Some deals worked, some of them didn’t, but they all tell us what Tesla still needs in order to realize its grand strategy
Tesla would not have gotten where it is had it not worked with smaller technology startups, made investments in those sorts of companies, and bought assets along the way. Their work and unique approach to automated driving is the product of years of development.
The deals, investments, acquisitions, and even failed buyouts can show us what Tesla has not been able to produce on its own and where it is still looking for help. They are in a tough business, trying to be the final industrial breakthrough for sustainable energy ecosystem and utilization by consumers. Achieving that not only means making sure their own cars are great products, but that the infrastructure that can support that lifestyle is prolific. That has led to deals both for the growth of the business itself (factories in Michigan and Germany) as well as mega deals that will support growth for the entire alternative fuel industry (SolarCity).
Here are just a few of the deals and attempted deals Tesla or its executives have made and how they have direct bearing on the company’s (or industry’s) future.
1. Riviera Tool (now Tesla Michigan)
In January 2015, Musk was asked if Tesla would ever set up shop around Detroit. It came on the heels of Michigan passing a law that prevented Tesla from selling manufacture direct vehicles to Michigan residents. He remarked during a press conference, “It’s not out of the question. Maybe Michigan shouldn’t stop us from selling cars here. That would be a nice gesture.”
Tesla bought Riviera Tool out of Grand Rapids just a few months later. It was the first step toward expanding its manufacturing capacity. It became the second manufacturing facility under Tesla’s umbrella and its first foray into the traditional center of automobile production in America, although it is some distance from Detroit itself.
2. Grohmann Automation
Tesla bought this company out of Prüm, Germany last year for an undisclosed sum. They specialize in automated manufacturing, which will be critical in more than quintupling their production lines over the next couple years.
“After increasing our output target to 500,000 cars per year by 2018, we began searching for the best engineering talent in automated manufacturing systems,” a Tesla blog read in November 2016. “Under the continued leadership of Mr. Grohmann, several critical elements of Tesla’s automated manufacturing systems will be designed and produced in Prüm to help make our factories the most advanced in the world.”
It built up on the purchase of Riviera and added a third facility for producing Teslas to the Fremont and Grand Rapids locations.
“Accelerating a sustainable energy future is only possible with high-volume factories. They allow us to manufacture high-quality products with economies of scale, making them more affordable and accessible to the world,” the company said in a statement when the deal was first announced. “As the machine that builds the machine, our factories are so important that we believe they will ultimately deserve an order of magnitude more attention in engineering than what they produce.”
Calling SolarCity a startup might be jarring from some, but remember what constitutes a “startup” varies depending on whom you ask. More important than size might be its independence from public markets. SolarCity’s solar storage batteries are the most prominent product of their kind on the market today. Musk is also the owner, and has faced resistance from board members and accusations of a conflict of interest as he tries to merge SolarCity with Tesla.
Tesla explained the strategic rationale behind the buy in two ways to its investors, stating “The acquisition of SolarCity will create the world’s only integrated sustainable energy company, from energy generation to storage to transportation. Just as Tesla has demonstrated the superiority of electric vehicles, the solar roof and Powerwall 2 will transform energy generation and storage.”
Tesla wants to integrate the car into the greater sustainable energy infrastructure and ecosystem envisioned by SolarCity, covering all products, the home, and obviously cars.
“Tesla’s mission has always been to help solve this problem by accelerating the world’s transition to sustainable energy. To achieve this, energy needs to be sustainably generated, sustainable energy needs to be stored for later use, and sustainable energy needs to be used for transportation. And to be effective, the technology used for generation, storage and transportation all need to work together in an integrated way that makes the experience seamless.”
Of course, that is more rhetorical. Getting down to brass tacks, Tesla said that SolarCity let them expand their business into the general power grid.
“A combination of Tesla and SolarCity will create a tightly integrated solar and battery combination that will provide grid-independent, renewable backup power today, and a hedge for customers against future changes to net metering. More significantly, the integration enhances the opportunity for the combined company to sell grid services into the $50 billion per year distribution and transmission market. A number of utilities across the country are beginning to incorporate battery storage to help manage the grid.”
