Gas prices

[AudubonB]

Excellent musings. They do not take into account efficiency gains in batteries, but it is better to stay grounded and make the assumption that there be none. Were that to be the case, can we identify some component that itself might demonstrate price sensitivity to the increased demand of 29 Gigafactories?

*Lithium: probably not. Lots and lots of that around and in dispersed locations around the world

*Nickel: I don't know how large a fraction of world demand might be represented by battery production, but at a guess its use in steel alloys would remain far larger - probably by orders of magnitude

*Cobalt: This might become an issue. Moreover, I would not rely on any analysis that relies on African-sourced Co

*Graphite: My understand is that Panasonic's batteries use, at the moment, synthetically-derived graphite. IF this is true, I am going to assume it is because of quality-control issues in naturally-sourced Cg. There are a handsome number of North American graphite deposits that have intriguing characteristics; at any rate, between natural and synthetic graphite there should be no large inexorable price pressure - IF appropriate facilities are planned concomitant with Gigafactory construction

*Electricity: shouldn't be a problem

Others?

 

[ggr]

I've been puzzling over the recent oil price crash and calls for upwards of $10 trillion investment in oil development to maintain oil supplies with modest growth in demand over the next 15 years. This is a huge investment for 200billion barrels of oil just tl continue the energy status quo.

So I wonder what it would take for Tesla to crash oil prices. How many Gigafactories would it take over the next 15 years? To put this into perspective, the recent oil crash was based on a surplus of about 2 million barrels per day (mbd). So Tesla needs to knock off about 2 mbd of oil demand to have impact.

Let's see how many vehicles Tesla needs to produce just to offset 1 mbd of oil demand. Suppose 42 gallons per barrel, 25 mpg for the average vehicle and 35 miles driven per day per vehicle. This amount to 30,000,000 vehicles ( = 1,000,000 * 42 * 25 / 35 ). Don't despair, one GF will support building 500,000 vehicles per year. So we need only 60 GF-years to produce a 1 mbd offset. To build 30M cars in 15 years we need and average of 4 GF. Ramping up linearly starting with 0 now and 8 in 2030 will get the job done.

I think 8 GF in 15 years is quite doable, but how does this square with Tesla's ambition to grow by 50% per year well into the mid-2020s? Growing at this rate for 15 years and starting with 33,000 in 2014 gets us to 14,450,000 in 2029. This will require 29 GF capacity and offset about 0.48 mby with a single year production.

A 0.48 mbd reduction might not be enough to crash oil in a single year, but the cumulative effect leading upto that point will also have a lasting impact. Moreover, the next year 2030 knocks out 0.72 mby, 2031 does another 1.08 mbd, then 1.63 mbd, 2.44 mbd, and so on. Inexorably, the oil industry will reach a tipping point where the price crashes and will never again be able to recover. It will take the industry a little more than a year to recover from a 2 mbd surplus, but demand was strong 8 months ago and will likely remain reasonably strong in coming years. But the situation will be relentless in the early 2030s. Demand will keep shifting to EVs and supply will not be able to curtail in an orderly fashion. The key forcing agent will be Tesla. Tesla needs only to grow by 50% per year, and it can do this one year at a time.

Oh, yes, and how much will 29 Gigafactories cost? About $145 billion. That is a far cry from the $10 trillion the oil industry needs to sustain itself.

You've left out the cost of the production of the actual batteries. Oil itself is free, you just need to pay to find it, process it and deliver it. But the cells have to be manufactured, with other raw materials that also have associated costs. I'm not awake yet to calculate that, but I think you're right, the total will still come in well below $10T.

 

[jhm]

You've left out the cost of the production of the actual batteries. Oil itself is free, you just need to pay to find it, process it and deliver it. But the cells have to be manufactured, with other raw materials that also have associated costs. I'm not awake yet to calculate that, but I think you're right, the total will still come in well below $10T.

Yeah, I wanted to focus on investment in capacity, capex not opex. Producing the actual batteries is opex, and more importantly consumers pay for each incremental battery built. Similarly, the oil industry needs to invest upwards of $10T for exploration and drilling. After that there is the opex of extracting the oil and transporting it to market. The consumers of oil bear this cost.

