National / International News

Tesla is disrupting more than just the car business

Marketplace - American Public Media - Sat, 2016-02-06 16:01

Tesla Motors is building the world's biggest battery factory just outside of Reno, Nevada. The company is calling it the “gigafactory,” and when it’s up and running in 2016 it’s expected to make Tesla’s electric cars much more affordable. 

“In a single factory we're doubling the worldwide capacity to manufacture lithium-ion batteries,” says J.B. Straubel, Tesla's chief technology officer. 

That's significant enough. But the company also plans to develop batteries for use with solar-power generation – giving Tesla a shot at challenging public utilities as an energy source, Straubel says.

“At the price points that we're expecting to achieve with the gigafactory ... we see a market that is well in excess of the production capability of the factory,” says Straubel.

The market for batteries is an offshoot of the booming business for solar panels, particularly in states such as California, where solar is becoming commonplace.

“We sign up approximately one new customer every minute of the workday," says Will Craven, director of public affairs at California-based SolarCity.

Much of the excess energy harnessed by solar panels is returned to the power grid, Cravens says. This means homeowners and businesses may earn a credit from their power companies, but have no say over when and how that energy is used.

The partnership with SolarCity will use rooftop solar panels fitted with Tesla’s battery packs to allow customers to keep that energy in-house. That means they can use it however, and whenever, they want. The concept puts Tesla in direct competition with utility companies.

“Stationary storage, or backup storage, is really being considered the ‘Holy Grail’ of renewable electricity generation,” says Ben Kallo, an analyst with the Robert W. Baird financial services firm.

Kallo points out that the intermittent nature of renewable energy sources makes them less reliable because the wind doesn’t always blow and the sun doesn’t always shine.  But with the ability to store that energy, renewable energy sources can compete head-to-head with utility companies for customers.

“There are still many utilities out there who kind of have their head stuck in the sand and just hope that this goes away. What we're seeing is really building momentum,” Kallo says.

Forward-minded utilities might look at Tesla’s business model as an opportunity, he says.  Energy-storage technology could be used to build capacity in their existing grids, and also build new infrastructure for battery-powered cars and homes.

 

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Why the CPI doesn't figure in the Fed's calculations

The Consumer Price Index rose by 0.1 percent last month, according to figures out Friday. You could think of it as one more piece of evidence in the "no inflation" pile.

The CPI is used for a variety of things, particularly in adjusting rent and wages, as well as "in private contracts to escalate values of money ... by the government ... to adjust social security, and so forth," says Steve Reed, an economist at the Labor Department's Bureau of Labor Statistics who works on the CPI.

But the CPI isn't what the Federal Reserve looks to when it tries to figure out whether the economy as a whole is experiencing inflation. The Fed prefers the Personal Consumption Expenditures index, or PCE.

Jeremy Siegel, a finance professor at the Wharton School at the University of Pennsylvania, says both of the measures' "headline" numbers are inaccurate, "and the reason for that is when the price of one good goes up, we substitute it with other goods." For instance, if beef gets expensive, you'll probably just buy some chicken, and your quality of life will not suffer much (if at all).

That's why the Fed looks not at the headline PCE, but the core PCE, which is the PCE with the volatile prices of food and energy stripped out. Ben Friedman, an economics professor at Harvard, says the Fed is just trying to influence the economy where it can.

"They're letting the economy respond to movements up or down in oil prices rather than having monetary policy do that," he says.

The PCE and its core number — will be released on June 1.

The U.S. is facing an egg-tastrophe

You may not know it, but we have an egg-tastrophe on our hands. Thanks to bird flu, an estimated 31 million chickens have been killed — that’s 10 percent of the country’s egg-producing poultry.

Randy Pesciotta, vice president of the egg department at Urner Barry, a commodity market news reporting service, says prices for wholesale eggs have almost doubled, and it's the wholesale market that's going to feel the pinch of higher prices first.

Phil Lempert, a food industry analyst for companies like McDonald's, which relies heavily on eggs, notes that the shortage may be difficult.

“About 25 percent of McDonald’s sales rest in breakfast," he says.

