why tesla will forever change the economics of the battery industry
TRANSCRIPT
Technology
62 | GlobeAsia July 2014
Tesla shocked the world this June when they announced a patent giveaway that would enable other electric vehicle (EV)
manufacturers’ access to Tesla’s innovations at no cost. The company’s CEO Elon Musk spilled the beans in a recent blog post announcing that Tesla “... will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.”
While the bounds of what constitute “good faith” are not well-defined, this is a historic and highly significant announcement that will likely have a ripple effect throughout the global EV market but ultimately more so perhaps for the lithium ion battery industry.
This isn’t the first time Tesla has done something like this. A few weeks ago the company announced they would be providing
other EV manufacturers access to their charging and adapter specifications. This of course, would provide competitors with the means to make their own vehicles compatible with Tesla’s supercharging stations. Tesla has 91 such charging stations across the United States and they function at 135 kw, offering faster charging than the more numerous CHAdeMO stations that are only able to reach 62.5 kw. Tesla’s move encourages EV manufacturers to move to, or at least support, what many consider a technologically superior solution and would lead to greater adoption of EVs in the future.
The company took it a step further however, announcing that should other car manufacturers pitch in for the maintenance of these charging stations and buy into Tesla’s concept of free
Why Tesla will forever change the economics of the battery industry
July 2014 GlobeAsia | 63
charging for life, their customers too would be welcome to use the company’s charging facilities.
Tesla has enough clout in the EV industry at this point to set the tone that others will follow and Musk’s latest moves only makes this an almost foregone conclusion. Many believe that Tesla’s supercharging stations are a superior solution technologically then the CHAdeMo system and allowing other manufacturers to contribute to their upkeep frees up resources that Tesla can then reinvest in more infrastructural projects to further shore up the nascent industry.
While the Supercharger announcement in itself might seem to have little direct effect on the battery industry at first blush, when coupled with the larger patent release it means that manufacturers will be encouraged to build vehicles with larger batteries.
According to Musk, even a 15-minute charge at one of Tesla’s Supercharger stations would give the Model S about as much range as a fully charged BMW i3. Since Tesla’s Supercharger stations are able to deliver a higher charge at a faster speed, it then becomes possible to include bigger capacity batteries and still have them charge in a reasonable amount of time. In other words, the biggest beneficiaries of this announcement could actually be the lithium ion battery industry.
Huge battery industry impactTesla has already had a tremendous impact on the lithium ion battery industry. Tesla’s primary battery supplier Panasonic went from a loss of 2 billion yen in 2012 to a 4 billion yen profit in the most recent quarter, due in no small part to increased demand for Tesla’s Model S sedan.
A recent article in Business Insider estimated that should Tesla continue at its present pace, it
would sell 21,000 Model S sedans this year, and deploy almost 1.6 million kWh worth of lithium ion batteries in the space of 12 short months. To put this in perspective, it has taken the Nissan Leaf (the largest selling EV in history) almost three years to get to that point.
One of the main reasons for this of course is that Tesla’s batteries are simply a higher capacity than those in the Nissan Leaf. Regardless, this means that Tesla is already making a huge dent in the supply chain even with their current sales figures.
Indeed, the company already assembles batteries for international manufacturers like Toyota and Daimler, and now that their technology has been made freely available, it is likely that more and more EV batteries will be based on the same ‘18650’ cylindrical format power cell arrangement used in Tesla’s EVs. Make no mistake; this sort of demand is industry changing.
To further meet expected needs, Tesla has already begun on plans to build the first of several $5-billion battery ‘Giga-factories’ at a yet-undecided location in the US. The proposed factory would provide 6,500 jobs and likely span 500 to 1,000 acres of land. To get an idea of scale it is worth considering that what Musk is proposing would create the world’s largest battery factory capable of producing 500,000 batteries per year – a number greater than the entire world’s current capacity.
Analysts are sceptical about Tesla’s plans. Many question if Tesla can sustain growth at such a fast pace and if the whole thing won’t come crashing down on Musk like a house of cards. What these analysts have overlooked is that there are quite a few other potential uses for lithium ion technology that become viable once scarcity is no longer a problem.
Musk could easily focus part of his production in these other areas in an effort to minimize risk. In fact, given Musk’s past it would be surprising if he didn’t veer from his core business once in a while to explore ancillary opportunities as they present themselves.
Obama’s new EPA rules Analysts predicting doom for Tesla if demand slows for the Model S perhaps missed the import of a slight change in the EPA regulations aimed at limiting power plant pollution. While previously done on a national level, the EPA is now leaving
Jason FernandesTech commentator and the founder of SmartKlock.