But even on a capex basis this is still not a fair comparison, because I have not accounted for the investment in the entire supply chain. Miners, for example, will need to deveolop new mines. Additionally, batteries are not an energy source, so there is electricity capacity to be expanded as well. In the US last year, 55% of new electricity capacity was renewable energy, almost entirely solar and wind. I suspect that this incremental capacity was enough to cover incremental demand from EVs. (43% was natural gas.) Even so, somebody needs to invest in renewable energy to support EVs, and almost all the cost of renewable energy is capex since there is no fuel cost for sunlight, wind and other renewable energy sources. The investment in oil distribution is probably not capture, for example, pipelines, rail cars, refineries, gas station, and water treatment facilities. Likewise, we need not worry about power transmission lines and charging stations.

So I am not going to claim that my comparison is completely fair. There are fundamental differencs in how cars are powered by fuel vesus electricity, so I am not sure a completely fair comparison can be made. But it's probably more important to understand how different these two supply chains really are.

For example, think about how oil field degrade in output over time. In shale oil, I've heard that production volume falls off around 50% over the first 12 months, then it degrades a little more slowly after that. So the oil industry needs to replace about 5% capacity to maintain production. This is why the industry needs to invest more than $7T over the next 15 years. Most of it is just replacing lost capacity. Now lets consider the Gigafactory. The equipment will suffer depreciation with use and will need to be replaced and upgraded over time. I have not attempted to model that here, but it is a real investment that will have to be made to sustain output. What is wholly different from the oil industry, however, is room for substantial gains in technology. Consider that density could double every ten years, doubling the output in kWh while processing the same mass kg of material. So a Gigafactory with 50 GWh output today could have 141 GWh output in 15 years. My view is that the upgrade in performance will likely more than offset the replacement cost for wornout equipment. One thing to bear in mind is that when I say that 29 GF capacity is needed my 2029, I am not saying that the will be 29 gigafactory campuses. I am saying that we need 1450 GWh capacity. If by that time each gigfactory facility has 141 GWh capacity, then only about 10.3 such facilities are needed. So an investment of $145B on say 11 facilities is inclusive of a lot of investment on upgrades. So I would argue that a Gigafactory investment is a qualitatively better investment that and oil field devopment investment. Oil fields decline in output over time even with redrilling and replacement of worn out equipment, but a gigafactory can expand output over time through technology gains that more than pay for upgrades.

I would also point out that I have previously proposed a theory that the EV industry will only need about 20 Gigafactories (facilities of equal size to the Sparks Gigafactory) ever. I am saying there is a small finite number that will suffice indefinitely. To see why this should be the case. Suppose there are a certain number of facilities which are able to supply say 100% of the new car market. And suppose that density continues to double every decade, which is a gain of 7% each year. So unless the new car market grows by more than 7%, technology gains will satisfy the incremental demand next year. Thus, it is not necessary for new facilities to be added to meet the growth of the car market as technology will grow capacity faster than needed. The shocking consequence of this theory is that the companies that build out the first 20 Gigafactories will own the market as it will be uneconomic for any new entrants arrive late, gross incompetence of the incumbents notwithstanding. So consider that each Gigafactory will capture about 5% marketshare. So Tesla now owns 5% of the future auto market, and the world has yet to realize what has transpired.

 

[ggr]

... So consider that each Gigafactory will capture about 5% marketshare. So Tesla now owns 5% of the future auto market, and the world has yet to realize what has transpired.

Yeah, pretty much agree with that.

 

[MartinAustin]

So Tesla now owns 5% of the future auto market, and the world has yet to realize what has transpired.

Awesome post, but I don't think we should discount the fact that Tesla licenses its tech for free.

This means, if you can build a car on whose underside you can attach the battery for the Model 3, you can produce a competitor for the Model 3. You're getting your batteries from Tesla, but you're producing the rest of the car. (same goes for other battery form factors, S/X etc.)

 

[renim]

.... Consider that density could double every ten years, doubling the output in kWh while processing the same mass kg of material. So a Gigafactory with 50 GWh output today could have 141 GWh output in 15 years. My view is that the upgrade in performance will likely more than offset the replacement cost for wornout equipment....

considering that intel finds it cheaper to build new fabs than continually refurbishing old fabs suggest otherwise..

a massive driver of non-Chinese li ion costs is depreciation, and the improvement in specific capacity involves significant depreciation.


one aspect of li ion production is that it is a little like making beer/wine. The aging process is very important. A large facility makes that cheaper and more robust.
One of the changes that Mitsubishi Motors / LEJ undertook after the bad batch of li ion cells (due to dropping onto the floor in the factory) was doubling the length of the aging process to12 days. Although this lowered production efficiency, it made it easier to find the metalparticles mixed into the battery cells.

