The Tesla equation: From 0-60 to net zero

On September 2014, passersby trained their eyes on a model decked in bright red and sporting sexy curves, an unusual sight that was in full display at the Nevada Capitol.

Few words were spoken as necks craned and eyes widened when the hard-to-miss specimen came into full view.

The center of attention? A cherry-red Tesla Model S parked right smack in the middle of the Capitol grounds.

For folks who attended the big announcement about the deal between Nevada and Tesla, the Model S served as the appetizer to an enormous main course known as the gigafactory. For many fans and industry watchers, the Model S and Tesla vehicles such as the Roadster and upcoming Model X and 3 are seen as the end to a means — high-performance electric vehicles that define what the upstart automotive company is all about. In reality, however, it's more the other way around. Tesla's vehicles are akin to the world's most expensive Trojan Horse, a means to a more expansive and, theoretically, more profitable end rooted in the promise of renewable energy.

Although the cars get the most attention, it's the play on the technology that powers them — the batteries — that could touch the lives of more people and give Nevada's gigafactory a purpose truly befitting of its ludicrous scale if Tesla manages to pull off its highly ambitious goals.

Whether it be their impact on transportation or how people power their homes, Tesla's power source is the key that starts its disruptive engine, and could very well kickstart the new economic engine that Nevada has been trying to build since the worst recession in its history.

"What I like about Tesla among many things is that they're really pushing us," said Gov. Brian Sandoval during the Governor's Conference on Business. "They're pushing us to innovate and re-examine our perspective on what we have to do in the next five years, 10 years and 20 years."

IT'S THE BATTERY, STUPID

Diarmuid O'Connell is not good with names.

Apparently, Tesla's vice president of business development might be shaky with some dates, too.

Steve Hill, director of the Governor's Office of Economic Development, still remembers the first time he got a call from O'Connell. Like an infatuated teenager remembering his first kiss, Hill would always recount with great clarity how he got a call from a number he didn't recognize in October two years ago while driving his car.

For Hill, it was one of the biggest days of his life. For O'Connell, however, it played out more like a Raul Julia "It was Tuesday" meme.

"Diarmuid was like 'Did I call you on October?'" Hill said as he gave O'Connell a playful ribbing at the governor's conference. "He said, 'It's probably something similar to your wife forgetting your first date.'"

The 51-year-old O'Connell, however, says he's really good with remembering faces. Like Tesla CEO Elon Musk, he's also good at remembering things said about his company.

"We are well covered but not always accurately," O'Connell said. "Sometimes, it's really good coverage, sometimes it's not so great."

Like other high-profile technology companies such as Apple, limited access to the company is part of the reason why Tesla coverage at times can have a speculative fill-in-the-dots quality as various outlets compete to provide information for an audience that's hungry for it. For O'Connell, however, the mission behind Tesla is "very simple at its core."

The first step is getting critical mass in its automotive business, which involves transitioning from a low-volume, high-price product such as the Roadster, Model S or Model X. By 2017, Tesla plans to have a more mass market-friendly model with its $35,000 Model 3 car.

"(The high-price vehicles) basically set the table for all the technology that comes after," O'Connell said. "Our mission is to catalyze the mass market in sustainable transportation with the introduction of electric vehicle technology."

The vehicles, however, are just a piece the bigger picture. All the research Tesla has poured into improving its car battery to improve range and performance is now starting to pay dividends into yet another related and equally disruptive sector — battery storage.

"Based on the battery we've developed for the vehicle, we are now able to produce … a storage battery using the same modular architecture," O'Connell said. "We're essentially repackaging the battery for stationary use."

With its partnership with Panasonic and the launch of Tesla Energy, the company is diving headfirst into another potential growth industry that has yet to establish a dominant market leader. It's a sector with plenty of opportunities as well, particularly when coupled with renewable generation methods such as solar.

Tesla is already ahead of the game by having a presence in the three key markets for battery storage: residential, commercial and utility-scale projects. The goal? Consistently providing the holy grail known as "net zero," where facilities generate and store enough renewable energy to cover their power usage.

