[U7] Update: Energy Reimagined
Realizing sustainable energy through a product portfolio
This week in Product | Strategy | Innovation we will start a series of updates on Elon Musk’s vision for a sustainable energy future. These are sprints to build a long-form profile as we have done for Spotify [E4] and Square [E5]. I do this for my own due diligence and share the information as open source information. Nothing in this post should be considered financial advice. Do your own research. For full disclosure, I am long TSLA and through my work I have visited Tesla’s Fremont, CA operations. Touring Tesla factories should be on everyone’s bucket list. And I’m sure Giga Shanghai, Berlin and Austin will be even more impressive. I look forward to seeing all of those, too.
I will also add that Tesla is a high risk endeavor as a customer, investor or even enthusiast. Elon is betting it all on a sustainable energy future. Proceed with caution and be willing to lose it all as well. But also be aware that observing from the sideline also comes with risk. If Tesla realizes its mission in the future, many of the weaker value-based companies held by many indexes and their products or services will be significantly disrupted if not destroyed in a zero sum game. There is likely no alternative if Tesla wins. There is no hybrid in a Tesla EV. When you convert, you never buy Exxon or Chevron gasoline, change the oil or service the transmission for those vehicles. So the bigger risk could actually be holding something like an energy index fund past 2025 if Tesla continues to execute and scale.
Tesla is building an innovation stack to realize distributed energy generation & battery storage for electric energy use combined with grid energy storage and automated energy arbitrage by machine learning to build a robust energy marketplace.
There are many key components to enable this sustainable energy future, but we will explore them in 4 key parts over the coming weeks.
Advanced Manufacturing - to build a fleet of world-class electric vehicles
Autonomous Navigation - to leverage the fleet for transportation-as-a service
Advanced Battery Technology - to power the fleet with sustainable energy
Clean Energy Flywheel - to accelerate sustainable energy generation, storage, arbitrage & use
This update will cover the 4th part since that is critical to better understand Tesla’s mission to accelerate the transition to sustainable energy. That mission requires realizing and integrating all these various parts at a global scale. We have already covered scaling the ecosystems of Spotify and Square to disrupt their respective industries.
But the bar is even higher for Tesla to disrupt multi-trillion dollar industries that span automotive, transportation, logistics, oil & gas and utility companies. Tesla could become a major forcing function that impacts everyone. Early adopters are winning at the moment.
And once we cover these 3 companies (Spotify, Square & Tesla), we will have an advanced framework to reimagine the disruption of healthcare.
A Clean Energy Flywheel helps illustrate how Tesla can realize its mission. This flywheel drives the conversion of distributed sites using conventional energy to on-site renewable energy generation, battery energy storage & energy use including the recharging of electric vehicles (EVs) for transportation. The distributed sites include residential homes, business facilities and a growing network of Tesla Superchargers to support long-distance travel. Tesla will have to scale the 20,000+ Superchargers substantially as the fleet of EVs grows and fleets of EV robotaxis emerge.
Early adopters have already started this flywheel by buying EVs and then adding residential battery storage, and solar, but government programs and utility partnerships with Tesla will accelerate the conversion away from fossil fuels to sustainable energy. At scale, the utility power grid becomes more of a backup energy system to energy independence vs. acting as the primary energy system.
Fig. U7-1 illustrates the key components for inputs to this flywheel. Another iteration of this figure will capture the sequencing of these components into a “flywheel” that helps accelerate the adoption of sustainable energy. The baseline condition is a regional utility that generates energy using nuclear power, coal, natural gas, solar, wind, hydroelectric and geothermal technologies. This energy is distributed today on-demand to customers using high-voltage power lines. As energy demand varies, the utility has to go onto the energy market when demand is high to buy energy at inflated “spot” price to meet this demand. Fossil fuels and internal combustion engine (ICE) vehicles are the primary sources for transportation with some hybrid EV adoption, compressed natural gas buses and very low battery EV adoption.
