sustainable energy by increasing the production and adoption of electric vehicles. The company plans to expand its production capacity to meet growing demand and introduce new models, such as the Cybertruck and the Semi. This year Tesla will produce about two million vehicles. They plan to 10X this number and eventually produce 20 million vehicles per year. 

Develop new battery technology: Tesla is investing heavily in battery technology research and development, with the goal of reducing the cost and increasing the performance of its batteries. The company is also exploring new materials, refining, and manufacturing processes to improve its battery technology and reduce costs.

Battery Recycling: Tesla is thirsty for battery raw materials. Recycling will become an ever-increasing source of these materials. Will Tesla develop this in-house, partner with Redwood Materials and others, or is there an acquisition in the future?

Expand into new markets: Tesla is expanding into new markets and plans to continue to grow its global presence. This includes new Gigafactories in more locations to allow deliveries to happen quickly without large shipping costs.

Develop renewable energy solutions: Tesla is also focused on developing renewable energy solutions, such as solar power and energy storage systems. The company's acquisition of SolarCity in 2016 was a key step in this direction, and Tesla is now offering integrated solar and energy storage solutions for homes and businesses. Master Plan 3.0 makes it clear that Tesla is looking into all the areas where fossil fuels are used as potential disruption opportunities. You can expect to see a Tesla heat pump sometime later this decade.  

Side Hustles: You can expect to see Tesla Insurance and Tesla Electric Utility expand into new markets. What other business could Tesla get into? 

Dojo-as-a-Service: AI systems are becoming more and more common. There are many problems that traditional programming cannot easily solve. Artificial intelligence, neural networks, machine learning, and the like all require significant compute power to train. Only after the training, can they deliver the desired results on simple devices. Many businesses will want to have AI products, but won't want to build a massive datacenter to train these systems. Instead, they might rent off-hour time on Tesla's Dojo system to do this work. 

Continue to innovate: Tesla is known for its innovative approach to technology and design, and the company is likely to continue to push the boundaries of what is possible with electric vehicles and sustainable energy solutions. This may include new features, such as fully autonomous driving, as well as new products and services that have yet to be announced.

General Purpose Artificial Intelligence: Tesla is putting the pieces in place to be a powerhouse of the next generation of tech. The vision system and neural net training system (Dojo) developed for Tesla's cars have spillover into the robotics space. 

Wrapping Up 

Tesla has had a storied first 20 years of life. They've done things that conventional thinking deemed impossible. There's no doubt that the auto market is forever changed because of Tesla.

The next 20 years will be exciting to watch as an owner or investor. Tesla spent the majority of these past two decades running uphill. During most of its history, most of the auto-industry considered them a joke and during most of these years, they lost money. Today, things. have. changed. 

Tesla is now in a position of strength. They have $22.4 billion in cash in the bank (as of Q1'22 reporting). EV sales are growing every year in all markets around the world and no other automakers has invested in EV technology to the same level as Tesla. Tesla's vehicle sales will continue to grow with growing global EV sales. By 2030 the majority of car sales will be EVs and Tesla is on track to be the largest automaker in the world.

Disclosure: I am long Tesla

There's Not Enough Infrastructure For EVs

 

Electric Vehicle charging locations in the US from Energy.gov 

If you drive an EV, you've heard someone say, "I'd like to drive an EV, but there's no place to charge them up." This outdated mantra has been getting an extra layer of play around here recently since Oregon declared that the sales of gas-powered cars would stop in 2035. 

It is simply not true. It was true 10 years ago, but a lot of things have changed in the last decade. 

The above map is from energy.gov.  

Other than the charging desert in north central Montana, you can drive just about anywhere in the US and find a place to plug in! So if you hear someone say there's no place to plug-in, you can tell them they need to gather new evidence and update their priors.

What Makes Tesla Different - The Agile Manifesto

There are a lot of things that make Tesla different from legacy auto makers: direct sales, marketing methods, design minimalism... In this post we'll look at product development methods. 

Agile is a software development process that started in 2001. The method allows new software to be released every two to four weeks. This method was widely adopted by the software engineering community because it delivered results. Prior to Agile, most software was written in a Waterfall method.

