Tesla TV - You Own One or You Aren't One: Why Tesla's Success is Just the Beginning

This week has been a LOT of fun.  New announcements and activity.  Lots of news.  Stuff.

So most of the electric car entries, as well as battery companies, have encountered ignominious failure, Tesla has on the other hand, ermerged in a very programmed fashion ot ignominious success.  We had predicted a short squeeze on the stock in Tesla for nearly two years.  Monday the stock hit $97, valuing a company with apparently less than 50 cents per share in earnings this year at a preposterous $10 billion.  Who knew?

Well actually we did.  And we've been telling you about it for two years so no embarrassment in I told you so.  A month ago you could have bought June $47 calls at $0.50 per share.  $50 for a 100 share contract.  Had you bought 100 for $5000, that particular option hit $35 this week.  That would be $3500.  And 100 of them would have been a slick $350,000 - for a one month investment of $5000.

Bottom line, EVTV viewers could have bought THREE  Tesla Model S vehicles for a total investment of $5000.

That is, if you knew what was going on with some precision. That's the difficulty.  Where are we at and where are we going in the future.   It's not an easy game.  I truly do do it better than most.  But it's an imperfect game.

Moving 20 million to 37 million shares per day, it doesn't take long for the shorts to clear their accounts and so the panic did not reach the levels I had hoped.  But $97 is pretty good.  And we could see more with the coming SuperCharger announcement.

The reason for all the failures and the reason for the success of Tesla, is all about what you are aiming at, and why.  And that requires some basic understanding of these things.

Not in last weeks show, but rather in last week's blog post, I introduced you to two definitive works on how technological innovations are deployed or adopted by a culture in kind of an anthropological sense.  Everett M. Rogers in his 1962 paper on the Diffusion of Innovations rather defined the concept and we were delighted to discover that he has kept after this over the years now in a fifth edition book. Geoffrey Moore brings it down to some specific marketing problems high technology faces  in his 1991 book Crossing the Chasm.

What these gentlemen describe is an adoption curve that inevitably will apply to electric vehicles if they are to become mainstream.  That rather assumes a lot.  We've had electric vehicles for over 100 years.  So what changed?

I keep chanting "batteries."  I actually care little for cars, although I'm warming up to this electric Cadillac Escalade EXT pretty well.  We got the air conditioning working this week so well and with so little effort there is nothing to video. It's the batteries.

The Lithium ion battery dates back to the early 1990's.  But it really did not become available to mere humanoids in a size suitable for an electric vehicle until about 2008 the way I see it.  A couple of EV component sales outfits started to make them available - at huge expense and after horrendous delay.

These batteries, in my unqualified but nonetheless strongly held OPINION, made electric vehicles viable for the first time.  The analogy I use is the 300 baud and 1200 bps modems.  At 300 baud, computer communications was a curiosity, a science experiment, an oddity.  At 1200 bps it started to look useful - viable as a tool to do things.  2400 bps came so swiftly afterwards that 1200 almost didn't exist.  But I do distinctly recall 2400 bps modems pricing at about $3500 if you can believe it.

Similarly people dabbled in electric cars off an on since we've had cars.  They didn't work.  More properly, they worked about as well as a 300 baud modem.  You could get them to roll.  You could drive them down the street.  But they weighed TONS and the 25 mile range rapidly decreased to 6 miles over the course of a year or so.  They rolled like a car, but they couldn't be USED as a car.

The Lithium ion prismatic cells that became available in 2008, allow you to make a car with an 80 mile range.  You can argue that in both directions, but properly designed, of appropriate weight and power, and driven prudently, you can get 80 miles out of one of these cars.  I can DRIVE one 120 miles.  But it is with special care.

The average American driver slides about 39.4 miles per day on average.  But that IS an average.  Some days more.  Some days less.   And so 2X average, at 80 miles, the car becomes USEFUL AS A CAR.  Not as an interesting object d'art.  But as a car.  You can plug it in.  You can drive it places.  You can replace huge amounts of miles you would normally drive in your gas guzzler. It becomes VIABLE.

