Will the Tesla Supercharger network sink the company, or help it fly high?

Is the Tesla Supercharger network a big money pit that will sink the company, or is it an uber-cool strategy that will propel Tesla to greatness?  That’s a big question we’re pondering, and in the balance hangs not just a scrappy start-up electric car company, but the whole project of electric car adoption.  While the major automakers are building electric cars, Tesla is way ahead in terms of technology development and the Tesla Model S is selling quickly, well, quickly for a $90,000 luxury car, that is.  A big piece of that technology is the Supercharger, but many of us are worrying over the question of how Tesla will pay for the Supercharger network.

Projected eventual Tesla Supercharger network

The Supercharger is Tesla’s DC Fast Charging system, and is incompatible with other DC Fast Charging such as CHAdeMO or the Combined Charging System.  It is a revolutionary system on many levels, offering a different cost-benefit-ratio than other public electric car charging systems.  The plan is to roll out a nationwide network not just in the U.S. but in Europe of the Supercharger stations, each one allowing a Model S or Model X to fully recharge in about an hour, at zero cost to the Model S or Model X owner, and to be integrated with solar panels to help offset the electricity consumption.

The 85 kilowatt-hour Tesla Model S is the first electric car that can easily replicate the road trip experience.
While this is amazing – free fuel for all, and no gasoline – each Supercharger station has to cost $100,000 or more to install.  At 400 or so stations to cover the U.S. you’re talking $40 million, maybe more.  This isn’t scalable, which leaves us wondering just what Elon Musk is up to.  He’s not a stupid guy, he started Paypal, SpaceX, is the Chairman of Solar City, and co-founder of Tesla Motors.  This is quite a track record of business development, so he’s got something up his sleeve.

Oh, and he promised a big announcement next week in which he’ll put his money where his mouth is.

A post by Randy Carlson on Seeking Alpha makes a great stab at explaining a plausible business model for the Tesla Supercharger network.  Namely, Tesla intends to license it out to 3rd parties.  See http://seekingalpha.com/article/1300141-supercharging-tesla

Say what?

An obvious first thing to say about the Supercharger network, is that Tesla will gain a benefit because it will make the Model S and Model X even more attractive because the company is giving away free fuel.  But – that begs a question – just how much free fuel can Tesla afford to give away?

What Carlson suggests is he’s figured out a way Tesla could make more money by giving away free fuel than they could by selling cars, and that Tesla’s management can do this without diluting existing shareholders, and that they’re already heading down this path.

The key is to license the technology out to other automakers.  The obvious choices are Toyota and Daimler, both of whom have invested in Tesla Motors.

The licensed technology could bring Tesla as much as $2000 per car sold, according to Carlson’s thinking.  I’m not sure about that because the automakers would be weighing between the cost of different fast charging systems.  How much does the on-board equipment for the Combined Charging System cost?  Or for 43 kilowatt three phase AC as is on the Renault ZOE?  Does the on-board equipment for the Tesla Supercharger cost more or less?  Are the potential buyers be willing to pay more for a faster charging system?

Superchargers California 2013In Carlson’s reckoning each car with a Supercharger system turns into $2000 or so of money paying for the Supercharger network.  As cars are sold, that will mean more revenue piling into the system.

Carlson see’s the Model S and Model X as demonstrating the superiority and lower costs of their technology.  Based on that, some of the other automakers would buy into their system instead of buying into the Combined Charging System.  By doing so the other automakers might also be able to offer free fuel at the Tesla Supercharger stations to their customers.

In other words, Carlson see’s “free fuel” as a big carrot that Tesla is dangling in front of prospective Model S owners, and that other automakers might want to get in on the same “free fuel” bandwagon.  That will incentivize purchases of Supercharger compatible electric cars, and get Tesla a lot of money in licensing fees.

Tesla would have to manage the money so they don’t blow it all at once.

Additionally he goes over a concept that I agree with – that the Supercharger stations have two aspects which help to directly generate revenue.  The first is the solar panels that will be integrated with all or most of the stations.  The second is grid energy storage units that are presumably installed along with the charging stations.

Fast charging stations have an operational cost disadvantage – many utility companies impose “demand charges” on customers who cause sudden electricity demand spikes.  Fast charging stations are an example of a demand spike, because one minute the station is pulling 0 kilowatts and the next it’s pulling 90 kilowatts just because someone drove up and plugged in.  90 kilowatts is a heck of a lot of electricity.

Grid energy storage systems are essentially a big battery pack connected to the electrical grid, and configured to both charge the pack from the grid, and to sell energy back to the grid.  Many companies are looking to earn megabucks offering “grid stabilization” services.  For example a company could buy electricity at 3AM when it’s cheap, and then sell it back to the grid at 2pm when electricity is expensive.  That’s a classical arbitrage play, yes?  What makes it real interesting is there are times when electricity is “dollar cost negative” meaning that the electricity generator is paying people to take their electricity.  The grid energy storage owner would be paid to take electricity at 3AM, and then paid to send that electricity back into the grid when it’s needed in the afternoon.

How this would work for the Tesla Supercharger system is the above, plus using that energy storage system to provide the juice that refuels the electric cars.  Tesla would be buying electricity cheap in the middle of the night, and might sell it back to the grid, or might use it to recharge an electric car.

The details are here:- http://seekingalpha.com/article/1300141-supercharging-tesla

About David Herron

David Herron is a writer and software engineer living in Silicon Valley. He primarily writes about electric vehicles, clean energy systems, climate change, peak oil and related issues. When not writing he indulges in software projects and is sometimes employed as a software engineer. David has written for sites like PlugInCars and TorqueNews, and worked for companies like Sun Microsystems and Yahoo.

About David Herron

David Herron is a writer and software engineer living in Silicon Valley. He primarily writes about electric vehicles, clean energy systems, climate change, peak oil and related issues. When not writing he indulges in software projects and is sometimes employed as a software engineer. David has written for sites like PlugInCars and TorqueNews, and worked for companies like Sun Microsystems and Yahoo.

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