And it’s not clear where companies like McDonald's can turn for cheaper eggs. Certainly not from neighbors such as Canada and Mexico — those countries were already buying eggs from the U.S. While there is talk of getting egg-sports from the EU, Pesciotta says there’s a problem. In the U.S., producers wash and refrigerate eggs to protect against salmonella. But the EU vaccinates its chickens and says washing can damage shells, making eggs more vulnerable to bacteria.

Pesciotta says that unless the U.S. and the EU can agree on egg-zactly what makes eggs safe, we may have an egg-pocolypse.

“They produce to their set of rules. We produce to our set of rules," he said, "they’re different.”

Egg-tastrophe

You may not know it, but we have an egg-tastrophe on our hands. Thanks to bird flu, an estimated 31 million chickens have been killed — that’s 10 percent of the country’s egg-producing poultry.

Randy Pesciotta, vice president of the egg department at Urner Barry, a commodity market news reporting service, says prices for wholesale eggs have almost doubled, and it's the wholesale market that's going to feel the pinch of higher prices first.

Phil Lempert, a food industry analyst for companies like McDonald's, which relies heavily on eggs, notes that the shortage may be difficult.

“About 25 percent of McDonald’s sales rest in breakfast," he says.

And it’s not clear where companies like McDonald's can turn for cheaper eggs. Certainly not from neighbors such as Canada and Mexico — those countries were already buying eggs from the U.S. While there is talk of getting egg-sports from the EU, Pesciotta says there’s a problem. In the U.S., producers wash and refrigerate eggs to protect against salmonella. But the EU vaccinates its chickens and says washing can damage shells, making eggs more vulnerable to bacteria.

Pesciotta says that unless the U.S. and the EU can agree on egg-zactly what makes eggs safe, we may have an egg-pocolypse.

“They produce to their set of rules. We produce to our set of rules," he said, "they’re different.”

 

Why do companies offer free stuff at the same cost?

One of the questions we received from listeners as part of our "I’ve Always Wondered" series is about why companies give you extra for free.

Eileen Lee wrote us to ask: "Why is it that, every once in a while, my favorite brand of shampoo, food or drink gives me an extra 20 percent free?  Why would a company do this?”

Lee is a statistician and demographer who is finishing up and publishing her master’s thesis. She’s a very careful shopper, dissecting special offers and deals. And she’s very particular. For example, her chicken nuggets have to be dinosaur shaped. Why?

“I like biting the heads off,” she says.

Eileen and I are on a virtual shopping date. I’m at my favorite store in Wheaton, Maryland, just outside Washington. She’s at a store near Los Angeles, where she’s from. We head to the shampoo aisle. Eileen spots a get-more-free deal right away.

“Yeah, Organix – they have some oil of Morocco shampoo and it’s 50 percent more free,” she says.

So will she buy it?

“No, I’ve used their stuff before," she says. "I don’t like it. It makes my hair feel weird.”

Eileen’s got a brand of shampoo she likes, and sticks with. Ditto for toilet paper and detergent. We go down aisle after aisle, looking for a get-more-for-less deal she likes. We don’t find any. Hence her question.

“What made me ask the question was that I never fall for that," she says. "If I see an extra 20 percent, and if it’s not the same brand I’ve been using or the same particular series of brands, then I wouldn’t even think of  choosing it.”

So Eileen never goes for those deals. But, turns out, lots of other people do. That’s part of the answer to Eileen’s question.  

“It gives you an effective discount that’s very tangible and enables you to differentiate your product from the others on the shelf," says Ira Kalb, assistant professor of clinical marketing at the Marshall School of Business at the University of Southern Calfornia. "And it sways people to your brand.”

You want consumers to try it and get hooked on it. Pepsi was among the first companies to experiment with get-more-for-free in the 1930s.

“But they hit upon this idea that they would have a package twice the size but they’d sell it for the same price as the Coke, which was a nickel," says Robert Schindler, a professor of marketing at Rutgers University. 

Pepsi promoted the deal with this radio jingle:

 

Back in the grocery store, Eileen says I’ve answered her question. But she’s still not interested in the get-more-for-less deals. Now, manufacturer’s coupons? That’s different.

“Because then I can actually calculate if it’s actually cheaper," she says. "Whereas with the 20 percent free, I have to calculate, OK, what was the normal price and am I getting more product?”     

But that's an I’ve Always Wondered question for another day.

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