Tesla's moves in the sector include partnerships with SolarCity, a leading solar installer that counts Musk as chairman. Just recently, Musk put even more money into the venture by acquiring $5 million worth of additional stock. Tesla's partnership includes experimental ventures that use Tesla batteries to store extra power generated by SolarCity's solar cells for later use. Commercial customers so far include large, established companies such as WalMart.

"You can essentially create a net zero infrastructure for an industrial facility," O'Connell said. "Imagine a WalMart … that's essentially net zero for energy use."

Although the initial versions of Tesla Energy Powerwalls for residential use aren't big enough to store enough energy to zero out a home's power use, SolarCity and Tesla are also testing a combined venture in Hawaii that would eventually allow homes to go off the grid. Tesla is even working with Nevada utility NV Energy to test out utility-scale battery storage in rural areas.

Having different types of technology to support customers' needs is a great thing, said Stacey Kusters, NV Energy vice president of renewable energy and origination.

"Three years ago, solar was probably three times the cost of the utility scale that we see today and it's gone through a huge evolution since," Kusters told the Reno Gazette-Journal after Tesla Energy launched earlier this year. "We look at the storage battery potentially having that same evolution and we're excited to the extent that we might see the same cost effectiveness to compete with the capacity side of the business."

THE BIRD'S EYE VIEW

Drive about 15 miles east of Reno-Sparks and you'll reach the largest industrial park in the U.S., the Tahoe Reno Industrial Center — home to distribution centers for well-known businesses such as Toys R Us and Petsmart.

The crown jewel so far, however, is a large rectangular structure being built on thousands of acres of dry desert.

For most people, the gigafactory is both a curiosity and an engineering marvel, a bold experiment to determine the viability of what once seemed to be a novel idea involving large-scale batteries.

For Nevada, however, it's more than that. Not only does the battery plant serve as an umbilical cord that links the state to Tesla, it could also be the trigger for an economic and technological transformation — and Nevada definitely wants to be along for the ride.

Its importance is symbolized not just by the $1.3 billion in incentives Nevada was willing to provide Tesla but by the strong interest and near reverence that the state's movers and shakers have for the project. During a visit to the Reno Gazette-Journal on Aug. 20, for example, Senate Minority Leader Harry Reid casually mentioned a visit to the gigafactory site the previous day and that he's been talking to Musk "the last few days" while discussing renewables.

The interest extends outside the country's borders. During a recent trade mission to Europe, the Tesla deal was often the first thing people asked about, according to Sandoval.

"To be able to walk into a room, meet a member of Parliament in London, sit down and the first question that comes out is 'How did you guys do that?' … it really is something else," Sandoval said.

So far, the enormous structure being built on the site represents just 15 percent of the final facility, which will be seven times larger, O'Connell said. Once built, the gigafactory "will have the largest footprint for a building on planet Earth," Sandoval said.

The direct benefits of the deal have been touted many times, including a $5 billion investment in the 10 million-square-foot factory as well as the addition of 6,500 jobs in the region. Also important, however, are the indirect benefits, according to the project's supporters.

Given the gigafactory's scope, the state's economic development agencies expect that some suppliers and related industries will set up shop in the area to be closer to the facility. The gigafactory is also casting a halo effect on the region that is making business recruitment much easier, Sandoval said. In addition to its old bread and butter of logistics and call centers, recent arrivals to the area include higher paying ventures such as Switch's latest large-scale SUPERNAP data center, the world's first large-scale electrochemical lead battery recycling plant and several advanced manufacturing operations. For a region that has struggled to build a high-tech sector, the arrivals represent a much needed shot in the arm after a sobering recession.

Beyond the immediate jobs and businesses, however, lies one of the biggest promises should Nevada's big bet on Tesla succeeds. This would be a highly skilled population that is ready to innovate and fill the jobs of the future. There's already concern among groups such as the Economic Development Authority of Western Nevada that the region does not have the workforce, education and housing infrastructure to support the needs of companies that are now looking at the area. Sandoval echoed similar concerns, especially as it relates to education.

"We have to provide world-class academics from pre-K to our university system," Sandoval said. "It's not good enough to be status quo."

