Tesla's Battery Magic

Tesla and its CEO Elon Musk are on a roll. The Silicon Valley start-up’s stock price has nearly doubled in recent months after rising 400% last year. Consumer Reports named Tesla’s luxury Model S the best overall car of the year. And the company is unveiling plans for a $5 billion ‘gigafactory’ to produce lithium ion batteries in the desert southwest.

Under consideration for a year, the battery plant will be built by Tesla and possibly two other partners. It is a huge prize being contested by four states—Nevada, Arizona, New Mexico, and Texas.  It will encompass 500 to 1,000 acres and employ 6,000 workers. Bidding is fierce but the early favorite is a location near Reno, relatively close to Tesla’s auto production plant in San Francisco’s East Bay.

Analysts say however that if sales continue to surge Tesla may want a second assembly plant to produce its third-generation, more affordable electric cars that are due by 2020 when battery output is expected to reach half a million packs per year.  The plant requires abundant sunshine for solar power.  One prospective partner, Japan’s Panasonic, is currently Tesla’s sole battery supplier.

Musk, the engineering genius behind Tesla, Space X and SolarCity, says at full capacity output from the gigafactory will equal all lithium ion batteries currently produced worldwide.  The Model S uses 7,000 of the small AA-size batteries pictured above.  They are arrayed in a rectangular pan housed under the floorboard. Musk believes future cells will be lighter weight and that economies of scale will drive down battery prices by 30%.

A shortage of batteries has limited Model S production and may do so again this year as Tesla wants to boost car production 50% to 35,000 vehicles.

The battery plant sweepstakes and the promise of thousands of well paying jobs builds the Tesla brand and the favorable publicity to boost future sales. Morgan Stanley analyst Adam Jonas expects Tesla could double its share of the global car market to nearly 1% by 2028. Must says Tesla hopes to produce half a million electric vehicles annually by the end of the decade, half of them in the US. The gigaplant could supply cells to other EV producers.

Tesla supercharger locations

As part of Tesla’s brand-building strategy, Musk will soon out on a cross country journey that will showcase the company’s network of superchargers. The charging stations are cost free to Tesla owners.  They have been built at 200-mile intervals from LA across the country’s midsection to the east coast.

Zimbabwe's Transition to What?

Zimbabwe is entering an unsteady transition politically and economically.  Robert Mugabe, its sole leader since independence in 1980, turns 90 on February 21^st.  He can’t live forever.  Who will follow Mugabe and what course will his successors steer?

After four years of gradual improvement, the economy is again deteriorating.  Money is in short supply. Workers are losing jobs.  Government is starved of tax revenue because exports are falling and business activity has slowed. The country remains cut off from official lenders like the World Bank and the International Monetary Fund.

Six months after Mugabe’s flawed electoral victory, uncertainty reigns. Zanu PF is in complete charge.  There’s a new finance minister and central bank governor. Acting central bank chief Charity Dhliwayo says the economy faces a severe liquidity crunch and that local industry can’t obtain credit.

Because of the cash shortage Dhliwayo is allowing four additional currencies—principally the Chinese yuan and Indian rupee—to freely circulate. They join the US dollar and the South African rand, the euro, British pound, and Botswana pula as legal tender.  Pity the poor clerks who have to calculate prices.

In the aftermath of the July election Tendai Biti, finance minister in the coalition government, is out, replaced by Mugabe loyalist Patrick Chinamasa. The new finance minister recently went to China where he hoped to obtain money for the government’s ambitious development plan.  Rebuffed, he returned empty handed.

Ex-minister Biti worries that without meaningful exports and domestic production, “the liquidity crisis is so bad that echoes of 2008 are beckoning.”  He says if the cash squeeze persists the government may resort to printing money, i.e. bringing back the discredited Zim dollar that he discarded upon taking office in 2009.

50 billion dollar Zim bank note from 2008

Deterred by the government’s indigenization program, foreign investors are staying away. Corruption has reached exorbitant levels even by Zimbabwe diminished standards. People are outraged by revelations of obscenely inflated salaries and theft within state owned enterprises.

But amid all this distress there are hopeful signs for Zimbabwe’s long-suffering people. The European Union is poised to lift most remaining sanctions, an action likely to boost aid flows.  To their credit, Chinamasa and Mugabe are sticking with the IMF’s staff monitored program designed to impose financial discipline, boost confidence and lay a foundation for sustained growth. That program, promulgated by Biti, is still in place and runs until June.  An IMF team will visit Harare in late March to assess progress.  If the government holds to the program there could be a rapprochement with multi-lateral lenders and eventual action to clear the arrears that have long blocked Zimbabwe’s access to official financing.

During the relative stability that followed the taming of hyperinflation, Zimbabwe’s economy grew rapidly, albeit from an horrendously depressed level.  From 2009 to 2012, Zimbabwe registered 11% annual growth, the fastest in sub-Saharan Africa. Last year growth slowed to 3%, in large part because of the decline in commodity prices and depreciation of the rand against the US dollar. South Africa is Zimbabwe’s biggest trading partner and domestic producers are finding it increasingly difficult to compete with South Africa products. Growth for 2014 is unlikely to exceed 3%.

Since Zimbabwe is a virtual treasure chest of raw materials, foreign companies are eager to join Chinese firms in regaining a foothold in the country.  Over the next six months they’ll be watching policy pronouncements and economic conditions in Zimbabwe very carefully.