It is 2013.  This has been so for a scant five years.

Part of the information cloud is hybrids.  All of the press focusing on electric cars WANTS a wider audience, so they tend to lump hybrids in with electric cars.  Hybrids are NOT electric cars.  They are ICE engine cars.  By using an electric motor, and some batteries, it is true that you can significantly improve the fuel efficiency of an ICE vehicle.  But you haven't changed the nature of the beast really at all.  It is just more fuel efficient.  It still burns gasoline.  Still has an exhaust system.  Still carries gasoline around as fuel.  If you want to feel good about it, it does offer a lot of advantages.  It's just not an electric car.

Some say it's a step toward an electric car.  I don't really think so.  It's more like kissing your sister.  She expects it.  You're going to do it.  But you both know it isn't going to lead to anything further.

I am going to make a command level decision that makes little sense.  I'm going to include the Chevy Volt with electric cars.  I know, it's a hybrid.  But it has a 35 mile all electric range.  And that is perilously close to the 39.4 mile average vehicle usage.  And I'm persuaded by the large number of Volt owners playing the electric car game.  They are actually playing a game of how can I use this car and not put ANY gasoline in it.  It's a game that can be played.  So I'm going to INCLUDE it with electric cars.

If you will peruse the two books presented earlier, you will find that the diffusion of innovations starts with a tinker and innovator stage.  This is not precisely the INVENTOR of the technology, although it does get kind of interactive.  This is the SParkFun crowd.  People that buy a technology to take it apart and put it back together.  Who bitch at the guy who DID invent it about how he SHOULD have or suggest changes that would improve it.  This is a bubbling cauldron of activity but at a low level numerically.

It is followed by the early adopter stage.  These are people who actually BUY the technology to use it.  They don't really take it apart.  Don't really make their own.  Don't really improve it much or contribute much toward that.  They kind of fund the early numbers of production.  THEIR drivers are that they want to be seen as knowledgeable about new technology and gadget and kind of a seer who locates and identifies and procures cool new things.  They acquire technology, more like the Star Trek PACKLEDS, as a status enhancer.

Adoption curves vary a bit in speed and numbers.  But if you don't know anything else about it, you kind of move from tinkerer/innovator to early adopter at about 2.5% of market share.  And this fact has clouded EVERYTHING about electric cars.

You see the automotive market is ENORMOUS.  For most people, the car is the second most expensive thing they will ever buy after their house.  And it is an intimate thing.  It is NOT transportation actually.  It is an EXTENSION of their house.  A way to extend their control bubble from the living room out into the public space, while still maintaining control of their safety, temperature, music, smells, and even people they are with.  So it is a huge purchase and a very viscerally important one.  You don't want to screw up on a car purchase.

But the resulting market is just huge.  On average, we sell 15 million NEW cars each year, into a fleet of over 200 million.  The average price is now nearly $30,000.  This is just in the United States.   World wide, it is huger yet.

So 2.5% of such a market works out to about 375,000 units annually in the United States at a rate of about 31,250 per month.  Yes, to get to 2.5% market share, we would have to sell about the same number of cars in a month that we do now in a year.

The Leaf and Volt, for example, were introduced about 2.5 years ago - the end of 2010.  Here's what their sales have looked like.

These two cars DO appeal to tinkers and innovators, which explains why so many of our viewers own them. They are not only relatively inexpensive, but actually represent huge bargains. The cars cost the companies that produce them easily, and by any measure, at least TWICE what they are charging for them. Yet sales have been very disappointing to these companies. They somehow thought they would appeal to a mass market. They didn't, and for very good reason. There IS no mass market yet for electric cars because we never have gotten past the tinkerer and innovator stage, much less the early adopters. Throwing a couple of billion at the curve doesn't make the pitch a curve. It's just a couple of billion down the toilet in most cases.

