Late last week, Tesla surprised the world by giving away all its patents. Social media savvy as he is, Tesla chief Elon Musk adroitly painted it as a good-for-mankind move, and that “the world would all benefit from a common, rapidly-evolving technology platform.” A few days later, “open source cars” gets 56,300 hits on Google. Some killjoys think that putting Tesla’s patents in the public domain is as altruistic as giving oil lamps to China, freebie marketing to bring the wayward scale to Musk’s gigafactories. Some see it as a desperate move, as admission than an EV-only auto company is doomed.
Wrote Jason Perlov, a Technology Strategist at Microsoft:
“I suspect that one of the reasons behind Elon Musk’s open source motivations is that he is looking for large partners to finance and build the many “gigafactories” needed to mass-produce the batteries at scale, which is the single largest component cost of his cars, and the patent portfolio of Tesla is the ‘carrot.’ “
Despite massive enthusiasm and generous subsidies, EV sales remain just a rounding error of global auto statistics. EVobsession.com counted 111,718 pure EVs as sold globally last year, or a market sharelet of 0.14 percent of global automobile sales. The battery-operated cars are spread over more than ten manufacturers, and most of them sold less than 5,000 fully electrified units last year. Many of them are “quota cars,” fig-leaves demanded by governments, and not by markets. A large carmaker can hardly afford the homeopathic sales, for a small carmaker, they are pure poison.
At these levels, there is no need for a Gigafactory for EV batteries. A single Megafactory could supply all the world’s EV batteries, and have 90 percent of its capacity sit idle.
Gigafactory-wise, the situation is worse than it looks. About half of all pure EVs sold last year were by Nissan. Tesla gets the headlines, Nissan gets the sales. Together with its sibling at Renault, the Zoe, the Leaf is looking at cumulative sales of more than 150,000. Nissan has a brand new battery factory in Smyrna with a capacity of 200,000 batteries. Together with its factories in Japan and Europe, Nissan could build 310,000 EV batteries annually without breaking a sweat – about three times the current total global demand. Tesla blanches in comparison. All told, it should have moved a little over 30,000 units by now. Saab built 32,000 units in 2010. A year later, Saab was dead.
Some industry observers think that by giving away the plans for cars, and by focusing on a battery factory, Tesla might want to extricate itself from a mine field it is about to enter. The sign on the minefield warns: “Danger! Industrialization!” When it comes to true mass production, many are called, but only a few make it.
The current Model S is manufactured in the true sense of the word. It’s a mostly handmade, even if some of the hands are those of robots. Modern car factories stamp and weld thousands of cars per day. The 25,000 Teslas manufactured last year would be a matter of a week in a real car factory. These are huge plants with huge investments that need huge sales volumes to amortize. Fiat CEO Sergio Marchionne famously said that a global automaker needs 6 million units in annual sales in order to survive, and he knows that from experience. With group sales slightly over 2 million, Fiat had several near-death experiences, and was saved when the Chrysler give-away doubled that number to over 4 million – still two million shy of guaranteed survival by Sergio’s estimation.
Wall Street darling Tesla has been relegated to junk bond status, because “there is considerable uncertainty in Tesla’s long-term prospects,” Standard & Poors says. The rating company believes that Tesla “is less likely to successfully adapt to competitive and technological displacement risks over the medium to long term.” Translation: Should the market ever be ready for profitable EV sales, global automakers will out-engineer, out-produce, and out-sell the upstart. Tesla is at a very dangerous point in its career from boutique maker to mass production – it does not have the massive sales to keep the costly assembly line rolling and pay for itself. The really big trade secrets are less and less in cars, and more and more in how to make them, in production engineering. This isn’t rocket science – it is much, much harder.
According to ZD Net, Tesla’s patent giveaways “mostly cover electric car battery and related technology.” Perlow thinks that “Detroit will squander Tesla’s patent present.” He is probably right. Detroit, along with most other big automakers find nothing useful in Musk’s freebies. The patents will remain unused, not because major OEMs are afraid “to piss off Big Oil in the process,” as Perlow repeats a trope that is as ancient as it is false.
“They give away these patents, because they are worthless,” said an auto executive with deep knowledge of the field. Fearing for his life, he requested anonymity, before he continued:
“Using laptop cells is inherently unsustainable for automotive applications. Tesla is alone in the world using laptop batteries — their laser-welding of the pack is shaky in the extreme. At any company that has done a teardown on the Tesla battery pack, engineers are horrified at the quality of welding.”
The battery packs in the model S are a kludge, early Silicon Valley garage tech. Late in the game, Tesla is realizing that it needs something more reliable than taped-together surplus laptop batteries. Tesla wises up to purpose-built automotive application cells, something other automakers have been using and building for years, and from the get-go.
What if Musk’s gamble pans out, and EVs are sold and made in masses? Will he make a killing with the battery factory? Dreamers think he will, people closer to reality are convinced he won’t. Battery making is dirty, and low margin business. Battery manufacturing does not scale well, says K.M. Abraham, a professor at the Northeastern University Center for Renewable Energy Technology. He is one of the fathers of rechargeable lithium batteries, and inventor of next-generation lithium air batteries:
“I don’t see how they can reduce the cost more than 20%. They are dependent on the whole battery community. We are already reaching the limit on the energy density you can get in the lithium-ion battery. Next-generation chemistries, such as lithium air, are another 25 years away from commercialization.”
The auto industry is hedging its bets on batteries. Not because OEMs are stupid, or afraid of Big Oil. Often burned, they are careful, says Peter Wells, a professor at Cardiff Business School’s Centre for Automotive Industry Research, in Wales:
“You rush into these things at your peril. The reason the car industry has been so conservative is that there are major concerns with safety, reliability, customer confidence. That’s the reason the industry has been very slow with adopting technologies. The danger there is if Tesla cannot make this work, the whole electric-vehicle sector will be set back a lot.”
Read: Tycho d Feijter goes Tesla mystery-shopping in Beijing.
