Elon Musk has realised that Tesla may not continue to grow as rapidly as shareholders expect. This is due to the need to heavily expand power production and grids in all countries that embrace electromobility. In a video from the conference CodeCon 2021 he replies to a question from the audience that power production and distribution needs to double to facilitate the complete transformation to electromobility, and that investment will be necessary in all parts of grids, and in local power generation via solar panels. The exchange takes place approximately one hour and one minute into the video, at the very end of the interview.

Link to Elon Musk Interview

This statement is probably very difficult to fully understand and draw conclusions from, for anyone who has not worked in the field of electromobility, and it is probably difficult even for experts to understand its wide-ranging implications.

In the video Musk relates his observations in a matter-of-fact tone, as if it the expansion of power production and grids is the most obvious pre-requisite for the future growth of e-mobility, that the expansion necessary has already started, and that a complete conversion to electric vehicles is already in the cards. At least he does not say anything that may lead the viewer to believe that the future access to electricity may pose a significant obstacle for the continuous growth of Tesla. This, on the other hand, is built into the question by the member of the audience, and Musk admits that the access to power is likely to become an obstacle for the growth. It could become an obstacle for the growth of Tesla, Volvo Cars, and other automotive companies that are becoming increasingly dependent on the sales of electric cars, buses, and trucks.

Volvo Cars have decided to stop producing petrol, diesel, and hybrid cars from 2030, which, considering the statement by Musk, may be the riskiest decision ever made by a listed company. To my knowledge no other incumbent in the automotive industry has made a similar, far-reaching decision to become entirely dependent on the future growth of electromobility, but most car, bus, and truck manufacturers have electric vehicles in their product line. These companies and many of their shareholders seem to expect electromobility to grow for a long time into the future. This idea is supported by goals set by the EU and national governments. The EU has decided that the union be fossil-free by 2045, the Swedish government has set the same goal from Sweden by 2030, and the British government has decided to ban the sales of petrol and diesel cars from 2030.

The realism of the decisions by governments and the EU has not been widely discussed. There are too few people in the world who understand what needs to be done to expand e-mobility. Few can participate in discussions, few are able to contribute to relevant decisions, and few are able to lead the projects that need to be started. It seems as if the need for expansion of power production and grids is a need that most experts, politicians, and business leaders have not thought about. Considering the statement by Elon Musk at CodeCon 2021 it is time to start thinking about this and plan the expansion.

To run all cars, buses, and trucks of Germany on electricity there will be a need for 150 TWh of power, about 25% of current production. This translates to about 17 nuclear reactors, but twice as many will be needed to charge all vehicles in the coldest winter weeks of the coldest winters over a 20-year period.

The same numbers for the United States indicate that there will be a need for about 800 TWh of power to run all vehicles on electricity. This amounts of 20% of current power production, 90 nuclear reactors and the amount of generation capacity needed will increase significantly in cold winters, but not as much as double.

In addition to this there will be a large need for power for battery production. Each gigaplant needs very large amounts of power that will add significantly to the power need. It is likely that power production and distribution will almost need to double.

No programmes to achieve this are currently in place in any country and it takes more than ten years from the start of an expansion programme until the results start to be seen. The scale of expansion needed to facilitate the conversion to electromobility is likely to take decades.

When buyers buy shares in the stock market, they do not value a company based on its present earnings and profit. Instead, they try to evaluate the future growth potential of the company and estimate how much it will be worth at some point in the future. According to the site www.companiesmarketcap.com, Tesla has the highest market capitalization of all car companies. It is currently valued at almost 1 trillion dollars. The second company on the list is the global leader of the car industry, Toyota, valued at a quarter of the market capitalization of Tesla.

To compare the two companies, I looked up the unit sales, revenue, and profits of both Toyota and Tesla. Toyota sold 9.5 million cars in 2021. Tesla, according to their own web site, delivered more than 936,000 vehicles in the same year. Toyota sells ten times as many cars as Tesla. Revenues of Toyota amounted to 245 billion dollars, while Tesla’s revenues were 53.8 billion, 20% of those of Toyota. The profits of Toyota amounted to 28 billion dollars, while Tesla’s profit was 13.6 billion, half of Toyota’s profit.

On all these comparisons Toyota is significantly bigger than Tesla, but still Tesla is valued almost four times higher than Toyota. Other car companies are further behind on the lists.

According to www.companiesmarketcap.com Tesla is valued at 906 bn dollars and Toyota’s value is 233 bn.

The comparison between Toyota and Tesla shows that despite the fact that Toyota is currently bigger on all accounts, Tesla is higher valued, and this is because of the growth expectations that are built into the market capitalization of each of the companies. There are certainly growth expectations built into the valuation of Toyota as well, but these are lower than the expectations for the future growth of Tesla. The market expects that Tesla will grow significantly in the future and investors are prepared to pay a premium to get a share of that growth. The question is if the valuation of Tesla reflects the actual growth opportunities or if investors have neglected some important aspect of the growth of electromobility that perhaps should be taken into account.

