Analogy vs. First Principles
Musk: I think it's important to reason from first principles rather than by analogy. The normal way we conduct our lives is we reason by analogy. We're doing this because it's like something else that was done, or it's what other people are doing.
It's mentally easier to reason by analogy rather than from first principles. But first principles is a physics way of looking at the world. What that really means is you boil things down to the most fundamental truths — what do we know is true, or as sure as possible is true — and then reason up from there. That takes a lot more mental energy.
We reason by analogy — doing this because it's what other people are doing. First principles means boiling down to the fundamental truths.
The $600 Battery vs. the $80 Battery
Musk: Somebody could say battery packs are really expensive and that's just the way they'll always be, because that's the way they've been in the past. No. That's pretty dumb. Because if you applied that reasoning to anything new, you wouldn't be able to ever get to that new thing.
They would say historically it's cost $600 per kilowatt hour and it's not going to be much better than that in the future.
First principles: what are the material constituents of the batteries? What is the spot market value? It's got cobalt, nickel, aluminum, carbon, some polymers for separation, and a steel can. If we bought that on the London Metal Exchange, what would it cost? Oh jeez — it's $80 per kilowatt hour.
So clearly you just need to think of clever ways to take those materials and combine them into the shape of a battery cell. And you can have batteries that are much, much cheaper than anyone realizes.
On the London Metal Exchange, the raw materials cost $80 per kilowatt hour. So clearly batteries can be much cheaper than anyone realizes.