When I recently saw that Fisker Automative had "developed" a solid state battery that could increase battery capacity by 2.5x I immediately dismissed it because, well, its immediately dismiss-able for reasons I will outline below. But I shouldn't have been surprised when zerohedge ran with the story because they have always been bearish on Tesla Motors and apparently aren't so committed to markets to interpret a 1,000% increase in market capitalization as an indication that maybe, just maybe, they don't know crap about electric cars.

4-Year Old Logic Wins

To demonstrate this fact I will share two articles below, written by yours truly. One which discusses how battery capacity trends over time and was written 3 years ago (and nothing has changed). The other was written 4 years ago and outlines why Tesla was well-positioned to succeed: an article that would have been far more valuable to anyone who read it than any of the brain-dead "tesla killer" articles that seem to emerge seasonally to shamelessly milk the attention of tesla-haters and lovers alike.

More Information Isn't Always Better

The beauty of understanding the concepts below is that once you do, you don't need to pay attention to noise like this. Now you might be thinking, "How can you comment on something you won't even read? You are ignoring information! How can that be a good thing?" Well the assumption underpinning this claim would be that the more data you take in the more GOOD information you're taking in. In other words: more data = higher signal to noise ratio. Except that isn't true. As Nassim Taleb explains in Anti-Fragile:

To conclude, the best way to mitigate interventionism is to ration the supply of information, as naturalistically as possible. This is hard to accept in the age of the Internet. It has been very hard for me to explain that the more data you get, the less you know what’s going on, and the more iatrogenics you will cause. People are still under the illusion that “science” means more data. Taleb, Nassim Nicholas. Antifragile: Things That Gain from Disorder (Incerto) (Kindle Locations 2396-2399). Random House Publishing Group. Kindle Edition.

Article #1

The first article outlines why Lithium plays such a vital role in batteries and describes how the energy density of batteries tends to progress over time. It was published August 24th, 2013 on Medium. The original can be seen here. I've added some paragraph breaks and headings to make it more readable.

Li-Ion Batteries won’t be disrupted and that’s OK

As a long time Tesla Motors evangelist I’ve heard all of the arguments against battery-electric vehicles (BEVs) many of them with merit. One of the odder ones is that Tesla is vulnerable to battery disruption. “What if someone comes out with a way better battery?” But these questions do make sense when considering the countless articles published with titles like, "Stanford creates ‘Holy Grail’ lithium battery, could triple smartphone and EV battery life," "New Battery Boasts 7 Times More Energy Density," and "US Department of Energy doubles lithium-ion battery capacity with spongy silicon."

There’s a few reasons why this is an unreasonable concern, the first being the following two graphs:

Linear Rate of Growth

What these graphs reveal is quite an obvious, and weak, linear rate of increase in battery density. “But surely,” one might ask, “This doesn’t mean some super genius can’t come along and make a huge leap forward in technology.” This just isn’t how technology works. Researchers and scientists are constantly building on the work that came before them, building on top of it, recombining it, refining it. This is why things tend to get better over time. No one starts from scratch. Different technologies allow for faster growth. For some reason things like “number of transistors on a chip” enable the technology to progress at an exponential rate (Moore’s Law), but the dramatic increases that are seen have little to do with any one invention, or any one person.

Why Innovation Has a Pace

The truth is there are already tons of smart people working on all of these problems, but they have serious constraints. When we look back at the rate at which the technology progresses, what we are looking at is the degree to which these smart people are constrained, whether its by bureaucracy, resources, or most likely IMO just plain physics. Storing energy is hard! Oil is still far and away the most energy dense storage method and it took millions of years to make each drop! Even if a scientist has some great new theory or approach that they think might benefit a technology, they have to get funding, build a prototype, test it, publish their results etc. The more revolutionary the technology, the longer the development takes, thereby smoothing out that curve. Each one of those up-ticks on that chart represents an incremental improvement in energy density was the result of countless innovations built by countless brilliant minds that were in development for who knows how many years. In addition, because of this process, it’s rare that technological improvements come out of nowhere. If a team is working on some new anode chemistry that uses titanium, it’s rarely a secret. Tesla can start researching titanium anodes itself, in fact, companies are usually funding such research. It’s entirely likely that Tesla will fund, or develop internally, many of the innovations that will make batteries better over time.

