That's Tesla and SpaceX, and I should mention certainly SolarCity.
SolarCity is part of the whole sustainable energy thing. You have to have sustainable means of producing and consuming energy, so even if you have electric cars, you have to have the other side of the equation. It's all well and good if you have electric cars, but how do you produce electricity? People will say, well, don't electric cars create pollution at the power plant level?
It should be noted that, for any given source fuel, it is always better to generate the power at the power plant level and then charge electric cars and run them, for any given source fuel. Because power plants are much more efficient at extracting the energy than internal combustion engines in a car. If you take say natural gas, which is the most prevalent hydrocarbon source fuel, if you burn that in a modern General Electric natural gas turbine, you'll get about 60 percent efficiency. If you put that same fuel in an internal combustion engine car, you get about 20 percent efficiency. The reason is, in the stationary power plant, you can afford to have something that weighs a lot more, is voluminous, and you can take the waste heat and run a steam turbine and generate a secondary power source. So in effect, even after you've taken transmission loss into account and everything, even using the same source fuel, you're at least twice as better off charging an electric car, at least twice as efficient and usually more like three times as efficient. So, for any given source fuel, even if the whole world were always going to be powered by hydrocarbons, it would still make sense to do electric cars.
Of course, we must find a sustainable means of generating energy as well. So, how do you produce energy in a sustainable way? I think that the most likely, well, the main candidate for energy generation is actually solar. I'm quite confident that the primary means of power generation will be solar. I think the physics of this is actually rather obvious, because the Earth is almost entirely solar powered today as it is. I mean, it's really indirect fusion, that’s what it is. We've got this giant fusion generator in the sky called the Sun, and we just need to tap a little bit of that energy for purposes of human civilization. What most people know, but don't realize they know, is that the world is almost entirely solar-powered already. The whole weather system is solar powered, almost the entire weather system is solar powered, some of it is from Earth rotation. Our entire system of precipitation is powered by the Sun. It's the basis for the whole ecosystem as you learned in elementary school. The Sun powers the plants and the plankton, and the animals eat that, and we eat the animals and plants. Plants are essentially a solar powered chemical reaction. So the ecosystem of Earth and the lifeforms on Earth are almost entirely solar powered already. The whole ecosystem is 99.999%, powered by the Sun, except for some chemotrophs at the bottom of the ocean. We'd be a frozen ice ball at, I don't know, three or four Kelvin, if it weren't for the Sun. It's rather obvious that one should try to take a little portion of that energy, and it's actually not much, and convert that into electricity for use by society. To run civilization essentially it's a really kind of tiny amount compared to the amount that hits the Earth. It's actually a very tiny amount of energy relative to the amount of energy that the Sun sends in our general direction. We could, in fact, power the entire world with solar power quite easily.
I'm confident that solar will beat everything, hands down, including natural gas. Even when I was in college it was very obvious to me that electric would be the right thing to back. The fundamental efficiency of solar plus electric is an unbeatable combination at a first principles physics level for having the most efficient sustainable system. To me this is as obvious as day and night.
The genesis of SolarCity was at Burning Man with two of my cousins, Lyndon and Peter Rive who are awesome guys. One is an engineer and one is sort of more sales and overall leadership. They are both very good guys, and they were sort of trying to think what they should do after their first startup. They did a company called Everdream, which did large scale management of computers. If you're got like 60,000 computers it's kind of hard to manage them, so they created software that allows companies to do that. That company actually got sold to Dell, and they did pretty well.
So we were at Burning Man with my cousins and they were thinking about what to do next. I was actually trying to convince them that they should do solar because I just thought it was an area that needed people like them - really good entrepreneurs - and since I was somewhat overcommitted, I thought, well look, if you guys will do a solar company, I'll provide all the funding and whatever guidance or help I can provide.
I thought it was really important that there'd be good entrepreneurs like them in solar, because it just wasn't doing very well as an industry. I thought people weren't focusing on the right problem. I said I think there's a real need for great entrepreneurs in the solar industry, and if they were willing to start a solar power company then I would completely back them on that. So they took me up on the offer and created SolarCity. That's kinda what they did and did an awesome job. They really deserve the credit for making SolarCity for what it is, they have done an amazing job.
We have a very simple goal which is to make solar power as available and widespread as possible. SolarCity does everything except the panel. Everybody thought that the panel was the problem but actually - it's a problem, but it's not the most important problem. The panel is somewhat commoditized at this point. What a lot of people don't realize is that making standard efficiency solar panels is about as hard as making dry wall. It's super easy. In fact, I'd say dry wall is probably harder, it’s easier than making freaking drywall at this point. The cost of that will be driven down to a very low number, almost down to the raw material cost really.
