Is this Elon Musk’s biggest deal ever?

Tesla showroom in Beijing © Getty Images
Tesla: set to crack China

I guess it all started with Microsoft.

Microsoft was the first software giant. Its huge business is based on little more than intellectual property… it proved that modern industrial behemoths can spring from practically nothing to world leaders if only they can create that elusive, ground-breaking technology.

And I guess Google did an even better job of it. Having developed a bit of coding that was able to find order in the sprawling web, the company began its push toward stardom. And as I’ve said on many occasions, I think we’ll be seeing an awful lot more of Google as it moves into practically every aspect of our lives.

The point is that these technology giants are set to dominate the early part of this century. These guys are led by visionaries, and their power comes from their intellectual property.

Earlier in the week we looked at how even the highly protected banking industry isn’t immune to the tech barbarians.  Now, let’s look at how this will inevitably effect the world’s largest industry. That is the car industry. After all, it’s an industry dominated by a very few key players. But that’s all about to change…

China’s mega-punt on renewables

California-based Tesla is shaping up to be the tech company that really takes on the ruling cabal of carmakers. Right now, Tesla’s production of some 35,000 cars is but a mere bagatelle. But get this: this week, Tesla’s market cap spiralled to some $33bn. That ranks it somewhere between Nissan ($43bn) and Kia ($24bn)… both of which, incidentally are world class carmakers!

The stock market is clearly taking Tesla’s pioneering move into electric vehicles seriously. It just goes to show how the Californian tech businesses are encroaching on traditional industry and spoiling the party. As Detroit’s Motortown grinds to an agonisingly slow and painful death, so life springs into action in sunny California.

But of course, it’s not today’s sales – which, incidentally are mostly to rich Americans – that’s got Tesla’s stock racing to new highs. The latest rally is all to do with Tesla’s incredible growth projections. And probably the fact that it seems to have captured one key market: China.


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While much of the West is hopelessly behind the curve on both renewable energy and electric vehicles, China most certainly is not.

China will not be held hostage to the West’s petro-dollar empire. They need look no further than Europe, and the impact of Russian aggression on key gas supplies, to realise how unhealthy matters can become. And let’s also bear in mind that it’s not as if energy is particularly cheap anymore.

China is boldly moving forwards with plans for a cleaner and more reliable future. It is already planning to practically double world solar energy production in the matter of two years.

And just this week, the Chinese government revealed a new $16bn plan to fund electric vehicle charging facilities. Transport pollution is quickly becoming a major killer as China’s rapid urbanisation plans take effect. Local governments have been told that 30% of their car pools need to run on alternative energy. The government has also exempted electric cars from purchase taxes.

About to crack China?

This week saw Tesla sign an agreement with Chinese mobile phone giant China United to build 400 charging points in 120 cities throughout China.  The plan is to give users free electricity in as many places as possible. Though the business plan may sound a little kooky, it’s actually a plan that’s already working not only in the USA, but right here in the UK. Did you know that if you buy an electric car, you can fill it up at a growing number of stations throughout the country, for free? It’s been estimated that there’ll be some one million of these things in just the UK by 2020. If you’re considering buying a little run-around, then it may not be crazy to look into electric. Given the government’s £5,000 subsidy (set to disappear next year), you may find that there’s mileage in electric.

And Tesla chairman Elon Musk reckons that sales in China could match US sales as early as next year. Both of these markets are rapidly growing, so that’s no mean feat.

But this story is bigger than just Tesla. Nissan, Vauxhall, Renault, Ford, BMW, and more,  all produce electric cars that you could buy tomorrow. And all of the remaining big manufacturers are set to have electric cars in the showrooms within the next year or two. Suddenly, no manufacturer can afford to be out of this market – and some are being forced to play a serious game of catch-up.

The way to play this

So how do we play this? Well, regular readers should be all too aware that my play on the rise of electric vehicles is through the lithium-ion battery market. With the cost of the battery packs making up a third of the price of these cars, it’s a market that we want exposure to.

