24 July 2016

"Tesla Master Plan - Part Deux" - initial reflections

Earlier this week, Elon Musk released his second 10 year Master Plan, outlining his strategy to help deliver Tesla's Mission of "accelerating the advent of sustainable energy".  By bringing SolarCity and Tesla together, the foundation is very strong, and Elon's plan is summarised in his own words as:
  • "Create stunning solar roofs with seamlessly integrated battery storage
  • Expand the electric vehicle product line to address all major segments
  • Develop a self-driving capability that is 10X safer than manual via massive fleet learning
  • Enable your car to make money for you when you aren't using it"
Below, I'll outline why I believe Tesla is absolutely tackling some of the key challenges we face in order to live more sustainably - and shaking-up entire industries in the process.  But I'll also outline the importance for Tesla to:
  • Understand what Tesla's core competencies are, which lead to long-term competitive advantage
  • Understand which parts of the value chain it should play an active part, versus which it should play a supporting role
  • Decide whether it can continue to be an aspirational consumer brand and be attractive to other customers, across a breadth of propositions
I'll take each of Master Plan bullets in turn and provide some thoughts - I'd welcome your feedback.

Create stunning solar roofs with seamlessly integrated battery storage

The cost of solar PV continues to plummet, and despite the reduction in government subsidies in some countries, it is an increasingly attractive technology for providing reliable, clean energy.


Solar panels

In isolation though, one of the constraints for residential solar is that it's often generating the most energy during the middle of the day - whilst the property may well be unoccupied.  Smart appliances (e.g. washing machines, dishwashers) may go some way to better match energy supply with demand within a home (they can be scheduled), but energy storage is arguably more attractive, allowing energy generated during the day to be stored for use during evening peaks.

Tesla Powerwall
 
Tesla have released their Powerwall and with the incorporation of SolarCity, they are looking to provide "One ordering experience, one installation, one service contact, one phone app".  This could be a real differentiator in a fragmented market, especially with limited competition in energy storage (although the competition is coming fast, e.g. Sonnen have  just reduced their costs by 40% in the US, and Daimler have entered the market).
 
Some thoughts to consider though:
  • The 'sexiness' of the Tesla cars appeals to buyers, and Tesla is hoping some of that magic will wear-off into domestic energy storage.  However, although there may be some differentiation in phone apps and aesthetic design (but will the mass-market want to show-off batteries on the wall?), solar + storage is a relatively commoditised proposition - and it may lead to it being very price competitive.  Of course, Tesla is hoping its economies of scale through the Gigafactory will help. 
  • In the Master Plan, there's no explicit mention of integrating an EV's battery in a 'Vehicle to Home' way, albeit I'd assume software could be developed for the car battery's integrity to be maintained, whilst also offering the chance to provide energy for the evening domestic peak.  I recently wrote about how Nissan (and also BMW) are trialling such a concept.
  • Tesla with SolarCity appear to be looking to cover a large part of the value chain, from building the batteries (the cells are sourced Panasonic and Samsung), through to product design (hardware and software), installation, operations and servicing.  It's unusual for a young organisation to be able to continue to maintain excellence across such a diverse range of capabilities, without exploring franchising, licensing, outsourcing, or different routes to market.
  • Solar and storage solutions aren't going to penetrate every household.  Challenges of house ownership, inappropriate rooftops, installation inconvenience, buyer apathy, costs of technologies and local regulation are all barriers to be overcome.
  • Energy Storage also has significant potential in commercial buildings, industry and within the smart grid itself.  It's not clear if Tesla see that as a significant route to market or not.  It would help deliver economise of scale... but are Tesla/SolarCity the obvious choice of supplier for potential buyers?

Expand the electric vehicle product line to address all major segments

Tesla's plan was always to introduce EVs at a more affordable pricepoint than the Model S and Model X, and with the upcoming Model 3, it's well on the way to achieving that - if it can produce at the volume and quality required. 

Tesla Model S

Tesla Model X

As well as a suggestion of an electric-powered pickup truck (a popular format in North America, but not in Europe), and a more compact SUV, the latest Master Plan aims to tackle two other areas - mass-transit, and freight.


Mass transit ("high passenger-density urban transport")

With air pollution a growing problem in cities, and the need for shared transport to have a growing role to help tackle congestion, EV-powered urban transport must be part of the solution for future smart cities.  In fact, some manufacturers already have solutions (e.g. BYD) and there are also hydrogen fuel cell powered and induction-plate charging solutions.  Meanwhile, Mercedes recently showcased some impressive autonomous features of a bus.

Elon hints at potentially reducing the size of buses, and I strongly believe there is a huge opportunity there - on-demand services which sit in size between traditional scheduled buses, and ride-sharing taxi services (like Uber Pool).  Such 'micro-bus' services are very common in some parts of the world, and I assume it's partly regulatory barriers which prevent them being more prevalent.

Smart cities must support the full breadth of shared mobility solutions, and to maximise the sustainability of travel, it may also be that light-rail, trams and trolley-buses have a growing role to play.

