Musk's Failed $3.6+ Billion Bet Could Crush Tesla
How can Tesla move forward?
Musk isn’t the Tony Stark-esque genius you think he is. He invented none of the products, which made him his billions. He didn’t found PayPal, instead becoming CEO through a merger between his company Zip2 and Confinity, with all the important technology, like online payments, coming from PayPal. In fact, he was ousted from the PayPal board in 2000. He did found SpaceX, but he didn’t invent any of its rocket technology. Instead, he hired the NASA engineers who already had. These engineers created the McDonnell Douglas DC-XA, a functional prototype reusable rocket developed by NASA in the ’90s. He also didn’t found Tesla, and instead conducted an 80s-style toxic takeover to become the CEO and major shareholder. Musk makes money by taking control of unproven technologies and throwing billions of dollars into their development while other investors are waiting to see if the technology is even viable. Well, in 2019, Musk tried his tried and tested-technique again by buying out Maxwell Technologies, who had developed a revolutionary dry-coating method for battery production, in a bid to extend Tesla’s lead in the EV race. Well, this bet has failed and arguably could tank Tesla. Let me explain.
Shortly after Tesla bought Maxwell Technologies in 2019, they announced their 4680 battery. This was meant to take Tesla to the moon! These cells were significantly bigger than any other in the automotive world and could be used to make structural battery packs, which all made production and assembly of the battery pack far cheaper and easier. It was also meant to use Maxwell’s dry-coating method, which was meant to significantly reduce the energy intensity and timeline of cell production, which, in theory, would make them far cheaper to produce. As such, Tesla claimed the 4680 would be far cheaper, faster at charging, and way more energy-dense than anything they had developed before. They even publicly announced the 4680 would cost $55 per kWh, or around a third of the price of most lithium-ion batteries in 2020.
But, as with many of Elon’s promises, the 4680 failed to meet its mark.
Current versions of the 4680 are actually less energy-dense than the batteries they replaced. They also offer no charging advantage and, in some circumstances, actually charge slower. They are cheaper than most lithium-ion batteries, costing around $105 per kWh, but this is only due to the cell’s form factor, not integral technology, and they are only marginally cheaper than rival battery providers such as CATL. But, the cherry on the top of the cake is Maxwell’s dry-coating.
You see, in small batches, this technology works rather well, but Tesla needs to produce millions of cells a year to meet their goal of putting these cells in every Tesla vehicle. Sadly, this technology refuses to scale up. When used to produce larger volumes, it fails. In fact, at scale, so many cells fail quality control that the cost per saleable cell is larger than that of off-the-shelf competitors. So, Tesla has reduced the number of 4680 cells it makes to keep prices down while it tries to solve this problem.
This is why Tesla is currently only producing enough 4680 cells for 1,000 Cybertrucks a week, which isn’t enough to meet Cybertruck demand, let alone Model S, 3, X and Y demand. It’s also why the Cybertruck costs so much more than initially promised, as its original price was only possible if the 4680 could reach a cost of $55 per kWh at scale. This is also why Musk has held off on the upcoming super cheap “Model 2”, as it could only be profitable for Tesla if they had a significant battery advantage.
Well, it’s been four years since the 4680 was announced. Tesla has poured billions of dollars into 4680 developments, and even splashed out $3.6 billion to build a custom factory for the 4680. Yet, Tesla still hasn’t solved its scalability problem and is still lightyears away from reaching its price target.
So, it shouldn’t be any surprise that Musk has finally had enough.
The Information recently reported that back in May, Musk told the 4680 development team to solve the scalability problem and hit price targets by the end of the year, or the entire project would be cancelled.
When I say this should be of no surprise, I mean that literally. BYD, CATL, Northvolt and other battery makers already produce cheaper batteries than the 4680 while still having just as good, if not better, specs. Even Tesla uses the BYD Blade Battery in the European version of the Model Y, despite BYD being arguably their biggest industry rival. But upcoming batteries, like CATL’s sodium-ion batteries or Toyota and Nissan’s solid-state batteries, promise to utterly bury the 4680 in the coming years. These batteries promise to hit the 4680’s initial price point while charging more than twice as fast and, in the case of the solid-state batteries, being energy-dense enough to enable EVs with over 800 miles of range!
So, what happened? Well, Musk jumped the gun. Maxwell’s dry-coating technology was far from proven when he bought it. However, rather than taking the time to investigate what the best solution was and who the best to collaborate with to develop that solution (like Tesla did with Panasonic in the early days), Musk bet the entire company’s future on dry-coating. He was greedy. Being able to develop such a massive advantage completely in-house would spike Tesla’s valuation through the roof, but it did not guarantee success. Well, this greedy $3.6+ billion bet has failed to pan out, and now, Musk is desperately trying to minimise losses.
However, Tesla’s future no longer relies on its ability to make cheap EVs. At least, according to Elon. Over the past few years, he has pivoted the entire company towards AI self-driving being their way forward. In fact, Tesla has already spent well over $10 billion on self-driving development and is set to spend way more than that on it again in the coming years.
But again, he seems to have jumped the gun. As I have covered numerous times, their vision-only, drive-anywhere approach needs to be revised and is wildly unsafe, even when supervised by a human driver. Musk has even admitted publicly that self-driving cars are a far harder problem to solve than he initially thought. However, companies with more comprehensive systems incorporating better sensors and geofencing are already miles ahead of Tesla.
So, not only has Musk’s multibillion-dollar battery bet utterly failed to pay off, but the counter bet he has made to try and save the future of Tesla is even more expensive and has even less chance of paying off.
Needless to say, while Tesla is still thriving in the present, its future does not seem bright.
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Sources: Green Car Reports, Forbes, Inside EVs, Will Lockett, Will Lockett, Electrek, Fortune