Tesla's Bankrupt Strategy Red Herring

By Rob Enderle March 03, 2014

"Tesla is going Bankrupt!"  seemed to be the tone of a well-reasoned opinion on Seeking Alpha this week focused on Tesla’s proposed battery factory.   John Peterson, the author, seems to have a grasp of both the technology and the market and his conclusion that Tesla is making a massive mistake is unavoidable.  However the analysis doesn’t anticipate that the battery factory could be far more than is advertised or that Apple may play a critical role in the result.   Elon Musk is anything but stupid and I fully agree that building a Lithium Ion battery factory would be insanely stupid so I think it is a red herring. 

The Musk Factor

Elon Musk doesn’t build old stuff.   From the Tesla car to Space X - to his plans for a revolutionary tube train his brain works on the next generation of technology - which makes him wanting to build a Lithium Ion battery factory seem nuts.   Peterson is correct, the market is awash with manufacturing capacity here; another factory would just drive down prices making everyone including Tesla less profitable, and saddle Tesla with massive debt for no real benefit.  

However, Musk has been hinting about Super Capacitors, but we lack manufacturing capacity for them particularly at car scales and even in a hybrid configuration the result could be attractive to both Apple and Tesla as an alternative - particularly if the patents to make the hybrid work were owned by Musk.  

Supercapacitors

Supercapacitors are thought to be the eventual battery replacement technology.   They are far more efficient, they don’t wear out, they can be instantly charged, and they can dump their energy instantly without bursting into flames.   Their problem is that they don’t really store energy very well and, largely because they are new and produced in relatively low quantities, they are expensive.  

A hybrid configuration would allow you to flash the Supercapacitors which in turn would rapid charge the batteries as you drove, allowing you to fill up faster than you could with gas and you could even trickle charge the capacitors at charging stations so you wouldn’t fry transformers or have to pull as much power to them.   In effect, your charging station would build a charge inside which could also be used as emergency power in your home during an outage and you could then charge your car more rapidly.   (Flash charging several cars in the same neighborhood at the same time would likely take the neighborhood transformer and turn it into a heap of molten metal).  

From an energy management perspective, if these things were networked, the power company could dump power into them when there was excess and make sure power use was balanced and potentially even pull from them if there were spot shortages much more effectively than batteries. 

In the end, Supercapacitors even used in hybrid form, would massively improve the electric car’s viability and success.   In that instance, a battery plant to produce them would make a ton of sense.

Apple

Apple has been apparently meeting with Tesla and the nature of the meetings would appear to have something to do with an acquisition or investment.   Think if Apple phones, media players, tablets and PCs could be flash charged, what an advantage that would give the devices.  You just press the phone to the charger for a few seconds and you have a full charge and are ready to go.  You could put chargers in conference rooms and folks could, much like they take a bathroom break, ever few hours just touch their device to the charger and then continue cordless for another 5 to 10 hours.    If Apple had that exclusively they’d likely take the market back from Google and Samsung.  This would be a massive competitive advantage.  

Wrapping Up: 

A move to build another Lithium Ion battery factory would be insanely stupid and Elon Musk isn’t insanely stupid, he’s actually just the opposite.   So I think the factory will be focused on building something amazing they don’t yet want to talk about because they want to own the result.   They’ll be building batteries but not like any you have seen before and the result could make both Tesla and Apple far more powerful than they currently are.    




Edited by Stefania Viscusi

President and Principal Analyst, Enderle Group

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