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May 2, 2018
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Global Market Comments
March 29, 2018
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Given that my friend, former Texas Governor, Rick Perry, was nominated for the position of Secretary of Energy yesterday, I thought I would recount a dinner I had with him.
The irony is great since Rick promised to close down the agency while campaigning for president in 2012.
It confirms my suspicion that many of the people Trump is appointing have the mission to destroy the agencies they will head.
As a precondition to joining a dinner with the former Texas governor, I had to promise a few things.
I was not allowed to bring up the fact that he shoots coyotes while jogging. I couldn?t mention statistics proving that 70% of the jobs created in his state during his 12-year tenure as governor were government, not private.
Having agreed to all of that, I was told, ?Sure, come along, we?d love to hear your questions and your insights.?
Perry was making his 12th?visit to the Golden State in the past two years to convince local companies, plagued with onerous taxes, stringent regulations and high operating costs, to pull up stakes and move camp to the Lone Star State.
When I first shook hands with the governor, I was surprised at how short he was. But then he wasn?t wearing the three-inch heeled cowboy boots that normally elevated him at home.
Then I mentioned my secret words: ?Go Aggies.? He recoiled.
?How did you know?? he demanded.
I told him that during the early 1970s, I drove my sister from California to his home state so she could attend Texas A&M University. Perry was a cadet then, and I speculated that they had probably dated.
He answered, ?Nah, I didn?t play around much in those days.?
Probably not.
But after that, he melted, only engaging me in serious conversation, while sticking to canned, stock answers to questions from everyone else.
I was Rick Perry?s new best friend.
As he spoke, I realized that he was much more reasonable in his views than when appealing to his ultra conservative base back home. That is simply the mark of a savvy and successful politician.
Perry said that the country needs both states to lead change and succeed, and that he rooted for California to do well.
The governor was still basking in the glow of Toyota?s recent announcement that it was moving 3,000 jobs from Long Beach, California to Texas.?
It has been a controversial win for him, as his state is paying $10,000 in subsidies per person to lure the white-collar work force.
I spoke to Toyota USA CEO, Jim Lentz, about this recently. He said the real reason had to do with working in the same time zone as the company?s large manufacturing facilities in Kentucky and Tennessee.
A lower cost of living, cheaper rents, and discount labor costs were also issues. Lower taxes were at the bottom of a list of ten priorities.
Past experience has shown that most departing workers, fleeing from California, return after three years. It seems the summer heat and humidity kill them.?
Thus chastened, they are more than willing to pay a premium for the lifestyle here, despite the higher taxes and earthquakes.
Perry says the US needs an ?all of the above? solution to its energy problems. It is not a good idea to be dependent on foreign energy sources, especially from unstable countries.
Despite its stereotype as an oil-based economy, Texas was now the top producer of wind power in the country. The installed base there now exceeds 12 gigawatts, making it the fifth largest in the world.
My friend, T. Boone Pickens, has been a major investor in wind power generation there.
An aggressive approvals process made possible the construction of long distance transmission lines needed to send it to other states and eventually to California itself, thus creating a national market for wind power.
The governor says that Texas will become a major exporter for liquefied natural gas within the next two years. Cheniere Energy (LNG), the front-runner in the field, has been a favorite recommendation of mine for the past five years, and? Trade Alert followers have chased the shares up from $6 to $70.
Despite the controversy over fracking wells polluting fresh water supplies, Perry says there has not been a single incidence of this occurring in Texas. This is no doubt a result of the state?s ferocious regulation of the energy industry, of which I, myself, have no small amount of experience.
Thanks in part to new federal regulations, air pollution has fallen dramatically in Texas. Ozone emissions have dropped by 23% since 2000, while nitrous oxides are off by 57%.
These, and other measures have enabled the US to cut its dependence on foreign oil imports from 33% to 15% since 2000. During the same period, natural gas production, which produces half the carbon of oil based fuels, has soared by 57%.
At that point, another guest raised his hand and asked his stance on gay rights. Perry opined that sexuality was a choice that could be controlled, and that gay marriage would never get his support. An audible hiss was heard in the roomwhich Perry stonily ignored.
That invited the question about the legalization of marijuana. He simply said that it would never be legalized in his state, and, ?If people want to get high, they can go to Colorado.?
Finally, a woman at the table asked about reproductive rights. When Perry said that he was proud to sign a Texas law limiting termination to the first five months of pregnancy, murmurs were heard. The law is not expected to survive a pending challenge at the Supreme Court.
Another attendee queried his view of Hillary Clinton. I braced myself. He then surprised me by saying that he thought she was ?a very capable Secretary of State and a great public servant.?
That spoke volumes to me. It meant that with access to all his private polling data, Rick Perry thought that Hillary would win the 2016 presidential election. As the astute politician that he is, Perry doesn?t want to burn his bridges.
Perry likes to tell people that he is probably the last governor who used an outhouse on a dry cotton farm near Abilene, West Texas.
He became an Eagle Scout and I confirmed this with the secret scout handshake.
He earned a degree in animal science at Texas A&M where he was also a Corps Cadet and a yell leader. His first part-time job was as a door-to-door salesman. When he graduated, he joined the Air Force and became a C-130 pilot.
Perry originally started in politics as a Democrat, getting elected to the Texas House of Representatives in 1984.
He worked on Al Gore?s presidential campaign in 1988. This was back when Southern Democrats were more conservative than the right wing of the Republican Party.Perry became a Republican in 1989.
He moved up to the governorship in 2000, when sitting governor George W. Bush was elected president. Perry has been reelected three times, making him the longest tenured Texas governor in history.
Perry said that his time spent as the front runner in the 2012 presidential election ?were the three most exhausting hours of my life.?