If we combine the Volt and Leaf, here's what THAT looks like through April 2013:

Cool eh? Prior to the entry of the Model S, that 5000 units per month PEAK pretty much DEFINES tinker/innovator market for these vehicles - maybe a LITTLE bleed from some very hungry early adopters. The graph looks pretty good and it is scaled to look pretty good. We are growing strongly.

Let's put it on a scale with a big green line across the top with our 2.5% mark - defining the BEGINNING of the EARLY ADOPTER market.

Whoops. We got flattened like a cat dancing with an Armadillo on the center stripe of Interstate 55. But that is where we are guys. Even the advent of the Tesla, and if they do sell 20,000 vehicles this year, we are not really very far along on the adoption curve.

But over the course of the next 20 years, which is what it is going to take to get us into the Prosumers and Superconsumers and more pragmatic main consumer body, I think the TEsla event will mark a watershed.

BMW is currently the luxury car sales 800 lb gorilla in the U.S. with some 347,000 sales in 2012. Mercedes is number two at about 305,000. But if we look at cars in the same PRICE class as the Tesla Model S, we are pretty much limited to BMW series 6 and Series 7 models. There really aren't any Tesla Model S vehicles in the $50K range, or the $60k range or even the $70k range. If you are not over $80K, you probably don't HAVE a model S and they are available up to $110k. Note that TOTAL BMW sales of Series 6 and Series 7 for 2012 was right at 20,000 units. And Tesla is proposing to sell THAT number of vehicles in its FIRST year, with a new plant and a new technology. That's right, they want to take their first step out of the batters box AT the level of the TOP OF THE HEAP in sales of cars in that price range - BMW.

And it appears they will. On the morning after they announced a 12 cent profit and sale of 4900 Tesla Model S's for their first quarter, CONSUMER REPORTS came out with a jaw-dropping review of the Model S. IT didn't even SOUND like the staid Consumer Reports we all know and trust. They just took a knee on this one, claiming the Tesla Model S was the BEST car they had EVER TESTED - not best elecric, but best CAR of ANY KIND.

I've never seen Consumer Reports just genuflect in front of any product anywhere at any time. It was actually shocking, no pun intended.

Next week, Tesla promises to unveil a Supercharger network. Which is a little odd since they DID several months ago. If you want another stock play, Solar City has gone from $23 to $35 in the past couple of weeks before falling back to $32. I may or may not get my 500 convenience stores with Ho'Ho's and Ding Dong's. But there IS a pretty good possibility that you will hear something about batteries.

We noted a year ago a little known patent Tesla had taken out on a battery pack connector. it was not particularly special, it just had a very odd geometry and they were very specific in describing their invention as being focused on this specific geometric shape. This patent is intended to ensure that you cannot market third party battery packs to Tesla owners. But it also prevents other carmakers from having a similar battery pack in their car - at least at the plug interconnect level. Why would they want to do such an unlikely thing.

We went on about this Supercharger network when it first came up. And one of the things we predicted then was that there is kind of an ace in the hole on this deal. The batteries Tesla uses have a limited life. They are kind of REQUIRED in California to warranty them for a long time and a lot of miles. And they are somewhat expensive. In their last SEC report before the most recent, they noted a liability out there because Tesla drivers could see ranges drop to 55-60% of new within as little as 5 to 6 years. If the Tesla can take on BMW in its first year with a luxury sedan, having cars dropping to half range in five or six years sounds like a not long enough fuse on a blow up.

Now how would you solve that problem?

Better Place's battery swap concept was doomed to failure because it would require very different cars to have exactly the same battery pack. Actually in the case of Tesla, this is not so much of a problem. All of their cars are going to be based on the same basic vehicle platform. And it is engineered to where the battery pack can be swapped out in minutes.

So lets' assume that at a reasonable additional cost, you could join a Tesla battery club, and instead of RECHARGING at the RECHARGING station in 30 minutes, you could swap out your entire pack in 15 minutes or 10.

