related and in support of this discussion in the Short Term thread
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Quote Originally Posted by Intl Professor View Post
Here's an interesting article showing how flows and eddys, as physics alone, are examples of evolution. Why don't some of you smart guys apply these insights to markets as he has some interesting views of turbulence and eddies.
Rolling stones, turbulence connect evolution to physics
jhm posted response:
Very interesting. I think this applies perfectly to the idea of an experience curve in manufacturing. This curve shows how the cost of producing a unit decreases at a consistent rate with the doubling of cumulative number of units produced. For example the cost per kWh of batteries declines, say, 15% as the cumulative production doubles. (Not sure 15% is the right rate for batteries, but it is a pretty typical rate.) The cost of a good is the resistance or friction in production. As the cumulative volume doubles, the whole supply chain and manufacturing process learns and becomes more efficient. Imaging each little segment in the larger process also declining 15% as experience doubles. So if this experience curve applies to subprocesses, it certainly applies to combinations of pricesses. So the flow through the entire supply chain gets more efficient and the cost of goods come down accordingly.
One implication of the experience curve is that if annual production grows at about the same rate, exponential volume growth, then the doubling times come at a regular interval. Thus, according to the experience curve the price declines expontially in time too. The exponential decline in price can also encourage consumption to grow exponentially which feeds back to perpetuate exponential growth in productuon. So this is why technologies tend to diffuse at an exponential rate until some limiting factor constrains growth.
So Musk is a master of experience curve processes. At a high level he sees revenue growing at about 50% per year, with unit sales growing 60% or more. If unit sales grow 60% and revenue 50%, this allows unit prices to fall 6.25% = 1 - 1.5÷1.6 in a year. Growing production 60% per year implies doubling ever 1.47 = log (2) ÷ log(1.6) years. So every doubling brings about a 9.08% reduction in unit costs. So a 9% experience curve is built into the heart of this company. Tesla Energy will likely have a much faster experience curve than Tesla Motors (proper). In any case, the whole supply chain needs to flow at this pace as well.
It is interesting that bears frequently press the idea that if Tesla wasn't demand constrained, it would be growing faster. This underestimates the challenge of growing an entire supply chain along with Tesla's own manufacturing at rates above 50%. The growth in production needs to be balanced with achieving something like a 6% annual reduction in production costs. To try to grow faster can inflate costs in the short run and make doubling times harder to reach. This is fairly abstract, but I do think that Musk has given careful thought to setting a sustainable pace of growth for EVs. It is ambitious to be sure, but also careful not to try to grow too fast. The rate at which Tesla can grow and the rate at which it can reduce costs are linked.
So Tesla is freely flowing and evolving. Steadily declining production costs are the fruit of doubling cumulative production.
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A very extensive study newly released by Oxford would confirm this assertion.
With a migration of battery to Super-Capacitance storage, along with quantum solar solutions in the pipeline, I believe in 20-30 year timeframe electrical-energy will be a near-free commodity.
How predictable is technological progress?