He then repeated his ?Oops? moment when, if elected, he couldn?t remember the third government department he would close (it was the Department of Commerce, in addition to Energy and Education). That was probably to head off someone else bringing it up first.
I told the governor I knew two facts about our respective states which I bet he didn?t know. He asked what they were.
I responded that California and Texas were the only two states that had been independent countries before joining the Union. California had been the Bear Flag Republic for six months until mid 1848, while the Republic of Texas stood on its own for a decade, until 1846. Texans have been regretting joining the Union ever since.
Today, the two states make up 19.1% of America?s GDP, and 20.4% of its population.
The other mystery fact was that while Texas was independent, it maintained an embassy in London, England on St. James Street.Today, the space is occupied by a pub and is across the street from the Ritz Hotel and next door to my old office at The Economist?magazine headquarters. Perry said he?d check it out on his next visit there.
As the dinner wound down, I asked the governor if he had ever driven a Tesla Model S-1. He said he hadn?t. I asked if he would like to because my own high performance model was conveniently parked out front. He said he?d love to.
At that point, the plain clothed Texas Rangers who accompany him as bodyguards noticeably tensed up.
I have some experience providing quick tutorials for the uninitiated on how to drive this incredible electric car from the future. My chassis number is 125 out of a fleet of 45,000 and is one of the oldest S-1s around.
Newcomers invariably underestimate the car?s power and acceleration, which works out to about 450 horsepower in the carbon world. This can be unexpectedly dangerous for newbies.
With some careful coaching, Perry gingerly drove the car a few times around San Francisco?s Huntington Park, atop Nob Hill with two nervous, but heavily armed, Rangers in the back seat.
When we carefully turned back onto California Street and came to a stop in front of the Mark Hopkins Hotel, Perry pronounced the vehicle ?a marvelous piece of technology?.
With that, Perry invited me to visit the governor?s mansion the next time I visited Austin, Texas.
I said I?d be honored, and silently drove my Tesla off into the night, thus christened by a true Texan.
You Want Me to Do What?
The electric car industry is about to get turned right side up.
The dozen manufacturers out there have long struggled to achieve ranges that could match the 300 miles that is standard for competing gasoline engines.
All electric cars on the market today max out at 100-mile ranges or less. Except, that is, my Tesla S-1 (TSLA), which can drive 305 miles ? but for $110,000.
That is, unless I am driving back from Lake Tahoe. By descending 6,200 feet the regenerative braking system enables me to add 100 miles to my range, increasing it to 405 miles. All four wheels essentially act as electric turbines.
In a research paper published in the prestigious journal Science, a Cambridge University research team announced a major breakthrough in electrochemistry that would lead to a 500% increase in electric car ranges.
Expressed in terms of the S-1, it would drop the cost of the 1,000 pound lithium ion battery from $30,000 to $6,000, shrinking the overall cost of the vehicle to $86,000. That would enable it to compete with equivalent luxury models from Daimler Benz, BMW, and Lexus.
Alternatively, it could maintain the same battery weight and cost and boost the S-1 range to 1,450 miles.
Yikes!
The research was partially funded by the US Department of Energy. Cambridge University retains the patent, and is already working with several firms to move the technology forward.
The great leap forward is made possible through the use of a lithium-air formula in battery construction. The basic chemistry of lithium-air batteries is simple.
The cell generates electricity by combining lithium with oxygen to form lithium peroxide and is then recharged by applying a current to reverse the reaction. Making these reactions take place reliably, over many cycles, is the challenge.
The attraction here is that lithium air battery energy densities are ten times higher than the lithium ion batteries now in use. The Cambridge team was able to tweak battery performance through adding lithium iodide to the process.
Elon Musk has told me that he is shown dozens of new battery technologies every year. The problem is always the same.
The newfangled batteries can only be recharged once or twice. They develop ?tendrils? on the anodes and cathodes which make future recharges impossible.
The Cambridge professor, Dr. Clare Grey, says her team has been able to recharge their lithium air battery 2,000 times. That?s enough to get to the eight-year battery lifetime guarantee mandated by the state of California.
Tesla is no slouch. They have been tinkering with the electrochemistry of their batteries on their own. The recent series of cars has achieved a 5% boost in range to 290 miles through the addition of silicon to the battery cathodes.
Of course, it will take a few years before lithium-air batteries reach full commercial viability. New technology doesn?t exactly leap out of labs on to store shelves.
After all, current electric battery design is not too different from that first introduced in electric street trollies of the 1880s.
But my guess is that further research will bring greater battery ranges, not lesser ones.
The news could be better for Tesla. It has always been a ?faith? type stock, reliant on the development of futures technologies to achieve future profitability.
All of the profits announced so far have really been accounting tricks, reliant on generous government subsidies and the sale of carbon credits.
Shareholders have to believe that Tesla will become the world?s largest car maker in a decade, or they shouldn?t be in the shares. I believe Tesla can do it, but expect the road to be rocky.
Tesla is in effect a high risk venture capital investment that has already gone public.
Now, at last, we have the technology in hand.
For more background about this car from the future, read ?16 Facts and 6 Big Problems I discovered by Tearing Apart my Tesla S-1? by clicking here.? You must be logged into your account to view this article.
Tesla Has a Lot More Than Meets the Eye
What we are seeing now is nothing less than the complete remaking of the American energy supply.
It is a metamorphosis, just as, if not more, dramatic than the initial electrification of the United States launched by Thomas Edison in 1876.
Think of it as a disruptive technology with a turbocharger.
Eventually, the cost of energy will drop to near zero in today?s terms, possibly as soon as 2035. The consequences for your trading and investment portfolio will be tectonic.
This is what people don?t get about solar.
Traditional forms of energy production and consumption, such as for oil, coal, natural gas, and hydroelectric, are subject to only linear improvements. Solar ones benefit from exponential growth.