(Its also a reason why Nissan's Symna cell/battery factory is significantly more value add than its material costs would indicate, like wine, there is significantly more value add in the mixing/aging process than is apparent from a bill of materials for the recipe).

 

[Robert.Boston]

But even on a capex basis this is still not a fair comparison, because I have not accounted for the investment in the entire supply chain. Miners, for example, will need to deveolop new mines. Additionally, batteries are not an energy source, so there is electricity capacity to be expanded as well.

I think you have fairly captured these downstream capex costs just by looking at the capex and opex of a Gigafactory. Why? Because you're using market prices to value inputs purchased by Tesla, not an at-cost or value-added metric. Market prices embed a lot of information. The lithium mine will only sign a long-term contract that not only covers its opex, but also the necessary capex and profit. Electricity prices don't just cover the cost of fuel to run power plants, but also a capex recovery charge for both generation and distribution that allows ongoing investment.

 

[jhm]

considering that intel finds it cheaper to build new fabs than continually refurbishing old fabs suggest otherwise..

a massive driver of non-Chinese li ion costs is depreciation, and the improvement in specific capacity involves significant depreciation.


one aspect of li ion production is that it is a little like making beer/wine. The aging process is very important. A large facility makes that cheaper and more robust.
One of the changes that Mitsubishi Motors / LEJ undertook after the bad batch of li ion cells (due to dropping onto the floor in the factory) was doubling the length of the aging process to12 days. Although this lowered production efficiency, it made it easier to find the metalparticles mixed into the battery cells.

(Its also a reason why Nissan's Symna cell/battery factory is significantly more value add than its material costs would indicate, like wine, there is significantly more value add in the mixing/aging process than is apparent from a bill of materials for the recipe).

This is interesting. I was not aware there was an aging process. It seems the optimal aging time could vary with technology, but I suspect that if the aging became to large a cost, then researchers would want to develop faster aging technologies. In any case this could impact the floorspace requirements.

The cost of the Gigafactory is about 20% property and plant and 80% equipment. So if upgrading equipment within the same building is too expensive, a case could be made for setting up a new building and retiring the old. In terms of my 20 Gigafactory theory, this is not a problem because the net effect of building a new plant and retiring the old is zero incremental plants. Of course, it very well could be that there are other markes for the output of an older plant. While for EVs qnd other applications you may want to use the most recent high density technology, other markets like stationary storage may be fully satisfied with older, lower densiy technology. So my theory is paricularly limited o the EV market, and more factories will be needed for other markets. My view is that the EV market will have the highest requirements for batteries and will drive the technology and capacity build out.

 

[chickensevil]

Bringing up intel raises an interesting point though. How many semiconductor fabs are out there? Seems like there is a pretty fixed number of companies that are in that space. I assume at some point there will be a point where it won't be profitable for a new entrant to try to enter the battery plant market. I mean up until Tesla there wasn't a whole lot of new players coming about for the batteries either... still isn't. It is the same companies as far as I can tell. So there will certainly be a boon in the number and scope of the factories and then at some point it will plateau. And just like the fabs we might even build too many which will end up with people closing their doors.

 

[ggies07]

Naomi Klein on why low oil prices could be a greatthing | Grist

Love the last bit:

You know, I’ve been making these arguments around economics, but there is nothing more powerful than a values-based argument. We’re not going to win this as bean counters. We can’t beat the bean counters at their own game. We’re going to win this because this is an issue of values, human rights, right and wrong. We just have this brief period where we also have to have some nice stats that we can wield, but we shouldn’t lose sight of the fact that what actually moves people’s hearts are the arguments based on the value of life

 

[jhm]

Naomi Klein on why low oil prices could be a greatthing | Grist

Love the last bit:

Klein is mostly focused on legislative victories, but she is close to understanding the fundamental economic issue. The only way to keep fossil fuels underground is to reduce demand for them. The problem with most legislative approaches is that they only limit or make more expensive the supply of fossil fuels. This does little to curb demand. What is needed are cheaper and better renewable alternatives. I have argued that batteries facitate arbitrage between expensive transportation fuel and cheap renewable energy, especially solar and wind. What this arbitrage enables is the ability to substitute sky energy for underground energy. In the process of saving a few cents per mile with your EV, you are reducing demand for oil. This arbitrage can drive the cost of oil down below $35 / bbl which is low enough to make almost all oilfields uneconomical to develop any further. This alone is what will stop the drilling, and people will happily drive on in zippy, clean electric cars running on cheap, renewable energy.

