Digging Deeper Into The Baron–Musk Interview

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We shared an interview earlier this week where investment guru Ron Baron brought Elon Musk to his company’s investors conference for a 1 hour Q&A. Because they talked through so many juicy details, I wanted to pull out some of the other key points that stood out to me that we didn’t yet highlight.

The Fremont Factory

They talked a bit about the current Tesla factory. Notably, they talked about how big it was — 5.5 million square feet under roof or about 150 acres — then Elon casually mentioned that “it’s kind of full.” That surprised me a bit, but considering the lack of supporting details — how much capacity have they installed, how many production lines per model, what percent utilized their installed capacity is, etc — it’s tough to say. Never the less, it surprised me. I’m always looking for insane expansion from Tesla, so it feels like we could hear news of another factory purchase or expansion any day now… though they do already have a fully operational facility in Tilburg, Netherlands, that Tesla could upgrade into a full production factory if it made sense.


Gigafactory Tax Credit

Elon spilled many of the details supporting the heavily advertised $1.3 billion dollar tax credit with some humor. Here are the incentives that Tesla received from the state of Nevada supporting the Gigafactory site selection and buildout:

  • Free land from Nevada (though Nevada has tons of land)
  • Nevada committed to build a southbound highway connecting the Gigafactory to Carson City (which they were going to build anyways, but was still lumped in with the Gigafactory benefit package)
  • Nevada repurposed $80 million dollars worth of tax credits to apply to the Gigafactory
  • Nevada provided relief on sales and use tax for equipment in the Gigafactory across 10 or 20 years depending on the type of equipment. To take full advantage of this, Tesla has to spend $5 billion dollars over the 20-year term.

Gigafactory goals

The total of all of these was indeed $1.3 billion, though much of it was either already planned or re-purposed from elsewhere, as was the case with the $80 million dollar tax credits — though not for Tesla. This only works out to around a 5% contribution to the Gigafactory, or less than 1% over 20 years.

Elon’s attitude when discussing these credits makes it obvious that he thought the much-advertised $1.3 billion dollar figure was overhyped and the actual contribution from the state was basically not worth mentioning. On top of that, he shared that the return on the initial tax credits that the state would see was in the 80 to 100 X range… not 80-100% return… but 80 to 100 times Nevada’s initial investment, which is basically a no-brainer and a huge win for the state. It seems a bit odd that the terms are so mediocre given the heated competition to land Tesla’s Gigafactory…. It’s also humorous to hear Ron Baron call it the Gigaplant. 😀

Tesla Safety

With the formal announcement of the Model X, Elon shined his uber bright, press-catching spotlight on the fantastic safety performance of the new Model X, which exceeds the 5-star safety rating by a large margin. In this new interview, he shared just how much of a core value safety is at Tesla, stating that it was the “absolute paramount” goal for the team when designing the Model S (and presumably the Model X as well). He shared that the Model S has the best safety of any car ever tested, which is crazy impressive for a relatively new company competing against entrenched manufacturers that have been doing this for several generations…. I for one am thankful that they are setting a new high bar for safety.

(Editor’s Note: There are some quite interesting specifics Elon talks about in the interview that help explain why the Tesla Model S protected Jeffrey Katzenberg enough to save his life in a recent accident).

Battery Technology

Elon shared its internal process for reviewing and rating new battery technology which has to be a key topic of discussion given the massive amount of money being poured into EV batteries and grid-scale batteries overall. We share new technologies and updates on previously discussed battery technology all the time here on CleanTechnica and it’s great to hear that they are aggressively but rationally reviewing and ranking new tech at Tesla.

Their basic process for assessing new battery solutions is to review them and give them a ranking from 1 to 5, where 1 is vaporware and 5 is “we need to do this now!” As obvious as it is that they have to be doing this, it’s good to hear the process. Right now, Tesla is tracking ~60 battery efforts around the world, but none are rated higher than a 3 in Tesla’s system. There are some that “might go from a 3 to a 4,” though, with a 4 meaning “we should be in preliminary discussions.”


Overall Snippets of Interest

Tesla is making improvements in total battery pack energy density. It can do a 500-mile range now with minimal issues. Cost is the most important factor, though, as batteries are still comparably expensive. I see this as a key reason why they knew the Gigafactory was key — build scale to drive costs down, paired with Tesla Energy, as a key building block for the Model 3. We knew this… but it was good to hear again. And he did say that a 500-mile car with the same form factor (same volume and roughly the same mass) was “probably less than 10 years away.”

Tesla will continue to make changes to the cell chemistry and the way the packs are organized to maximize pack energy density and minimize price. Its fundamental focus is on the cost per unit of energy, as this is key to building cars for the masses.

Ron mentioned a target of 100 hours a kilowatt (hah) which elicited a smile from Elon and a rare “no comment” alluding to a potential future announcement. 100 does seem like a nice round number, doesn’t it? 🙂

However, Elon did say that “that’s in the ballpark of what we’re aiming for.”