The great thing about Elon Musk is he puts his money where his mouth is. While governments around the world bemoan rising gasoline prices and carbon emissions, Musk is actually out there building infrastructure and attempting to solve these problems.
Technology
64 | GlobeAsia July 2014
an internal combustion engine a comparable distance simply because of how inefficient these vehicles really are.
Further, electric power can be generated in a multitude of different ways, some of which are very environmentally friendly. While alternate energy is in its infancy, a shift towards EVs now will mean we can just swap out the means to generate that electricity as renewable sources become more widely available.
One could even use a cocktail of different sources in a quest to find the most cost-effective environmental solution. The increased production and lower price of batteries will also contribute a great deal to making renewable energy more viable as that energy becomes ever cheaper to store.
The great thing about Elon Musk is that he puts his money where his mouth is. While governments around the world bemoan rising gasoline prices and carbon emissions, Musk is actually out there building infrastructure and attempting to solve these problems.
Fortunately for the battery industry, its fortunes are inextricably linked with those of the most resourceful entrepreneurs in recent history. Abraham Lincoln once said: “Nearly all men can stand adversity, but if you want to test a man’s character, give him power.” Elon Musk has tasted this power, and now wants to give it away for free.
it up to the individual states to decide how to cut emissions.
The report goes on to state that now that solar and wind power are increasingly more attractive options it becomes necessary to consider how that power can be stored. Batteries will clearly grow to be one of the most effective answers for states struggling to cut emissions as per EPA regulations.
The energy storage landscape is presently served by the concept of pumped storage hydroelectricity. This is when water is pumped to a height during non-peak power usage hours and then used to generate power as it flows back down during peak usage hours. This solution, while popular, requires a great deal of area to implement and would become much less attractive as the costs of batteries go down and their capacities go up.
It appears Musk is already thinking exactly along these lines. Speaking on a panel in California recently, Musk stated that an unspecified amount of his newly proposed Gigafactory’s capacity will be allocated to “large-scale use of stationary storage,” referring of course to battery based storage of energy.
Estimates indicate that as a result of the proposed Gigafactory, prices of lithium ion batteries could drop by over 30% as early as 2020. If these numbers bear out, quite a few hitherto unviable options suddenly come back into play, possibly making batteries the next large-scale power storage solution.
Governments should get in gear It’s really time governments take a more proactive role actively encouraging the adoption of EVs. While it’s not typically the government’s role to pick sides in a capitalist society, the fact is that the environmental imperative of such a move far outweighs any ideological concerns.
EVs are zero-emission vehicles and while some critics argue that in many cases it still takes fossil fuels to produce the electricity that power these cars, that really isn’t a fair comparison. EVs don’t just shift the environmental impact to the power companies, they significantly decrease the net impact itself.
Because EVs are more efficient than gasoline-powered vehicles, the fossil fuels used to generate electricity needed to run an electric vehicle are a fraction of those that would be required to power
It’s really time governments take a more proactive role actively encouraging the adoption of EVs.
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Columnists16 Steve Hanke GO: J.M. Keynes versus J.-B. Say
20 Suryo Bambang SulistoThree priorities for the next president
40 Jamil Maidan FloresThe red rice of Jatiluwih:A living monument to an ancient culture
44 Wijayanto SamirinIndonesia, post-2014 presidential election
46 Shamim RazaviNot-so-negative list
62 Jason Fernandes Why Tesla will forever change the economics of the battery industry
66 Craig Warren SmithA rallying cry for the next president
82 Scott YoungerPolicies, renewables and regional infrastructuredevelopment
84 Keith Loveard Time to kill the car
Hotels58 A home away from homeHome Inns, China’s largest economy-class hotel operator, will open its first budget hotel in Jakarta this year. The company has teamed up with a local partner to tap the fast-growing middle class travel market in the country by offering clean, affordable and welcoming rooms.
60 Looking into unchartered territoryWith nine openings and three relaunches this year alone and more on the way, the Accor hotel group is betting big on Indonesia, many areas of which remain untouched.
Interview68 Anticipating the ASEAN Economic Community
72 In conversation with Purnomo Yusgiantoro“Indonesia wants peace but we must also prepare for war.”
76 IFC: Driving a vibrant capital market in Indonesia The International Finance Corporation is a major investor in Indonesia, having pioneered on-shore and off-shore local currency programs.
78 New Dassault Falcon 8X jet: Ideal for IndonesiaThe country’s burgeoning jet set has a new ultra-long range aircraft to take to the skies with.