 

[Gerasimental]

The poor do not buy new cars. They buy used.

The working poor do not have a God given right to a Hemi. Not even a used one.

As a current student and therefore 'poor' although not rural, I am considering buying a car for under €4k or $5k (saving up for Model 3) and the way the taxation works in Europe has made this substantially tougher. The fuel efficient cars that fall into the 0 tax band have this saving priced into them, while the cheaper cars (barring ones so hideous/boring I refuse to buy them) are gas guzzlers and/or expensive to maintain and run.

I do think this is something where to cost should be carried by to the OEMs (and the wealthy car buyers, think big new SUVs and Luxury Saloons or supercars) since they are in a position to innovate so the onus is on them to drive change.

 

[chickensevil]

As a current student and therefore 'poor' although not rural, I am considering buying a car for under €4k or $5k (saving up for Model 3) and the way the taxation works in Europe has made this substantially tougher. The fuel efficient cars that fall into the 0 tax band have this saving priced into them, while the cheaper cars (barring ones so hideous/boring I refuse to buy them) are gas guzzlers and/or expensive to maintain and run.

I do think this is something where to cost should be carried by to the OEMs (and the wealthy car buyers, think big new SUVs and Luxury Saloons or supercars) since they are in a position to innovate so the onus is on them to drive change.

I am finally going to add in to this about the cars that poor people (and I mean truly poor people making under 15k a year) who don't really get much say in the vehicles they own and operate. On the one hand they drive what they can get their hands on and most of them can't get a line of credit to take out a loan on even a decent used car so they are driving around hand me downs or other junk cars because otherwise they would just be without a vehicle.

Case and point a very dear friend of mine was forced to go through a bankruptcy as the only means for he and Hus wife to get out from underneath their debt which was brought on by VERY large medical bills due to both of them having serious health conditions and her having to have multiple surgeries. They already didn't but barely make above minimum wage and health insurance? Get out of here!

Both vehicles they had when they went through the filings are pretty much what they are stuck with until such time as the bankruptcy clears from their name. Well one car gave up the ghost and they were lucky that around the same time a truck was given to them by a relative who won the lottery. (The relative promptly bought a new car and just gave then the truck for 1$). This truck got 12MPG on a good day... On a bad one... 8. Half of one of their paychecks was fuel so they could continue getting paychecks. Of course they didn't want to keep driving it but with no other options what were they to do. I ended up giving them my old car when I bought the MS because at least a Civic got 30MPG. So the only reason they have two decent cars now is because I gave them my car. I don't think people in this kind of financial situation (or similar) WANT to own a Hemi, it is just the cards they have been dealt and there isn't much else they can do about it. This is why I feel bad as the price of gas goes through the roof again because these kind of people will be the last to switch to an EV.

 

[Auzie]

I am finally going to add in to this about the cars that poor people (and I mean truly poor people making under 15k a year) who don't really get much say in the vehicles they own and operate. On the one hand they drive what they can get their hands on and most of them can't get a line of credit to take out a loan on even a decent used car so they are driving around hand me downs or other junk cars because otherwise they would just be without a vehicle.

Case and point a very dear friend of mine was forced to go through a bankruptcy as the only means for he and Hus wife to get out from underneath their debt which was brought on by VERY large medical bills due to both of them having serious health conditions and her having to have multiple surgeries. They already didn't but barely make above minimum wage and health insurance? Get out of here!

Both vehicles they had when they went through the filings are pretty much what they are stuck with until such time as the bankruptcy clears from their name. Well one car gave up the ghost and they were lucky that around the same time a truck was given to them by a relative who won the lottery. (The relative promptly bought a new car and just gave then the truck for 1$). This truck got 12MPG on a good day... On a bad one... 8. Half of one of their paychecks was fuel so they could continue getting paychecks. Of course they didn't want to keep driving it but with no other options what were they to do. I ended up giving them my old car when I bought the MS because at least a Civic got 30MPG. So the only reason they have two decent cars now is because I gave them my car. I don't think people in this kind of financial situation (or similar) WANT to own a Hemi, it is just the cards they have been dealt and there isn't much else they can do about it. This is why I feel bad as the price of gas goes through the roof again because these kind of people will be the last to switch to an EV.

Very true. It is so easy to get hit by a streak of bad luck and get caught in a black hole with no options. Hand me downs become a lifeline.

Very nice of you to give them your car.

 

[RobStark]

Everybody that owns and legally operates a car has a choice.

$500 on an 82" Civic or 72' Ford F-150 is a choice.