I’ve already nailed my flag to the mast. Mexican lithium producer (listed here in London), Bacanora is sitting on an amazingly under-appreciated pile of lithium in northern Mexico. You can read more about my reasons for this particular producer here and here.

At the moment, we’re keenly awaiting news on talks between Bacanora and a potential partner for commercialising the monstrous lithium deposits they’ve found. Many of the large carmakers will be keen to establish a secure supply of this increasingly important metal.

As news breaks, I’ll be sure to update you. Until then, let us know your thoughts on electric cars. Can you see a million of the things on our streets within six years? Look out for them in your local showrooms… one thing’s for sure, change is afoot.

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17 Responses

  1. 03/09/2014, Mr james wrote

    The world is indeed changing, litium will be the new oil and REM/BCN mexico will be the new saudi, It will not just be electric cars that will dominate the lithium market homeowners will soon have the option to completley come of the grid by having wind/solar renewable energy stored in home lithium battery stations, this is the start of something really big.
    The futures bright The futures lithium

  2. 03/09/2014, jimbob123 wrote

    I think long term you’re wrong. Battery tech hasn’t made a major advance since the 70′s discovery of Li-On batteries. Despite what people think, Musk has not moved battery tech on at all – he’s just packaged up a bunch of Panasonic computer batteries extremely well. A major advance in battery tech (graphene looks promising) is the holy grail, and will be the game changer for both electric cars, home generation using renewables, etc etc.
    Until then, Hydrogen fuel cells look to be the only realistic alternative for mass transport, in my view. Unfortunately, this tech is 5 years or so away from mass production, and Musk has played a blinder in setting up the ‘e-filling station’ network, as it will prove a significant barrier to entry for the H2 Cars when they are eventually released to the general public.

  3. 03/09/2014, humpty wrote

    last comment is right. fuel cells will replace petrol because they dont need hours of recharging. stay away from batteries.

  4. 03/09/2014, Bengt Saelensminde wrote

    Jimbo and Humpty

    Musk was put on the spot in the last investor AGM “Why will the world not go hydrogen?”

    And his response was unequivocal. Industry doesn’t use hydrogen in low value items, and it certainly doesn’t in high value applications… like in the Space race (one that Musk has considerable interest in).

    It’s clear that the auto-industry is going with Lithium-ion. Why re-invent the wheel?

    Nobody’s said that Musk has made great strides in L-ion efficiency. But it’s clear (if you do a bit of research) that there’s plenty of mileage in making Li-ion batteries better. But I’m yet to see anything that’s anywhere near ready that eradicates the need for lithium. For heaven’s sake – there are only so many elements in the periodic table… lithium seems to be the one for batteries!

  5. 03/09/2014, Bengt Saelensminde wrote

    Oh – by the way, I think Musk called them hydrogen-fool-cells!

  6. 03/09/2014, Dadof2boys wrote

    Tesla’s model S takes 9.5 hours to charge up a 300 mile range using UK mains. If you’re near a tesla supercharger station it’s “only” 1 hour. Can I imagine people waiting for 1 hour in order to continue their journey and do that every 300 miles? Would people trade in their VW TDIs for that? Don’t think so.

  7. 03/09/2014, Bengt Saelensminde wrote

    Dado,

    The point you make is a good one. I suspect that for the time being (and as I suggested in the article), electric is good for a run-around (no tax, little servicing, therefore a great second car).

    But in due course, we’ll be looking at fuelling stations that replace the whole battery pack with a fully charged one. It’ll be exactly like returning your Calor gas bottles (you’ll know the system if you happen to live out of town!)

  8. 03/09/2014, Mr james wrote

    Bengt. Battery swap stations will happen pull in the station, battery swap In less time than it takes to fill up with petrol, electric cars will come on stream a hell of a lot quicker than people are predicting. The pro,s massively outweigh the cons. Investors will start pouring over lithium suppliers as well as tesla. Great write up again.

  9. 03/09/2014, Mr james wrote

    PS just imagine if you could find a giga lithium mine that was located near electric car manufacturing plants, and that giga mine had masses of the stuff that could just be dug up with a jcb and processed more cheaply than the current brine processing technique WOW just imagine that.