With Waterfall, as the name implies, requirements come from the top down. The elaborate requirements and specifications were argued over and documented before software development even started. Then when the documentation was complete, software development began. Coding to the Byzantine documentation can take months. During this time the external world changes: new technologies emerge, new customers are courted, new competitors' products are released... this all means that new requirements emerge. This would effectively reset much of the Waterfall project. So the requirements would then have to be rewritten, or (more realistically) re-argued. Now, however, there are competing agendas. Should the development team address the new needs meaning the schedule will be delayed, or should they complete the original vision knowing that it would be lacking areas that are currently relevant to customers. This dilemma is why most Waterfall projects of any notable size are significantly late and over budget.

The Agile method turns Waterfall on its head. The team creates a minimum viable product and then performs short development cycles called sprints to add and improve features. In each sprint, the direction can change to keep up with the changing world and at the end of each sprint there's a viable product to release to customers.

Agile Scrum Process

Tesla took this software development method and applied it to all of their products. And then they customized and improved the Agile process for their own needs. They came up with a method called "mobbing" that allows the right size team to work on a project and allows the work on it to pass from shift to shift (hot passing) to allow 24-hour progress on tasks. 

The car model year system used by legacy automakers is a Waterfall process. In the upfront phase, designs are proposed, debated, documented, and tested. Requirements, tooling, fixtures, processes, parts, design, interfaces, and logistics are planned are all done before production starts. Experimentation, learnings, and improvements can only be done upfront. Once production starts, the design and production lines are frozen; changes are minimized. 

However, unlike a waterfall software project, car model years cannot be late. So to meet this schedule requirement, changes are kept to a minimum, even during this upfront phase. This limits the legacy automakers' ability to make significant changes to their vehicles.

The Agile process (or more correctly the Tesla-modified Agile process) does not wait for model years, so Tesla does not use model years. When something can be implemented that makes the car better, it is implemented, tested, and deployed. Rather than waiting for the next model year, improvements are slip- steamed into the vehicle line dynamically. A car built in the 10th week of the year can be radically different from one made in the first week of the year. Tracking each individual car (how it was built, the parts that went into it...) would be a daunting task for a 1950s legacy car company. However, this is an easy task for a technology company.

Given this radical pace of change, how can vehicle quality be maintained? Unit tests. Before any part changes or new software are deployed, a test is written and incorporated into the car. This test knows how to determine the parts present in the car and then check their functionality. This means as a car is built, it can test itself. It can make sure all the needed components are present, acting as expected, and that the various components can talk to each other as expected.

           

Built-in self-tests allow for rapid feedback. Rapid feedback allows for experimentation. Experimentation enables innovation. This is the key to Tesla's rapid pace of innovation.

These built-in automated self-tests allow for rapid feedback. Rapid feedback allows for experimentation. Experimentation enables innovation. This is the key to Tesla's Agile Dev Ops method. 

The pace of innovation allows problems to be solved, costs to be reduced, and the product to be improved. Tesla has a motto that cost reductions cannot reduce the ownership experience. Changes need to both reduce cost and improve the experience. Focusing on both prevents either one from running away. It's easy to reduce costs if you don't consider the user experience. Similarly, it's easy to improve the user experience if you ignore cost.

Having a rapid pace of change inherent in the system has other advantages too. When the supply chain problems hit in 2021, Tesla was able to adapt. Rapid innovation combined with their vertical integration, allowed them to change to new control chips when the ones they had been using were not available. They had to change their software, but when the built-in self-tests passed, they can have a high level of confidence in the new hardware and software components.

Tesla is fundamentally different from other automakers.

Disclosure: I am long Tesla

I Like Big Batteries - Battery Prices Will Drop (3/3)

Battery Prices Will Drop

In part 2, we looked at the spike in battery material prices in 2022. The good news is that was a temporary spike.

One of the biggest barriers to widespread EV adoption has been the high cost of batteries. The good news is these prices are dropping and over the next decade, we can expect this trend to continue, making EVs more affordable than ever.

The cost of lithium-ion batteries has already dropped by over 80% in the last decade. This is due to a combination of factors, including improvements in technology, increased production volumes, and economies of scale. As battery manufacturing becomes more efficient and the demand for EVs continues to grow, prices will continue to decline.

BloombergNEF tracks and forecasts lithium-ion battery prices. Battery prices were above $1,200 per kilowatt-hour in 2010. By 2021, they had fallen 89% in real terms to $132/kWh. The price could be as low as just $62 per kilowatt-hour by 2030. McKinsey estimates that battery prices could be as low as $50/kWh by 2030.