Yes, the expansion of power production and grids, in combination with a host of other activities that will need to be taken care of to drive e-mobility forward, like the expansion of charging infrastructure, training of professionals for the various roles in the conversion, and the development of businesses are likely to delay the growth of electric car and truck fleets. This was admitted by Musk in the video, and it must be concluded that these future issues will slow down the growth of Tesla in a way that the market does not expect at present.

There has been very little debate on these aspects of the growth, and it seems reasonable to assume that investors have not weighed this in when they have made their investment decisions.

A complicating factor when it comes to the expansion or power production and grids is the number of companies and organizations across Europe and the world that need to be involved in activities and there is no single organization that coordinates the process in each country. It is highly unlikely that all players that need to contribute will perform their part of the transformation without any form of management or coordination overall. In the case of the Apollo Program, NASA received all the funds and procured the services and deliveries from all other participants. No such coordinator exists for the transformation to electromobility in any country. What are the odds that Tesla will be able to grow in the future when the access to power for charging is uncertain? Nobody knows where or when problems will arise or how they are going to be solved.

It is likely that there will be a correction of the stock market value of Tesla and other companies that are dependent on the growth of electromobility, when this aspect receives more attention from analysts, journalists, and investors.

For seventeen years I have argued that the transformation to electromobility will be much more complex and demanding of investment than people have so far realised. I have investigated the various aspects of the transformation and written about them in five internationally published books, beginning with “Global Energy Transformation” in 2009, the latest being “The Blind Guardians of Ignorance” in 2020. The conclusions put forward by Musk in the video are the same as the ones I have come up with:

- Right now, in the world, 2% of cars, some buses, and very few trucks are electric. The EU has decided to become fossil-free by 2045 and the British government has decided to ban petrol and diesel cars by 2030. The present load on power grids is negligible compared to what will be experienced over the next decade, but no government has started to prepare for the increasing demand for electricity.

- The change to electromobility will require very large amounts of electricity — in Europe the power equivalent of 100 nuclear reactors will be needed for the charging of cars and an additional 50 will be needed for the charging of trucks. If wind turbines are used the combined need will amount to 225,000. This, however, reflects the need in the summer. In the winter perhaps 50% more capacity will be needed to fuel all cars in the coldest weeks of cold winters. In Northern and Central Europe 100% extra capacity is likely to be needed when it is really cold. Roughly the same amount of electricity will be needed in the US to power cars and trucks with electricity.

- With electromobility large amounts of electricity will be needed where little is used today, which means that power grids will have to require large-scale expansion:

o Along major roads. There are stretches of motorway in Germany where 30,000 trucks travel every day and where many of these and a number of cars will have to be charged in a future when a large share of vehicles become electric.

o Many transport companies are located in villages or small towns with power grids of low capacity. One Swedish transport company with 35 heavy trucks mentioned that they will need to increase their subscription for power capacity from 80 ampere today to 1200 in the future, to charge 20 trucks on a daily basis. The grids in small villages may not have enough capacity to serve one such company.

- In large cities there may be five or ten large transport companies and a large number of companies where a large number of trucks load or unload every day and where vehicles will need to charge. In the part of Gothenburg called Hisingen, Volvo Truck mention that between 1000 and 2000 trucks load or unload every day. In parts of larger cities like Paris, Hamburg, Rome, or London the number will be much bigger than that.

- Present grids have no problem handling the charging of a small number of cars, buses, or trucks, but if a large share of all vehicles will be electric grid capacity will have to expand significantly for this purpose as well.

- E-mobility will be implemented over the next two decades. All countries, all regions, all local areas and power grids will have to drive expansion at the same time. Products and service resources, like manpower, in certain areas will be in short supply.

Considering the vast investment need, it is unlikely that all of this will be accomplished on time so that the expansion of fleets of electric vehicles can continue over the next twenty years without glitches. To go through with the conversion large numbers of professionals will have to be trained for their roles in the expansion. At present there are few experts who understand these challenges and very few persons who are able to train students at universities, institutes, or consulting or training companies.

It is important that people start to discuss the various aspects of the transformation. The sooner decision makers start to take the transformation seriously, the more likely it is that it will succeed.

Mats is the author of five internationally published books on sustainability, focusing on the large-scale change to electromobility, the circular economy, and energy efficiency. His latest book is “The Blind Guardians of Ignorance — Covid -19, Sustainability, and Our Vulnerable Future” and the first one of these was “Global Energy Transformation.”

I am new to Medium and need to reach 100 followers to join the Medium Partner Program. If you liked this article, please click the “Follow” button.

empowerment through data, knowledge, and expertise. subscribe to DDIntel at https://ddintel.datadriveninvestor.com

Mats Larsson is a Swedish sustainability consultant and author of “The Blind Guardians of Ignorance: Covid-19, Sustainability, and Our Vulnerable Future”