The flywheel begins when 1.) a residential home owner buys a Tesla EV due its design, performance and recent total cost of ownership parity with comparable ICE vehicles. They use the free Tesla mobile app to make the purchase in 90 seconds without a trip to a dealer. The home owner charges the EV at home using standard equipment and electricity from the utility for Use as a primary means for transportation.
2.) A Supercharger is used to charge this EV during a trip beyond the limit of a home charge. 3.) The Supercharger uses Solar to generate most of its electricity and 4.) onsite battery Storage to store energy. 5.) Auto-bidder software at the Supercharger determines some energy can be sold to the utility during the day at a high price and bought during the night at a much lower cost with adequate solar during the day and battery storage. As the EV fleet expands the onsite solar and battery storage can also expand to meet their demand with auto-bidder selling any extra capacity when the energy market favors doing so.
6.) Same home owner buys Tesla Powerwall (battery storage) for home primarily as backup energy. 7.) Home owner uses Time-Based Control on the Tesla App to optimize when battery storage is charged from utility grid early morning when electricity is at a lowest cost. The battery storage is primarily used during the day when electricity is more expensive.
8.) Home owner adds Solar panels with subsidy from utility company to generate electricity to store energy during the day with the onsite battery storage. Time-Based Control sells excess energy to utility generated during the day after solar meets home energy demand and fully charges the battery storage.
9.) Utility enhances commercial business subsidy for solar panels through partnership with Tesla. A commercial business adds solar panels to meet their energy needs during summer months. Business finances solar panels with extra utility subsidy and long term energy savings. 10.) Business adds employee benefit that provides a monthly reward if they purchase an EV and charge it at work. When spot price of energy surges in the summer, the business sells additional energy to the utility grid using solar and the EV batteries. 11.) Business adds onsite battery storage to charge with expanded solar deployment during the day and utility at night. Auto-bidder sells more excess energy to utility during the day with supply far exceeding on-site demand even with AC running on hot days.
12.) Tesla EV uses 8 cameras to sense environment with 360-degree computer vision. User reads about improvements in full self-driving (FSD) performance and upgrades to the $20,000 FSD feature using the Tesla mobile app after the original vehicle purchase. The onboard EV neural processor uses the latest FSD software to autonomously drive vehicle with driver supervision. The driver rarely intervenes, but when they do intervene, these exception cases are uploaded to the Tesla Cloud for analysis.
13.) Tesla adds DOJO supercomputer to automate labelling features on the exception cases to enhance deep learning for FSD. Improvements to the neural model for FSD can now be pushed to the Tesla EV fleet with every 2 week sprint instead of every 4-6 weeks when Tesla engineers were labelling the exception cases. The improvements are dramatic with each release to accelerate EV user adoption and regulatory approval.
15.) Utility company augments residential and business solar/battery subsidy programs with federal funding to add its own multi-gigawatt hour battery grid storage. With all of the extra power available through solar energy generation and battery storage, the utility can take a conventional “peaker” plant offline and cancel plans for a more modern natural gas-powered turbine update. The utility will instead use a virtual power plant made up of the distributed solar and battery storage assets they subsidized at a fraction of the cost of the peaker plant.
16.) Level-5 autonomy regulatory approval in selected US States enables the creation of robotaxi fleets by early adopter business operators in Las Vegas, Orlando, Los Angeles-to-Las Vegas & other locations for very specific tourist use cases. The consumer exposure to autonomous EVs accelerates the purchase and use of EVs. This also accelerates the build out of the Supercharger network. And the robotaxi use cases expand to scale the robotaxi fleet and jurisdiction availability.
17.) As the fleet of EVs scales, the conversion to onsite solar and battery storage follows to enhance the overall value proposition. At the center of this acceleration to sustainable energy are machine learning and artificial intelligence. Auto-bidder software creates a robust energy marketplace to help monetize the build out of infrastructure. Full-self driving builds an autonomous fleet of EVs to reduce automobile accidents, save lives and build transporation-as-a-service (TaaS).