Wright's Law

Another concept that will play a role in the declining cost of EV batteries is Wright's Law. Wright's Law, also known as the learning curve effect, states that as production volume increases, the cost per unit decreases at a consistent rate.

This principle has been observed in many industries, including the auto industry, where the cost of production decreases as the number of cars produced increases. As more EVs are produced and demand for batteries grows, we'll see a similar effect on the cost of batteries.

The battery market was ~700 GWh in 2022 and it is expected to grow to nearly 5 TWh by 2030. That's a factor of 7 in growth, a lot of opportunity for learning curve effects. 

According to a study by the National Renewable Energy Laboratory, the cost of battery packs could decline by up to 30% for every doubling of cumulative production. This means that as the production of EVs increases, we'll see a significant decrease in the cost of batteries.

Battery Recycling 

Another important factor to consider in the declining cost of EV batteries is battery recycling. As more EVs are produced and the demand for batteries increases, it's important to develop strategies for dealing with end-of-life batteries. This is where battery recycling comes into play.

Battery recycling involves recovering valuable materials, such as lithium, cobalt, and nickel, from used batteries and then using these materials to make new batteries. This not only reduces waste but also helps to reduce the overall cost of batteries by reducing the need for new materials.

Redwood Materials’ Battery Materials Campus 1 is still under construction in Northern Nevada, but in late 2022 it had already started producing recycled battery materials. The recycled products are sent to one of the largest battery plants in the world, Tesla's Gigafactory Nevada.

Recycling will help to reduce the cost of batteries (big and small). Furthermore, recycling also has significant environmental benefits. It reduces the amount of waste going into landfills, reduces the demand for new materials, and reduces the carbon emissions associated with mining and manufacturing new batteries.

J.B. Straubel, founder of Redwood Materials and former Tesla CTO, recently said, “Batteries are amazing because they are so recyclable. More than 90% of the critical materials in the battery can be reused many, many times without degradation. Today, the batteries that we buy and put into our products admittedly still have a pretty small recycled material content, but this is changing fast… We’re demonstrating and showing that you can make batteries that have very high percentage (of recycled materials) and still have extremely good performance and exceptional life.” 

Overall, battery recycling is an important part of the EV industry's efforts to make EVs more sustainable and affordable. By recovering valuable materials and reusing them to make new batteries, we can reduce waste, lower costs, and reduce the environmental impact of EVs.

Wrapping It Up

We have many problems that require big batteries to solve: personal transportation, freight transportation, residential energy storage, and industrial energy storage. 

Big batteries are being used to stabilize the grid and to put more renewable energy on the grid. This makes all the other batteries that the grid powers even cleaner. 

Even using today's grid, electrifying semi-trucks will allow goods to be delivered with far fewer emissions. Battery-powered semis will mean that particulate matter emission will be removed from population centers.

So, what does this mean for consumers? For starters, it could make EVs more affordable for a wider range of people. Currently, the cost of a new EV is out of reach of many buyers due primarily to the cost of the battery. However, as battery prices drop, the upfront cost of EVs will shrink.

Lower battery prices will also enable energy storage, long-haul trucking, and more to be battery-powered. 

Battery materials are being extracted today, but (unlike fossil fuels) they are not consumed. At the end of a battery's useful life, the materials will be recycled and used in the next generation of (even more efficient) batteries. This will eventually create a closed-loop system. We'll have moved past an extractive (mine and burn) economy. 

In conclusion, the decline in battery prices over the next decade is an exciting development for the EV industry. As prices drop, we may see more people adopting EVs, leading to a cleaner and more sustainable future.

Three Parts: 

Big Batteries Part 1 - Why

Big Batteries Part 2 - We Demand Supply

Big Batteries Part 3 - Battery Prices Will Drop

I Like Big Batteries - We Demand Supply

The Supply Crunch

EV popularity is increasing. EV sales from 2012 to 2021 are up 13 fold and the upward trend seems unstoppable. Well, almost unstoppable; there may be one thing that could slow this trend: battery cell availability. 

Battery materials (such as Nickel, Lithium, and Cobalt) costs have skyrocketed over the last two years. Prices are being driven by high global demand and a tight supply of refined materials. Lithium carbonate prices per tonne were up 88% year-to-date in October of 2022.

As you can see in the two graphs below, in 2022, Nickel hit a 10-year high and Lithium hit an all-time high. 