For Tesla's mission then, tackling 'high passenger density urban transport' is an obvious segment to go for - the question for buyers (not users) of such services, e.g. city authorities, is why Tesla?

Freight

With freight, there's a real challenge with electrification, as batteries take-up precious space and are an additional weight to shift.  ***UPDATE July 27th - Daimler have just revealed their eTruck which seems to meet this challenge***

Daimler eTruck

Scania have approached the task in an innovative way, with their Electric Road Trial - using overhead cables to provide the electricity.  Other ways to move freight more sustainably are using technology to provide safe 'platooning' - conveys of lorries travelling very closely behind each other, much like a team of cyclists does.  It's been successfully trialled in mainland Europe, and the UK Government has approved a trial there too.



Scania's Electric Road, Gävle, Sweden

It will be interesting to see how Tesla tackle the freight challenge - and they've promised 'fun', which is intriguing (and terrifying) in equal measure.

As well as improving the drivetrain of freight, from a sustainability perspective, there are (at least) three other approaches which would reap additional dividends:
  • changing attitudes to consumerism, so less 'stuff' is travelling around to meet our insatiable needs
  • modal shifts to rail and water barges
  • better logistics management, using technology to share empty return legs for other products
It will be interesting to see what Tesla has to offer in this space.


Develop a self-driving capability that is 10X safer than manual via massive fleet learning

Tesla have already gone to market with autonomous features ahead of the competition, with Elon arguing that, despite a recent tragic fatality, it is safer than relying on just human input.  As more miles are undertaken in autonomous modes, more learning will occur, systems refined, and safer roads will become a reality.  Most manufacturers are citing around 2020/21 for having autonomous vehicles available, and there's an acknowledgement that regulation may take a while longer.  So Tesla continue to push boundaries, not without its risks, but perhaps ultimately helping us all to travel safer (and more sustainably).



One of the interesting reflections for the Tesla brand and autonomy beyond the early adopters is how to manage the tension between giving an amazing driving experience for the enthusiastic driver, versus providing autonomous features, allowing the 'driver' to just be another passenger.  I sense long-term that brands, customers, ownership and business models will not happily straddle both.  Interestingly, Audi have just announced a new subsidiary, SDS, for developing its autonomous vehicles.


Enable your car to make money for you when you aren't using it

I've always been a huge fan of the 'sharing economy' (or 'collaborative consumption' to give it an alternative term).  From a sustainability perspective, it 'maximises the utilisation of a physical asset', or in simple terms, lets other people use something when the owner doesn't need it, allowing the owner to make some money in the process.  AirBnB has taken shared accommodation by storm, and there are plenty of mobility business models already - car sharing (e.g. ZipCar), ride hailing (e.g. Uber) and lift sharing (e.g. Lyft).  Incumbent automotive manufacturers like BMW are getting directly involved too, and in fact GM's first autonomous car will be electric - and launched via ride-sharing platform Lyft

Tesla's proposal for car sharing seems to be two-fold:
  • "You will also be able to add your car to the Tesla shared fleet just by tapping a button on the Tesla phone app and have it generate income for you while you're at work or on vacation"
  • "In cities where demand exceeds the supply of customer-owned cars, Tesla will operate its own fleet, ensuring you can always hail a ride from us no matter where you are."

From a sustainability perspective, Tesla is right to acknowledge the trend, and like other manufacturers, should look to make its vehicles as reliable and easily-repairable as possible to support the increased utilisation car-sharing demands.  However, I do struggle a little to see what this will look like in reality.  Some of the challenges include:

  • Would a proud Tesla owner who enjoys the driving experience of their Tesla really want to run the risk of strangers driving their car?
  • Insurance liabilities are already complex once autonomous capabilities are introduced into vehicles.  But when an owner then shares such a vehicle with a stranger who may not be familiar with the car, it's even more challenging. 
  • Although I could see third-party ride-sharing companies (or cities themselves) running Tesla vehicles in their fleet, the additional overhead of Tesla managing the local operational challenges of its own fleet seems optimistic.

Summary

Elon Musk's vision and ability to execute is unique, and should be applauded.  He's absolutely right to stretch the role that electrification has in mobility, and accompanied by renewable generation, helps distance critics where the carbon intensity of the electricity grid is not favourable.  And it's so satisfying to see such vision, leadership and investments in sustainability, helping nudge other companies to take notice. 

With the recent Master Plan though, I am left with a few lingering thoughts:
  • The 'sexiness' of the brand which has been so attractive to the early adopters may fade as it tackles a broader portfolio of propositions, aims for scale, and competition enters the market.  What is Tesla's USP in the long-term, and who is the buyer?
  • Regulatory barriers and associated enablers like insurance products may not move at the pace which Telsa needs to maintain its competitive advantage... and the emerging and established players in both automotive and energy aren't likely to let Tesla stay ahead of much longer.
  • Is Elon trying to do too much, rather than focus on 2 or 3 things and execute them brilliantly?
Time will tell, but I hugely admire what Tesla is trying to achieve and wish Elon and the whole company every success.
 
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