The Gigafactory will be the first factory that can bring in rail cars of raw materials directly from the mines and be able to put out complete batteries. Today’s process for assembling batteries requires tons of unnecessary (and non-value add) travel averaging 3 trips around the world, which is obviously very inefficient. The current process also adds time to the supply chain, which means more money tied up in inventory and more money spent on transportation.

Exciting times in the world of Tesla. 🙂

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Kyle Field

I'm a tech geek passionately in search of actionable ways to reduce the negative impact my life has on the planet, save money and reduce stress. Live intentionally, make conscious decisions, love more, act responsibly, play. The more you know, the less you need. As an activist investor, Kyle owns long term holdings in Tesla, Lightning eMotors, Arcimoto, and SolarEdge.

Kyle Field has 1638 posts and counting. See all posts by Kyle Field

49 thoughts on “Digging Deeper Into The Baron–Musk Interview

  • Thanks, Kyle. Another interesting thing to me not really related to Tesla was that he was against the sale of PayPal to eBay. He was the largest owner of PayPal at the time, but still had only ~12% and everyone else wanted to sell. Then he and Ron laugh at his statement, “But I think we probably shouldn’t have.” (Statement starts at about 4:30 in if you want to watch/listen.)

    • Elon often talks about how PayPal doesn’t live up to its potential. He says Paypal should be used ubiquitously, not just as a kind of stop gap until a real payment system is in place. He thinks they could take over all payments if they would lower their fees.

      And if you think about how many billions PayPal would be worth if they would sell now, instead of when they did, he is probably right that they could have been much better off not selling.

      • Yes, he says PayPal is seriously mismanaged and still using broken code he wrote and was going to fix.

        He should probably get back into it and start a new competing company. Free money has been left on the table…

        • He barely has time for Hyperloop, what makes you think he can be CEO of a third company? World needs Tesla and SpaceX now. PayPal can wait..

  • Also interesting that he initially thought he’d basically “just” be a physicist and further explore “the nature of the universe.” He basically got turned away from that from fear of funding being pulled by a government and leaving him out of a job.

    • Elon without a job and going broke is basically impossible. He is a true entrepreneur and will just make company after company. He worked odd jobs and did a lot of odd things to pay for school as well haha. So glad Netscape didn’t hire him.

  • And one more… love how he gets carried away talking about “Merchants of Doubt.” Seems to be really getting at him. (~10 minutes in.)

  • This is the first time I’ve heard of rail being involved. Can somebody enlighten how far the nearest line must run to connect? And does it mean that rail can/will be used to get the finished product to Fremont?

      • Is that line electrified, or are we talking diesel locomotives?

        This might come across as nitpicking – it’s not, I’m super impressed with Tesla’s Net Zero target. For example Straubel described how Tesla resisted the temptation to run a gas* line in for heating purposes, and instead designed processes using heat pumps. (I’ve read there’s a drying phase to making batteries).

        It would seem a little incongruous however, to drive a diesel loco into what will otherwise be Showpiece Exhibit A of the post fossil fuel era.

        I will forgive them, of course. Tesla needs to compete against every other car manufacturer, who ‘cheat’ by emitting CO2 at every turn, including building a small CO2 factory into the finished product i.e. the engine.

        We’ve heard Tesla plan to use rail to bring materials in. I suspect the plan is to use road to deliver product to Fremont.

        So there might be two opportunities for a younger version of Elon (any physics/engineering grads recently sold a Paypal?). 1) A 400 mile electric lorry (with future autonomous capability). 2) A lithium locomotive (overhead charging wire on periodic uphill sections).

        *referring to confusingly named Natural Gas (4 times cleaner than coal, but fossil fuel nevertheless).

        • OMG.
          The employees better be totally electric too from their…..sorry, still no mention of employees having any housing or is Tesla just hiring nightly pole vaulters from over Trump’s proposed Mexican border wall?

          • It’s a very long ways from Trumps new border (for any human pole vaulter, long distance runner, desert traveler etc.). Though they are advertising for workers from UNR and UNLV and the town of Reno.

        • LOL, nitpicking, but how? You have seen the adds that SP delivers something like a million pounds of freight per gallon of fuel. They are already diesel electric hybrids by definition. That is right now. All to a factory that is basically an energy breeder – materials come in, the tools to create machines that run on solar and wind are created with solar and wind. And machines that run on and harvest the energy of solar and wind roll out.

          And GE is working on hybrid switchyard engines with an eye toward more electrification of trains. That is the future.

          Yep, you’re right, considering the alternatives – might come across as nitpicking.

          • Fair call jeffhre, diesel-electric locos are the highest hanging fruit of the fossil fuelled transport industry. Perhaps when global emissions are down to 5% of current levels, it will be time to pick (on) them.