There is, in effect, a solar Moore?s Law that sees efficiencies per dollar spent doubling every four years, such as we have already seen with the faster growth of microprocessor efficiencies since the 1960?s. Exponential growth of efficiencies will bring exponential growth of profits.
I am old enough to have lived through several solar booms in the past, only to see them crash and burn.
In 1979, President Jimmy Carter installed panels on the White House roof to provide leadership during the Iran oil crisis, only to see them torn down by President Ronald Reagan three years later.
Solar is now growing far faster than any other power source in the US, some 50% a year for the past six years.
Annual installations of photovoltaic panels have soared from a token 0.3 gigawatts in 2000 to an impressive 7.286 gigawatts in 2015, more than enough to fuel 8.5 million American homes.
California alone now has 500,000 homes running on solar, about 4% of the total. Installation trucks from a myriad of different local companies are seen everywhere.
This is all happening because of the simultaneous maturing and cross-pollination of technology, regulation, financing, and venture capital.
A key development was Chinese entry into mass production of solar panels, which led to a near immediate 80% collapse in prices. They now control 70% of the global market.
But this also led to the bankruptcy of a large number of US producers, including the ill-fated Solyndra, which I drive by every time I visit Tesla.
Chinese exports of panels to the US are now subject to anti dumping duties. This was all a windfall for the installation business.
Also helping has been the 90% collapse in the price of polysilicon, a key manufacturing component. Silicone (Si) is, in fact, one of the most common elements on the planet.
Still, the soft costs of sales, design, permitting, and labor, account for two thirds of a new installation today. By the way, solar has also proven a prolific new job creator. I can assure you, the cost of labor is never going to zero.
Some 15 years ago, I tried to install solar on my home and sell peak power to the grid. PG&E told me this was ?illegal? because I would crash the grid, something I knew was patently false.
This time around, my city permits sailed through effortlessly, and I received a polite email from PG&E instructing me how to read my new ?net metering bill?. I wish renewing my driver?s license was so easy (that damn vision test).
For the first time in history, solar power is now cheaper than grid power on a non-subsidized basis. Costs are set to still fall dramatically from here. Fossil fuels are about to become, well, fossils.
The Paris based International Energy Agency, no slouch when it comes to analyzing power data, predicts that solar will account for 27% of the global power supply by 2050, and will become the biggest single source.
But futurologist friends of mine, like Tesla?s (TSLA) Elon Musk, Google?s head of engineering, Ray Kurzweil, and cosmologist Dr. Stephen Hawking, believe there is no reason why it shouldn?t be at 100% by 2030-35. To quote Kurzweil, ?we are only six more doublings away.?
Google (GOOG), by the way, is already one of the world?s largest generators and distributors of solar power, while Musk is the preeminent installer through his participation in Solar City (SCTY).
Governments have been pouring fuel on the solar fire. Germany took an early lead, installing a massive 35 gigawatts over the past decade. It has since decided to shutter its entire nuclear industry, and offset its production with alternatives. But many of its subsidy programs were deep sixed by the crash.
President Obama made a 30% investment tax credit a central plank of his 2009 supplementary budget, which led to the current American solar renaissance.
That incentive expires in 2021, after getting a five year extension in a rare bipartisan deal in congress.
President Obama also upped the ante by using the Environmental Protection Agency to force power utilities to cut carbon emissions by 32% from 2005 levels. That involves setting a target of 28% alternative energy power generation by 2030.
The whole idea of using natural gas as a low carbon stepping stone has been abandoned.
Hillary Clinton has recently weighed in with her own plans to shift the country from a carbon to a solar energy based economy, if elected president.
She wants nothing less than to eliminate all oil and gas subsidies worth $100?s of billions, and shift the money to alternatives.
That is a radical move. Her goal is to increase the solar share of American power generation to 33% by 2027.
Individual states have weighed in with their own measures. California has mandated that its residents obtain 30% of their power from alternatives by 2020.
More than two dozen other states have followed with similar measures, including several red ones. Solar is starting to transcend the political spectrum; the numbers are so compelling.
This isn?t just a US phenomenon, but a global one. Saudi Arabia has two of the world?s largest solar plants on the drawing board, to produce some 2 megawatts.
After all, why burn $5 oil when you can sell it to foreigners (mostly the Chinese) at an extravagant $50 a barrel. They are also major investors in the San Francisco alternative energy scene.
China is building far and away the biggest solar infrastructure, and wants to build 70 gigawatts over the next two years.
Japan has a 20% solar target, thanks to the Fukushima nuclear disaster. India plans to provide cheap electricity via solar to 100,000 villages for the first time.
Improving solar cell efficiencies promises to take us further and faster into this brave new world.
My own SunPower (SPWR) X-335 panels, with their patented Maxeon solar cells, convert 20.3% of the sunlight they receive into electricity, the highest in the industry. Cheap imported Chinese panels offer efficiencies as low as 16% and don't last nearly as long.
University labs have perfected cells with 45% efficiencies using advanced silicon compounds. I happen to know that the military has a 65% efficient cell. All that remains are the economies of mass production to bring them to the public market.
This is crucial for the solarization of the global economy. Every 1% improvement in efficiencies cuts that total cost of a new installed system by 5%.
With the trends already in place, it is safe to assume that solar energy costs will fall by at least 10% a year for the foreseeable future. First Solar (FSLR), which specializes in large scale, thin film, industrial facilities, expects solar costs to plunge from 63 cents per kilowatt in 2014 to only 40 cents by 2017.
Storage is another key part of the equation, as panels alone can only produce electricity during daylight. The cost of home storage batteries, which are charged by day and can run a home at night, have dropped by 70% over the
past five years.
They could drop another 70%, once Solar City completes its Nevada Gigafactory in 2017. That will double the planet?s lithium ion battery capacity in one shot. A second plant is planned.