Keeping or selling a hand me down is a choice.

If you can't afford the tax and registration on old efficient car then you can't afford insurance and gas on an old hand me down gas guzzler.

 

[chickensevil]

Everybody that owns and legally operates a car has a choice.

$500 on an 82" Civic or 72' Ford F-150 is a choice.

Keeping or selling a hand me down is a choice.

If you can't afford the tax and registration on old efficient car then you can't afford insurance and gas on an old hand me down gas guzzler.

Except when you can't save any of your money up because you are living paycheck to paycheck and can't get any credit because you don't make 50k a year (or whatever). It sounds simple in theory, just get a more cost efficient car and it will save you money in the long run... The problem is these are still upfront capital intensive decisions (500 is out of the question for some of these people). And again while my friends situation isn't likely to be a common thing, the situation he is in is such that if he were to even sell his old vehicle so he could get cash for something better the court would see that sale, say "aha! You do have money, you lying jerk!" And take the cash away from him (ah the joys of being over 100k in medical debt unable to float those payments while still pay in your other bills on barely above minimum wage...) This was why the only way to actually help him was to gift him the car and write the sale price/value of the car at 1$ or risk them taking that away too.

While the specifics is unique being in similar financial crisis is not. As I came from a poor town, poor family, with poor friends and seeing them barely making ends meet while I basically won the job lottery (let's be honest with myself, I got extremely lucky getting the job I did which is almost impossible to get your foot even in the door on.) I know what being from the life is like, and can tell you that unless you become super conservative with your spending and finances is it almost impossible at that income level to get ahead in life. It is almost better to be without a job collecting on various government support than it is to have two people working fulltime barely making anything at all.

Yes some have a choice, and they chose to drive that crappy guzzler car... But I would rather not impact the lives of people barely making ends meet when there is a way to punish bad NEW cars without even touching the used. If a Hellcat cost 200k because of a gas guzzler tax, how many would buy one? Or that 18MPG BMW X6 (at least that is what my boss gets/got in his... Which is why he doesn't drive it much anymore) how about you force that price north of 100k. At that point would you buy a Tesla, or at least something like a MB B class? I know I would... Just on price.

 

[Cobos]

Yes some have a choice, and they chose to drive that crappy guzzler car... But I would rather not impact the lives of people barely making ends meet when there is a way to punish bad NEW cars without even touching the used. If a Hellcat cost 200k because of a gas guzzler tax, how many would buy one? Or that 18MPG BMW X6 (at least that is what my boss gets/got in his... Which is why he doesn't drive it much anymore) how about you force that price north of 100k. At that point would you buy a Tesla, or at least something like a MB B class? I know I would... Just on price.

Welcome to Norway This is the the reason a good engined car in Norway has 180hp while a regular car has 110hp. Also the reason muscle cars, i.e. heavy "simple" cars with big engines is impossible to buy in Norway. They cost more than a similarily performing Porsche 911, which means noone buys the Mustang.

Cobos

 

[bluenation]

yea i wouldnt support a tax on gas like that. because gas is...i hate to say it but its true...a utility, not a luxury. it affects the poor way too disproportionately.

a tax on new cars? sure. a huge tax on new gas guzzlers? yep.

heck if they did that, i wouldn't mind having NO tax or rebate credits on EV's.

 

[chickensevil]

yea i wouldnt support a tax on gas like that. because gas is...i hate to say it but its true...a utility, not a luxury. it affects the poor way too disproportionately.

a tax on new cars? sure. a huge tax on new gas guzzlers? yep.

heck if they did that, i wouldn't mind having NO tax or rebate credits on EV's.

Yeah, I wouldn't mind them dumping off the EV credit in favor of a new ICE tax that is proportional to the efficiency of the car.

 

[Robert.Boston]

Yeah, I wouldn't mind them dumping off the EV credit in favor of a new ICE tax that is proportional to the efficiency of the car.

Or just strike "ICE" from your sentence. At 90 mph-e, the tax on an EV would be very low, while the tax on a Hellcat would be nose-bleed high. I dislike EV carve-outs because (a) manufacturers find sneaky ways to comply with the letter, but not the spirit, of the law - e.g. Plug-in Prius designed to qualify for CA HOV access despite having the tiniest of batteries, (b) critics pointing to these carve-outs as subsidies, rather than understanding them to be counterweights to the massive subsidies enjoyed by oil companies, and (c) ultimately, these carve-outs aren't sustainability if EVs take significant market share, as I hope they will.