Why Tesla's Elon Musk is begging other carmakers to go electric

Yahoo Finance 
By 11 hours ago
Companies that break ground with new technology usually protect their competitive edge as long as possible. Yet electric-car maker Tesla (TSLA) is practically begging other automakers to go electric and even offering its technology free of charge.
Tesla CEO Elon Musk reiterated his plea at this week’s Detroit auto show. “Invest in electric vehicles," he urged his fellow automotive CEOs. "You won't regret it." Musk’s hour-long speech and Q&A session was one of the auto show’s top draws this year, yet in a way it backfired for Tesla.

Musk declined to report December sales numbers, as he did last year around this time, generating speculation that the numbers must be weak. He also said Tesla won’t be fully profitable until 2020, several years later than some analysts had been expecting. The company’s stock fell by more than 6% following Musk’s remarks.
Tesla’s shareholders typically believe Musk when he insists that electrification is the future of the automobile industry. But most other experts aren’t convinced. All the big automakers are experimenting with electric vehicles, but they’re also testing cars powered by hydrogen and other alternative fuels, while perfecting the internal-combustion engine that’s been around for well over a century. Electrics such as the Tesla Model S account for less than 0.5% of the market today, and forecasting firm IHS Automotive predicts EV market share will be just 1.8% in 2020. If oil and gas prices stay low, there will be even less reason for consumers to buy EVs, and automakers to build them.
That tiny market penetration helps explain why Musk wants to see more electrics on the road, even if they don't bear the Tesla badge. “He needs volumes to increase, he needs more research and development and I don’t think he can do it alone,” says analyst Dave Sullivan of consulting firm AutoPacific.

The slow evolution of battery technology
One big problem for electrics is that battery technology — unlike semiconductors, which have seen enormous gains in processing power and a corresponding plunge in costs — is evolving slowly, with no huge breakthroughs on the horizon. Putting enough juice in a battery to power a car remains so expensive that the segment still depends on a $7,500 federal tax credit per vehicle. Even then, it’s difficult for automakers to turn a profit on electrics. Most technology becomes more cost-efficient as production ramps up, but it’s still not clear if batteries will ever become cost-competitive with other forms of fuel, absent subsidies.

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Musk wants to change the economics of batteries by mass-producing them in the “gigafactory” Tesla is building in Nevada, which is due to open in 2020 and reach production of 500,000 battery packs per year at some point. Musk has said those packs will go into future Tesla vehicles, including mass-market models costing less than $40,000. But he may also need other automotive customers for those packs, which won’t happen unless Tesla’s competitors are building electrics. That helps explain why Tesla released many of its patents last year and called for open-source development of EV technology – with other automakers using Tesla’s technology, instead of the other way around, of course.

Different charging standards
There’s another problem Tesla faces as a small-batch manufacturer: different standards for fast-charge stations springing up across the country. Tesla uses a proprietary system the way Apple’s iPhones can only be powered with Apple chargers. That’s not a problem for charging the car at home, but when traveling, Tesla owners can only get a quick charge at a Tesla charger, and there simply aren’t enough of them to allow worry-free driving in every market. Building a full national network on Tesla's own dime coudl be prohibitively expensive. Teslanauts can charge more slowly through a standard outlet, but such trickle-charging takes hours. That limits the appeal of any Tesla regardless of the price, especially for families that only want to own one car.
Nissan uses a different fast-charge standard for the Leaf, which is catching on in many cities that are building public charging networks. BMW and other German manufacturers rely on a third standard. The Leaf already outsells the Model S nearly 2-to-1, and if a competing charging technology becomes the dominant standard, Tesla risks becoming Betamax in a VHS world. Some critics say Musk missed an opportunity by not making Tesla’s technology available sooner, before other standards were in place.
Tesla remains a remarkable company that has accomplished something many critics thought was impossible, by carving out a niche among industry titans. But it faces serious growing pains and is committed to technology that might lose an automotive endurance race. The upstart disrupter needs its stodgy, old flat-footed competitors a lot more than Elon Musk is ever likely to admit.
Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.
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