For a more detailed explanation of that technology and the investment opportunities therein, please click here for Solar Energy?s Missing Link.
What are the investment implications of all this? Clearly all of the companies mentioned in this piece are about to see their market size increase 30 fold.
But, what about everyone else?
The elimination of energy as a cost has enormous consequences for all companies. You can start with the energy intensive ones in transportation, steel, and aluminum, and work your way down the list.
The profitability and efficiency of the entire economy will take a great leap forward, much like we saw with the mass industrialization that was first made possible by electricity during the 1920?s. Share prices of all kinds will go ballistic.
Dow 200,000 anyone?
Since energy costs will eventually fall effectively to zero, that wipes out the present business model of the entire electric power industry. It will be the same as trying to sell something that is free, like air.
That will force them to morph from energy producers to power distributors. Watch this space for a future piece on this issue.
So when readers ask me for the names of shares of companies that have the potential to rise tenfold in ten years, this is one industry I always steer them towards.
To save yourself months of research on how to install your own solar system, please click here for How to Buy a Solar System.
Joining the Brave, New World
Have you tried to hire a sewing machine operator lately?
I haven?t, but I have friends running major apparel companies who have (guess where I get all those tight fitting jeans?).
Guess what? There aren?t any to be had.
Since, 1990, some 77% of the American textiles workforce has been lost, when China joined the world economy in force, and the offshoring trend took flight.
Now that manufacturing is at last coming home, the race is on to find the workers to man it. Welcome to onshoring 2.0.
The development has been prompted by several seemingly unrelated events. There is an ongoing backlash to several disasters at garment makers in Bangladesh, the current low cost producer, which have killed thousands.
Today?s young consumers want to look cool, but have a clean conscience as well. That doesn?t happen when your threads are sewn together by child slave laborers working for $1 a day.
Several firms are now tapping into the high-end market where the well off are willingly paying top dollar for a well-made ?Made in America? label.
Look no further than?7 For All Mankind, which is offering just such a product at a discount to all recent buyers of the Tesla Model S-1 (TSLA), that other great all American manufacturer (click here for their website).
As a result, wages for cut and sew jobs are now among the fastest growing in the country, up 13.2% in real terms since 2007, versus a paltry 1.4% for industry as a whole.
Apparel industry recruiters are plastering high schools and church communities with flyers in their desperate quest for new workers. They advertise in languages with high proportions of blue-collar workers, like Spanish, Somali, and Hmong.
New immigrants are particularly being targeted. And yes, they are resorting to the technology that originally hollowed out their industry, creating websites to suck in new applicants.
Chinese workers now earn $3 an hour versus $9 plus benefits at the lowest paying US factories. But the extra cost is more than made up for by savings in transportation and logistics, and the rapid time to market.
That is a crucial advantage in today?s fast paced, high turnover fashion world. Some companies are even returning to the hiring practices of the past, offering free training programs and paid internships.
By now, we have all become experts in offshoring, the practice whereby American companies relocate manufacturing jobs overseas to take advantage of low wages, missing unions, the lack of regulation, and the paucity of environmental controls.
The strategy has been by far the largest source of new profits enjoyed by big companies for the past two decades. It has also been blamed for losses of US jobs, with some estimates reaching as high as 25 million.
When offshoring first started 50 years ago, it was a total no brainer.? Wages were sometimes 95% cheaper than those at home. The cost savings were so great that you could amortize your total capital costs in as little as two years.
So American electronics makers began flying overseas to Singapore, Thailand, Hong Kong, Taiwan, South Korea, and the Philippines. After the US normalized relations with China in 1978, the action moved there and found that labor was even cheaper.
Then, a funny thing happened. After 30 years of falling real American wages and soaring Chinese wages, offshoring isn?t such a great deal anymore. The average Chinese laborer earned $100 a year in 1977.
Today, it is $6,000 and $24,000 for trained technicians, with total compensation rising 20% a year. At this rate, US and Chinese wages will reach parity in about 10 years.
But wages won?t have to reach parity for onshoring to accelerate in a meaningful way. Investing in China is still not without risks. Managing a global supply chain is no piece of cake on a good day. Asian countries still lack much of the infrastructure that we take for granted here.
Natural disasters like earthquakes, fires and tidal waves can have a hugely disruptive impact on a manufacturing system that is in effect a finely tuned, incredibly complex watch.
There are also far larger political risks keeping a chunk of our manufacturing base in the Middle Kingdom than most Americans realize. With the US fleet and the Chinese military playing an endless game of chicken off the coast, we are one mid air collision away from a major diplomatic incident.
Protectionism constantly threatens to boil over in the US, whether it is over the dumping of chicken feet, tires, or the latest, solar cells.
This is what the visit to the Foxcon factory by Apple?s CEO, Tim Cook, was all about. Be nice to the workers there, let them work only 8 hours a day instead of 16, let them unionize, and guess what?
Work will come back to the US all the faster. The Chinese press was ripe with speculation that Apple induced reforms might spread to the rest of the country like wildfire.
Former General Motors (GM) CEO, Dan Akerson, told me his company was reconsidering its global production strategy in the wake of the Thai floods.
Which car company was most impacted by the Japanese tsunami? General Motors, which obtained a large portion of its transmissions there.
The impact of a real onshoring move on the US economy would be huge. Some economists estimate that as many as 10%-30% of the jobs lost to offshoring could return. At the high end, this could amount to 8 million jobs. That would cut our unemployment rate down by half, at least.
It would add $20-60 billion in GDP per year, or up to 0.4% in economic growth per year. It would also lead to a much stronger dollar, rising stocks, and lower bond prices. Is this what the stock market is trying to tell us by failing to have any meaningful correction for the past 2 ? years?
Who would be the biggest beneficiaries of an onshoring trend? Si! Ole! Mexico (UMX) (EWW), which took the biggest hit when China started soaking up all the low waged jobs in the world.