The director of the Energy Innovation think tank, Sonia Aggarwal, says integrating so many alternative energy solutions under one roof (no pun intended) really is the most exciting part of the deal.
“Different distributed energy resources have different profiles that enable them to be able to provide different services. And if you’re only working with one of those resources, even if you have a big set of resources you’re managing, you still might not be able to provide the different types of services the grid will require,” Aggarwal told Green Tech Media. “But if you have a portfolio of distributed energy resources, I think it provides a lot more flexibility to an aggregator to come in and provide both local and bulk system services.”
4. Off Grid Electric
You don’t get to hear much about Tanzania in tech magazines, but this company has an advantage that a lot of the Africa-focused companies trying to bring alternative energy sources to infrastructure-lacking regions don’t have: it’s partially owned by SolarCity, which means it will likely be part of Tesla in the near future. SolarCity led two $16 million and $25 million rounds with Tesla investor, DBL Partners. SolarCity CEO Lyndon Rive is also on the board.
“There are no shortcuts to building infrastructure, but there are innovative business models like pre-paid solar that can reduce the cost and accelerate the deployment,” Off Grid Co-Founder and CEO Xavier Helgesen wrote last year. Much of sub-Saharan Africa is without Western electrical infrastructure. By selling solar accessibility packages individually, they are bringing direct power to consumers and will allow the African economy to grow. “What prevents more of these businesses from getting off the ground? Often, it’s the lack of reliable, affordable electricity. Without electricity, the barber can’t power his clippers and the vegetable stand can’t stay open after dark.”
5. Axiom Energy
Tesla co-founder and CTO JB Straubel is an investor here along with the alumni network MIT Angels. Axiom focuses on energy storage systems for industrial refrigeration like in grocery stores. Their aptly dubbed Refrigeration Battery, works off excess capacity to “store cooling.” They actually use a ginormous block of frozen salt water to power their machines, similar to the ice tanks built and used by company Ice Energy. The batteries provide up to six hours of energy.
“An industry first, the Refrigeration Battery makes it possible for supermarkets, cold-storage facilities, and food processors to intelligently store and deploy refrigeration,” their website claims, going on to describe in rather simple terms the concept behind the technology. “The battery plugs into your refrigeration system, just like a display case. It stores thermal energy produced by your refrigeration system during off-peak hours, and deploys it during on-peak hours. As a result, electricity demand is reduced by up to 40 percent during peak hours—a significant cost savings.”
6. Simbol Materials
Elon Musk reportedly offered $325 million for these guys, whose lithium extraction technology peaked his interest back in 2014. Lithium is a critical component in modern batteries.
“This is a compelling opportunity to combine two innovative companies on a mission to advance clean and sustainable energy technologies worldwide,” Musk wrote to Simbol CEO John Burba, according to The Desert Sun. “We’re very impressed with what you and your management team have created at Simbol.”
Using hydrothermal brines, they say their tech is “fundamentally different” from traditional material extraction methods for things like lithium, zinc, or manganese.
“We transform these materials using by-products from the geothermal plant, such as CO2, wastewater, and condensate, into high performance battery materials using our proprietary materials synthesis technology.”
Tesla contracted Mapbox for a $5 million project a couple years back. Their main product, Mapbox Drive, draws data from multiple mapping sources and can be installed into the dashboards of modern vehicles. In a filing with the SEC, Tesla did not get more specific than calling it a “vehicle map-related project.”
Rather than using a fleet of vehicles like TomTom or Here to build their maps, they rely on GPS data garnered from phones. Last June, Forbes reported the company was planning to have its software installed in an undisclosed auto manufacturing partner’s vehicles by the end of 2016. It was not clear if that was Tesla, but given the deal between them it’s definitely an educated guess.
They have raised $62.8 million according to Crunchbase including from Tesla investor DLB Partners. DFJ Grwoth, the Foundry Group, Thrive Capital, Pritzker, Janis Krums, Promus Ventures, and Jon Winkelried are also on their list of financial backers. Their challenge will be to continue fostering relationships with manufacturers even as they become weary about software companies from Silicon Valley trying to cut into their business.
“The big tech giants want to own the relationship with the consumer,” Mapbox Co-Founder and CEO Eric Gundersen told Forbes last year. “We want to empower car companies to own the relationship with the driver.”