Why Elon Musks crazy plans for Tesla are perfectly sane

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Elon Musk recentlylaid out a master planforwhere his company, Tesla Motors, is heading. The vision is undoubtedly ambitious: four new kinds of Tesla vehicles, solar initiatives, autonomous driving technologies and a ride-sharing program.

Judging by the subsequent 3 percent dipin Teslas stock price, the markets dont appreciateMusksvision or the promiseof these technologies. They dont understandthe exponential advances in fields such as artificial intelligence, storage and solar energy, or the scale advantages that come from buildingtechnology platforms.

Tesla may well stumble because it is trying to do too much too fast, but Musks vision is sound.

The most controversial part of Musks vision is his plan to integrate SolarCitys photovoltaic technologies intoTeslas Powerwallstorage technology, the units that customers use to charge their electric vehicles at home. While there are valid corporate governance concerns about merging two companies with the same board members, the technology combination is a strategic winner.

At the rate at which solar technology is progressing, its cost per watt by 2022 will be less than half of what it is today. Prices of solar panels have been falling at more than 10 percent ayearfor the past 40 years and their cost is now justified withoutgovernment subsidies. Bloomberg New Energy Finance (BNEF) estimatesthatthe learning rate of solar panels the fall in their price for every doubling in their global installation is 26 percent. And solar installations are doubling every year or two. At this rate, by 2030, solar capture could provide 100 percent of todays energy; and by 2035, it could be almost free.

What has been holding solar energy production back is the cost of energy storage, which has necessitated acomplex, messy substitute for connection to the grid. Teslas Powerwall removes this dependency and allows one company to provide an integrated and beautiful solar-roof-with-battery product that just works, as Musk suggested. This is the kind of advantage and elegance that came with the Apple iPhone, which integrated music, telephony and computer applications into one device.

The cost of battery technologies is falling at a rate similar to that of solar production. According to BNEF, the learning rate in electric-vehicle batteries is 21.6 percent, meaningwe can expect that by the end of 2022, these too will cost less than half of what they do today. This would give Tesla the same market leadership on electric vehiclebatterytechnologies that Apple commanded when it first rolled out the iPhone.

With lower costs for electricity and batteries, the demand for electric vehicles will skyrocket. The nearly half-million orders that Tesla received for its $35,000 Model 3 was a clear indication of demand. As Tesla starts building vehicles at a pace to meet the orders, the price of the key component of these cars the battery will keep falling, and the company will be able to offer newer models at even lower prices. Imagine carsas powerful as todays Tesla Model S, traveling 250 miles on a charge, thatretail for $25,000. This is very plausiblein the early 2020s.

Now add to these advancements thecars self-driving capabilities, which continue to improve as the machine-learning algorithms used for navigationbecome smarter, and you have a product that couldsave tens of thousands of lives in the United States alone.

It is surely possible that Tesla could fail in these efforts by thinking too big. But its grand vision may well prove to bethe strategic advantage that it needs to achieve its goals.

Link to article on Washington Post’s website

About Author

Vivek Wadhwa is Vice President of Innovation and Research at Singularity University; Fellow, Arthur & Toni Rembe Rock Center for Corporate Governance, Stanford University; Director of Research at the Center for Entrepreneurship and Research Commercialization at the Pratt School of Engineering, Duke University; and distinguished visiting scholar, Halle Institute of Global Learning, Emory University. He is author of ”The Immigrant Exodus: Why America Is Losing the Global Race to Capture Entrepreneurial Talent”–which was named by The Economist as a Book of the Year of 2012. Wadhwa oversees the academic programs at Singularity University, which educates a select group of leaders about the exponentially growing technologies that are soon going to change our world. These advances—in fields such as robotics, A.I., computing, synthetic biology, 3D printing, medicine, and nanomaterials—are making it possible for small teams to do what was once possible only for governments and large corporations to do: solve the grand challenges in education, water, food, shelter, health, and security.

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