The Myth of the "Technological Leap"

In fact, I can’t think of a single example of a technological leap like the one people are imagining. Did cars go from a top speed of 10 mph to 100 mph overnight? I think what confuses most people is the seemingly huge leaps we have seen in consumer electronics lately. We went from dumb phones to smartphones. But the internal components of those devices were not huge leaps over the previous generation. In fact, all of the components were being made regardless of the smartphone revolution. Apple was simply the first to package them “right.” But every component in the iPhone was only an incremental improvement over the components that preceded it. What enabled the success of the iPhone, and other like products, was that these componenets finally became small enough, powerful enough, efficient enough, etc. after years of steady and incremental improvement, to be used in such applications. But they got there by following a very predictable growth rate which is why people like Ray Kurzweil were able to make stunningly accurate predictions.
But what about those minor innovations? Aren’t those a threat to Tesla? Actually no. In fact, when Musk and Co. estimate the lower cost of their future batteries they are factoring in advances in battery cell chemistry which will be incorporated into their cells. The gigafactory will merely take in ingredients and churn out batteries, the ingredients will change over time.

Tesla Can Innovate Battery Tech Too

But isn’t Tesla betting on Lithium Ion batteries? Well, yes, though there’s no reason to think that if some better compound is developed they can’t simply use that instead. But even this is far-fetched. There’s a reason Tesla is so committed to li-ion and why most electronic devices use these batteries: because lithium is the lightest solid on the periodic table. What people need to understand is that batteries are a storage medium for electrons. You need some compound to store the electrons on. That’s the purpose that lithium serves. Hydrogen and helium are gases, so storing them densely requires compressing them which is energetically expensive. Helium has an electron affinity of -19.7 making it the element least able to hold onto an electron (the next worst element is argon at an EA of -11.5. Hydrogens EA is actually a little better than lithium’s at .754 to lithium’s .618, but again, it would have to be compressed and it’s combustible (and here’s why hydrogen fuel cells aren’t a likely disruptor).

It’s not like people weren’t aware of this reality before li-ion batteries became widely used, there were just problems with using lithium (like it’s tendency to get very hot in enclosed spaces when zapped with electricity). It took time to overcome those difficulties, but once they did there was no turning back, but also little place to go. Because of these physical constraints, it’s highly unlikely that lithium will ever be replaced as the ideal storage medium for electrons in batteries, though there will be future modifications and innovations like lithium-air batteries. This also does not rule out the possibility that batteries themselves will be replaced, for example, by ultra-capacitors. But capacitors have been in development and use for a long time. Companies have been investing heavily in them, and the fact that they still find lithium ion batteries to be a good investment as well is proof that they still have a long way to go, just as lithium ion batteries once did.

This is all fine though. Batteries will get better (doubling in about 10 years), but so will related technologies. They’ll charge faster and you’ll be able to charge them in more places. Who cares if a battery can only take you 300 miles if you can charge it at home, at work, and even on the road? On top of that battery-swapping stations will likely become a reality so if you really need a quick swap, that’ll be an option too. Fixating on the battery actually misses the point. Was battery life what made the iPhone so successful? Is Apple worried that a competitor is going to come out with a phone that lasts twice as long? The iPhone was successful because Apple realized that it didn’t matter whether the battery lasted a week or a month, it just had last between charges. This is why Tesla’s supercharger network was such a brilliant strategical move. Someone might come out with a slightly better battery, but if you can’t charge it, and charge it fast, it’s not going to matter.

End of first article

Article #2

The next article was written February 10th, 2012 and published to tumblr. The original can be viewed here. In it I explain what I viewed as the most important aspects of Tesla's business plan that made it likely to succeed. Battery technology is only one component. Now, one can certainly argue that I got everything wrong, to which my only response is: at the time of posting Tesla was trading at $35 a share, today it's at $318 after a major correction. Bear in mind that at the time of the article Fisker was pursuing a hybrid gas-electric model. From the sound of it, it only took them 5 years to realize the stupidity behind that strategy. But again, I literally haven't read anything about their strategy because they will "die in a fire."

Now, some of the stuff in this article might seem obvious, but remember that at the time, few people knew who Elon Musk was, and those who did, thought he was insane. Fisker had a much "stronger" pedigree being staffed by industry veterans, so at the time my prediction that Fisker was headed toward bankruptcy was quite prescient... What I was not able to predict was that Fisker would be back from the dead like some kind of white-collar zombie looking to bilk gullible investors and Tesla-haters with this pablum about "magic batteries."

Tesla will be the Apple of cars

Those who know me, know that I’m a big fan of Tesla Motors and its CEO Elon Musk. To many, Tesla might seem like any other electric car startup like Fisker Automotive and Aptera Motors. Aptera went out of business last year and Fisker (IMO) looks like it’s headed in the same direction. After an endless stream of delays and price hikes, the federal government has stopped giving Fisker its loan payouts because it was unable to meet their benchmarks. Personally, the Fisker looked like a pipe-dream to me from the start.

