Tesla Integrated EV Company Mirrors Standard Oil Integrated Oil

Standard Oil and Rockefeller is known for the massive Monopoly they had in the early decades of the oil era. They were innovators in oil refining technology and reinforced their monopoly with technological innovation. Standard Oil started by creating an oil refining monopoly but then integrated and innovated backward through the oil supply chain. They created and perfected oil pipeline technology and obtained oil fields.

In 1870, when Standard Oil was formed, the price of kerosene was $0.26 / gallon. By 1880, they had driven the price down to $0.09 / gallon. The price was further reduced to ~$0.07 per gallon by 1890. They were highly profitable at these prices but competitors were not profitable or went out of business or sold themselves to SO. They had competitive operating advantages of scale, vertical integration, continued innovation, and M&A.

In 1880, John D. Rockefeller created the Standard Oil trust and by 1882 they owned the forty leading oil refiners. Up until the 1910s, the United States produced between 60 and 70 percent of the world’s oil supply. Standard Oil controlled 90% of US oil. The fear that American oil reserves were nearly exhausted ended abruptly in 1924, with the discovery of enormous new oil fields in Texas, Oklahoma, and California. Through World War 2, the US had 85% of world oil production. 6 Billion of 7 billion barrels of oil used in WW2 by the Allies was produced from by the USA.

Standard Oil was also a leader with technological innovation in the use of oil, refining and pipelines.

* Improving the refining process: Kerosene was extracted from crude oil through fractional distillation and then purified by the addition of sulfuric acid, an expensive chemical compound. Standard Oil developed a kerosene that could be produced with 1/5 the sulfuric acid used by competitors, thus greatly reducing costs of production.

* Waste reduction: Historically, the 40% of crude that was not kerosene was often discarded by kerosene refiners. SO extracted and sold the other byproducts (e.g. paraffin wax and gasoline) to other refiners of those products. Furthermore, some of the gasoline was used to power SO’s plants, thereby reducing waste and expenditures on coal power.

* Raw materials procurement: SO employed its own crude buying agents rather than using independent contractors like its competitors. SO also built an extensive network of warehouses to hold extra oil in case prices unexpectedly spiked. Eventually, SO developed its own sources of crude to ensure constant, cheap supply.

* Raw materials transportation: Crude was traditionally transported in wooden barrels. Given the high cost of barrels, SO purchased forest land and harvested the wood. SO also pioneered the process of treating the wood in a kiln to prevent leaking. SO later lowered costs even further by investing in tanker rail cars, which at the time were a fairly new invention. Eventually, SO built pipelines to transport crude directly from production sites to the refining facilities.

Tesla currently has 70-80% market share of the electric vehicle market in the USA. Tesla’s 2020 Battery Day talked about creating lithium batteries directly from raw materials. Tesla announced a goal of producing over 3 terawatt-hours per year of batteries by 2030. Its legacy car competitors currently have combined goals of making 400 gigawatt hours per year of batteries by 2030. CATL and other pure battery makers have goals of 1.5-2 terawatt hours per year by 2025 and will also likely combine to have production of over 3 terawatt-hours per year.

Currently, Tesla is the most aggressive in scaling its factories for electric cars and batteries.

Tesla is the cost leader with electric batteries and drive train efficiency in its electric cars. The technological and business model innovations give Tesla a price advantage with electric cars and electric batteries.

Sam Jaffe, Cairn Energy Research Advisors, says Tesla’s battery packs are 10% less expensive than GM’s and 24% less than the rest of the auto industry because Musk and his team have aggressively pushed to cut costs over the last decade. Cairn ERA’s research predicts Tesla will remain the cost leader in battery cells and EV battery packs through 2030. Cairn predicts GM will reduce that gap and get close to price parity with Tesla by the end of the decade. However, GM currently only has a goal of making 120 Gigawatt hours per year of battery factories by 2030. GM will have to increase their electric battery ambitions beyond 4% of Tesla’s battery targets.

Remember how Standard Oil achieved a superior cost structure and used technology for lower costs. Take another look at the highlights from Tesla’s Battery Day. Tesla is integrating from raw materials and building at a scale needed to change the world. 10 Terawatt hours per year for all vehicles and 20-25 terawatt-hours per year for the entire world energy grid.

If the entire world goes electric for vehicles and for a battery-enabled electric grid that will be 30-35 terawatt-hours per year through the 2030-2050s. This level could grow if there is a global economic boom for self-driving trucks and robotaxis.

No other company had the scale of Rockefellers ambitions and they did not aim for the same goals. The goals that Rockefellers had were what were needed to create and scale the modern oil industry. Elon Musk has the ambitions to rapidly change the world to a world 100% dominated by electric vehicles and electric batteries for the grid. Only battery suppliers for Tesla are considered similar scale in their battery production targets.

SOURCES – CNBC, Harvard, History Channel
Written By Brian Wang, Nextbigfuture.com (Brian owns shares of Tesla)

19 thoughts on “Tesla Integrated EV Company Mirrors Standard Oil Integrated Oil”

  1. Market Cap of $6T? Irrational exuberance much? the last 18 months has been fan-boy mark-up, cultishness, and absurd retail glomming. They will be lucky to peak and remain cocnsistently above a single Trill – and only if Every FAANG has broken a few Trill a year before. That kind of trajectory is bitcoinish speculation — falling marketshare after 2021 and predatory Others will defund this Absurdism. Shorts may be dead but indifference is the Real Killer.

