Driv­ing test

It won’t be easy for Elon Musk to do away with the in­ter­nal com­bus­tion en­gine, but if any­one can...

The Daily Telegraph - Business - - Front Page - Robin Pag­na­menta

It was an as­ton­ish­ing claim to make. When Elon Musk took to a makeshift stage in the car park out­side his Cal­i­for­nia fac­tory last night and pledged to man­u­fac­ture 20m elec­tric cars per year by 2030, it be­trayed the scale of his am­bi­tion.

That fig­ure is al­most dou­ble the vol­ume pro­duced by Volk­swa­gen – cur­rently the world’s big­gest car­maker – and a quar­ter of the total of 80m cars pro­duced per year by ev­ery man­u­fac­turer in the world. It also rep­re­sents a colos­sal jump from the 360,000 ve­hi­cles Tesla pro­duced last year. Can he get there?

It seems doubt­ful. From Wolfs­burg to Tokyo plenty of peo­ple in the global car in­dus­try will to­day be qui­etly scoff­ing at the prospect.

But they have scoffed be­fore and it is Musk – the world’s third rich­est man whose com­pany is now worth $395bn (£310bn), or more than VW, GM and Ford com­bined – who is laugh­ing now.

If his­tory is any guide, Musk is not a man to bet against.

True to form, Tesla’s an­nounce­ment was big on bold claims but short on the kind of nitty-gritty de­tails that would have helped shore up con­fi­dence in the plan, which is one rea­son why shares in the firm slumped sharply after­wards.

Tesla said it was go­ing to slash the cost of its elec­tric cars to $25,000 (£19,600) – about one third less than the cur­rent cheap­est model – with a series of in­cre­men­tal ad­vances in ev­ery­thing from its ba­sic man­u­fac­tur­ing process to the ma­te­rial sci­ence of build­ing bet­ter and more ef­fi­cient bat­ter­ies. They make up about one third of the cost of an elec­tric car.

Tesla aims to switch to cylin­dri­cal bat­ter­ies, which it will man­u­fac­ture in-house us­ing new al­loys and com­bi­na­tions of met­al­lur­gi­cal sil­i­con and nickel.

Musk also said Tesla was go­ing to start min­ing and re­fin­ing some of the raw ma­te­ri­als it­self with the pur­chase of a 10,000-acre lithium clay de­posit in Ne­vada and the con­struc­tion of a new cath­ode plant.

De­tails, how­ever, were sketchy and the new dis­count model would take three years to pro­duce at any scale.

In essence, the long-term vi­sion was to cut costs through economies of scale and the cre­ation of a much more ver­ti­cally in­te­grated man­u­fac­tur­ing model – so Tesla no longer has to rely on thou­sands of other firms for its highly com­plex sup­ply chain. One pos­si­ble loser could be Pana­sonic, the Ja­panese firm that cur­rently builds many of Tesla’s bat­tery cells.

Tesla’s strat­egy makes sense but there are big risks at­tached to it. It means Tesla is set to be­come a far more com­plex beast, re­quir­ing man­age­ment fo­cus on new ar­eas where it cur­rently has lit­tle or zero ex­pe­ri­ence.

Then again, with such a rich val­u­a­tion, Tesla can af­ford to buy in ex­per­tise or sim­ply ac­quire com­pa­nies in some of these niche ar­eas if it needs to.

In the past, Musk has demon­strated no short­age of in­ge­nu­ity. But there is no ques­tion it opens up po­ten­tial haz­ards for a busi­ness that is al­ready over­stretched and run­ning close to full tilt.

It is worth re­mem­ber­ing that Tesla and oth­ers have al­ready come a long way in re­duc­ing costs.

Elec­tric car bat­ter­ies cur­rently stand at about $147 per kWh, down from $381 per kWh in 2015 and over $1,000 per kWh in 2010, ac­cord­ing to Bloomberg New En­ergy Fi­nance. Tesla be­lieves that in or­der to com­pete di­rectly with tra­di­tional in­ter­nal com­bus­tion en­gine ve­hi­cles, this fig­ure needs to be cut to un­der $100.

That won’t be easy but it does look achiev­able. A ready mar­ket cer­tainly ex­ists if he can suc­ceed in build­ing cars that truly com­pete on price.

Ei­ther way, if Musk re­ally does come any­where near build­ing 20m cars a year, one big chal­lenge will be the avail­abil­ity of the es­sen­tial ma­te­ri­als.

Ex­perts warn of a short­age of ca­pac­ity to pro­duce and re­fine lithium and nickel at the sort of scale re­quired to meet de­mand.

There is also likely to be grow­ing scru­tiny of the en­vi­ron­men­tal im­pact. As the world fights to end its ad­dic­tion to fos­sil fu­els, the eco­log­i­cal cost of min­ing the me­tals re­quired to achieve that goal is be­com­ing a big en­vi­ron­men­tal prob­lem in its own right.

Min­ing for lithium, for ex­am­ple, re­quires huge vol­umes of water and can cause pol­lu­tion un­less very care­fully man­aged.

Although Musk may have stolen the lime­light, it was another an­nounce­ment from Xi Jin­ping, China’s pres­i­dent, on Tues­day that may be bigger news in the long-term.

In a speech to the United Na­tions Gen­eral As­sem­bly, he pledged China would turn car­bon neu­tral by 2060 and its green­house gas emis­sions would peak within the next decade.

The eco­nomic im­pli­ca­tions of that an­nounce­ment are likely to be pro­found. They are likely to in­ten­sify a global scram­ble for these ma­te­ri­als, which could last for decades and could re­shape the geopo­lit­i­cal map. Tesla and oth­ers will have to bat­tle hard to se­cure them.

‘Tesla said it was go­ing to slash the cost of its elec­tric cars to $25,000 – one third less than the cur­rent cheap­est model’

Tesla plans to build more ef­fi­cient bat­ter­ies, in an at­tempt to in­crease range by 54pc

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