Nickel price history via tradingeconomics.com

Lithium Carbonate price history via tradingeconomics.com

But all is not lost.

More Mining, Refining, and Recycling

Obviously, these higher material costs are not going to help make EVs or energy storage more affordable, but there is a plus to the higher prices. Inflated prices mean it's more profitable to mine and refine these materials. This will bring in more investment and more of the needed materials. 

Once these materials are mined and in batteries, they will be available for this generation of battery tech and the next and the next, ad infinitum. These materials are not consumed like fossil fuels. They are not emitted from a tailpipe or smokestack into the atmosphere. The Nickle that is put into batteries today, will be recycled and put into new, better batteries in the next decade.

The increased cost of raw materials also makes it more profitable to recycle batteries. More on recycling later, back to mining and refining.

Caterpillar's First Battery Electric Large Mining Truck

Mining Is Getting Greener 

Most EV makers have goals to have zero emissions manufacturing. This starts with mining. More mining equipment is becoming electrified. In some cases, the very materials they are mining are the same ones used in the batteries powering the mining equipment. 

Normet SmartDrive battery electric mining vehicle

Demand for EV battery raw materials such as graphite, Lithium, Cobalt, and Nickel is currently outpacing supply. According to Benchmark analysts, unless 384 new mines are up and running in the next ten years, the EV transition will be slowed as carmakers struggle to source battery materials. They estimate that 74 Lithium mines, 62 Cobalt mines, 72 Nickel mines, and more than 100 graphite mines and production plants are needed. 

For comparison, there are currently about 3,760 active coal mines. So, assuming the above estimates are correct, EV batteries will need about one-tenth the number of mines that are currently active, just for coal. 

Battery Recycling 

The good part about these battery materials mines is that they are not consumed after they enter the battery lifecycle stream. The materials can be recycled and placed in new batteries after they degrade beyond usefulness. It can become a closed loop. So unlike coal mines, these materials will reach a state where nearly all of the needed materials can come from recycling streams; rather than a never satiated gaping maw. 

The recycled material streams will be of higher purity since the recycled materials have effectively been refined multiple times and this will result in better batteries. Additionally, recycled materials will be less subject to supply chain disruption and more affordable than newly mined materials. The recycling plants will be near where the batteries are produced, rather than wherever the random vein of various materials happens to lace the Earth.

"Ephemeralization" - computers from the 1960s used to take up an entire room, now the smartphone in your pocket has far more computing power. This same march of progress is happening for batteries, albeit at a slower pace. Battery energy density is increasing by about 5% each year. 

This wraps up part 2. Part 3 (prices will drop) is coming soon.

Three Parts: 

Big Batteries Part 1 - Why

Big Batteries Part 2 - We Demand Supply

Big Batteries Part 3 - Battery Prices Will Drop

I Like Big Batteries - Why

Today, we use batteries in everything from our electronics (phones, watches, tablets, earbuds), to power tools, toothbrushes, and electric cars. Battery tech is more important to our daily life than it's ever been. And now that the tech is maturing, it is being bundled together into bigger batteries than ever before for new purposes.

We'll look at how batteries, specifically big batteries, are being used and (more importantly) how this is laying the foundation for the "Electrify Everything" future. 

Why Big Batteries...

Two primary markets use big batteries: energy storage (residential and industrial) and long-range electric vehicles (personal transportation and transportation of goods).

Battery-based energy storage is vital to our renewable energy future from moving people and goods to smoothing out the intermittent nature of renewable energy. For transportation, to replace all the towing, hauling, and road trips that internal combustion vehicles are used for today, we're going to need EVs with big batteries. For renewable energy to power the lights, air conditioners, and heat pumps in a major city, we're going to need big storage batteries.

Grid Stabilization & Renewable Energy Storage

The sun doesn't always shine and the wind doesn't always blow, but this does not mean renewables are unviable. A big battery can fill in the gaps and absorb the excesses. This applies to whether it's industrial-scale wind or home solar. 

Power inverters outside the battery building at Moss Landing Energy Storage Facility in Moss Landing, California. Credit: David Paul Morris/Bloomberg via Getty Images

Industrial Energy Storage

One example of a massive industrial-scale battery is the Moss Landing Energy Storage Facility in California. It has 4,500 lithium-ion battery racks stacked for a total of 1.6 GWh of capacity. This battery bank can fill in when there are short-term outages, it can maintain the grid frequency, and it can make a renewable portfolio a viable part of the grid production. Fully charged, this facility could power over half a million homes for 24 hours.