And at that point, your battery pack really isn't part of your car so much as it is a service - perhaps with a monthly subscription fee. And Tesla just keeps recycling those battery packs, inserting the little silver bullet commodity 18650 cells as necessary to meet certain minimum standards, and putting them right back out in the supercharger stations. If your battery is a little weak, go swap it out at the nearest recharge facility - not YOUR problem. Battery concern basically goes AWAY. The low cycle life of the commodity cells becomes a private matter between Tesla and Panasonic. And if Tesla sells 20,000 cars this year, it's not like Panasonic won't notice with 8000 cells in each car.

And because of the connector geometry, a Tesla exclusive inherently.

Sunshine. Clean energy. Unlimited range on the car. You can drive coast-to-coast as easily as an ICE car. And batteries INCLUDED. Batteries not YOUR problem. And I still think there's a vitamin water and pita pocket in this pile somewhere.

Is $97 the peak. Not precisely....

In other news, Ed Clausen stopped by Sunday with a prototype of the GEVCU done physically my way. More on that next week.

But the basics represent kind of a new way of doing open source. Yes, we will of course publish the code and the eagle files etc. But what you will quickly learn is that all hardware is not created equal and that automotive hardware has some interesting problems. The Arduino board is great for prototyping, but it isn't very hardy. You really need an IP67 enclosure that is metallic and shields from EMI RFI and EMP as well as MOUSE. The power supply is a bit small and prone to noise and so a fairly expensive ($29) DC-DC converter is necessary to provide isolation and power from the vehicle 12 volt system. There are some interesint, but also pricey new opto-isolators on the ADC inputs. The prototype shield Ed did uses SMD components so small you have to solder them on with a Microscope, and he is fighting for real estate on the board then. Outputs require MOSFETS to be useful. WiFi to communicate. An AMPSEAL connector identical to the one on the DMOC 645. It goes on and on.

The result is a $500-$600 device, with free software. This is kind of a weird inversion. The New Eagle style proprietary concept is to take off the shelf hardware and make it proprietary with your intellectual property - the software. This is taking open source software and adding what works out to proprietary hardware that is required to run it.

So what's the difference? Well, the proprietary hardware isn't really precisely proprietary. You CAN build it. It's just terribly inconvenient and increasingly difficult to do so. But the other difference is the more critical. What you buy from New Eagle is what you get. If you want it to do more, you get to pay again.

With open source software, you can add changes and improvements yourself. You can get a local software queen to do it for you. And the community both supports the product and adds features to it. With each software update, it becomes MORE valuable. In fact, with open software, the thing can be REPURPOSED for applications we cannot begin to envision. Boats. lawn mowers. We may find one operating a microbrewery before it is all over.

High Performance Electric Vehicles has offered one of our favorite AC induction motor solutions for some time. They FINALLY announced last Thursday that they had received the long awaited Curtis 1239-8501 three-phase controller. Nominally 144volts, they have tested it safely up to 170volts. Although limited to 500 amps, this changes the torque curve rather dramatically. THey've wound three motors just for it, the AC-51, AC-75, and AC-76, each featuring varying torque/HP values. It extends the application of these very affordable AC solutions - under $6000, to vehicles as high as 4500-5000 lbs potentially. That's a game changer actually.

They've also alluded to a very interesting build that they are working furiously on for EVCCON 2013. That's a Corvette actually. A Corvette with DUAL SIAMESE AC-35's, each with their own controller. It may well be the most interesting car at the event even if I DO cash in my TSLA and buy a Model S.

Meanwhile, I predict the Model S has flashed over from a new car entry, to THE cultural icon of 2013. If you are a technocrat and do NOT currently feature this fashion accessory, you are badly out of position and undressed in public. Essentially, no early adopter can be caught out of position without one if they want to maintain their status as technology maven and early adopter. It's that simple. You own one, or you aren't one. Period.

No show this weekend. I'm required to play father to a lovely young graduate of Colorado State University in Fort Collins Colorado this Saturday. Congratulations Jacquelyn. Six years as a Senior - you're my hero.

Jack Rickard