How many times have you heard something like “This company is Tesla’s biggest competitor”
or “that new EV is going to put Tesla out of business” I find those types of stories
everywhere, and every-time I’d see one of those pieces, it never felt like they were
on the right track.
They’re saying that Volkswagen or GM or Toyota or whoever is going to crush Tesla,
and while I don’t think thats true at all, I don’t even think the premise of the argument
is true, let me explain.
If you’ve heard it once you’ve heard it a thousand times, but I gotta say it agian,
Tesla isn’t a car company, its hard to put your finger on what they are exactly, but
I’d call them a software and technology company focused on sustainability.
They do build cars of course, but its much bigger than that.
So when we look at who Tesla’s real biggest competition is, we have to use a broader lens.
Tesla has been very clear that its mission is to accelerate the world’s transition
to sustainable energy.
Thats why they’re making electric cars, but thats only a part of the equation.
In their own words they say their goal is “To create an entire sustainable energy
ecosystem, Tesla also manufactures a unique set of energy solutions, Powerwall, Powerpack
and Solar Roof, enabling homeowners, businesses, and utilities to manage renewable energy generation,
storage, and consumption.”
And here’s where things get juicy.
Tesla isn’t just trying to compete against the likes of legacy auto, they’re actually
competing against energy companies themselves, which today is made up of an oligopoly of
fossil fuel companies.
If you look at the largest energy companies, they’re all dinosaur burning, but by far
and away the most valuable one of these is Saudi Aramco.
Saudi Armco is the largest oil producer in the world, and as of just a few weeks ago,
they passed apple to be the largest company in the world by market cap, at over 2 trillion
dollars.
Its almost hard to imagine just how big this company is, then I found this infographic
that gives a really good visual.
Saudi Aramco is first for market cap, and are you ready for this?
Its larger than 2nd through 10th largest COMBINED.
Like you add up exxonmobile and chevron and shell and petrochina and BP and its still
not as big as Saudi Aramco.
All this to say, this is a giant among giants, and this is going to sound crazy, but this
is Tesla’s real competition.
And before you call me crazy, check out this tweet from Elon Musk.
“However, I also think that Tesla has the potential to be the most valuable company
ever.
When Tesla's market cap, making sustainable energy products, exceeds that of Aramco, producing
fossil fuels, you know the future will be good for Earth.”
Sustainable energy is at direct odds with big oil and fossil fuel energy production.
Oil is used for a bunch of different stuff, not just gasoline, but according to the US
department of energy, 47% of crude oil is used for gasoline, and if we add in diesel
and heating oil, that makes up 70%.
So transitioning to electric vehicles won’t cut oil usage down to 0, but it will put a
massive dent in demand.
If Tesla truly wants to create a future that uses sustainable energy, they’re going to
have to tackle the current energy oligopoly that is big oil.
While their primary focus at the moment is on cars, they’re also increasing other areas
of their business that compete with the energy superpowers, and Elon Musk has given us some
insight into that path.
One example is their mega-packs which are basically grid scale battery storage systems,
capable of powering entire entire cities at a time.
Right now one of the problems we’re facing with grid energy production is that fossil
fuel plants like oil and natural gas is that while they can produce electricity cheaply,
if you want to maximize efficiency, you want to be running them 24/7.
Given that the demand curve for electricity throughout the day looks somethign like this,
with peak demand being in the morning when everyone gets up and starts going about their
day, and then again when people come home from work.
But like we talked about, fossil fuel plants want to be producing 24/7, which means you
either produce too much electricity for most of the day in order to meet the peak demand
times, or you underproduce and then there are power outages during peak demand, which
people will not be happy about.
The current solution is with peaker plants, which are power plants that they only turn
on during peak demand, then turn back off when demand goes back down, the problem with
this is that its incredibly inefficient and leads to much more expensive electricity and
to more pollution.
And not only that, the demand curve changes through the year because in the summer lots
of places in the US use AC, while in the winter they use heating which both contribute to
different demand curves.
Traditional fossil fuel based power plants simply aren’t flexible enough to deal with
fluctuating demand in an efficient way.
However, Tesla’s Megapacks are a perfect for this because they can be charging up at
night when electricity is cheap and in low demand, and can pump electricity back into
the grid during peak demand so we don’t need peaker plants.
Not to mention they’re also a potential life saver in the event of a power outage,
they can kick in immediately and stabilize the grid.
Its a win win, and it looks to stay that way for the short to mid term future.
Thats why utility companies like PG&E in California have been buying up Tesla’s megapacks as
fast as they can be made.
That being said, as we continue the transition to sustainable and renewable energy and are
better able to store that energy, the combination of solar, wind, and energy storage such as
Tesla’s megapacks will start to compete against traditional fossil fuel power plants,
and thats where the real fun begins.
Despite Tesla shortchanging their energy business in favor of their cars due to supply constraints,
they were still able to grow their energy storage deployments by 32% in 2021 vs 2020.
And even more impressively, they were able to grow solar deployments 68% in that same
year.
The problem being that they’re incredibly supply constrained, however when asked about
their energy business Musk said that it will continue to grow stating “Our primary mission
is to accelerate sustainable energy and we’re trying to stay true to that.”
And they aren’t stopping at just battery packs and solar panels, they may try to enter
the home heating market.
Tesla VP of vehicle engineering said on an earnings call that integrating a heat pump
into a house, which would replace gas heating is quote “kind of an easy problem” and
said that it was “definitely aligned” with the companies over all mission.
Remember a bit ago when we said that 23% of oil is used for diesel and heating oil?
If Tesla was to make their own electric heat pump, that would be stealing more customers
from big oil.
It doesn’t take too much creativity to see how Tesla could pose a real threat to the
current global oil consumption.
Transportation is a huge one with their cars, but also electricity production being done
at the house, and grid scale batteries that make renewable energies like solar and wind
more viable.
Right now the biggest issue with renewable energies is that they aren’t consistent,
which is a huge benefit of fossil fuel power plants, but as Tesla continues to improve
and expand on their grid scale batteries, thats going to change.
According to the international Energy agency in 2020, for the first time ever, solar became
“the cheapest electricity in history” which its hard to overstate just how important
that is.
That means its not just environmentally viable to deploy solar panels, but its also economically
viable, and if there’s one thing we’ve learned from history its that once people
can make money doing something, its going to get done.
The cascade affect this is going to have on solar deployment is going to be insane, and
its also going to increase the demand for these grid scale batteries, which as we know,
Tesla has the best battery technology in the world.
Right now Tesla is primed for growth not just with their cars, but in every sector they’re
in.
It no joke gets me stupid excited to think about, a future powered by renewable sources.
But as we know, big oil isn’t going to give up their power easily, they’ve been giants
for decades, and they have immense amounts of power, not just financially, but also politically,
socially, and even through military as we’ve seen in the past.
So what do you think, do you think I’m crazy for saying that Tesla’s real biggest competitor
is big oil or do you agree?
Let me know in the comments section below.
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