June 29, 2013

Why Tesla’s Battery Swapping Won’t Work

Let’s start by stating right up front that this is not a Tesla (TSLA) bashing article. They are clearly a pioneer and a successful one at that. They have built a great car, but more importantly they are doing everything they can to remove the barriers that are currently blocking the EV (Electric Vehicle) revolution. Over the past six months, the stock has jumped more than 192% to recently break $100.00 per share, and any success in this area could set the stage for greater EV adoption for not only Tesla but also the entire industry.

A billionaire who believes enough in the mission that he steps out from behind the corporate shield and risks his personal fortune to guarantee the residual value of a leased Model S, because the banks were too afraid is nearly unheard of these days. But, I’m sure Henry Ford (F) had to perform similar acts of heroism to overcome the various obstacles that presented themselves at the time of the great launch of the gasoline based automobile in the early 1900’s.

Similarly, Tesla Motors is trying to actually jump start the build out of high speed charging stations. Obviously, they are hoping that as EV’s become more popular, and that some enterprising companies will relieve them of that heavy load, eventually making high speed charging stations as popular in America as the corner gas station. This immense effort would be akin to General Motors (GM) trying to be Exxon (XOM) before there was an Exxon or any gasoline company.

Why would Tesla take such a massive task? Because they realize that their vehicles can’t really flourish until they can be recharged quickly and virtually anywhere.

But, Tesla must surely realize that fast charging has its limitations. They can currently fill a Model S’s 85kwhr pack in about an hour if it is completely drained. Why don’t they fill it in 6 minutes (the typical time it takes to refill a gasoline car)? Two reasons:

1) The stations would have to have about 10 times the capacity they currently have.

2) Even if the charging station could supply that much current, the batteries could not drink it that quickly without damaging them severely.

So, in a very admirable fashion, Tesla continues to innovate, and use their newly found vast resources to try to get around the lack of charging infrastructure that is holding back their complete and total domination of planet earth. After all, it took 100 years and countless billions to get a gas station on virtually every corner of this country. Tesla is just trying to nudge the world quicker and make it happen in a tenth the time.

However, this time they may have missed the mark. Not that they should be chastised or criticized, rather they should be applauded for their unyielding quest to clear the roadblock. No one bats 100 percent – not even Tony Stark. A company called Better Place filed for the Israeli version of Bankruptcy on Memorial Day after spending $850 million trying to build out a battery-swapping network in Israel. The challenges associated with battery swapping are enormous and just don’t make sense at this time.

To begin with, one has to assume that any large scale effort to build out the mechanical marvels that automatically swap a battery pack, while the owner goes in to the Quick Shop for some beef Jerky can only be taken seriously if the units would serve all EV’s not just Tesla vehicles. And to get all manufacturers to agree to common formats for battery packs is unrealistic. They can barely agree on the diameter of the filling hole for the gas pump nozzle so that all vehicles can be filled up at all gas stations.

But let’s assume that a miracle happens and all EV manufacturers agree on the physical format of battery packs so that they conform to the Tesla design. What about the inside of the pack. All the different battery chemistries (both now and on into the future) and configurations and electronics and cooling/heating methods would make it virtually impossible to support for the swapping station owner. And what about the car that rolls in with a pack that is almost at end of life or a the very least has three or 4 cells that are about to die…. and then leaves the station with a nice new pack (probably worth $30,000). And what happens when an EV is involved in a crash, and the expensive battery pack is damaged… whose pack is it and who pays? Just too many parts of the universe have to be aligned to make battery swapping viable.

Does this mean that EV’s are doomed and destined never to gain any meaningful scale? No, not at all. On the contrary, we believe that EV’s will rule the day, but that day is years away and even Tesla can’t expedite that too much. However, there are pockets of the industry where EV’s are a perfect fit, right now. No infrastructure required!

For instance, medium duty (20,000lbs) delivery trucks typically go less than 100 miles a day and return to the same place every night where they can be charged with existing electrical infrastructure. Plus, these trucks stop and go a lot and therefore get very poor gas mileage running on diesel – typically 7-10mpg. Electric trucks are very efficient in low speed, stop and go scenarios and get the equivalent of about 30mpg (better than a Toyota Camry in the city). The only public firm we know of that is launching All Electric delivery trucks is AMP Holding (AMPD.OB).

After buying the Workhorse® truck division from Navistar, AMP Holding is planning on producing all electric, medium duty truck as well as other trucks running on alternative fuels such as Propane and CNG. AMP Holding completed independent testing of the all-electric vehicles in April of this year, after 4,000 miles of testing during Ohio’s rough winter, and the vehicle will be unveiled next week at the ACT Expo 2013 Ride & Drive, where many of its would-be customers will be in attendance.

Tesla is clearly breaking ground in the EV Space and it is to the benefit of everyone who shares in their vision for our country. There are challenges that are inherent in Tesla’s progression, with battery charging and swapping being a significant obstacle. It will be interesting to see how Tesla deals with this hurdle as they move forward, particularly after the recent run-up in their stock price.

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