Proposal:
Given the GM plant that is closing in Oshawa ON, there is a great opportunity for Tesla to build out an operation in Canada. The proximity of this plant to Cobalt, ON where there is access to cobalt mines, as well as lithium all over Ontario, the key ingredients for building a GigaFactory, and the talent pool to build cars make for a beautiful opportunity!
An Open Letter:
Dear Elon, Tesla Employees, and Tesla Supporters,
This open letter to you, is in regards to a proposal for how to accelerate Tesla’s mission: to accelerate the world's transition to sustainable transport!
Given recent interviews where Elon has rightfully pointed out that even if we manage to replace 100% of car sales with electric vehicles, replacing all cars on the road would lag for 25 years while old cars live out their life cycle. If we are going to accelerate the adoption of EVs, we need to take advantage of programs established by conscientious governments that see the same writing on the wall.
In the process of building the safest car ever built, Tesla has also learned a lot of lessons of how to build an efficient EV factory. While I'm sure others will eventually learn to do similar things, there is a ticking clock when it comes to global warming, and many governments of the world are aware of this.
The Paris Accord saw 175 countries commit to reduce global emissions and prevent the earth from warming more than 2°C. This came with a financial commitment to spend $100 billion per year towards helping achieve this goal. Unlike Wall Street, which is primarily concerned with profit, many countries are more concerned about the survival of their coastal cities and avoiding the largest refugee crises the world has ever known. I propose that: Tesla should solicit bids from nations interested in hosting a Model 3 factory.
For sovereign wealth funds and governments, this makes sense from both a profitability, and mission perspective:
- Governments have the ability to cut the cost and time required to build a factory by expediting the permitting process, and contributing land, power and tax incentives
- While the battery production is fully automated, Elon musk has pointed out that when it comes to the production of cars, at least for the near future, humans are better at certain aspects than robots. As such, building a factory will not only provide temporary work to construction crews, it will also provide quality jobs for the communities that house these factories.
- At present, Tesla is easily producing ~4100 Model 3 cars/week (in addition to 2 thousand model S and X cars). If we assume modestly that Tesla can produce at least 4000 cars/ week, and make a profit of $5000 per car, that represents an annual profit of $1 billion.
- The estimated cost to build the Nevada gigafactory was $5 billion; however, only $1.3 billion has been spent so far. Spending in this range in not uncommon for Infrastructure projects; however, governments can help cut this cost by providing the land themselves, and help improve the operating profits by providing unused electrical capacity at discounted rates (where applicable).
- Governments that make this investment can ask for a sensible profit sharing model. For example, they could keep all profit until made whole or 50% until paid double -- and keep a fair royalty in perpetuity. Governments could even choose to forgo the royalty knowing their Paris Accord spending wasn't originally earmarked to make a return, and the cars generated by the factory will produce additional tax revenues for the local community!
Why is this a good idea for Tesla?
- It's not uncommon for franchisees to pay a franchise fee. Similarly, with enough interest, Tesla can do the same, with the intention of using the fees to pay down the debt incurred for the R&D of the Model 3 or to accelerate the production of the Model Y or design of the semi or pickup trucks. Given the impact and profit these factories will have, something on the order of a billion dollars isn't unreasonable and it would help expedite the launch of the Model Y.
- By providing a sensible profit sharing model, Tesla can accelerate its production capacity and while avoiding incurring debt on its balance sheets. Further, the overall cost to produce cars can be reduced by finding win-win opportunities and putting unused parcels of land governments can spare to work - even revitalizing communities that need an inflow of capital to help them grow.
Let's consider one example, my home country: Canada.
- Canada has the best renewable energy grids in the G8 (with 63% of its energy being produced via hydropower)
- Canada has the capability to continue building out it's hydro power grid, and just like everywhere else, using batteries to store unused power generated overnight can double the impact of the existing hydro production. Needless to say, Canada is capable of reducing the cost to make sure Tesla's factories and Canadians that drive the cars use renewable energy.
- Energy prices are also low in Canada, particularly in Quebec and Manitoba. Which means the cost for running the robots in the factory will be very low - even if it isn't subsidized.
- Canada also has existing mines that yield Cobalt, which is a key ingredient for battery production.
- Canada also has a rich history of automotive production and free trade agreements with the large US market (When 75% of the car is made in North America secured in the USMCA)
- Canada would be well served to spend some of its Paris Accord commitments on building out EV factories, and Tesla is a good place to start!
There are many other countries that could also stand to benefit, and asking states to compete was an effective strategy employed during the construction of the first Giga Factory. Doing the same with countries now makes a lot of sense as well.
Thanks for your consideration, from a Tesla owner, supporter, and fellow air breather on planet Earth.
- Tock
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