80 Green living spacesKevin Jose and Aedas are introducing new green concepts for Indonesia’s urban landscape and in the process fusing the line between indoors and outdoors.
Special Report86 WEF East Asia: Benefiting from disruptionMassive and fast-paced change fuelled by technological innovation will sweep across the globe in the coming decades. The information revolution will create new opportunities for millions of Asians but as governments grapple with these changes they face some age-old challenges such as reducing poverty and eliminating corruption.
90 Too good to be true?The presidential candidates have detailed their plans to sustain and boost Indonesia’s economy, but a myriad of factors are in play and with only five years to get things done, they will each have to be selective about which battles to fight.
96 Banking: The best, for the biggest Local banks are waking up to the lucrative business of serving the newly rich.
98 The world’s kitchenAlbeit held in the midst of a military coup, the Thailand Food Expo was a success, drawing over 60,000 local and international visitors and buyers.
Knowledge of Wharton100 Amazon vs. Hachette:The Battle for the Future of Publishing
Events104 Beritasatu.com first anniversary105 Suara Pembaruan launches World Cup Guidebook
Motoring108 Pushing the limits in styleThe new BMW X5 sports activity vehicle is put through its paces with a demanding drive through the “Sea of Sands” in Mount Bromo National Park.
Living the Good Life112 Melbourne: Coffee, food and more Indonesia’s neighbor Down Under has much to offer both the first-time visitor and the seasoned traveler.
116 Qatar Airways celebrates move to new Hamad International AirportQatar Airways chalks up another notch in its rapid expansion with a move toa new home.
118 A Highland treat, served up by the dramGlobeAsia samples some of the finest single malt scotch whisky around, from a maker steeped in the old tradition.
Back Page120 The old Surabaya Post Office
contentsVOLUME 8 NUMBER 7 / JULY 2014
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6 | GlobeAsia July 2014
It is political season in Indonesia and as we prepare to send this issue to print, the country is in
the grips of the direct presidential election. The two candidates – non-active Jakarta Governor Joko Widodo and former general Prabowo Subianto – are running neck to neck in a race that is just too close to call.
Come July 9, Indonesia will have chosen a new president. The nation will have cast its decision on who the people feel and think is best suited to lead this country of 240 million souls for the next five years. Who Indonesians choose will be critical as the next president must build on the progress that has been achieved over the past decade under President Susilo Bambang Yudhoyono.
Indonesia faces a fork in the road. Rising resource national-ism over the past few years has spooked foreigner investors.Domestic business players com-plain of unnecessary red tape and extortion by local mafia gangs. The country’s famed virtues of plural-ism and tolerance are under strain as religious radicalism rears its ugly head.
Economically, the country has done well but risks being caught in a middle-income trap. Indonesia is
now perceived as a fast-emerging regional economic power and its gross domestic product will cross $1 trillion in the near future. This is no mean achievement and should be celebrated. But the country does not fare as well in terms of having regional, not to mention, global brands or corporations which can call themselves world-class.
The economy and the education system are not geared to promote innovation. We have glitzy malls but no renowned research and development facilities. Our universities lag behind their counterparts in the region in terms of cutting-edge programs and thinking.
So which path will the country take after July 9? Will it go down the path of economic openness, promoting competition and innovation and investing in education and human resources? Or will it choose the path of rising protectionism, economic cronyism and the promotion of intolerance?
Hopefully both the Indonesian people and the next president will be pragmatic, wise and globally-oriented. He will empower the pri-vate sector and keep the state from meddling too much in business affairs. Hopefully he will invest in education, infrastructure, health-care and innovation rather than in wasteful fuel subsidies.
The next president will have to make some hard choices. If he chooses wisely, the Indonesian people can look forward to many more decades of economic growth, prosperity and rising living standards. There is much to look forward to but also much to be concerned about.
Shoeb K. ZainuddinGroup Editor in Chief
Editor’s NoteEditorialGroup Editor in ChiefShoeb K. Zainuddin
Managing Editor Yanto Soegiarto
Deputy Editors Aloysius UndituMuhamad Al Azhari
Editor at LargeJohn Riady
Senior EditorAlbert W. Nonto
Contributing EditorsFarid HariantoSteve HankeScott Younger
ContributorsSuryo Bambang SulistoWuddy WarsonoWijayanto SamirinFrans WinartaJason FernandesJohn Denton
Special ColumnistJamil Maidan Flores
Contributing Editor (Singapore) Jafri M.
ReportersArdhian NoviantoDion Bisara Francezka Nangoy
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