All Electric Cars Are Not Created Equal

But really there’s no comparing the companies. Just because they all claim to make electric cars doesn’t put them on equal footing. You wouldn’t compare Porsche to Delorean just because they both use gas would you? The first important difference between the two companies was their entire approach. Tesla made the Roadster, a low volume, high priced sportscar that allowed them to not only to work out the kinks of starting a car company and putting cars on the road, but to demonstrate that they were capable of implementing a revolutionary technology for which they receive far too little credit in my opinion. Fisker decided to make a 4 door sedan that weighs as much as a tank, costs as much as a Ferrari, but is as fast as an Acura TL.

It’s little exaggeration to say the Fisker Karma is a mildly suped-up Chevy Volt that has been plagued with delays, price increases and breakdowns (the most recent being Consumer Report’s Karma which they purchased anonymously). Meanwhile, there is still no electric car on the market that has HALF the range of the roadster, and forget speed. The roadster is faster than many supercars. People often complain that the range doesn’t match that of gas cars and the price is prohibitively expensive, but that’s only when you compare it to completely different cars than the roadster. A supercar like the Lamborghini Gallardo, for example, is actually slower than the roadster, it only has a range of around 350 miles (people forget sport-cars EAT gas), and costs anywhere from 200%-300% more than the roadster. So even when compared to a comparable gasoline powered car, on terms most favorable to gas cars, the Roadster is a bargain! But should they even be compared on the same terms? Absolutely not. The status quo bias forces us to perceive any change in the status quo as bad, so when we see an electric car, the differences strike us as bad, when many of them should strike us as good.

Lessons From iPhone

A prime example of this is the iPhone. In retrospect the iPhone seems like a no-brainer, but in reality it was a huge risk, something we forget most probably because of something called the Hindsight bias(a/k/a the “I-knew-it-all-along” effect) which causes us to see past events as being predictable, despite not being so at the time. After all, there’s a reason why they were the first to make a touchscreen smartphone. Tablets existed, but they were floundering, especially in the consumer market. Alot of people didn’t think people would want to do everything on a touch screen. People still balk at the prospect of having to charge the phone every night (not the owners of course), a complaint eerily similar to those directed at electric cars. Take Matthew Lynn, a columnist for Bloomberg, who wrote:

The big competitors in the mobile-phone industry such as Nokia Oyj and Motorola Inc. won’t be whispering nervously into their clamshells over a new threat to their business. The iPhone is nothing more than a luxury bauble that will appeal to a few gadget freaks. In terms of its impact on the industry, the iPhone is less relevant.

And here’s what Bill Ray of The Register had to say:

It will be a lovely bit of kit, a pleasure to behold, and its limited functionality will be easy to access and use … As customers start to realise that the competition offers better functionality at a lower price, by negotiating a better subsidy, sales will stagnate. After a year a new version will be launched, but it will lack the innovation of the first and quickly vanish.

The iPhone succeeded despite all of this because while the idea of a dramatic change is scary, once it’s in our hands (especially if it’s marketed properly), the coolness of touching revolution counterbalances the fear of the unknown allowing the benefits of the new tech to shine. Electric cars don’t have gears and don’t move the same way their gas counterparts do. You can’t refill at gas stations. Many people think that consumers won’t like the change. But no gears means no jerky gear-changes (something automakers have spent billions on creating 7 and 8 gear transmissions, dual-clutch transmissions, torque converters and more). Yes they move differently, gas cars have the most torgue high in the rpm range, i.e. when you least need it because you’re already moving. Electric motors have maximum torque at zero rpm, when you most need it to get you moving. People are worried electric cars are too quiet. Really?! Only in this conversation could “too quiet” be considered a legitimate complaint. Don’t you wish your computer was just a bit louder, or that your cell phone made your eardrums bleed? Come on people! Finally, yes, you can’t refill at a gas station, but at the same time it turns your HOUSE into a gas station.

It always seems odd when people complain to me about the prospect of having to charge their phone every night (common when they’re contemplating switching to a smartphone) because the fact is, I ran out of battery more before I switched to a smartphone than I do now, because when I was charging my phone once or twice a week, I’d forget to monitor the battery or just forget to plug it in. Now I just plug it in every night, simple and easy. Considering the base Tesla’s range is still more than 6 times the average commute, that leaves you plenty of room to get back to your home/gas station. And this is all NOW when the technology is brand spanking new. In ten years there will be battery swap stations, quicker charging battery packs and wireless charging stations so that the instant you get home, with zero effort (though you should seek help if the minimal effort now required to plug an electric car in is too much for you) your car will start charging. Hopefully in 20 years office and public parking will also have wireless quick chargers meaning your car will be “refueling” whenever it stops moving. There’s even a chance that our very roads will be able to charge our cars, though that technology is far from necessary. This also brings up a worthwhile point: there is a limitless reservoir of innovation still on the horizon for electric cars, while the most we can hope for with gas cars is that they become incrementally better at burning fuel.