I think what China is doing in the solar panels arena is awesome because they are lowering the cost of solar power for the world. I think a good rule of thumb is, don't compete with China with a commodity product. You're really asking for trouble in that scenario. Does anyone think about competing with China when it comes to drywall manufacturing? probably not. They have these huge giga factories that are created out in the Chinese desert with a ton of the funding from the Chinese government. It's a giant donation from the Chinese government. Thanks that's awesome.
The real cost of solar, and the real challenge of solar is called balance of system, with everything except the panel. The hard part is the whole system, it's designing something for a particular rooftop. What is a thorny problem is trying to figure out how to get solar on tens of thousands, eventually hundreds of thousands, of rooftops. You have all these heterogeneous rooftops, then you got to mount the system, you have to wire it up, connect the inverters, connect it to the grid, do all the permitting. There's a whole bunch of thorny unglamorous stupid problems, but if somebody doesn't optimize them they are still going to cost a lot of money. A lot of them are not fun problems or exciting problems to optimize, but they are the problems that actually matter in the cost of solar power. So SolarCity works on a balance of system, and they own the end customer relationship, which includes the customer owner experience, designing the system to a particular rooftop, the wiring, the inverter, the after service, and figuring out the financing of it all. They're kind of like Dell or Apple, you know, Apple doesn’t make the CPU or the memory or the hard drives, but they design the overall system, and they provide it to customers through the sales and marketing service.
You got to do it at scale, and you got to manage all these systems. Even though the after sale service is small, when you got like hundreds of thousands of systems, that's a lot to manage. It's kind of like you've got to re-roof millions of buildings, and then figure out how the grid interconnects work and then manage all those systems. If you've got hundreds of thousands, or maybe millions of systems, eventually, you've got to manage all these distributed systems. That's what SolarCity is doing, it's really trying to improve the economics of solar power, and they're doing a great job. I don't run the company, so the credit for SolarCity really goes to the two key guys who run that company. You've got this really complex distributed utility, effectively, which I think actually plays to their prior strength in creating really scalable software for managing hundreds of thousands of computers in a distributed fashion.
I'd basically show up at the board meetings to hear, what's the good news this time? We had maybe a couple bad board meetings, late 2008 there was some bad board meetings, but for the most part apart from a few times when the macroeconomic conditions were really terrible, they just did an amazing job with almost no help from me. Yeah, they deserve the vast majority of the credit for the success of that company. For them, the more rapacious the competition on solar panels, the better.
You can buy a solar system or you can lease a solar system. Most people choose to lease. The thing about solar power is that it doesn't have any feed stock or operational costs, so once it's installed, it's just there. Solar is very much a cost to capital type of business, once you paid for it there is no fuel, it works for decades. It'll work for probably a century. Therefore, the key thing to do is to get the cost of that initial installation low, and then get the cost of the financing low. Those are the two factors that drive the cost of solar. SolarCity is about packaging it at all so it's very easy to use. Basically make one call and make it all seamless and painless.
Essentially, SolarCity raises a chunk of capital from say, a company or a bank,and they have an expected return on that capital, Google is one of our big partners here. With that capital, SolarCity purchases and installs the panel on the roof, and then charges the homeowner or business owner a monthly lease payment, which is less than the utility bill. It's no money down, and your utility bill decreases. Pretty good deal.
What it amounts to is a giant distributed utility, and it's working in partnership with the house and business, and in competition with the big sort of monopoly utility. I think it's a good thing, because utilities have been this monopoly, and people haven't had any choice. Effectively, it's the first time there's been competition for this monopoly, because the utilities have been the only ones that owned those power distribution lines, but now it's on your roof. I think it's actually very empowering for homeowners and businesses, I think it's like literally ‘Power to the people’, like literally. It’s awesome because you know utilities never had any competition before, and now they actually have to think about the cost of power, and they have to figure out better ways to do it.
SolarCity is essentially a giant distributed utility that's based on that giant fusion reactor in the sky. It’s something that will last for a very long time, and I ultimately think that we will generate more energy from the Sun then from any other source. We’ve made huge progress in that direction, and that's why I'm confident we'll actually beat natural gas.
So SolarCity is about sustainable energy creation where as Tesla is about sustainable energy consumption.