Apple will Not buy Tesla for $75b in 18 months
brunozzi.com
brunozzi.com
I can't figure out if he's being willfully obtuse here.
It's to allow you to get off the grid entirely. If you generate enough solar to cover 100% of your usage, right now you're still slapped with a grid connection fee. The battery covers you overnight and makes grid connection totally unnecessary.
Oh but what about charging your car? Battery swap stations.
In other words: no.
It also might be a good candidate for utilities, most of whom buy electricity at market rates, to forward deeply stored energy closer to the delivery point.
You can see how batteries are made on some videos and most expensive part will be technology behind assembly. The high cost of Tesla cars is caused now because it is a new, unique product that needs huge amounts of live cash to fund the development etc. Its like with Apple where their phones could be priced 50% of what it is now, but there is a lot of money spent on marketing, future development and to build up cash reserves in case of market turmoil.
If your house is nominally electric (using gas for things which gas is really good at, making heat) and your gasoline bill is non-existent because your vehicle is electric. It means you can cost out power with a depreciation/replacement cost model which gives you much better forecasting ability. One of the reasons given for taking 'energy costs' out of the whole inflation/cpi metric was due to its volatility.
I tend to agree with his thesis that Apple will not buy Tesla but I don't think he makes a good argument against the battery claim.
The standard idea for this is for the houseowner to charge the battery during off-peak night hours and deplete it during peak hours thus helping the electric company to decrease the variation between peak and average load. This also has the effect of decreasing the amount of copper in a cable required to connect a house to the grid.
If enough people have batteries, it also helps grid reliability. Most grid failures are single point of failure so having a distributed source allows power to keep flowing while repair is being carried out.
There are a lot of advantages to having a big battery which could power a household for even a day.
One problem is that eventually the cost savings is eroded by everyone jumping on the bandwagon to use the off-peak hours, which eventually become more expensive. Also, regarding your point about grid stability, if enough power consumers use these kinds of batteries, some sort of scheduling might be necessary to actually level out the grid's demand across all 24 hours.
I suspect you need much less than this, and a 10-20 kWh home battery would be just fine to do the job.
If a person is going to make the "off grid" investment, managing a balance between the solar and battery investments is going to be necessary.
Batteries have cycle time and capacity limits, and their cost is high, but slowly improving. One probably should not assume a battery core will last 20 years, though some likely can.
The solar installation probably will go 20 years, and solar can deliver savings in both the generation of electricity, as well as light and heat. A properly sized installation is going to be designed to work, in lower grade weather conditions, and after it's lost some of it's efficiency, for a very long time.
Of the two, it makes the most sense to be lean on the battery investment. New tech, cost reductions, etc... will likely play out a few times during the life of the solar installation.
And that installation can be added to / upgraded somewhat more incrementally without having to give up earlier investments in many cases.
The battery, unless it is very modular, won't share these same advantages to the same degree.
And the house can be improved as well. Smart devices to manage power use, like the Nest thermostat, can be upgraded or trained, or just will deliver battery aware use profiles.
People can adapt a little. Just choosing to wear some clothes in the winter rather than maintain that comfort zone heat level saves quite a bit. LED lighting, thermal assist for warm water, use of more energy efficient materials, and the list goes on and on...
A couple lifestyle changes could very well see that battery last longer than expected.
That means that using their tech, with two of their battery packs (so that I can disconnect one for service/replacement while the other can run my house) would very much be an interesting "feature" for Solar City to offer. Typical peak power requirements of a house might hit 25kW but a car it can easily hit over 75kW (100 hp equivalent). So they have the inverter technology to build a whole house inverter.
The bottom line is they have built for a car, that which could be sold for houses, with the "hard bits" mostly solved. But that only becomes a useful thing if they excess battery capacity because I'm sure they can make far more money selling this tech wrapped up in a car than they can as a 'get your house off the grid' kit.
85 kWh would last me over half a month (I live in a smallish house with big windows, no A/C, LED lighting, and gas for heating/cooking/hot water)
1. There's little reason (a prior) to think that there would be much higher variance in the level of manufacturing defects than with any other consumer product, so knowing the average provides a pretty useful approximation for the quality of the product.
2. The individual homeowner should be purchasing homeowner's insurance, and the insurance companies use the average to approximate the risk, which allows them to shield the homeowner.
New products have risks that have been dealt with effectively in the past. There's no reason to think that Tesla's batteries will be any different.
If your house is nominally electric (using gas for things which gas is really good at, making heat) and your gasoline bill is non-existent because your vehicle is electric. It means you can cost out power with a depreciation/replacement cost model which gives you much better forecasting ability. One of the reasons given for taking 'energy costs' out of the whole inflation/cpi metric was due to its volatility.
I understood this to mean that you were saying that the risk to households caused by deprecation of batteries, was less than the risk caused by varying electricity prices.
You don't seem to be answering this point anymore. I'm not saying that batteries are especially risky. I'm saying that the risk from batteries isn't clearly less than that from electricity prices.
