The big news of the week (after Brazil loss in the World Cup and the iPhone 4 antenna issues, I suppose) is the IPO of Tesla . With a IPO price set at $17 per share, Tesla saw its shares increase to $30 at some point. On Friday, it was back down to $19.2 a share, but I think we can all conclude that this was a successful IPO. The company got some much-needed cash and the early investors cashed out. The 1st week run reminds me of another greentech "success" story- A123 Systems.
A lot has been said by various analysts on the problems with Tesla (e.g., They have not yet made money and have no chance of making money for the next 3 years), but I think the IPO shows that its possible for a small company to compete with existing players. The same can be said for A123.
Just because a company has a successful IPO does not mean that it is really successful. Tesla has a lot of problems to deal with, chief among them the fact that their cars are a tad bit expensive. Similarly, A123 continues to bleed cash and competition is increasing. Its not clear when one should consider a startup to be successful. Is it when they start becoming profitable, or is it enough if the investors, founders, and early employees make money?
Anyone who has worked at a startup knows that its a roller-coaster ride. Its not the proverbial "two steps forward, one step back". Its more like "ten steps forward, nine steps back". Everything seems magnified. A million things have to come together to be successful. Often times one has to change direction (remember that A123 was not a LiFePO4 company when they began) and this can be hard to do. Suffice to say, start-ups are not for the faint of heart. For all the guys who went through this ride, getting to an IPO will probably be considered an amazing success (well... I suppose 6 months from IPO would be a more accurate date because that is when you can sell).
For the rest, being profitable may be the criteria for success. Obviously this is no easy task. A lot has been said about the ability of a Tesla to take on, say, a Toyota (or a Tata, depending on the market) or a A123 to take on, say, a Sanyo (or a BYD). All these are valid questions and make for interesting speculation. But I think the approach taken by Tesla and that by Toyota exemplify the differences between a start-up versus a traditional giant.
We all know Tesla's approach well. They want to commercialize a pure EV with a 200 mile range. They buy laptop batteries with energy approaching 180 Wh/kg and make battery packs with energy approaching 150 Wh/kg with a total energy of 56 kWh for the pack. Assuming that their car design gets them ~250 Wh for every mile*, they are pretty much using all the energy of the battery with very little guard-banding (meaning, they use close to 90-100% of the battery capacity).
Contrast this with the news that Toyota is coming out with a Prius PHEV using a Li-ion battery. Total driving range on the battery-13 miles! Toyota argues that most commutes are less than 10 miles, but a look at the battery specs is revealing.
It appears that the Toyota battery pack is ~330 pounds and has a energy of 5.2 kWh which means that the gravimetric energy of the pack is ~35 Wh/kg! I can only assume that this is useable energy (meaning the battery will have more energy but only 35 Wh/kg is used)
Granted that Toyota would want a battery that lasts 7-10 years and so unlike Tesla, they probably are using a battery that has a lower energy than 150 Wh/kg for the pack. But one would have to think that they are atleast using something that should be greater than 100 Wh/kg. Which means that Toyota is really only using 35% of the total battery capacity (at best). Talk about guard banding!
Just so we are all on the same page, you can get 35 Wh/kg from a Ni-MH battery. One is left wondering why Toyota would want to use a Li-ion battery with such a low State Of Charge (SOC) range of operation. One can only speculate, but it would logical to think that this is one way to get the life to be better. They will operate at a lower voltage and not allow the SOC to swing too much (remember the battery rules: don't charge them too high, don't swing them too wide...).
Moreover, if the battery is only charged to a partial SOC, then if there is a safety incident (leading to, what is referred to in the industry, as a spontaneous disassembly. For the normal person, this could be called an explosion) then the lower state of charge helps decrease the impact of the incident.
All this makes sense, but what is telling is that Toyota is being very very safe in their move to a Li-ion from a Ni-MH cell (by starting with a battery that is comparable). One wonders if this is more a PR move to tell the world that Toyota is moving to the latest and greatest battery, rather than using these batteries to actually get more performance.
Compare this to Tesla which is buying laptop Li-ion batteries (which are typically the highest energy density battery you can get your hands on) and trying to squeeze as much from them as possible. One is going for incremental, the other revolutionary, one prefers an appliance-like vehicle, the other a "sexy" ride, one could be considered boring, while the other could be considered a bit brash. No prizes for guessing which one is which.
Its easy to see Toyota's point of view. All you have to do is open the newspaper (I use "open" to mean clicking on a web link) to see their recent trouble with, this time, the Lexus brand. Toyota is got to be thinking that the last thing they need is a battery-related issue. Better to be safe and boring than sexy and sorry, I suppose. They cannot afford another recall.
This difference between a startup and an established player probably resonates across all areas, not just batteries. Remember Amazon in the late 90's taking on the big box retailers, or any of the open source softwares (Firefox or Linux) taking on Microsoft.
The only difference: If you screw up your internet software all that happens if your browser crashes or worse, you are infected with a virus. If you screw up your car, things can be a little bit dicey!
Time (next 3-5 years) will tell if these newer kids on the block will succeed in being profitable. Personally, I'm keeping my fingers crossed.
Disclaimer: I don't own shares in Tesla, A123, or Toyota (as far as I know. My retirement plan is a complete mystery to me). As a matter of fact I make it a policy of not investing in greentech. My instincts tells me that they are a good buy, but I have a policy of doing the opposite of my instincts so...
* The previous version read "250 miles for each Wh". Its actually 250 Wh for each mile.