DOJO uses a cluster of neural chips and artificial intelligence to accelerate training the autonomous neural model to push to the EV fleet for improved use. Early adopters and the eventual early majority of the Tesla mission benefit by monetizing the late majority and laggards who buy the early adopters’ energy and adopt later without the same financial incentives. 2025 is likely a pivotal milestone as the adoption of sustainable energy is on the exponential of S-curve adoption.
Tesla Solar Roof - onsite energy generation with a total roof solution
Although there are multiple ways to generate energy on-site at a property, Tesla has focused so far on solar. Originally, that was through a separate company called Solar City, but Solar is now a part of the Tesla portfolio of businesses. Solar City had commercialized the installation and financing of solar panels added on top of an existing roof. But with the acquisition of Solar City, Tesla accelerated the development of the Solar Roof. This replaces an existing roof with different tile designs that include photovoltaic cells to also generate electricity from the sun.
Tesla has continued to develop and improve the core product technology, scaled manufacturing & trained installation that requires different skills than solar panels alone. The whole installation process should take less than 1 week, so it is competitive with conventional roof replacement. One advantage of the Tesla Roof is its strength is about 3x that of standard roof tiles and are very modular for replacement of only needed tiles with damage from hail or wind. The Solar Roof comes with a 25-year warranty. The cost of the Solar Roof is comparable to the cost of installing a new roof and then adding solar panels, but it provides a more finished look than solar panels.
Aerial imagery and 3D modeling determine the design for the Solar Roof. Tesla then performs the existing roof removal, waterproofing and solar roof installation. Tesla professional have installed about 3.6GW of clean solar energy across 400,000 roofs or the equivalent of 10 million solar panels. Demand for Tesla Solar Roof must exceed supply. Tesla has recently increased prices by as much as 60-70% while allowing customers under contract to cancel. The order in which resigned contracts at the higher pricing are executed prioritizes installations. That is pricing power. Tesla does not have the best customer experience reputation on the solar side of their business. This could be a side-effect of the Solar City acquisition and could match that of the EV side of the business in the future.
Tesla Solar Panels - onsite solar generation with existing roof systems
Tesla also offers more traditional Solar Panels for use on existing roofs that are still in good shape. The panels now come in standard configurations to streamline order fulfillment and installation. Tesla offers customers an instant online quote which is possible by using standard configurations matched to a particular roof. Tesla also offers a solar panel price match guarantee. However, Tesla does not provide installations in all areas nationwide and leasing the solar panels is only available in 6 states. Tesla provides 3 payment options: purchase, finance through Tesla and a Tesla solar subscription that can be cancelled with removal of the solar panels for a fee. Tesla’s solar subscription is only available to residents in Arizona, California, Connecticut, Massachusetts, New Jersey, and New Mexico. All Tesla solar panels come with a 25-year performance guarantee.
Powerwall - store energy to power your home
Tesla launched the Powerwall in 2015. Unlike the solar products that came with the Solar City acquisition, residential battery storage was developed within Tesla. Residential batter storage is attractive in areas with time-of-use rates and demand charges. Both of these models try to pass on variable pricing to the end user since as demand increases the price to acquire energy increases as well like on a hot summer day when AC use spikes.
Tesla describes the Powerwall as a “rechargeable lithium ion battery with liquid thermal control.” As third party lithium-ion battery cell manufacturing scales over time by companies like Panasonic, CATL and LG Chem, Tesla will be able to divert more battery cells to its Powerwall business. Whereas today there is such a supply constraint on batteries, most of demand is driven by use in EVs for more profit.
Another opportunity created by residential battery storage are more flexible requirements on energy density since the home use case can accept more weight than a car. This allows lithium iron phosphate (LFP) to be used over lithium nickel oxide. Iron is readily available to scale LFP production whereas high energy density nickel is in short supply until more nickel mining comes online in future years.
The Powerwall pairs well with the Tesla Solar Roof and Solar Panels to charge the battery storage with energy from the sun. This lowers the cost to power a home and can also be used to sell excess energy to the grid utility company. The Tesla Mobile App includes features to assist and monitor how the Powerwall is configured and used in a Timed-Based Control mode to optimize use.
