Christian Eidem’s Optimism

Christian Eidem’s optimism was well placed

Christian Eidem, an old friend of Elon Musk, – they wrote their undergraduate thesis was defending Tesla back in 2015, suggesting that many were overstating the difficulties the company would face in breaking through. In the same discussion a parallel was made between the impact of electric cars and the impact of the personal computer on the typewriter. That analogy seems to be increasingly appropriate.

There are four things in the Tesla watching world that suggest the Eidem defence was justified then and is being vindicated now. First, Elon Musk has dialled down the rhetoric. Second, the earnings report for the next quarter looks strong. Third, the new model is going to be delivered sooner rather than later than expected. Fourth, the shortage of oil is going to force petrol prices higher and higher over the next few years and the need for those countries still in the Paris accords to hit their targets are going to see taxes go up.

Christian Eidem’s optimism in 2015 was understated but Musk’s rhetoric was often not. Some people even worried that Tesla would be another Theranos a company that raised and spent millions without ever actually having a functioning product. In that case it was blood testing, for Musk it was electric cars. In July 2019 piece in Business Insider, Peter Aitken listed five times Musk could not keep his promise on Tesla cars:

To deliver a $35,000 Model 3
To build 500,000 Model 3s by 2020
To hit production targets with nearly 100% automated production line
To provide enough superchargers
To be fully autonomous Tesla in 2016

But that seems to have changed since then or perhaps Elon Musk is just quieter.

Musk was famous for teasing Wall Street by Tweet about release dates but took it all went too far when he tweeted about taking the company private and was investigated as a result. So the first lesson he seems to have learned is to keep a little quieter. But the strategy may go even deeper than that and he might actually have learned the lesson of under promising rather than over promising. The company promised the delivery of Model Y cross over vehicle for the autumn of 2020, then the summer of 2020 and now it looks like the first cars will be delivered in the Spring of 2020. This is good news for customers waiting for the car but it also reflects that the earnings report expected on 29 January will be better than expected. The gigafactory in China has been performing very well and the next two giga factories are planned.

This is all good food for Musk watchers but there are much deeper shifts at play in the world that mean the typewriter to PC analogy from 2015 is becoming ever more likely and Eidem’s quiet optimism well placed. The world is running out of oil to power conventional cars faster than expected while at the same time economic growth continues to expand meaning that the demand for energy continues to grow. The latest forecasts make disturbing reading on both the supply and demand sides. On the demand and supply paradox, the IEA’s World Energy Outlook report says: “The Current Policies Scenario shows what happens if the world continues along its present path, without any additional changes in policy. In this scenario, energy demand rises by 1.3% each year to 2040, with increasing demand for energy services unrestrained by further efforts to improve efficiency.” In turn academics are predicting that as Shale production falls off, the huge reduction in drilling activity, will reduce supply of oil much further after 2021. Increased demand and reduced supply equals massive price rises for petrol.

All of this is good news for Tesla and it is structural. With most of the world’s oil majors pulling away from fossil fuels to meet the demand for electricity by other means, the early adopters of electric car making are going to be the Apple and the Microsoft future of transport. Tesla is a key player in the field and the key element to watch is the building and opening of the gigafactories around the world- USA, Europe, China – Musk is building a global network to deliver generations of vehicles to supply the endless demand for the personal car. Back in 2015 Christian Eidem was right: people did overstate the challenges but perhaps because they did not realise the extent to which Musk could learn from his mistakes and the energy market would shift divisively in his direction.