  10. 03/09/2014, Dadof2boys wrote

    Bengt,
    I’ve read of the concept of quick battery swaps rather than recharging. I can imagine that but there are still issues to solve like capacity deterioration over time (apparently 5-10% per year is possible); imagine swapping the new battery you just used for a 5 year old one that now only has a range of less than 200 miles.
    The issue for me is lack of compelling financial justification. EVs are more expensive to buy and run (if you include cost of replacing batteries), have lower range, take longer to refuel and still rely mostly on fossil fuel to generate their electricity. Could it be that the car companies are building them because California has dictated that 3% of new cars must have zero emissions?

  11. 03/09/2014, Warun Boofit wrote

    Battery swop stations I think definitely not, imagine pulling into Southwaite after the last of the batteries has gone and I need to wait an hour if I am lucky, these batteries are not AAA size , how many batteries do you think the station might need ? Also agree that having paid £30000 for my shiny new car with nice new battery I dont want to risk swopping it on my very first journey for an old knacker. Anyway I may have had my head in the sand for a while but getting the Lithium out the clay question has not been answered properly, I dont believe its viable but clearly a lot of people do .

  12. 03/09/2014, Bengt Saelensminde wrote

    Warun,

    The idea would be that the battery packs are owned by the car manufacturer. In fact that’s exactly how many of the auto-makers run things today… you rent the battery packs.

    When you take your new fill aboard, your’e guaranteed a minimum charge.

  13. 04/09/2014, jimbob123 wrote

    Each to their own Bengt. The reason that all the car manufacturers are going electric is because the tech is available NOW, off the shelf, and there is gov’t pressure to have zero emission offerings. It hasn’t taken long to develop the cars into the showroom.
    Most of the major car manufacturers are continuing to develop H cars, Honda’s FCX Clarity being just one of the more advanced examples.
    Agreed re. alternative battery tech being a long way off, hence H is the only viable alternative. Lithium batteries simply don’t have the energy density storage capability required to be a viable alternative to gasoline.
    Musk, being CEO of multi-billion dollar electric car company is hardly likley to extol the virtues of a rival technology when questioned, is he?

  14. 04/09/2014, Clive wrote

    With regard to changing batteries, who exactly would be doing that ? Having got rid of petrol pump attendants, I can’t see firms employing a vast number of people to swap batteries out of cars. Until you can drive all day and recharge your car quickly and cheaply at home, I think electric cars will be nothing more than a gimmick.

  15. 04/09/2014, GFL wrote

    It’s a chicken and egg situation – battery technology is not improving because it’s not widely used and it will not be widely used until battery technology improves.

    Once enough people are driving EV’s the battery/recharging technology will improve very quickly year-on-year. I think we have reached a point where an EV is suitable for most people’s requirements. This will hyper drive infrastructure, which will in turn drive innovation. Really exciting times IMO.

    If the Model S was 20% cheaper – or the lease cost was not so high. I would definitely be on the waiting list. An E-Class is £340 a month lease, the Model S is £800-£900, that is just Bananas!

  16. 04/09/2014, jimbob123 wrote

    The only possible reason the Model S can be that much more expensive to lease, is that the number crunchers know that their depreciation is going to be epic. Which brings us back to flawed technnology.

  17. 05/09/2014, Simple investor wrote

    I know lithium is a key element in Li-ion batts, I have a position on Lithium myself as I am sure many of you do. But they also use graphite to a large degree and I’m surprised there has been no mention of a play on this too. I understand that there are only two suppliers in the US who will be able to supply Graphite at the right grade and quantity by 2020, one of them maybe by 2017. I have a position on this company too. It has been reported that super capacitors are being developed that will enable Li ion batts to be charged in less than 20 minutes. Elon Musk will be a driver (pardon the punn) in such developments and I’m sure he has every confidence the technology is going his way. Do the cynics out there really believe this is just a punt for him? This is serious business on a global scale and I for one am running with Mr Musk.

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