Tesla, It Is More Than Just An Auto Company
There is more to Tesla than EV (Electric Vehicles) cars. Most of the news surrounding the company is about their electric cars, batteries and self-driving features. Tesla would seem like an enigma to the auto industry with their business model. That is exactly what they are since many have not figured out the overall business that Tesla are in. They are unconventional in many ways compared to other automakers. While the US government has subsidized Tesla, it is about to pay off as Tesla has reached profitability.
There is no doubt Tesla makes EV better than other automakers in 2020. While competitors like Ford and Nissan are pushing their projects forward, they are still way behind Tesla when it comes to the technology. While it seems Tesla is just driving forward, it was a difficult path. There have been issues with production in the past, like how to mass produce the Model 3 (aka Manufacturing Hell) along with the batteries. These issues have been gradually resolved and now Tesla is ready to expand with a new facility like that in Austin (Texas) for ramping up production.
Tesla, as a company, is not just about the EV. They are actually a power and energy company with diversified interests in other industries. That includes intelligent AI software used in Autopilot, battery design for more efficiency and the distribution of power from renewable sources. Plenty of good news about the problems Tesla are trying to solve are being well received by investors. It is no surprise that Tesla stocks have suddenly soared despite a financial and health crisis in 2020. Perhaps the stimulus can also be thanked for that because of the insane amount of money that is being printed and put into investments.
In 2017 Elon Musk made a bet with Aussie tech entrepreneur Mike Cannon-Brookes that he could build a battery facility within 100 days to help with power issues in South Australia. That would mean building a mega facility that had never been built or done before. Elon was able to win the bet when he met the deadline and provided South Australia with what would be the world’s biggest battery. The good thing about it was it worked to provide backup power when the grid needs it most in order to prevent rolling blackout.
The battery in South Australia stores renewable energy generated from the Hornsdale Wind Farm at a capacity of 100 MW. This project is seen as a test to how large scale battery storage systems can be implemented. They won’t provide round the clock power, but their purpose was to provide backup power for grid stability. More capacity is part of the plan for the facility as Tesla eyes more projects after its success. This demonstrates Tesla’s expertise in renewable energy storage which is a growing sector. Demand for energy storage is forecast to grow by 24.38% for 2020 to 2025.
According to Managing Director Paul Gleeson of engineering consultant Aurecon Group:
Hornsdale “demonstrates at scale the potential for battery storage to provide fast-acting supply and demand balancing,” … That “is critical to maintaining consistent frequency for grid stability and improving integration of renewable energy.”
Tesla also manufactures Powerwalls and solar panels that are part of their service. This market is much slower, but the momentum could be building as demand for renewable energy continues. Tesla is already prepared to produce more batteries to meet the demands, both for their EV and energy storage systems. This is in line with Tesla’s “Million Mile Battery” project.
Tesla has been streamlining their production to meet more efficiency. This allows Tesla more control over the manufacturing process and supply chain. They even deal directly with customers rather than go through dealerships. This allows faster response to issues and lowers the costs of production to further increase revenues. One of the major improvements has in lessening the number of shifts in production for cars like the Model S and X. These cost cutting measures are also saving time, giving workers less hassles in production.
Tesla learned the hard way how important sourcing materials can be. This has led to delays like in the Model X series. What Tesla began to do was to begin bringing production in-house rather than sourcing from outside. They learned from building specific parts from the ground up (first principles thinking according to Elon Musk) by hiring engineers and technical experts who specialize in those aspects. That is why Tesla’s main component, the batteries, are made in-house.
While outsourcing might seem faster, since you can just buy the items and assemble them, Tesla chose a different path from other automakers. Instead Tesla decided to build most of the car and innovate on how to improve their manufacturing processes. When the Model 3 had welding issues that was delaying production, the company began to improve reliability that earned the Model 3 as a top pick by Consumer Report.
The future is going to likely become driverless in many sectors, among them the trucking industry. Self-driving electric trucks could actually benefit businesses in cutting time and costs. The truth is, self-driving or driverless trucks were not meant to replace humans. They actually reinforce the shortage for truck drivers according to some reports.