            This idea is totally left field – make the tracks laser beam level inside the gates, and have the locomotives drop the freight cars outside.

            Here’s the whacky bit – use a team of clydesdale horses to pull the cars into the building. Think of the advertising photos! I reckon the staff would just love em. I mean, surely even Elon wanted a pony at some point during childhood.

            It’s not that crazy. Tesla is a company whose cause is to save Earth, and yet they have no visible ties to the earth. Most people just can’t conceptualise the threat imposed by the Keeling Curve, but everybody loves horses – they’re right up there with kittens.


            p.s. I love that concept – “energy breeder”. Like robots building robots – sure brings the costs down and the numbers up fast.

          • “Here’s the whacky bit – use a team of clydesdale horses to pull the cars into the building.”

            Awesome idea, would be a great image in the minds of the public for the company! Too bad it would make folks think beer, instead of EV’s – would have been great. Since it’s the desert what about Camels, or mules? Are they hiring Nevada based wranglers yet?

          • I remember years ago seeing a picture of a landrover that had been fitted with train wheels running on railway tracks pulling a truck.

            Could we update that and use Tesla cars for pulling those trucks?
            They have enough passenger seating to bring the workforce in as well!


          • Re Paris, our hearts go out to those harmed by terrorists yesterday and terrorist mule teams shackled together hauling coffins for themselves one way out into the desert would be more efficiency.

        • Diesel electric. I don’t think any of the west coast tracks are electric. Of course tons per gallon is extremely higher for trains than trucks.

          The cells have to be ‘baked’ for several hours.

          Lithium will likely come by truck. I’m hoping Tesla builds some electric trucks just as a demonstration project. I’d bet that battery packs will go to Fremont by rail.

          18-wheelers with 200 mile range batteries and <3 minute battery swaps should be possible right now. Perhaps it would be cheaper to put battery packs on trains and wire only part of the line rather than run directly off overhead wire the entire route. Someone needs to think that out.

          • During the 2008 crisis, there was a lot of discussion at theoildrum.com about the cost of total electrification of American freight rail as an emergency stimulus project. I think that someone could still get very rich by carrying it out with private money.

          • There were some moments of sanity on that now departed site.

            (I got kicked off for stating that we could avoid a crisis in oil supply simply by moving to PHEVs and EVs. Leeann did not want to hear that. ;o)

        • Where did you read about Straubel’s explanation of the drying phase stuff?

          • It wasn’t written, it was spoken. I listed to a talk he gave. From memory, it was about half way through, and the talk went for over half an hour. Sorry, can’t recall the specific talk, but it was recent at the time, so you should be able to identify it on youtube. Only other thing I vaguely remember were odd shaped ball things as decor in the background.

    • Rail most likely will not be used to get the cells to Fremont. It is used for raw materials from the lithium mines.

      • OK. More incentive then, for Tesla to develop an electric lorry.

  • Is “Ron mentioned a target of 100 hours a kilowatt” supposed to be 100 dollars a kilowatt?

    • There were a few places where he showed his lack of base knowledge, but the man is making a boatload of money off the company, getting in when it was just a couple dozen dollars a share or so… 😛

    • It could go either way. $100/kwh or an upcoming 100kwh (battery size) Tesla… But either way, what he said was not correct 🙂

  • If shipping of raw materials is a cost issue, maybe make cells in Australia.

    There is so much mining there of Cobalt, Nickel, Manganese, Aluminium, and even Lithium.

    • Tesla had an opportunity to bid there but they passed on it. Somebody else nabbed it. Though there will undoubtedly be other opportunities.

      • I doubt Tesla had any place other than USA in mind.

        Plus the sales of Tesla cars are now legal in Nevada as a result of the Gigafactory jobs.

        • Tesla has always said they want to have multiple giga factories. The middle of Australia would be ideal. Cheap land, English speaking, next to a mine…

    • Probably no clubs nearby to tempt the nightshift from not showing up either.

      • Vegas is hours away from Reno/Electric Ave. though.

  • The total of all of these was indeed $1.3 billion, though much of it was either already planned or re-purposed from elsewhere, as was the case with the $80 million dollar tax credits

    Not entirely true. Much of this $1.3 billion was subjective accounting. Similar to saying the rocks on my property are worth about 300 thousand dollars. (Though I probably would never get anybody to pay me to take them away.)

  • LOL. Just standard Baron of Industry stuff. You know the stuff the Rockefeller’s did. Vertical Integration. And why couldn’t Exxon and Peabody have done this? If you don’t compete with yourself Someone Else Will.

  • Thanks for the cool article!

    There are some quite interesting specifics Elon talks about in the interview that help explain why the Tesla Model S protected Jeffrey Katzenberg enough to save his life in a recent accident

    Perhaps this could be discussed in another article? It sounds very interesting.

    • Yeah, I found those particularly interesting. Stuff I never knew before.

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