Saturday, July 2, 2016

Ethan Elkind: Tesla & SolarCity: The Dream Of A 21st Century Monopoly

Posted on June 22, 2016, 1:11 pm By 
As has been widely reported, Tesla is making moves to buy solar installer SolarCity.  The two companies have family relations, with Elon Musk’s cousins running SolarCity and with Musk serving as chairman of the board, in addition to his role running Tesla.

Does the deal make sense?  At a basic level, yes (although doubts persist about the short-term economics).  Tesla is already distributing its batteries through SolarCity, and many Tesla customers will be interested in solar, once their electricity bill goes up as they charge at home.  So there are obvious synergies: — Tesla can advertise for SolarCity in their showrooms for example, and SolarCity can promote Tesla vehicles and batteries.
But in the long term, Musk is aiming for a monopoly on a magnitude we’ve rarely if ever seen before, outside of the old company town.  Essentially, Tesla seeks to own your transportation and home energy, all in one corporate clean energy “ecosystem.”  It will become your utility, car company, and gas station, all in one — only without the emissions of our current system.

Let's play monopoly.
Musk is a friend and former business partner of Peter Thiel, the famed PayPal investor who preaches the virtues of such monopolies.  Thiel essentially argues that if you’re an entrepreneur starting a business that isn’t aimed at becoming a monopoly, you’re basically wasting your time.  Think Google and Amazon.

It’s hard to argue with the pure business logic of that approach (leaving aside the traditional arguments against monopolies).  And now Musk seems to be following through on that approach with this takeover effort — a monopoly pattern that already started with Tesla’s decision to own its own charging network, rather than let third party companies take over, and to bypass auto dealers in favor of direct sales.  At least from an environmental perspective, it would certainly herald a big win.

But will it work?  Not in the short term.  SolarCity will not be replacing electric utilities anytime soon.  And batteries plus solar will not allow most people to leave the grid entirely.  You simply can’t generate enough power or store it to cover most people’s needs throughout the year.  And many people don’t own their own homes or have their own rooftops to make this possible.

But two trends could change that dynamic.  First, technologies can improve, leading to more powerful solar panels and cheaper, bigger batteries.  New technologies, such as cheap fuel cells, could also provide the additional generation needed to fill the solar gaps during the nighttime and winter.  These developments could allow Tesla/SolarCity to become the ultimate monopoly it dreams of, particularly if it can operate at a neighborhood scale for those without dedicated rooftops.

Second, Tesla/SolarCity could buy up other companies to fill the gaps, such as energy efficiency companies and different renewable generators, like urban wind turbine manufacturers.

All in all, it’s a big gamble but with a very logical long-term goal.  In the short term, the co-marketing and co-distribution opportunities could cover the costs of the merger.  And in the long term, it has the outside chance of turning this country into the United States of Tesla, whether we like it or not.


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