    Reply
  2. forsake not the Dealerships and Repair shops -they resist change and assimilation and fatty-mark-ups on their products/ services. How many early-adopter types are buying and how many normies? Different folks with different needs.

    Reply
  3. I've certainly seen anti-Musk commentary that was explicitly woke, accusing him of genetic guilt from his African ancestors and the heinous crime of being a straight, white, male who succeeds at stuff.

    Reply
  4. Not so easy. Some markets will saturate quickly — first F-150 EV equivalent to a pick-up travelling 500 miles on a charge for less than a $50 'tank' will crush early and hang on long – fleets, small contractors, field techs, etc.

    Reply
  5. Mid- to Long-term Success ≠ prettiest specs and engineering robustness and first-to-the-line (tech).
    Total market size, each major competitor's share, and profitability ALL about the right model in the right market at the right time – like computers, like phones. More like fashion/ home furnishings, Less like a utility or fundamental commodity.

    Except: for the lack of the 10 minute-75% charge-to 300 miles within 10 miles of every square mile where at least 50 people live, work, play, or travel-through 12hrs/7days/wk == this 7 – 10 year problem will keep the total market at 50% of what it should be in every G7 nation — but then when it bursts – the ol' auto heavies will re-dominate to similar proportions pre-2010. This is the way.

    Reply
  6. I like your use of the word "shan't"..

    And yes, you are absolutely right. Tesla is becoming a big fish and you can already see how different interests want to extort Tesla for their own purposes. No surprise there, really…

    And if Tesla grows to a market cap of 6 trillion by 2025 (my personal estimate), then many people are going to feel uneasy with their market dominance. That coupled with increased anger from the woke crowd when Tesla fails to finance/implement their "social programs". I'm not sure that being pro environment will be "enough" to save them from political attacks.. But I hope it will, of course…

    Reply
  7. Yes it does.

    The name of the game is scale. First one to reach large scale will reach low production cost first, whereas all others will "bleed" losses until they reach similar scale. And this is true even if the demand outstrips the supply.

    Reply
  8. There is not going to be enough EV's from any manufacturer to saturate the market. EV's will reach a few percent market penetration in 2022 (5%??), so both WV and Tesla will sell all their EVs.

    Only…

    Tesla will ramp much faster than WV in the near term. That much is obvious from the already started factories and publicly announced plans.

    Reply
  9. Could be that the report is somewhat underestimating Tesla future sales and I am thankful for that being brought out, but that doesn't change my argument by much.

    Reply
  10. This is an apt comparison, because Standard Oil took the centuries-long reliance on horses and replaced it with something new. The petrol industry is around 150 years old and is about to be replaced by something new.
    There will still be some applications for oil, but not like today.
    Just like there are still some people who own horses, but not like in the 1800's.

    Reply
  11. And what ever happened to Standard Oil?

    Oh yeah… they got too powerful so politicians were able to campaign on stepping in and breaking them up.

    This is not merely a theoretical problem for the Musk companies, as negative publicity against them has already been spreading for a couple of years now (I shan't speculate as to possible motives.)

    Reply
  12. Tesla was I believe locking in long term lithium supply contracts, but they are not currently mining nor refining lithium themselves, so the comparison to a fully integrated supply chain like Standard Oil is a little weak. That may be a self protection measure, in case there are other big battery breakthroughs that allow using other materials than lithium. Same with cobalt supplies at present. I don't think they are using capacitors extensively enough to have concerns over tantalum supplies though.

    With the current (automotive) semiconductor supply shortage though, Tesla may be facing supply chain issue, but I doubt they are in a position to justify building their own low end fabs… even though Tesla is using custom chips for self driving, those are at fab levels that require enormous investment and simply isn't feasible for them to go alone. Hrm, but for inverters and stuff that are using GaN parts, there might be a case for having their own fab for that? That not your usual bulk silicon semiconductor parts.

    Reply
  13. …When a market for a new product matures, defined and have multilpe players, the room for innovation gets constantly narrower.

    Reply
  14. OMG, so stupid. Pure fud.

    The article you link to predicts that Tesla will sell 2.3 million vehicles by 2025. I could stop right here…

    Tesla will most likely reach 1 million in 2021 and both Texas and Berlin will be at a run rate each of 500 k per year at the end of 2022. That would mean that Tesla would be at an excess of 2 million vehicles per year run rate at the end of 2022.

    So, in order for Tesla to stop at 2.3 million, Freemont and Shanghai would have negligible growth the next four years. And Texas and Berlin would top out at 500 k each.

    Come on….

    Reply
  15. Thats a somewhat odd report, Musk hopes to produce 1 million vehicles in this year 2021 BUT the report estimates that Tesla will only be selling 1.7 Million (300k less than V.W) by 2025 a full 4 years later, that`s one hell of a slow down by Tesla .. time will tell but it just seems the same wait till the big boys arrive stuff we have been reading for YEARS.

    Reply
  16. It really all depends on whether Telsa keeps innovating, or rests on its laurels. 

    As long as Musk is in control, I believe they'll keep innovating.

    Reply
  17. In 2030, the battery market will be very different with new batteries coming to the market. Many different groups are coming with different types. Hard to tell who is going to dominate it if anyone.
    "Tesla currently has 70-80% market share of the electric vehicle market in the USA." That's in the US, not the biggest EV market in the world.
    By 2022 VW is predicted to match Tesla's EV sales.

    https://www.cnn.com/2021/03/16/business/volkswagen-tesla/index.html

    Reply

Leave a Comment