I don't think insurance can deal with this for the usual reasons that insurance involves moral hazard. But maybe batteries will not require any maintenance, or maintenance will be so standard, that moral hazard won't be an issue.
In the future it will probably seem ancient to not have this, and laughed at that we had power outages or rolling blackouts.
It would probably be great in the developing world and off the grid. It could enable housing to be away from the grid if the solar was good enough or even networks of battery grids and many other uses we cannot imagine yet.
This is when the charging station network will really take off as well.
500k is more than 10x current annual production, and though profit per vehicle may be less than their current models, we could still assume that they're preparing to ramp up 10x their size within a very short period of time. There will likely be enough profit or credit available to build more factories then - or perhaps take on partners that they build vehicles for. Could this lead their valuation being 10x what it currently is? Even 5x at what it currently is would put Tesla at nearly double the value of the suggested $75B purchase pricetag Apple might pay. It just doesn't make sense.
Also, it seems they're planning to supply houses, not just vehicles, with battery packs - so they could easily sell tens of millions of home and business packs every year within the next 5 years, at a much higher purchase price than an iPhone and with greater long-term savings.
For comparison, Tesla sells 33,000 cars and is valued at $25B GM sells 10,000,000 cars and is valued at $60B. The market has already priced phenomenal growth into Tesla's valuation which is why it's one of the most short sold stock in the world.
Back in reality, were Amazon generating $8 billion per year in net income, their market cap probably wouldn't move at all unless their forward profit growth projections were dramatic.
It's maybe most common mistake I see inexperienced, or delusional, investors make - failing to understand the concept of future returns being pulled forward.
There's a Chinese stock I always think of when it comes to this, China Life Insurance (LFC). Back during China's market bubble of 2006/07, the stock was pumped to the moon, projections were for perpetually high growth for decades. It was trading at something like 80 to 100 times earnings in 2007 at the peak... eight years later it hasn't moved higher than that (predictably the growth collapsed and the PE compressed).
Are there risks? Of course - you can have a giant first mover advantage, giant technological moat, and ISO chooses a different charging standard, Elon Musk gets hit by a bus, etc. I think there's enough optionality here for those willing to wait 5 years.
Also, if you're Apple and you're interested in getting into the car game, why build a minivan? A minivan is hard to design beautifully and doesn't have mass-market appeal unless you're not trying to compete with Tesla. If you're truly interested in disrupting the automobile industry, you're creating a premium luxury sedan - the 3 series of electric cars.
Apple sells hundreds of millions of devices. I don't think they would ever plan to use part of that capacity for their own battery needs. Gigafactory's output is much more valuable if used to sell batteries to other car manufacturers, for their electric cars.
There is a disconnect between what the author is suggesting and what Elon has said multiple times regarding the output of the Gigafactory. For example, from http://youtu.be/ZHeR2-ifbg4?t=15m40s, "[the Gigafactory is] not just going to be the biggest lithium ion battery factory in the world, but it will actually be bigger than the sum of all lithium ion factories in the world."
Once driverless cars are here, people will just request a car Uber-style and it'll be wherever they are within a minute in any metro area.
It'll be cheaper to not own a car, and it'll be a lot less hassle than owning one (as it probably is today if you're taking Uber instead of having a car).
One will of course use mobile devices inside the car, as we do now as passengers... and Apple makes enough money with that.
Factories elsewhere in the world may produce large numbers of batteries, but from Elon's descriptions the Gigafactory will far, far outproduce them in total energy capacity output given how much LARGER their batteries are.
Moreover, none of the other factories are in a position to simply "convert" over to producing such large batteries.
The article would have one believe that the Gigafactory is less important or unique than it actually will be. Other carmakers will have to buy through Tesla or build their own factories-- there's simply nowhere else to get them right now, and creating a place to get them will take significant time and investment, as the Gigafactory has shown.
The part I don't understand is how these vehicles are supposed to be run by people who don't have a garage. The usual idea is that you can recharge your commuting vehicle overnight in the garage - but what happens for the many people who park on the street?
http://my.teslamotors.com/forum/forums/charging-tesla-street...
I'm going to go off topic from the will-they-be-bought-or-not question because that seems a bit beyond conclusive at the moment. Even for a random internet commenter like me.
Instead I'm interested in the author's dismissive attitude toward the household battery idea.
The author tries to refute Jason. This paragraph is where he lost me:
> And for what purpose? So I can disconnect from the electric grid for a week, and then reconnect again when the battery has run out? Or to power it with expensive solar panels? I don’t think so.
Just because you can come up with a question, and you can't yourself come up with an intelligent answer to the question, doesn't mean that the question has no good answer.
In this case, with just a few moment's thinking I can easily come up with a better answer to "for what purpose": The answer is, this leads to all sorts of savings and efficiencies, namely:
- A good household battery makes the grid more flexible, and gives the owners of batteries access to cheaper off-peak power.
- The grid can be less stressed, meaning it doesn't have to be overbuilt as much. Some of the current maintenance costs can be eliminated or allocated to more constructive uses.