After that, the industrial Midwest has to figure pretty large, especially gutted Michigan. With real estate prices there under their 1992 lows, if there is a market at all, you know that doing business there costs a fraction of what it did 20 years ago.
So How Does This Thing Work?
I have seen the future, and it works.
In my never-ending search for my readers for ?ten-baggers,? or investments that will rise in value tenfold over the foreseeable future, I keep circling back to the solar industry.
Tesla founder Elon Musk never does anything small.
Last year he announced the first ever, economical home battery electrical storage system, which he calls the Powerwall.
The device will enable your roof-mounted solar panels to supply power to your home 24 hours a day, not just when the sun is shining.
It is an innovation on the scale of Thomas Edison?s invention of the light bulb in 1879, or the launch of the Internet in 1969, in terms of the long-term impact on our economy.
Shifting the source of a third of our power supply is a big deal.
You may recall that the early investors in these earlier transitions made fortunes, General Electric (GE) in Edison?s case, and Netscape that spun out of the early Internet days.
Today, General Electric is the only company that has remained in the Dow Average for the past 100 years. So, investors take note.
During the day, the panels will charge up the battery mounted on your garage wall, which is about the size of a big screen TV. At night, you can then run your home off battery power.
Alternatively, you can engage in what is known in the industry as ?load shifting.? Charge your battery at night when you can buy electricity for as little as 4 cents a kilowatt hour, and sell it back to your local utility during a power demand surge the next afternoon for as much as 50 cents a kWh.
Buy low, sell high, it works for me!
And what is the cost of the miracle technology?
Only $3,000 for a 7 kWh battery or $3,500 for the 10 kWh version for energy hogs, like me, who has to charge a Tesla Model S-1 every day, soon to be two.
You can also include as immediate customers for this new product sports addicts, who watch multiple games on ESPN 24/7, paranoids who keep the lights on all night and indoor pot farmers, whose energy needs are said to be prodigious. Of course, the military will be another big consumer.
I ran some numbers on the possibilities for the Powerwall and they are mind-boggling.
The average home in the US has 2,500 square feet, which uses 7,000 kWh per year, or 19 kWh per day. The current cost for this power will be around $2,000 a year, depending where you live, more in California, and less in Texas, Oklahoma, and North Carolina.
A solar/ battery combination for such a home should cost about $14,000, including installation, the panels, the inverter, and all the gizmos. Net out the alternative energy investment tax credit of 30% (IRS Form 5695 http://www.irs.gov/pub/irs-pdf/f5695.pdf ), and your cost falls to only $10,500.
That means your power savings will cover the cost of your solar investment in a mere 5 years, compared to the present 7 or 8 years. After that, your home will have free electricity for another 20 years, as the life of these systems is usually 25 years.
Make the investment, and the value of your home rises, by $2 for every dollar spent, or so local real estate agents tell me.
You also will be guaranteed against any future power rate increases, an absolute certainty. America?s power grid is currently in a woeful state of disrepair, with much of the hardware 50 years old, or more.
The demands on the power industry are also about to take a quantum leap forward, as millions of consumers buy electric cars. Tesla plans to ramp up production of vehicles from 40,000 units last year to 500,000 by 2020, when the $35,000, 300 mile range Tesla 3 achieves mass production.
Some of my over-the-horizon-thinking hedge fund friends believe that figure could hit 15 million by 2030.
Add to that new, competing electric models produced by every other major carmaker, and that?s a lot of juice that will be needed. As a result, electric power utilities will probably have to endure more structural changes to their business model than any other industry.
Trillions of dollars are needed to modernize it, and all of that is going to come out of your pocket, but only if you remain an existing power customer.
Indeed, I have already been notified by my own utility, Pacific Gas and Electric Company (PGE), that I am due for two consecutive 7% price increases over the next two years.
The battery will also provide a backup power supply for home for when the grid crashes. Twice in the last two decades I have lost a freezer full of venison, pheasants, quail, trout, and salmon that I hunted and fished when storms knocked out power, for a week each time.
The Powerwall prices are so low that they beat the cost of a conventional backup diesel or gasoline generator.
They will also wipe out most of the existing back up battery industry, as Tesla?s advantages gained through massive economies of scale are enormous. Musk is talking about producing billions of batteries.
The Powerwall is a game changer for the solar industry, which has long been hobbled by the limitation that it could only supply power for 12 hours a day, and less in the winter, depending on your latitude.
It certainly gives a shot in the arm for the solar industry, which I have been banging the table about for years. My favorite is Solar City (SCTY). Other names to look at are First Solar (FSLR) and SunPower (SPWR), which manufactures my own solar panels.
It also casts Musk?s own Tesla (TSLA) in a new light. It is no longer just a car company, but a comprehensive energy solution. Musk has already made one of the largest capital investments in history to build a $5 billion ?Giga? factory near Reno, Nevada.
Much of that plant?s production has already been pre sold, and I understand that the decision has already been made to build a second one. Wow!
Consumers are able to purchase the new batteries from the Texas based retailer, TreeHouse, (their link https://treehouse.co/treehouse-is-first-retailer-to-sell-tesla-home-battery/ ).
Musk explains that the world consumes 20 trillion kWh per year of electricity.
In the US, 1/3 of our fossil fuel consumption goes to transportation, and another 1/3 generates electric power, which is the equivalent to consuming 225 billion gallons of gasoline per year (or 8 billion barrels of oil per year, or 22 million barrels a day).
His goal is nothing less than to largely substitute those fossil fuel uses with solar energy, cutting our fossil fuel consumption by 2/3.
I guess there is no point in setting the bar low.
Meet the Next Light Bulb
The Tesla Model S1 (TSLA) has been rated by Consumer Reports magazine as the best car ever built, grabbing a covered 100 score out of 100. They called the vehicle ?perfect.?