Tesla’s business proposition to the trucking industry are the following:
- Increased trips, lower costs (no fuel)
- Less maintenance for electric trucks
- Decrease in delivery time
- Reduce accidents
While all these points look good on paper, the world is still in the process of shifting toward this type of automation. Tesla’s Semi trucks have already received orders and already made trips. Initially these trucks are not fully autonomous so a human operator is still required.
Power Distribution Systems
In the overall scheme of things, power is a central part of Tesla’s business model. They did build a charging network to provide electricity for their cars. What better way to further it than by building a power distribution system using Tesla products. This is part of a Software Defined Network (SDN) that will include Tesla products and compatible systems to form a Virtual Power Plant (VPP). This allows independent energy producers to use Tesla energy storage and generation products (e.g. Power Wall, Solar Roof) to provide energy to the grid.
VPP creates microgrids that feed power back to a macrogrid or main grid. Producers can be anyone with the means of storing renewable energy that can also be sold to power distributors. Tesla has a VPP in operation in South Australia, with installation of Solar Roof and Powerwalls to 1,000 homes. Each Powerwall is part of a micro-grid network distibuted across South Australia. When power is not sufficient on the grid, the VPP injects additional power from energy stored.
Another great potential for Tesla is V2G (Vehicle-To-Grid) power distribution. In this system, it will be Tesla BEV (Battery Electric Vehicle) like the Model S and Model X feeding electricity to power a home or facility. It can even be used by local power companies who can pay Tesla car owners for additional electricity. Tesla is integrating V2G with the Model 3, making it a mobile battery that can provide power on the go where it is needed. It can be as simple as plugging into a Type 1 or Type 2 AC plug.
While these systems will be subject to rigorous testing and regulation, it shows great potential. Tesla could very well become a power company with their products providing electricity under some type of permit, certification or license. These can change the way the power industry works with more deregulation that will allow independent power producers like Tesla car owners to provide electricity as a service.
It may not occur to many people that Tesla is also a software company. They are pioneers in self-driving technology which use advanced AI to navigate and detect objects. Tesla Vision and its Autopilot system are products of Tesla’s own software engineering team.
What is truly innovative is that Tesla’s very own car operating system software is updated OTA (Over-The-Air), so it can deploy features and updates without the car owner having to visit a store. It is software that provides functionality to all the great features in Tesla’s products from EV to Powerwalls.
They don’t just build cars and power products, but also develop software that make these products work. There are concerns that the software could be prone to hacking. To assure customers of its security, Tesla is using a bug bounty program using Bugcrowd to identify vulnerabilities.
With Tesla announcing exciting news on innovations and products, the possibilities are looking good. For years the major criticism against Tesla was their lack of profitability and challenges. Against the odds they have some how found ways to continue due to innovation capital and a growing market. This is fueling bullish sentiments as the competition are trying to keep up. Continued profitability will mean further confidence among investors, and that could mean listing on the S&P 500. This will only infuriate the bears who short sell and lost plenty of money, while the bulls who went long are taking this as far as they can.
Tesla has been influential, much like Apple. Tesla’s success in EV has led major automakers to begin competing with their own offerings. Zero emissions have been a target to curb pollution and carbon gases and Tesla has made a vehicle that lessens its carbon footprint. It is a debate though how much energy is consumed in manufacturing EV that contributes to carbon emissions, but that is a subject which Tesla can address with more efficient techniques in the process.
Perhaps investors owe it to Elon Musk for all the success. He did not do it alone, but you have to give him credit for his efforts in leading Tesla. He has succeeded where others failed and it is disrupting not just the auto industry, but other industries like energy and computing. Detractors are finding ways to criticize Musk, but he usually answers back (like against CNN). It makes the news more controversial which gets the attention and engagement that the media needs while giving Tesla exposure at the same time. Elon is clearly the face of Tesla so he bears the burden for the company. For that reason if Tesla fails it will also be blamed on him.
Tesla’s stocks could take a reversal according to some reports, but the future seems to be about Tesla. The things they are doing now are going to be significant in the coming years. The seeds have been planted and investors await the fruits they hope it will bear. Many of the businesses Tesla are in at the moment are still in their infancy with potential room for growth. This gives some confidence to where things can go. Until Tesla stagnates or a correction in the market takes place, they are in a good position to shape and implement emerging technologies.