Credit Steve Jurvetson, Elon Musk describing the Tesla Gigafactory
So, news is that Tesla Motor’s Gigafactory will be built in Nevada and looks to start running in 2017.
Now, maybe you have been living under a rock and haven’t heard of Elon Musk, Tesla Motors or the Gigafactory…
If not, click on those links…
There were a number of states vying for the big battery plant including Arizona, California, New Mexico and Texas as it has the potential to provide many decent paying jobs and business invest. There is also a second planned site. Pretty standard stuff here, a car company opening a factory and governments trying to attract investment.
So why the hype?
The Gigafactories could make electric cars mass-produced and affordable for people other than A-list celebrities.
Tesla’s cars and economic model are being hailed as a means of making electric cars accessible to the middle class. Tesla economic model was to break into the market with high end model such as the Tesla Roadster. Now they are producing a $35k US sedan, a much more affordable option.
However, according to Tesla, another key constraint to mass production is batteries and energy storage. Battery development is expensive and limited – by building this factory, Tesla believes they can control risks and cut costs. Apparently, they estimate costs can be cut be 30% and that planned production of batteries from Gigafactories in 2020 will exceed world production in 2013.
This could represent the beginning of a new era in automaking and the entry of new automakers
A sea of Teslies at the annual shareholders’ meeting. Credit: Steve Jurvetson
Different industries have different level of barriers. You want to start up your own blog, that doesn’t need much capital. You want to start your own nuclear power plant, well, that will take a lot of capital. Better have a very rich and very dead family member.
The capital barrier tends to protect the incumbents in the car industry and therefore they have an easier time killing and avoid innovations that help society (*cough*…the first electric cars).
However, some are arguing less wealthy millenials may not have the money and interest in car owning and the incumbent car companies may find themselves over-extended financially.
Tesla is also challenging the traditional distribution networks. Tesla decided to cut out traditional dealers in its direct-to-customers sales. Tesla instead tries to sell cars in, you know, the way most things are sold in the 20th and 21st century. Show room with fixed prices, no commission, no negotiating. This has made the powerful National Automobile Dealers Association go crazy and in the name of “free markets” has been leaning on its “free market” Republican politicians to…er ban direct-to-customer free market sales.
Thin Film Solar, Credit: Walmart
It’s more than just a car revolution… this could add momentum to the green energy revolution
What personally gets me excited is the larger ramifications that this could have on our energy use beyond cars.
Elon Musk has stated that he intends to also produce large scale use of stationary storage. This will probably help reduce the cost of energy storage, increasing the economic feasibility of renewable energy. I think it will probably be a key source of infrastructure for green energy.
Tesla is also building charging stations throughout North America increasing the ease to charge electric cars.
If the Gigafactories significantly increase the amount of electric chargers and electric cars on the street, electric cars may become another means of effective energy storage. Basically, car batteries can charge and fill when demand for energy is low, while returning energy to the grid when demand is high (while saving a set amount for car use). This would help smooth out demand/supply disparities.
Tesla and the Gigafactories have appeal to car geeks, tech geeks and green geeks
And let’s be honest, that’s a lot of geeks. And it makes sense the cutting edge sustainable technology and cars will get lots of different people excited.
The big question though…
Now, of course, the big question is will the Gigafactories and Tesla succeed.
Personally, from my limited view, it seems like they have strong marketing, good economic models and are reducing prices to make it affordable for many..
However, this is disruptive and threatens the interests of many powerful incumbents (oil companies, traditional car companies). These groups will have little scruples using their economic and political power to constrain Tesla from competing in the marketplace. And they may succeed.
On the upside, in business and technology, I find one common them that will be in Tesla’s favour – incumbents inability to gauge the relevance and significance of new competing technologies and companies. Often when faced with new technologies or challenger, incumbents don’t try to adapt and change. Instead they ignore the new competitors and technology or just try to shut it down.
And they often lose in the process. We saw it with Kodak and digital film. We saw it with the US car manufacturers and Japanese cars.
We may see it here too.
Douglas Thoms 