It has been ranked by the US government Department of Transportation as the safest car ever built. Even competitors love the car.
So I decided to see if these vaunted claims were true and crash test my own $110,000 high performance Model S1 on public streets.
Actually, it wasn?t I who made the decision. It was the harried housewife with four screaming kids in the back seat speaking on a cell phone while driving who made that call.
She drove her GMC Silverado quad cab pickup truck straight into the side of my Tesla.
All I heard was a loud horn and a big slam as my car spun around 360 degrees. It was like going through aerobatic pilot school all over again.
I jumped out and asked if everyone was alright. They were.
All I found were four deadly silent boys and a woman crying over the phone to her husband about how his brand new truck had just gotten a small dent on the front bumper.
I inspected the barely visible damage, took pictures (see below), and calculated that her repairs would run about $1,500.
Bottom line on the safety issue? I didn?t even know that I had been in an accident. The vehicle is essentially a giant crumple zone. But it comes at a high price.
All four ultra thin racing tires tore off the wheels during the spin (expensive). That meant the custom painted 21-inch wheels had to scrape along the pavement, destroying them (more expensive). After teaching the AAA tow truck guy how to drive it, he hauled it away.
It was then that I learned about the arcane world of fixing Tesla?s.
Since the car is made out of aluminum, no neighborhood body shop can work on them, as it melts at a much lower temperature than steel. Standard welders are not allowed.
There are in fact only three specialized niche repair shops in the entire San Francisco Bay Area that can work with this ultra lightweight metal.
Brooks Auto Body of Oakland is one of them.
When I stopped by to talk about the job, the owner, a 6 foot 6 inch Korean guy, was in too much of a good mood. I would find out why later. Behind him were 16 other Tesla?s in varying states of disassembly.
News flash: These things are not cars. They are more like giant computers, with an 18-inch screen and a 1,200-pound battery. None of the components looked anything like car parts. Only the wheels belied any connection with transportation.
It took two months to finish the repairs. Since Tesla would only sign off on the car when it was perfect, it was sent back to the factory in Fremont three times for additional realignment and recalibration.
The final bill came to $32,000. The good news is that my lithium ion battery was fine, which would have cost an extra $30,000 to replace.
The really humiliating thing about the entire experience was that I had to drive a KIA Optima loaner until the Tesla was back in action. So for eight weeks, my life was dull, mean, and brutish.
Driving on the freeway, every nut and bolt made its presence felt. Wherever I went I left a trail of parts. And I had to buy gas at those ugly places that sell cigarettes, chewing tobacco, and condoms! Yuck! Once you?ve had electric, you never go back.
All of which brings me to Tesla?s share price, which has just taken a swan dive from $295 to $182 as hot money fled the big momentum names this year.
Let me tell you that the revolutionary vehicle is still wildly misunderstood, and the company has done a lousy job making its case. I guess you can afford that luxury when consumers line up for a year to buy your product.
The electric power source is, in fact, the least important aspect of the car. Here are 15 reasons that are more important:
1) The vehicle has 75% fewer parts than any other, massively reducing production costs. The drive train has 11 parts, compared to over 1,500 for conventional gasoline powered transportation. Tour the factory and it is eerily silent. There are almost no people, just a handful who service the German robots that put these things together.
2) No maintenance is required, as any engineer will tell you about electric motors. You just rotate the tires every 6,000 miles.
3) This means that no dealer network is required. There is nothing to fix.
4) If you do need to repair something, usually it can be done over the phone. Rebooting the computer addresses most issues. If not, they will send a van to do an onsite repair for free.
5) The car runs at room temperature, not the 500 degrees in standard internal combustion cars. This means that the parts last forever.
6) The car is connected to the Internet 24/7. Once a month it upgrades its own software when you are sleeping. You jump in the car the next morning and a message appears on your screen saying, ?We just upgraded the following 20 Apps.? This is the first car I ever owned that improved itself with age, as I do myself.
7) This is how most of the recalls have been done as well, over the Internet while you are sleeping.
8) If you need to recharge at a public station, it is free. Tesla has its own national network of superchargers that will top you up in 45 minutes, and allow you to drive across the country. (I can?t wait to try out the one in Winnemucca, Nevada on my trip to Chicago). But hotels and businesses have figured out that electric car drivers are the kind of big spending customers they want to attract. So public stations have been multiplying like rabbits. When I first started driving my Nissan Leaf in 2010 there were only 25 charging stations in the Bay Area. There are now over 1,000. They even have them at Costco.
9) No engine means a lot more space for other things, like storage. You get two trunks, a generous one behind, and a ?frunk? in front.
10) Drive an electric car and you can drive in the HOV commuter lanes as a single driver. This won?t last forever, but it?s a nice perk now. In California you are treated as visiting royalty.
11) There is a large and growing market for all American made products. Tesla has by far the highest percentage of US parts (100%) than any of the big three.
12) Since almost every part is made on site at the Fremont factory, supply line disruptions are eliminated. Most American cars are over dependent on Asian supply lines for parts and frequently fall victim to disruptions, like the Fukushima nuclear disaster.
13) There are almost no controls, providing for more cost savings. Except for the drive train, windows, and turn signals, all vehicle controls are on the touch screen, like a giant iPhone 5s.
14) A number of readers have argued that the Tesla really runs on coal, as this is still the source of 36% of the US power supply. However, if you program the car between midnight and 7:00 AM (one of my ideas that Tesla adopted in a recent upgrade), you are using electricity generated by the utilities to maintain grid integrity at night that otherwise goes unused and wasted. How much power is wasted like this in the US every night? Enough to recharge 150 million cars per night. As for me, I can recharge my car directly from solar panels.