In response to the Tesla effect, the University of Nevada, Reno and Truckee Meadows Community College have started working with high schools to provide a smoother pathway to degrees as well as providing students technical skills.

"(There's an) intensity of collaboration and willingness to take new ideas and experiment with them," said Marc Johnson, UNR president.

The university also has launched new specialties, including renewables and battery technology. TMCC, meanwhile, has been quick to adjust when it comes adding new course tracks.

"It takes three to six months lead time to launch new program (like manufacturing) in response to industry needs," said Maria Sheehan, TMCC president.

For Nevada's gamble on Tesla to work, however, Tesla's bet on its own business model has to succeed. In a quest to further drive future growth, the company has been burning through a lot of money for research and development as well as capital expenditure. Just this month, the company raised $738.3 million through a stock sale to further boost its finances.

Although it's taking some time, the payout for Tesla's efforts will be grand, O'Connell assured.

The goals go far beyond just making products. It's also about fueling fundamental changes in society. One step in the equation is to change the world's energy structure. A veteran of the U.S. State Department, O'Connell says he has seen firsthand the effect of oil on foreign policy.

"We're too dependent on foreign sources (of energy)," O'Connell said. "The economy is too tightly tied to oil and the volatility in in price of that market."

Further rounding out the Tesla equation is a fundamental shift in how people view their own energy ecosystem. This includes giving life to a new generation of engineers who will push the frontiers of electric vehicle technology and energy storage, which is already happening, O'Connell said. The true marker for success, however, is seeing electric vehicles, battery storage and clean renewable energy as the norm rather than the exception, he added. For O'Connell, this part of Tesla's mission is like gospel.

"I have two kids who have grown with this company and I take it as an article of faith that they will be driving electric vehicles, have solar on their roofs and will be using storage batteries," O'Connell said. "We have an awesome opportunity to help people and … we must attach vocation to mission to create a better world for our kids."

TESLA GIGAFACTORY FACTS

Initially proposed as a means to allow Tesla Motors to produce enough battery packs for mass production of its vehicles, "Gigafactory 1" just 15 miles east of Reno-Sparks will now also produce storage batteries for the company's Tesla Energy venture. Here are some quick facts about the factory, which is projected to have the largest footprint for a facility on Earth once finished.

Cost: $5 billion

Size: 10 million square feet on nearly 3,000 acres of land

Employees: 6,500

Output: 500,000 battery packs per year at full capacity

Construction start: 2014

Initial production: 2016

Incentives: $1.3 billion

Location: Tahoe Reno Industrial Center

DIARMUID-ISMS

Diarmuid O'Connell, vice president of business development for Tesla, was the guest speaker at the annual Nevada Governor's Conference on Business in Reno. Part strategist and part evangelist, here's a sampling of comments from O'Connell during the event.

Zen quote of the event:

"We must attach vocation to mission to create a better world for our kids."

On having an unusual name:

"My whole life, I've been focused on getting my name out clearly. As a consequence of that, I never know people's names."

On Tesla's design philosophy for its vehicles.

"We wanted to explode the myth that electric vehicles are short range and (just souped up) golf carts."

So when's that Model X coming out?

"Hopefully, you'll see them in the road within the next couple of months. I hope to see a lot of them here in the greater Reno-Tahoe area."

How about the Model 3?

"By 2017, we want to have a mass market Model 3 (at a) $35,000 price point."

On gigafactory construction

"The building (you see out there now) is 15 percent of the size of the full facility. We're building it in stages so we can get going as quickly as possible. This will be incredible."

On the state of manufacturing today

"Advanced manufacturing is not just about banging on metal. It requires a high degree of training and we need to invest in community colleges and universities to do that."

On the opportunities from electric vehicles and batteries

"Tesla is a company that is giving life to a new generation of engineers in all sorts of disciplines who are exploring new boundaries."

On the kind of change he would like to see from Tesla's efforts

"I have two kids who have grown with this company and I take it as an article of faith that they will be driving electric vehicles, have solar on their roofs and will be using storage batteries."