Home Energy Storage

Residential batteries are great. They allow you to time-shift your grid usage to the cheaper hours of the day and provide you with blackout protection. We've had home batteries for about 2 years. These batteries kept the power on when snow and ice took our grid down on Valentine's Day 2020, they make our solar production more valuable, and they charge up (just in case) when wildfires plague the state.

In addition to this blackout protection, the time-shifting ability makes our solar worth about 75% more, since we can use solar energy when prices are the highest, instead of just when the sun is shining. 

Measured in mere kilowatt-hours, residential batteries have far less capacity than an industrial energy storage system (measured in gigawatt-hours), but there are far more residential installations and these little residential packs can be ganged together into a virtual power plant, working together to significantly offload the grid during peak demand periods. 

Big Batteries Can Move People and Goods

Batteries are the powerhouse for the future of transportation from scooters to semi-trucks. Personal transportation, hauling, towing, deliveries, and more will be battery-powered.

Personal Transportation

Recently we published an entry about the need for some people to have long-range electric vehicles. A big battery in your electric ride provides the range needed, even in adverse weather conditions. It provides future-proofing against degradation or the curveballs that life can throw at you (detours, evacuations, new commute due to a new home and/or job...). With a big battery pack, if you can't plug in every night or if you forget to plug in, you're not stranded. 

A personal vehicle with a big battery provides versatility. 

Electric trucks with big batteries are available now and more are coming soon. These vehicles can provide vehicle-to-load (V2L) services, allowing you to plug electrical tools directly into the vehicle. Power your saws and drills right from the truck bed. Have a job site that doesn't have electrical power yet, no need to haul a separate generator, just plug in and get the job done.

With the right equipment, these large battery vehicles can even power your house during a blackout. Vehicle-to-home (V2H) blackout protection is something that only vehicles with big batteries can do.  

Electric Semi-Trucks

On-highway and medium-duty trucks from Freightliner are shipping now. These freight trucks currently have 150kWh to 300kWh of battery capacity depending on the intended use. These are not small batteries.

Tesla's all-electric class 8 commercial semi-truck completed its first 500-mile trip with a full load in November of 2022. The first customer deliveries started in December of the same year. Musk has said that Tesla aims to produce 50,000 semi-trucks in 2024. As I write this, the full specs have not yet been released. However, the pack is estimated to be more than 900kWh. We'll be seeing megawatt-hour packs soon.

Electrifying semi-trucks is very important. Today, semis are primarily Diesel-powered. In the US, they are only about 1% of vehicles on the roads, but they have a very outsized pollution impact; they generate about 20% of vehicle emissions and about 36% of particulate emissions. This directly has an impact on health and air quality.

One additional advantage of electric semis is regenerative braking. Regen braking is nothing new for EVs, but semis take this to a whole new level. Coming down an incline, hauling a heavy load, a Diesel semi will have to use engine braking or jake brakes and brake pads. This creates noise and particulates from the brake pads. An electric semi, on the other hand, will be able to use regenerative braking coming down that same incline. This means at the bottom of the incline, the e-semi will have more charge than it had at the top of the hill and the brake pads will last significantly longer.  

This concludes "Part 1 / Why" of our big battery series. Check out part 2 (Demand) next week.

Three Parts: 

Big Batteries Part 1 - Why

Big Batteries Part 2 - We Demand Supply

Big Batteries Part 3 - Battery Prices Will Drop

Tesla Master Plan 3 is About Moving to Earth 2.0

Earth 2.0 by Dall-e2

Tesla recently held their Investors' Day event. This is where they unveiled Master Plan 3. 

Master Plan 3 was not laid out as simply as the few lines of text that Master Plan 1 and Part Deux, but there were a few clear messages: 

1. A sustainably powered world can be a world of abundance 
2. Electricity gets more done with less
3. Battery energy storage enables a renewable energy economy 
   
   

One, A World of Energy Abundance 

Many people think that a sustainable energy future requires a future of energy austerity and deprivation. This is the opposite of the truth, as we've covered previously. When you have a finite energy source, such as fossil fuels, this is when you must ration it, because by definition, you have a limited amount of it and it will eventually run out. 

