SolarCity Buyout and Tesla Shareholder’s Meeting Notes

It’s been a couple of weeks since the Tesla Annual Shareholder Meeting (here is a video recording). Elon Musk was particularly passionate during this meeting.

He. Would. Not. Stop. Talking.

Not that this was a bad thing. Anytime you can hear 3+ hours of Elon Musk speaking, thats a good thing. Just as last year, it was a fairly low-key event, but this time he really wanted to spend time on the history of the company and celebrate the people that had been there from the beginning. Nice.

I’ve been thinking about a few things that he brought up during the meeting.

The Days of the Tesla Roadster

Tesla-Roadster-SportI found it fascinating that as they began designing and building the Lotus Elise-based Roadster, limitations kept popping up because the car was not purpose-built to be an EV, and by the time they ended shipping the Roadsters, only about 7 or 8% of the Roadster was original Elise parts. Even the battery and power that they licensed to use in it had to be re-invented. That is a serious commitment to getting the first car right, and as he said, “people don’t want a horseless carriage, they want a car”.

Concentration on Engineering the Machines that Build the Machines

tesla-manufacturingThis is something that Elon mentioned a few times. Tesla is concentrating heavily on building the machines that build the machines. He believes that far too much engineering time is spent on engineering the cars rather than the machines that build the cars, and that by re-prioritzing the effort onto the robotics and other production machines, not only will Tesla meet it’s production requirements, but it will result in better and even cheaper cars. Elon believes that this is true for most if not all products, and that production volume, quality, etc can be increased by a factor of 10, or perhaps even 100, and that it is a great untapped productivity boost for the world.

To me, he is talking about another industrial revolution, at least as impactful as Henry Ford’s manufacturing of the Model T. With all of the technology that has been created in the past couple of decades, he is proposing that we re-think manufacturing. It’s a fascinating vision.

On Safety and Lithium-Ion Battery’s Perceived Fire Problems

tesla-burn-featAs it seems with everything Tesla, the media has a tendency to blow things out of proportion. There have been incredibly few fires in Tesla’s – indeed much less than traditional internal combustion engine-powered cars – but it is still a topic Tesla takes seriously. Elon made note of the fact that “thermal runaway is much slower than gasoline”, and Tesla even has safety guides for First Responders. This is important and thoughtful.

Importance of Energy Storage and the SolarCity Deal

powerwall_front_angleOf course the Gigafactory is critical in lowering the price of the batteries, and hence the cars, but Elon speculated that he has a gut feeling that one day, Tesla’s Powerpack, Powerwall, and other energy storage devices may account for 50% of Tesla’s revenue. It is very interesting that he floated that ballon just 3 weeks before pitching the idea of Tesla acquiring Solar City.

I get where many financial analysts feel this is a bad idea. Many feel it is a bailout of SolarCity, and maybe it is, but that doesn’t make it necessarily wrong. I believe what Musk is doing is creating a vertically-integrated company similar to Apple. The idea is that energy storage compliments solar power and vice-versa. You cannot reliably have one without the other. So, going along those lines, I never understood why Tesla began marketing the battery storage devices in the first place, other than the fact they could just do it with the Gigafactory..

Now I see that this merger was considered for quite some time, and perhaps the timing is right since SolarCity’s stock price is at its lowest point since 2013. I also see the synergies. Analysts would say that I am a Kool-aid drinker of Musk, but I do NOT think he can do no wrong. Even he realizes that.

However, IF SolarCity merger does not create a distraction on the Model 3 efforts, AND SolarCity can benefit from Musk’s vision of re-revolutionizing manufacturing and production through building better machines that build the machines, then this will not be a bad deal. But there is no way an analyst can quantify that, or see synergies in the two companies.