The Powerwall comes in one size with 13.5 kWh of energy capacity and can be combined in a stack of up to 10 units for a total of 135 kWh of energy capacity. A Powerwall weighs about 250 lbs with dimensions L 45.3" x W 29.6" x D 5.75". The core unit costs about $7,000 but with supporting hardware before installation the cost increases to $8,000. The full installation cost including an inverter before subsidies is $10,000 to $15,000 for one Powerwall. The warranty period is 10 years.
Megapack - grid-scale massive energy storage
Grid-scale energy storage with multiple gigawatt hours for utilities and large commercial deployments is served by Telsa’s Megapack. The Hornsdale Power Reserve resulted in December 2017 after a massive power outage in southern Australia due to severe storms damaging high-voltage transmission lines and left the region with a substantial energy black out. The area was a favorable site for wind to meet local power needs, but that does not serve 24-hour needs due to fluctuations in wind. Much has been written elsewhere about this project, but Tesla provided 100 MW/129MWh using Tesla Powerpacks (smaller scale units than Megapacks) for the December 2017 activation.
The Hornsdale Wind Farm charges the batteries during the low demand and the batteries provide power to the grid during high demand to serve consumers and businesses. In 2019, the Hornsdale Power Reserve saved Australians in the region A$116 million by meeting the energy needs when demand was high with lower cost energy from the grid storage. This led to an expansion project and created more interest in grid battery storage around the world.
Telsa is working with PG&E in southern California for a larger 182.5 MW peak and 730 megawatt hours of capacity to the energy grid. The project can expand further to take that to 1.1 gigawatt hours in the future. Tesla has already deployed 256 Megapacks to the project.
AutoBidder - machine learning for energy arbitrage
Energy arbitrage is hampered without solar energy generation to at least reduce the cost to acquire the energy traded. Buying low, storing and selling hide requires large delta to offset energy loss converting from AC/DC and then back with DC/AC. But utility and commercial Megapack grid storage installations can utilize a suite of Tesla Energy software solutions to automate and optimize buying and selling energy across energy markets.
Tesla Auto-bidder uses artificial intelligence and machine learning to understand energy needs and forecast future demand and pricing using historical and weather data. But this is all done autonomously as the system learns to take over after about 24 hours. Auto-bidder is probably one of the most under-appreciated products within the Tesla product portfolio, but could be the one that really accelerates the adoption of sustainable energy with commercial use. Large solar panel and Megapack installations by companies like Walmart, Ace Hardware, Target and Amazon could turn distribution and fulfillment centers into mini utility companies at each location. Auto-bidder will be critical to enhance their return on invested capital.
Supercharger Network & Trip Planner
Tesla has a global network of 20,000+ Superchargers locations to enable cross-continent travel in a Tesla EV. Today the network is exclusive to Tesla EV owners, but other EV manufacturers could join the network through strategic partnerships to help Tesla accelerate building out and enhancing the network. A 15 min charge at a Supercharger adds approximately 200 miles of driving range. Superchargers are usually co-located with restaurants and convenience stores to allow users to stop for a restroom break and/or a meal while charging.
Tesla also includes a trip planner in their navigation system so Superchargers can be used as waypoints to determine the most efficient path to travel with the driving range capacity and supercharger network. This is another example of where Tesla provides a software layer to enhance the customer experience. Maybe you stop sooner for a more optimum route than always driving to the limit of the range.
Tesla’s fleet of EVs will be covered on the update regarding advanced manufacturing.
Update on Cloudflare
Prior updates have included information on edge computing company Cloudflare. Earlier this week, Cloudflare announced a strategic partnership with NVIDIA to bring its GPUs to Cloudflare’s global network to add AI to the edge at scale. This enables machine learning models to be developed and deployed to a secure, low-latency global network. This is a key partnership and should enhance the performance of emerging AI applications used across many industries.
Best,
Stephen
Nothing in this post is intended to serve as financial advice. Do your own research. I’m long TSLA, SPOT, SQ and NET mentioned in this update.