Elon Musk explains first principles thinking and uses it to predict 80%+ decline in battery prices

“First principles is a kind of physics way of looking at the world. And what that really means is you boil things down to the most fundamental truths and then reason up from there.”

People typically reason by analogy because it’s easier—we do something because that’s the way it has always been done or it’s what everyone else is doing.

First principles thinking requires a lot more energy, but it’s useful for inventing new things.

Elon gives battery prices as an example.

In this 2012 interview, he recounts how everyone told him: “battery packs are really expensive and that’s the way they’ll always be because that’s the way they’ve been in the past.”

But Elon thinks this way of reasoning is “pretty dumb” and prevents people from arriving at new and better ideas.

At the time, the cost of batteries were $600 per kilowatt hour (kWh). But Elon suggests he can do better using first principles thinking:

“So first principles thinking would be to say, okay, what are the material constituents of the batteries? What is the spot market value of the material constituents? It’s got cobalt, nickel, aluminum, carbon, some polymers for separation, and a steel can. So break that down on a material basis and say, okay, if we bought that on the London Metal Exchange, what would each of those things cost? It’s $80/kWh. 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 then you can have batteries that are much, much cheaper than anyone realizes.”

In 2023, the price for electric vehicle battery packs hit a new low of $128/kWh ($95/kWh in 2012, adjusted for inflation).

Full video: Kevin Rose “Elon Musk and Kevin Rose“ (Sep 2012)

More popular advice from Elon Musk

Elon Musk on how to choose what to work on “I don’t think everything needs to change the world. There’s lots of useful things that people do, and I think it should really be like a usefulness optimization.” (full article).

Elon Musk explains why the CEO must work on the “most pernicious and painful problems” “A lot of times people think creating a company is going to be fun. I would say it’s really not that fun. There are periods of fun, and there are periods where it’s just awful. Particularly if you’re the CEO of the company. You actually have a distillation of all the worst problems in the company. There’s no point in spending your time on things that are going right. So you only spend your time on things that are going wrong that other people can’t take care of… the most pernicious and painful problems.” (full article).

Elon Musk: “When something is important enough, you do it in spite of fear” “It’s not as though I have the absence of fear. I feel it quite strongly. But there are times when something is important enough - you believe in it enough - that you do it in spite of fear… It’s normal to feel fear. There’d have to be something mentally wrong if you didn’t feel fear.” (full article).