- Loads become more balanced, eliminating the cause of some brownouts and blackouts.
- Centralized solar becomes more practical.
- Decentralized solar becomes more practical and useful 24/7. (And by the way it is now competitive with grid rates, and getting cheaper every year).
- Other widely variable energy sources (such as wind) become more practical.
- New businesses facilitating alternative energies will become viable. Including possibly some businesses represented today only by twinkles in Elon's eyes.
- Over time, not only do battery owners, but other consumers as well, may end up paying less for power than they would have otherwise, because of the efficiencies introduced to the system.
There are so many benefits, the kicker being the direct cost savings to the consumer which will give them a reason to invest in these things. And while talking about cost to consumer, I consider it likely there will be subsidies as well, possibly government, possibly corporate, possibly both, because the other dividends (see above list) are so compelling.
The problem is that Jason's argument was very weak to start with. If you really want to install batteries in houses, that's going to be very expensive, AND you are not going to use the same type of batteries that you use for a car.
Plus, there is no reason why Tesla can think of it, and other companies can't.
And thinking of the idea is one thing. Being able to manufacture, sell, and service the batteries at scale is something entirely different.
Could this be the case? It's possible Apple has determined that there is a window of opportunity during the transition to automated and electric cars to swoop into the chaos and eat everybody's lunch like they did with the iPhone. If true, saving a few years could be worth a trillion in market cap to them.
If one thinks that Tesla has 1 in 3 chance of becoming as big as one of the mainstream brands, it doesn't mean they'll be worth $200B. I don't think anyone would deny that Honda has been hugely successful and they don't even merit $75B as a wonderfully profitable company (rather than a company that just has potential). Mazda is a mass-market manufacturer with some of the most appealing models out there and they're worth a measly $12B.
Tesla might grow to the size of other major car companies, but that doesn't mean they'll grow to the size of Toyota. It will be hard for Tesla to grow to the size of Mazda given the challenges of launching any new car company. Growing to the size of Mazda would mean increasing from 33,000 vehicles to 1.3M vehicles (growth of 3,900%). And even at that level of sales, we see a company worth only $12B and I don't think anyone in the auto industry looks at Mazda as a company with worthless cars. In fact, Car and Driver ranks the Mazda 3, Mazda 6, MX-5, and Mazda CX-5 as the best in their categories.
I know that it's tempting to look at WhatsApp and compare. Facebook's purchases may be more about defending its control over social than anything else.
If you're thinking about buying an automotive firm (even if you think the future is electric), would Tesla be what you want to buy at $75B? It's unprofitable now with low volume and an unproven capability to scale to millions of vehicles per year. Musk is daring and willing to tackle hard problems like electric charging stations. But for $75B, you could buy Mazda, Subaru, and Fiat Chrysler (all three for $57B, granted buyouts usually involve paying a premium of 20% or so, but a 30% premium would be $74B). Does Tesla have a durable head-start advantage in electric vehicles that vastly outweighs all the things Mazda has going for it including profitability, vehicles that the auto press love, volume manufacturing around the world, sales and service to support millions of customers per year, etc.? Or are long-range electric vehicles a matter of commitment and willingness to lose money for a while?
Comparing Tesla to Toyota would be like comparing a new entrant to mobile phones to Apple. It's a poor comparison. Comparing a new entrant to mobile phones to HTC might make more sense. Similarly, even if Tesla is quite successful, becoming a Mazda, a Hyundai, a Subaru, or a Honda would be an amazing accomplishment. I think it's much more likely that GM would be worth $200B in the future than Tesla. That isn't to knock Tesla, but merely to acknowledge the reality that GM is already selling nearly 10M vehicles per year while Tesla would be experiencing phenomenal growth if they sold 100k (or 1%) of the number of vehicles. It seems much more likely that GM will increase the appeal of its vehicles, increase its margins, and gain the profits needed to match Toyota's valuation. It's hard to grow that much. I mean, Mazda has some amazing cars, but I don't think that's anywhere near enough to unseat Honda nevermind Toyota.
If you think that electric vehicles are the future and that the major manufacturers won't be able to compete with Tesla in electric vehicles, maybe Tesla sells 40M vehicles per year while they all end up selling tiny scraps. That seems unlikely to me. Tesla's patent trove is open for others to use which means there isn't much of a barrier for others to come along.
Again, none of this is meant to disparage Tesla. It's merely to note that Tesla would have to have phenomenal growth to become even Mazda's size in sales, something that is simply hard to accomplish. Even if Tesla ends up selling 10M vehicles per year (303x their current sales), GM does that and doesn't have anywhere near Toyota's valuation. That doesn't mean that Tesla isn't pushing the industry forward, it doesn't mean that Tesla isn't showing us that electric vehicles can be practical. It's simply to point out that it's very hard to scale up that much, I think there are genuine questions as to whether Tesla has any durable advantage long-term, and the reality that most auto manufacturers that are profitable and way larger than Tesla are worth a lot less than $75B.
You make a good point. I could see Tesla being worth somewhere in the magnitude of $10-50 billion, but not $75.