Tesla is Probably Overvalued and Other Conclusions…
Tesla and the Future of Electromobility
I wrote a few articles about the valuation of Tesla in May and June that deserve to be followed-up and expanded upon. In these I noted that Elon Musk stated at the conference Codecon 2021 that the growth of electromobility will require a doubling of the production of electricity and that investments to expand capacity will be necessary in all parts of the power infrastructure.
It should be noted that there are no plans for this type of large-scale expansion in any country and that the planning and realisation of this expansion will have to start now, because large investments and expansion projects take time to finance, plan and go through with, and very large expansion activities will be needed in all countries. Many countries have the same plans and that this is likely to cause shortages of many types of resources that will be necessary for the transformation.
Neither Tesla, nor other automotive companies have any way of influencing the investments that need to be made in power infrastructure. There is not even a debate about or an awareness in most countries of the level of investments that need to be made. Hence, the realisation of the substantial growth expectations for electromobility is not down to vehicle companies. The conversion to electromobility will require efforts across society, involving a large number of different players.
For example, power production in Germany needs to be expanded by at least 25 percent to cover the power needed to charge all cars, trucks and buses on a regular basis and to cover the needs in the needs in the coldest weeks of the coldest winters in a 10-year period twice that generation capacity will be needed.
In addition to this, there will be a need for electricity to power battery production plants. The power needs of a large battery factory, like the one that is being built by Northvolt in Northern Sweden are similar to those of a city of more than one million inhabitants. A number of such large plants will be needed in Europe and the United States to cover the demand for batteries that is expected to increase almost ten-fold until 2030.
In the UK power production needs to increase by 30 percent to cover the need to charge all cars, buses, and trucks in a not-too-distant future and the generation capacity will have to be perhaps 50 percent higher in the coldest weeks of cold winters.
The Conclusion
One conclusion that can be drawn from this is that the growth of electromobility is not likely to be as straight-forward as many seem to expect. In the cited interview, Elon Musk implicitly admits that a large number of very large investment decisions by a multitude of organizations in different countries will be needed in order for Tesla to continue to grow according to the expectations that are built into the share value.
It could be argued that it is unlikely that all these decisions will be made in time for the transformation to progress according to expectations. As there is not overall plan, the majority of the organizations cannot be aware of the timetable they need to work against.
An analysis of all the different activities that will be needed indicates that it is likely that the speed of the transformation to electromobility will slow down further into the process, especially in countries that have high electricity prices, lower levels of per capita power production, or weaker economies.
Norway, Iceland, and Sweden, the countries that lead the development of electromobility, have the highest per capita electricity production in Europe and some of the highest in the world. In Germany, only half the amount of electricity is available per person compared to Sweden and in the UK only one third as much is produced. In Norway, the production is almost twice as high as that of Sweden.
Still, only some 7 percent of all Swedish cars are electric, and the country has in 2022 experienced a dramatic increase of the prices of electricity, a situation that is expected to continue throughout the winter and perhaps for years to come.
Some Necessary Activities
Some of the activities that will be necessary deserve to be mentioned:
- Countries need to digitise power grids and start to develop and implement schemes for demand flexibility. The idea is that electric vehicles will be charged at night to make use of power that is at present lost. To make this possible the digitisation of grids will be necessary so that control systems can identify and control different appliances, vehicles, machinery, and other installations. The control systems must be able to switch on the charging of each individual vehicle when the load on the grid goes down and charge as much as is demanded by the driver. We sometimes refer to this type of functionality as smart grids.
At present grids are not smart. Charging starts when a car is connected to the grid or when the driver sets the timer to start charging. This improves the situation up to a point, but when there are many vehicles that need to be charged smart grids will become necessary.
It is likely to take ten years or more to digitise grids and get widespread use of the functionality to control charging and the utilisation of electricity for other purposes.
- The capacity to generate electricity needs to expand rapidly. In most countries it takes more than a decade from the start of the process until a large power plant, or many wind turbines start to produce significant amounts of electricity. Solar panels can be installed faster, but an awful lot are needed to make a difference.
New legislation is about to be implemented in some countries that may reduce the time to get approval for projects, but the amount of money that will be needed will be so large that the financing processes are likely to take a long time.
- Significant business development and expansions of production facilities and recruitment of workers and service personnel will have to take place to turn the plans for electromobility into reality.
Battery production is expected to grow ten-fold until 2030, requiring a number of new giga-factories in all parts of the world. The EU cannot afford to allow a large share of all batteries needed in European car and truck factories to be imported from China.
The demand for chargers will increase in a similar way. Most probably, countries will need electric road systems that will have to be financed and built to facilitate the charging of electric cars. Many cars do not have dedicated parking spaces where owners can install chargers. Many are parked along kerbs and in public parking spaces and it is uncertain where these cars will be charged.
- The demand for components of electric vehicles will grow rapidly as the share of electric cars that are made in the world grows from 15 percent at present towards 100 percent over the next two or three decades and the share of electric trucks and buses grows rapidly as well.
- At the same time the production of components of petrol and diesel vehicles will decrease, and employees will have to retrain and find new jobs in the rapidly growing industries connected to electromobility.
A Complex Process of Transformation
We are looking at a very complex change process that is expected to be completed over the course of the next 30 years. Most likely it will take longer than that, but we don’t know how fast it can go, because no detailed analysis including all the relevant variables have been made.
Investors and analysts need to build an understanding of all the factors that will influence the future growth of electromobility and the growth of Tesla and other suppliers of electric vehicles.
Mats Larsson’s latest book on innovation and the transformation to sustainability is “The Blind Guardians of Ignorance — Covid -19, Sustainability, and Our Vulnerable Future” and the first one of these was “The Transparent Market,” written together with David Lundberg. In “The Transparent Market” we discussed the future of electronic business. The book was published in 1998, when most experts still did not see that most companies soon would do business on the Internet. My first book about the transformation to e-mobility was “Global Energy Transformation” from 2009.
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