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The 10th Man: Übermensch


 -- Published: Friday, 8 May 2015 | Print  | Disqus 

By Jared Dillian 

Elon Musk just unveiled something called the “Tesla Powerwall,” a means to store solar-created electricity in people’s homes… with the potential to put the entire utility industry out of business.

As you probably know, Musk also has these electric cars that people seem to like to drive… with the potential to put all the major car manufacturers out of business. Oh, and the dealerships too.

Musk also has a spaceship company. It is his stated goal to leave Earth and set up shop on Mars. He has already put the US government out of business when it comes to space.

How did he manage to do all this stuff? He made $34 million selling a software company when he was 24, which he freerolled into PayPal, which he made $165 million selling in 2002. He then freerolled that into SpaceX and Tesla.

Oh, and another thing. Musk thinks the state of California is incompetent to build a choo-choo train going from San Francisco to Los Angeles, so he drew up plans for a “Hyperloop,” basically a giant pneumatic tube that can get you there in 35 minutes for $20.

He said he didn’t have time to build it, so he gave the plans to the state for free. (Jerry Brown is going ahead with the snail rail. Unions need to get paid, you know.)

Feel Terrible About Yourself Yet?

I’m not done. He is chairman of a company called SolarCity, which is the second-biggest residential solar panel maker in the country. They will come to your house and install solar panels, so you don’t have to buy electricity from the grid.

Now—if you watch the video of Musk’s Powerwall speech, you’ll start to see the genius of his plan.

You have these giant batteries you keep in your house (which take up little space and hang flat on the wall).

You have solar panels on your roof to generate electricity.

You store the electricity in the battery when the sun goes down.

You charge your car off the battery.

Everything—every house, every car, every business--is now powered by what Elon Musk calls a “giant nuclear fusion reactor in the sky, which runs all the time.” Not oil or gas or coal.

I wouldn’t consider myself a big environmentalist, but still, this excites me. Have you ever heard of something called “Moore’s Law” where computing power grows at an exponential rate? It applies to solar panels too. It won’t be long before solar power is cheaper than conventional energy sources.

The politics of it are a little tricky. I don’t like subsidizing solar, and SolarCity’s entire business model is based on solar tax credits. But soon, it won’t matter—the technology will exist for solar power to compete directly with fossil fuels. And the higher oil prices go, the better solar will look.

Growing Eyes in the Back of Your Head

Elon Musk is a pretty inspirational character, but he seems to have made a lot of enemies along the way. Democrats don’t like him because he’s a creature of business and finance. Republicans don’t like him because he lives off subsidies. Not bad for a guy who calls himself half-Democrat, half-Republican.

The car companies sure don’t like him. If oil gets back above $100, they will like him even less. The history of the auto industry is full of all kinds of backstabbing and intrigue (see Preston Tucker).

If everyone starts driving electric cars, the oil companies aren’t going to like him very much, either.

And the utilities are really going to have it out for him. But they suck. Of all the terrible businesses out there, including the tobacco companies, I despise the utilities the most—even if it isn’t really their fault.

The utilities generate and distribute electricity pretty much the same way they have for the last 100 years. No innovation at all. Why not? Well, because we decided they were utilities! If you put a cap on the rate of return someone can earn, there isn’t a lot left over for innovation. So be very careful what you start calling a public utility.

SolarCity gives us the promise of distributed generation, where electricity is generated at the home or business, and if it’s generated in excess, it’s sold back to the grid. This already happens in dribs and drabs, and is starting to have an impact on the power trading business.

If enough people generate their own electricity, you don’t really need utilities anymore.

It’s not hard to see where this is going. The utility companies are going to fight back, hard. But not in the free market—on Capitol Hill.

If Musk is permitted to succeed—which is a big if—there’ll be no more carbon emissions and a cheap, endless power source.

Yes, We Can

This is save-the-world type stuff. Pretty ambitious. But will it work?

I can’t say this cynically enough: A lot of it depends on Musk managing the politics… not the engineering.

I owned both Tesla (TSLA) and (SolarCity) SCTY for a time. I traded them pretty well, which doesn’t happen often. I don’t currently own them.

One thing I love to say: Whenever you have a disruptive innovation, it’s a lot easier to bet against the losers than on the winners. And the utilities are clearly the losers.

It’s a long-term thesis, maybe 20 years, but this is like betting against BlackBerry (RIMM) in 2008—one of those trades that will seem really obvious seven years from now.

Then again, utilities have never been a growth business. It’s all about the dividends. And stupid dividend investors will hang on to a trade far longer than economic sense dictates. See tobacco.

I have a hunch that 20 years from now, we won’t be burning coal for electricity. But not because of any government decree, but because the free market will have done what the politicians couldn’t do for themselves: make renewable energy sources cheaper.

Jared Dillian
Jared Dillian

The article The 10th Man: Übermensch was originally published at mauldineconomics.com.

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 -- Published: Friday, 8 May 2015 | E-Mail  | Print  | Source: GoldSeek.com

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