Two, Met All Your Energy Needs More Efficiently

Today, only about one third of the energy that we use actually does what we want it to. The rest is waste. This is as if you had a car with a big hole in the gas tank. You would get the tank fixed if you were spilling two thirds of the gasoline as you drive. Well, if you drive a gas car, you are spilling 2/3rds of the energy as waste heat. Electric vehicles are the solution. An EV with a 75kWh battery pack is about the energy equivalent to about 2 gallons of gas. Yet it can drive you around about the same as 8 to 10 gallons of gas. Given this efficiency all transportation will move to electrification.  

Similar, ratios exist for home and building heating as well. Heat pumps are the answer there. 

 Three, Big Batteries 

Batteries enable renewable energy. They absorb the surplus and supply power when you need it; all at a rate far faster than any generator could spin-up. This makes the grid more stable, more reliable, and more affordable. Much more on the benefits of big batteries coming to this blog later this month.

No Miracles Required

All of this can be done today and with less mining than our current fossil fuel economy. We have more than enough raw materials available. As lithium prices increased, the amount of reserves increased significantly based on new prospecting. This transition can be done with less (yes, less) investment than we are currently spending on the fossil fuel economy. 

Master Plan 3 is one small step for our planet on the Kardashev Scale.

The Idling Rich - Carbon & Money

Who will suffer the worst impacts of climate change? The poor. 

Who has the resources to do something to resolve climate change? Certainly, we can all do our part and we can all vote for reasonable climate policy... But the answer for the purposes of this blog post is: The rich. 

The rich are the ones that could afford to build zero-emission apartment buildings, fund eco-friendly start-ups, buy zero-emission fleet vehicles, and so much more. 

The ‘1%’ are the main drivers of climate change, but it hits the poor the hardest: Oxfam report

How do we get people in the second group to care about what happens to people in the first group? 

The jet-setters are flying around for important red carpet events, all-the-while burning jet fuel. The ironic part is that some of them are flying to events where they will be talking about how important it is that we take action regarding climate change. Is that irony or hypocrisy (maybe both)?

There's no question that with more income, quality of life improves (up to a point). Along with this improved quality of life, generally comes an increase in emission output. So, we have to have a system that allows for an improved quality of life, without increasing emissions.

We cannot depend on everyone having personal solar panels and their own new EV. Sure these should be encouraged, but we also need a grid that is renewably powered and zero-emissions public transportation.  

Fossil fuels are only viewed as cheap because the true price includes an environmental debt. One that is not paid at the pump. The externalities for emissions need to be included in that fossil fuel price. This levels the playing field for renewables. 

EVs for Everyone, Better Batteries :: F, GM, TSLA :: Revisited

 Guess when this was written: 

“Now there's a growing demand for electric car batteries. With GM, Nissan, Ford, and Tesla ramping EV production, battery usage in electric cars could begin to drive a meaningful segment of the battery market. As a result, a number of improved battery designs are being developed in laboratories, involving silicon, graphene, and a zinc-air composition to name a few.”

The above is not an exact quote, there are a few tweaks (removing vehicle introductions) so the answer was not too obvious. Drumroll please... This was written on April 12, 2013. 

Even though this is 10 years old, it reads like an article written today. There has been a massive amount of investment into battery research and manufacturing over the last decade, but the demand has been outgrowing the supply. 

The above quote came from The Motley Fool's blog site, but you can no longer find it there. Luckily the Wayback Machine still has an archive of it. Full credit to the author, Alexander MacLennan aka TulipSpeculator1, for spotting this trend so far before it was apparent to everyone.

Why does this matter? The goal is EVs for everyone, whether it's personal vehicles, public transportation, or rideshare; with all of this powered by renewable electricity. However, there are a couple obstacles. 

Why Are EVs Expensive? Batteries! 

EVs have far fewer parts than internal combustion engine (ICE) vehicles. This makes EVs quicker to build; making EV automobile factories more productive.

EVs are easier to design, you don't have to plan around transmissions, drive shafts, large engines, fuel lines, fuel tanks... 

So if EVs have fewer parts and the factories are more productive, why are EVs more expensive? The batteries. Today, batteries are the most expensive component in most electric vehicles, but there's good news on this front.

Battery Prices are Dropping 

The good news is that battery prices are dropping. 

You can see on the graph above, from 2010 to 2020 EV battery prices dropped by over 88%. This is a huge change. This is what allowed Tesla to move from selling $100k Model S and X to selling Model 3 and Y at about half the price, while still making a profit.

