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Depreciation of the battery is going to be much less predictable than energy prices. Just because a simple formula is used in accounting standards, doesn't mea

by swatow 12y ago

Depreciation of the battery is going to be much less predictable than energy prices. Just because a simple formula is used in accounting standards, doesn't mean that the true economic value of the battery is anywhere close to the accounting figure. For example, what if the battery breaks and needs repair? That's build into the depreciation, and very unpredictable.

fnbr 12y ago
Not in aggregate. The law of large numbers guarantees that we can come up with a meaningful average cost of ownership. We just need more data.
- swatow 12y ago
  Knowing averages doesn't help the individual homeowner who has to deal with the increased risk.
  - fnbr 12y ago
    It does, though, in at least two ways: 1. There's little reason (a prior) to think that there would be much higher variance in the level of manufacturing defects than with any other consumer product, so knowing the average provides a pretty useful approximation for the quality of the product. 2. The individual homeowner should be purchasing homeowner's insurance, and the insurance companies use the average to approximate the risk, which allows them to shield the homeowner. New products have risks that have been dealt with effectively in the past. There's no reason to think that Tesla's batteries will be any different.
    - swatow 12y ago
      You originally said: If your house is nominally electric (using gas for things which gas is really good at, making heat) and your gasoline bill is non-existent because your vehicle is electric. It means you can cost out power with a depreciation/replacement cost model which gives you much better forecasting ability. One of the reasons given for taking 'energy costs' out of the whole inflation/cpi metric was due to its volatility. I understood this to mean that you were saying that the risk to households caused by deprecation of batteries, was less than the risk caused by varying electricity prices. You don't seem to be answering this point anymore. I'm not saying that batteries are especially risky. I'm saying that the risk from batteries isn't clearly less than that from electricity prices. I don't think insurance can deal with this for the usual reasons that insurance involves moral hazard. But maybe batteries will not require any maintenance, or maintenance will be so standard, that moral hazard won't be an issue.

by swatow 12y ago

fnbr 12y ago

Not in aggregate. The law of large numbers guarantees that we can come up with a meaningful average cost of ownership. We just need more data.

swatow 12y ago
Knowing averages doesn't help the individual homeowner who has to deal with the increased risk.
- fnbr 12y ago
  It does, though, in at least two ways: 1. There's little reason (a prior) to think that there would be much higher variance in the level of manufacturing defects than with any other consumer product, so knowing the average provides a pretty useful approximation for the quality of the product. 2. The individual homeowner should be purchasing homeowner's insurance, and the insurance companies use the average to approximate the risk, which allows them to shield the homeowner. New products have risks that have been dealt with effectively in the past. There's no reason to think that Tesla's batteries will be any different.
  - swatow 12y ago
    You originally said: If your house is nominally electric (using gas for things which gas is really good at, making heat) and your gasoline bill is non-existent because your vehicle is electric. It means you can cost out power with a depreciation/replacement cost model which gives you much better forecasting ability. One of the reasons given for taking 'energy costs' out of the whole inflation/cpi metric was due to its volatility. I understood this to mean that you were saying that the risk to households caused by deprecation of batteries, was less than the risk caused by varying electricity prices. You don't seem to be answering this point anymore. I'm not saying that batteries are especially risky. I'm saying that the risk from batteries isn't clearly less than that from electricity prices. I don't think insurance can deal with this for the usual reasons that insurance involves moral hazard. But maybe batteries will not require any maintenance, or maintenance will be so standard, that moral hazard won't be an issue.