Elon Musk seeks to hasten shift to solar by building factory

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(06-17) 21:35 PDT San Francisco -- If there's one thing harder than changing customer behavior, it's changing an industry.

But that's exactly what Elon Musk has sought to accomplish at Tesla Motors - and now SolarCity.

Ford, GM and Chrysler aren't competing with Tesla's electric vehicles? Well, Musk will just give away Tesla's technology, free of charge. Not enough batteries to power those cars? So Tesla will build the world's largest lithium battery factory.

His latest move: Dissatisfied with the performance of the global solar panel industry, Musk, the chairman of SolarCity, said the company will acquire Fremont's Silevo and build a huge manufacturing plant in upstate New York. That factory, SolarCity's first, will churn out solar panels that beat the Chinese panels now flooding the market in quality and cost, according to the company.

"Without decisive action to lay the groundwork today, the massive volume of affordable, high efficiency panels needed for unsubsidized solar power to outcompete fossil fuel grid power simply will not be there when it is needed," Musk wrote Tuesday in a blog post with his cousins Lyndon and Peter Rive, SolarCity's CEO and chief technology officer.

Musk, a self-made billionaire, has been frequently compared to Apple visionary Steve Jobs. But unlike Jobs, who primarily created consumer demand for pricey iPhones and iPads through smart design and marketing, Musk also focuses on affordability: make electric cars and solar panels so affordable that people will have no choice but to buy them.

Take-charge logic

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"There are parallels between Tesla and SolarCity in that Elon wants to innovate the supply chain," said Andrea James, a Seattle analyst with investment bank Dougherty & Co. "It's one thing to innovate with the end product. But sometimes innovation needs to happen earlier in the supply chain."

Tesla's proposed $5 billion lithium battery factory could prove that very premise. Without the proposed "gigafactory," the electric car manufacturer would lack the batteries needed to ramp up car production and introduce new models that consumers can afford, according to Musk. Once ordinary drivers can afford electric cars, they will become commonplace.

"We're building the gigafactory because we can't think of any other way to scale," Musk recently told an energy forum at the company's factory in Fremont. "We either hit the sides of the Petri dish, or we build a bigger Petri dish."

But even with the factory, Musk realizes that the market for electric cars will remain small unless other automakers invest in the category. That's why he decided to give away Tesla's technology to the rest of the industry. He would rather control a smaller part of a bigger market than control a larger part of a small market.

For Musk, the same take-charge logic applies to the solar business. For the world to eventually generate 40 percent of power from solar energy, companies need to produce 400 gigawatts a year, compared with the current annual rate of 50 gigawatts, SolarCity officials say. That won't come without widespread change.

"We see solar at a tipping point," Chief Technology Officer Rive said. "Something has to be done."

So SolarCity acquired Silevo for $200 million in cash and stock, and incentives worth an additional $150 million. Silevo has developed highly efficient solar cell technology that can be made at traditional prices, Rive said. To scale up the technology, SolarCity is discussing with New York state officials plans to build one of the world's largest solar panel plants in the Buffalo area, in large part to exploit the power of Niagara Falls, he said.

High quality, low cost

The deal is also a good example of how Silicon Valley is helping to revive American manufacturing. Over the past two decades, the standard narrative has American companies outsourcing manufacturing to countries with cheap labor such as China and Taiwan. But thanks to new technology from the valley, companies can create high-quality domestic products at low costs, said Jon Sobel, a former general counsel to Tesla and Yahoo.

"Increasingly, quality matters," said Sobel, now CEO of San Francisco manufacturing technology startup Sight Machine. "We have gone through a period of trying to take advantage of lower-cost labor. Doing stuff as cheaply and as well is now the goal."

That translates in all fields, whether it's cars or solar panels.

"The last thing you want to do is put something on your house that cost $10 less as the next guy's and might break," Sobel said.