This trend is what will allow EVs to become more affordable and replace the vast number of gas vehicles on the roads over the next decade. 

Boom and Bust

Unfortunately, 2022 looks like a year that will not continue this downward battery price trend (as I write this, final numbers are not yet available). The legacy automakers have woken up to EVs; they will not cede the electric market to the upstarts. So now they are trying to ramp up their EV production volumes. This has meant increased competition for battery factory capacity, resulting in price spikes throughout the battery supply chain, from raw materials, to refined materials, to finished goods. 

Here's a chart showing EV sales. Each one of these vehicles has Lithium-ion batteries. Most of these vehicles have thousands of pounds (and thousands of dollars worth) of battery cells.

Via @skorusARK

This increased price does have a silver lining. This price spike will draw in more investments, the production capacity will grow, and then battery prices resume their downward price trend, but now with more production than ever before.

Better Living Through (Battery) Chemistry

Battery technology has been improving each year by 5 to 7 percent. This is true for cutting-edge battery chemistries, but it's also true for older battery chemistries. 

More research funding than ever before is going into battery technology. This includes research into Lithium-Air, Lithium-Sulfur, and solid-state batteries to name a few. One of these might turn out the be the battery of the future, but today there are two general categories for high-production Lithium-ion cells. These are Iron-based chemistries such as Lithium Ferrophosphate (LFP) and Nickel-based such as Nickel Manganese Cobalt (NMC) and Nickel Cobalt Aluminum (NCA).

Each manufacturer has their own twist on the recipe with different dopants, membranes, electrolytes, and the like. But to stay competitive, any advancement made by one will be answered with an analog by the others. 

Most EVs today are made with Nickel-based Lithium-ion battery cells. However, Iron-based batteries are lower cost, have high safety, low toxicity, long cycle life, and more heat tolerance. If Iron-based batteries have all of these advantages, why are Nickel-based batteries currently dominant in the EV market? The answer is weight. 

Paying The Iron Price

Iron-based Lithium-ion batteries are heavier than Nickel-based batteries per unit of energy storage. When the batteries are used in a mobile device (like cars or smartphones), this additional weight is a problem. Heavier batteries take more energy to move, which requires more batteries... this negative feedback cycle limits the practical range of an electric vehicle that is powered by Iron-based batteries.

Improvements to Iron batteries are slowly unwinding this negative feedback loop. Lighter Iron batteries (improved gravimetric energy density) are allowing these batteries to be used in vehicles with a significant range. For one example, Tesla makes a Model 3 Standard Range Plus variant that uses Iron-based Lithium-ion cells in its battery pack. This car has a range of 253 miles. A 253-mile range EV can fulfill many people's driving needs.  

Iron-based batteries are also finding their way into utility-scale storage and backup power applications. For these stationary use cases, the heavier weight is not a significant penalty. But, more importantly (from the EV perspective), this means the Nickel-based cells (that were once used in these stationary applications) are now available for long-range EVs.

Today, Iron-based cells are about a quarter of the battery market and their share is growing. Iron cells are expected to be about half of the market by 2028. This will help make EVs more affordable.

Closing the Loop

The other mega-trend that will help bring EVs to all is recycling. Today, Nickle, Lithium, and other materials must be mined to make batteries for EVs. The good news is that the packs in each EV that going onto the roads today will be able to be recycled into new batteries. Unlike gasoline cars that have an unquenchable thirst for drill baby drill; EVs will reach a steady state.

One of the best aspects of recycling is that it can be done locally. Today, the materials in EV batteries make the equivalent of several trips around the world before being delivered to a final customer. Battery materials recyclers, on the other hand, will be located near battery manufacturers. Reducing these material road miles will reduce the price of new batteries.

 

Better Batteries: The materials in EV batteries are highly recoverable. Two things to consider: one, the average lifespan of a vehicle is 12-14 years; two, EV batteries have been getting better by 5% to 7% each year. Adding these two together means that when an EV that's seen a dozen years or more gets recycled, the materials in there will be able to power ~two similar range new EVs. Batteries that use half the amount of materials will cost less. 

When there's a river of end-of-life EVs coming off the roads, recycling this high-grade material will be cheaper than mining virgin raw materials. This will further help drive down EV prices. This provides a positive feedback loop: more EVs on the road, supplying more recyclable materials, making EVs more affordable, which puts more EVs on the roads. This is how we get to "EVs for Everyone." 

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