15) Oh yes, the car is good for the environment, a big political issue for at least half the country.
No machine made by humans is perfect. So in the interest of full disclosure, here are a few things Tesla did not tell you before you bought the car.
1) There is no spare tire or jack, just an instant repair kit in a can.
2) The car weighs a staggering 3 tons, so conventional jacks don?t work. Lithium is heavy
stuff.
3) The car is only 8 inches off the ground, so only a scissor jack works.
4) The 21-inch tires on the high performance model are a special order. Get a blowout in the middle of nowhere and you could get stranded for days. So if you plan to drive to remote places, Like Lake Tahoe, as I do, better carry a 19-inch spare in the ?frunk? to get you back home.
5) If you let some dummy out in the boonies jack the car up the wrong way, he might puncture the battery and set it on fire. It will be a decade before many mechanics learn how to work with this advanced technology. The solution here is to put a hockey puck between the car and the jack. And good luck explaining what this is to a Californian.
6) With my Leaf, I always carried a 100-foot extension cord in the trunk. If power got low, I just stopped for lunch at the nearest sushi shop and plugged in for a charge. Not so with Tesla. You are limited to using their own proprietary 20-foot charging cable, or it won?t work.
The investment play here is not with the current Model S1, which is really just a test bed for the company to learn how to execute real mass production.
This is why the current price/earnings multiple is meaningless. Battery technologies are advancing so fast now, that range/weights are doubling every four years.
That means that in 2018 you should be able to buy the new Tesla 3 for $35,000 that gets 300 miles per charge and requires no fuel or maintenance for the life of the vehicle. That will be the same as paying $18,000 for a conventional gasoline powered model on a lifetime all in cost basis.
And guess what? Detroit is so far behind developing this technology that they will never catch up. My guess is that they eventually buy batteries and drive trains from Tesla on a licensed basis, as Toyota (for the RAV4) and Daimler Benz (for the A Class) already are.
All of Detroit?s existing hybrid technologies are older versions similarly purchased from the Japanese (bet you didn?t know that).
That leaves the global car market to Tesla for the taking. Sales in China started at a price 50% higher than here in the US, and the early indications are that they will be an absolute blowout. Government support there is no surprise, given that the air pollution in Beijing is so thick you can cut it with a knife.
This is when Tesla?s production rockets from the current 50,000 annual units to over 500,000 and takes over the world. That will boost the shares from the present $182 to over $500.
I would say $1,000 a share, but I don?t want to give it the Apple (AAPL) curse. So if you can use the current weakness to buy it under $160, you will be well rewarded.
You might also go out and buy a Model S1 for yourself as well. It?s like driving a street legal Formula 1 racecar and is a total blast. Just watch out for drivers of Silverado?s speaking on cell phones.
Tesla?s Free Supercharger Network
Not Much of a Wait at the Vacaville Supercharger
$1,500 Worth of Damage
$32,000 Worth of Damage
But the Motor Was Fine
I firmly believe that simple solutions to our energy problems are in the process of coming out of the blue, and are something no one is thinking about now.
Add up the contributions of many small improvements, and the cumulative change will alter our economic future beyond all recognition. Here are two of them.
General Electric (GE) is now mass-producing their ?Smart Energy LED Bulb,? which can screw into a conventional socket and produce the same amount of light as a 60-watt bulb, but consume only nine watts of power.
Some 22% of America?s electric power supply is used for lighting, and this bulb could cut our total consumption by 17.6%.
Other bulb manufacturers are getting into the game, like Philips, Osram, Toshiba, and Panasonic, which are already offering more efficient designs. The downside is that, while they last 25,000 hours, or ten times longer than a conventional incandescent bulb, they will initially cost $15-$25.
Economies of scale are expected to bring costs down dramatically in a few years. The Department of Energy has selected Seattle as the test bed for an all LED (light emitting diode) public lighting system.
Here is another game changer for our energy woes. If you double conventional car engine efficiency, US oil consumption drops by half. This is not so hard to do. The US government has already mandated that US car makers achieve an average fleet mileage of 54.5 miles per gallon by 2025.
They are hoping this will lower the cost of gasoline to $1 a gallon by then. They may get their wish this year instead.
One of the first things you learn in a freshman level physics class is how inefficient an internal combustion engine is, using hundreds of moving parts operating at 500 degrees to convert only 25% of the energy input into to motion.?
Tesla?s (TSLA) entire electric drive train has just 11 moving parts, operate at room temperature, and convert 80% of its energy into motion. When they go to the mass market in two years with the $35,000 Tesla 3, it will have a huge impact on our overall energy picture
Add this in with the surging supplies of American shale oil, and the utter collapse of the price of Texas tea (USO) over the past six months is suddenly starts to make incredible sense.
I didn?t mean to rip apart my $110,000 Tesla Signature Series S1.
The soccer mom texting while driving her GM Silverado pickup truck who T-boned me made that decision.
Why not make lemonade out of lemons?
So I studiously took notes while a specialized body shop carefully took apart the revolutionary car from the future, and then gingerly put it back together.
What I discovered was incredible.
It was also immensely valuable in gaining insight into how to trade one of the most controversial and volatile stocks in the market.
During last month?s Concourse d? Elegance vintage car show at Pebble Beach, California, I managed to catch up with Tesla?s senior management. All lights were flashing green, and it was full speed ahead.
The new Gigafactory being built outside Reno, Nevada will pave the way for the firm?s entry into the mass market. The big issue in selecting a site was not cost or subsidies, but the permitting process.
In Nevada, where almost everything is legal, you can get a building permit in 30 days, compared to months elsewhere, and years in California.
Expect to see the Model Tesla 3 out in three years, which will cost $35,000 and get a 300-mile range. Buying a car at that price, with no maintenance and free fuel for life, is the same as paying $20,000 for a gasoline driven car.
