The bullish thesis behind Tesla (NASDAQ:TSLA) is firmly founded on the belief that Tesla will lead the auto industry's first ever platform shift to Electric Vehicles (EVs). Thus far, the biggest barrier to EVs has been range. Although the Model S has a range 4X greater than any other major auto company's EV (75 miles of electric range for the 2013 Nissan Leaf, 38 for the 2013 Chevrolet Volt), its 285 mile range is still well short of the typical 500-600 mile tank of a gasoline car.
Whether or not free charging (via Tesla's Supercharger Network) is enough to make up for this lack of range, is up for debate. But what if EVs were able to travel just as far as their gasoline counterparts? Would that be the catalyst for a complete and irreversible platform shift to EVs? Is infrastructure still a big enough concern for consumers to stick with ICE (Internal Combustion Engines) even if range reaches a tipping point in the EVs favor? Bulls say yes, bears say no. This basic battle behind EV viability has been raging since Tesla's inception.
But, recent news out of Israel may have shifted this argument.
On March 29th 2013, Israeli-based startup Phinergy announced it would be bringing a 1000 mile EV to consumers by 2017. If successful, Phinergy will have created an EV that can go farther than any ICE car on a single tank/charge. In my opinion, this could be the tipping point EVs need for mass market adoption.
So how is Phinergy going to do it? Aluminum-air batteries. Remember IBM's (NYSE:IBM) The Battery 500 Project? The 500 Project was developed by IBM in 2009 to create a 500 mile EV battery using lithium-air technology. Notice a pattern? Both technologies mention the use of an air based battery, as opposed to the traditional ion battery current EV's use.
Air batteries can travel significantly farther than their ion counterparts with one drawback; charging is much harder. The solution to this (in Phinergy's opinion), is to provide replaceable aluminum battery packs. Aluminum is relatively cheap, especially in the quantities needed for replacement packs.
Because these air batteries are less convenient to recharge/replace, they must be combined with traditional ion batteries. This allows drivers to select a specific battery, depending on how far they need to travel.
So how does Tesla fit into all of this? Patent Applications.
Since 2012, Tesla has filed 8 patent applications that reference "metal-air" batteries. What exactly do these patents describe?
Let's start with patent application #: 20120041625
This patent is titled "Efficient Dual Source Battery Pack System for an Electric Vehicle."
Here's a direct quote of the abstract.
A method of optimizing the operation of the power source of an electric vehicle is provided, where the power source is comprised of a first battery pack (e.g., a non-metal-air battery pack) and a second battery pack (e.g., a metal-air battery pack). The power source is optimized to minimize use of the least efficient battery pack (e.g., the second battery pack) while ensuring that the electric vehicle has sufficient power to traverse the expected travel distance before the next battery charging cycle.
Essentially, Tesla is describing the same type of dual battery pack Phinergy wants to use in its 2017 1000 mile EV. The combination of "a non-metal-air" and "a metal air battery" is clearly something Tesla has been experimenting with.
If we dig a little further, there are 3 more particularly interesting Tesla patent applications pertaining to "metal-air" batteries.
"Control, Collection and Use of Metal-Air Battery Pack Effluent"
"Electric Vehicle Extended Range Hybrid Battery Pack System"
"Charge Rate Modulation of Metal-Air Cells as a Function of Ambient Oxygen Concentration"
Not only do these patents reference the dual battery system, but they specifically mention the metal air batteries "charging cycle." This would be different than Phinergy's aluminum metal-air battery, which apparently must be replaced, not recharged.
Tesla also notes that its air batteries could be based on "zinc, aluminum, magnesium, iron, lithium [or] .... vanadium." Although Tesla's air-based batteries may not have to be replaced after each use, their long term viability remains in question. Tesla specifies in the applications that the "metal-air" batteries must be used in tandem with "non metal-air" batteries. This is because air batteries generally degrade much faster, and therefore, can only be recharged a limited amount of times (if any at all).
These patent applications are important to Tesla investors for 3 main reasons.
1) It shows Tesla is still striving to keep its technological advantage. The Model S proved Tesla is able to develop significantly more advanced products than its competitors (longest range EV on the market, 2013 MTCOTY). These patent applications surrounding "metal-air" batteries, show Tesla is not only participating in the next generation of EVs, but leading in its innovation.
2) Gen-III with "metal-air" battery could be possible. Tesla's EV for the masses, dubbed Gen III or BlueStar is scheduled for a 2017 release. This happens to be the exact same year Phinergy is planning to release its 1000 mile aluminum-air EV. If we assume Tesla is keeping pace with its competition (patent applications would indicate so), then why wouldn't it commercialize "metal-air" technology the same time as Phinergy?
3) EV range tipping point may happen much sooner than we think. Both Elon Musk and Martin Eberhard of Volkswagen have predicted 500 mile range EVs by 2020 (I, II). This is most likely based on current lithium-ion technology (285 mile range in 2012 = 550+ mile range in 2020, with annual 10% efficiency improvements). If air batteries can be successfully combined with these ion improvements, EVs will undoubtedly be able to travel further on a single charge/tank than their ICE counterparts.
For those interested in reading the full list of Tesla's patent applications you can click here.
Whether or not this experimental tech will ever see the real world is still in question. Tesla's innovation is not.
Concerns about limited EV range are valid and a crucial pillar of the Tesla short thesis. Any breakthrough in battery manufacturing or development could easily change these facts.
If air batteries can effectively be integrated into consumer products, EVs will have permanently leapt over ICE vehicles in yet another performance category.
Disclosure: I am long TSLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.