But the iPhone succeeded for many reasons. Apple makes a lot of the components itself and has control over its own retail outlets. Tesla is doing the same and has already opened several dealerships in the US and abroad. Apple doesn’t produce many variants. Motorola, for example, currently has around 20 smartphones, Apple has 1. Having only one variant makes it unimaginably easier to make that product work. That means that every time there’s an OS update, manufacturing flaw, or any other problem, they only have to solve the problem once. Just like Apple makes the iPhone, the iPad, and the iPod, Tesla will make the sedan, the CUV, an inexpensive commuter car and a sports car. But it can’t be ignored that Apple put it’s revolutionary product in a sexy package, and equally as important, it worked. As to the sexiness of Tesla’s products, that’s certainly subjective, but I think they satisfy that requirement. Go here to check out their new Model X that has Falcon-wing doors (think Gullwing like in the Delorean or the Mercedes SLS), seating for seven, the turning radius of a Mini Cooper and will be faster than a Porsche 911.

One could argue that this is what they’re promising, not necessarily what they will deliver, but Tesla made bold claims with the Roadster and delivered on them. It stands to reason that this being their second car, it should be easier, not harder, to deliver on their promises. In addition, the deadline for delivery of the Model S fast approaches with little to no hiccups so far, which is even more surprising when you consider the unique engineering challenges we now know they chose to take on. Also, while the Roadster did suffer many setbacks and price bumps, much if not all of that occurred while Martin Eberhard, not Elon Musk, was CEO, though Musk has been the largest single investor in the company pretty much from the begging. And lets also not forget, before the iPhone Apple wasn’t exactly “killing it.” Only 15 years ago it was on the vergy of bankruptcy. It’s hard to believe, but compared to the life-cycle of most large corporations, Apple has only just turned things around, so the fact that Tesla isn’t currently profitable doesn’t mean it can’t be the next Apple, in fact, if it wasn’t struggling to be profitable, it couldn’t justly be in contention for the title “the next Apple.”

Leadership Matters

Which brings me to my next point. Like Apple, Tesla is headed by a passionate and intelligent CEO who is zealous about his product, who believes it can change the world and who has been criticized as a micromanager. On top of that, Musk majored in physics at UPenn while getting his MBA from Wharton. Musk was on his way to Stanford for his masters in applied physics and materials before he dropped out to start his first internet startup. Musk is what would happen if Steve Jobs had been born with Asberger’s … and had started several successful companies, including one that makes space shuttles, before starting Apple. In other words, he knows his shit. He’s not just the CEO, but the chief architect, which means he has intimate knowledge of all the components involved and is involved in the decision making process. He’s not just a suit. When Fisker Ceo, Henrik Fisker, says he can build a car, he’s more assuming he can manage other people while they build a car, or more accurately, manage the subcontractors building the vast, overwhelming majority of the pieces of the car. When Musk says he can build a car, it means given the components that exist or that they make themselves (like Apple they make most of the important bits, in fact most of the bits period) and their prices, he CAN build that car. One might point out that most of the components of the roadster were made by lotus, but the drivetrain, arguably the most important and difficult part was always made by Tesla, and Musk has said that Tesla wound up re-engineering and fabricating most of those parts as well, and that in the end they were manufacturing the majority of that car themselves too. In other words, when Musk says he can do something, there are far fewer variables involved that are outside of his control. This is probably why they can cram so many innovations into their cars (17-inch touch screens, dual-electric motor all-wheel drive, falcon-wing doors, as if being an all electric cars with 50%-%300 more range than anything offered by the major car-makers).

In addition to all of that, with SpaceX the man has experience building a revolutionary product in a nearly impossible market to break into (space travel) that requires large amounts of capital. Once someone proves they can build a rocket that goes to SPACE, building a car seems much more reasonable.

In short, by: making a compelling product, with revolutionary technology in an attractive package that’s jam-packed with innovations, by building most of the components themselves, controlling their distribution, limiting the number of product variants and having a brilliant, financially and emotionally invested CEO who has a thorough understanding of his product, Tesla has proven to me that it is highly likely they will become the Apple of cars. There is, of course, the issue of their margins, and while it’s not likely they will ever be as high as Apple’s, I do think they will be very high for the automotive industry. Of course if they fail significantly to deliver on their promises, that would be a different story, but I find that highly unlikely.

End of article

Not everything in these articles are perfectly on point because, well, they were written quite a while ago. Some things might not even be right! But what I hope the reader can see in them, and gain from them, are some powerful heuristics and techniques for evaluating products and companies--specifically in the electric car market--that protect them from misinformation and enable them to better filter out noise, and amplify signal.

Thank you for reading.