That?s when Tesla ramps up production from this year?s 40,000 units to 500,000, turning the ?Big Three? auto makers into the ?Big Four.? This is why the big institutional investors are going gaga over the stock.
All that has been missing this year has been a decent entry point to buy the stock. It now appears we have one, the stock giving up 17% from its August, 2014 $295 high.
All of which brings me to Tesla?s share price, which has just taken a swan dive from $265 to $190 on the flash crash day, as hot money fled the big momentum names.
Let me tell you that the revolutionary vehicle is still wildly misunderstood, and the company has done a lousy job making its case. I guess you can afford that luxury when consumers line up for a year to buy your product.
The electric power source is, in fact, the least important aspect of the Tesla cars. Here are 16 reasons that are more important:
1) The vehicle has 75% fewer parts than any other, massively reducing production costs. The drive train has 11 parts, compared to over 1,500 for conventional gasoline powered transportation. Tour the factory and it is eerily silent. There are almost no people, just a handful who service the German robots that put these things together.
2) No maintenance is required, as any engineer will tell you about electric motors. You just rotate the tires every 6,000 miles.
3) This means that no dealer network is required. There is nothing to fix.
4) If you do need to repair something, usually it can be done over the phone. Rebooting the computer addresses most issues. If not, they will send a van to do a repair at your house for free.
5) The car runs at room temperature, not the 500 degrees in standard internal combustion cars. This means that the parts last forever.
6) The car is connected to the Internet 24/7. Once a month it upgrades its own software when you are sleeping. You jump in the car the next morning and a message appears on your screen saying, ?We just upgraded the following 20 Apps.? This is the first car I ever owned that improved itself with age, as I do myself.
7) This is how most of the recalls have been done as well, over the Internet while you are sleeping.
8) If you need to recharge at a public station, it is free. Tesla has its own national network of superchargers that will top you up in 45 minutes, and allow you to drive across the country (see map below). But hotels and businesses have figured out that electric car drivers are the kind of big spending customers they want to attract. So public stations have been multiplying like rabbits. When I first started driving my Nissan Leaf in 2010 there were only 25 charging stations in the Bay Area. There are now over 1,000. They even have them at Costco.
9) No engine means a lot more space for other things, like storage. You get two trunks in the Model-S, a generous one behind, and a ?frunk? in front.
10) Drive an electric car in California, and you are treated like visiting royalty. You can drive in the HOV commuter lanes as a single driver. This won?t last forever, but it?s a nice perk now.
11) There is a large and growing market for all American made products. Tesla has a far higher percentage of US parts (100%) than any of the big three.
12) Since almost every part is made on site at the Fremont factory, supply line disruptions are eliminated. Most American cars are over dependent on Asian supply lines for parts and frequently fall victim to disruptions, like floods and tidal waves.
13) There are almost no controls, providing for more cost savings. Except for the drive train, windows, and turn signals, all vehicle controls are on the touch screen, like a giant iPhone 6 plus.
14) A number of readers have argued that the Tesla really runs on coal, as this is still the source of 36% of the US power supply. However, if you program the car between midnight and 7:00 AM (one of my ideas that Tesla adopted in a recent upgrade), you are using electricity generated by the utilities to maintain grid integrity at night that otherwise goes unused and wasted. How much power is wasted like this in the US every night? Enough to recharge 150 million cars per night!
15) With a one-year waiting list for new Model X orders, Tesla does not need to advertise. This is one of the biggest expenses of the Detroit Big Three.
16) Oh yes, the car is good for the environment, a big political issue for at least half the country.
No machine made by humans is perfect. So in the interest of full disclosure, here are a few things Tesla did not tell you before you bought the car.
1) There is no spare tire or jack, just an instant repair kit in a can.
2) The car weighs a staggering 3 tons, so conventional jacks don?t work. Lithium is heavy stuff, and the electric rotors and stators on the wheels that generate power weigh 250 pounds each. This means you only get 12,000 miles per set of tires.
3) The car is only 8 inches off the ground, so only a scissor jack works.
4) The 21-inch tires on the high performance model are a special order. Get a blowout in the middle of nowhere and you could get stranded for days. So if you plan to drive to remote places, like Lake Tahoe, as I do, better carry a 19-inch spare in the ?frunk? to get you back home.
5) If you let some dummy out in the boonies jack the car up the wrong way, he might puncture the battery and set it on fire. It will be a decade before many mechanics learn how to work with this advanced technology. The solution here is to put a hockey puck between the car and the jack. And good luck explaining what this is to a Californian.
6) With my Nissan Leaf, I always carried a 100-foot extension cord in the trunk. If power got low, I just stopped for lunch at the nearest sushi shop and plugged in for a charge. Not so with Tesla. You are limited to using their 20-foot charging cable, or it won?t work. Tesla says this is because they can?t risk the variation of voltage that comes with a long cable.
The investment play here is not with the current Model S1, which is really just a test bed for the company to learn how to execute real mass production. This is why the current price/earnings multiple is meaningless. Battery technologies are advancing so fast now, that range/weights are doubling every four years.
And guess what? Detroit is so far behind developing this technology that they will never catch up. My guess is that they eventually buy batteries and drive trains from Tesla on a licensed basis,
as Toyota (for the RAV4) and Daimler Benz (for the A Class) already are.
Detroit?s entire existing hybrid technologies are older versions similarly purchased from the Japanese (bet you didn?t know that).
All of this will boost the shares from the present $250 to over $500. I would say $1,000 a share, but I don?t want to give it the Apple (AAPL) curse. So if you can use the current weakness to buy it under $250, you will be well rewarded.
You might also go out and buy a Model S1 for yourself as well. It?s like driving a street legal Formula 1 racecar and is a total blast. Just watch out for soccer moms driving Silverado?s speaking on cell phones.
