Elon Musk Making an Audacious and Risky $10 Billion Bet

Elon Musk is nothing if not audacious. In the last few years he's launched rockets into space, made electric vehicles cool with Tesla Motors (TSLA 12.06%), and guided SolarCity (SCTY.DL) to dominance in the residential solar market.

What's incredible is that Musk is just getting his feet wet. Over the next half decade he's planning to transform Tesla and SolarCity into manufacturing powerhouses. The scale of what he's trying to do is unprecedented in clean energy and may change the way we think about energy for the next century.

Tesla Motors will soon build its own batteries for vehicles like the Model S. Photo credit: The Motley Fool.

Musk's $10 billion bet on clean energy
Tesla's Gigafactory has gotten most of the attention from the media recently, but it's not the only audacious project Musk is undertaking. SolarCity recently bought Silevo, a solar panel manufacturer that Musk and Co. plan to turn into one of the largest solar manufacturers in the world.

When his plans for Tesla and SolarCity are complete, Musk will be investing up to $10 billion in the future of electric vehicles and solar energy. Some of that money may come from partners like Panasonic for the Gigafactory, but the sheer scale is incredible considering the nascent stage of both industries.

Below, you can see some details on Musk's planned investments. SolarCity hasn't released a budget for Silevo but if we use competitors' capital expenditures per megawatt we can estimate around a $0.50 per watt cost for the facilities.

Source: Tesla and SolarCity news releases and the author's own calculations.

Can Musk's bets pay off?
Few would bet against Elon Musk today, but it's worth noting the positive and negative of what he's trying to do.

The Gigafactory will transform Tesla from an electric vehicle company to a battery manufacturer, and that industry has a questionable history at best. The goal for Tesla Motors is to be able to reduce costs to a level that will make electric vehicles more accessible to a larger market. But that's not without risk.

In the last few years, A123 Systems, Ener1, Exide, International Battery, and Xtreme Power have all gone bankrupt chasing energy storage or electric vehicles. Tesla has the internal demand to succeed, but it's no guarantee. 

SolarCity will also be using batteries from the Gigafactory for energy storage systems like this one. Source: SolarCity.

Solar is potentially more challenging because technology changes quickly and few companies have been able to generate a long-term competitive advantage with their own panels. Musk admits that the solar market is currently very oversupplied, which keeps prices for commodity panels low. He's betting on a boom in demand that will lead to a shortage of panels, and while that has happened in the past in solar, it's a market dynamic that has never lasted long because competitors quickly rush to build supply.

There's also technology and execution risk to consider. SolarCity and Silevo say they can produce panels with higher efficiency and similar costs to competitors, but Silevo's technology has never been proven at scale. If you wonder how hard it is scaling up a huge solar plant just remember one word -- Solyndra.

Foolish bottom line
Musk isn't someone I would bet against, but the sheer scale of what he's trying to do in very young and risky industries is huge. Investors putting their dollars behind him are betting that he can transform into a large manufacturer in not one, but two industries simultaneously. If he can, Musk will cement his legacy as one of our generation's greatest innovators.