elon musk

Why Tesla’s Growth is About to Skyrocket – Elon Musk on the Third Row Tesla Podcast (Part 2)

Check out the Third Row Tesla Podcast website

Check out the Podcast Notes for Part I

Key Takeaways

  • Elon vertically integrated Tesla because, early on, many suppliers refused to work with them
  • The established car companies make most of their money by selling spare parts to existing drivers at high margins, not from selling cars
    • New car companies lack an existing fleet of drivers to which they can sell spare parts—this is the primary reason why starting a successful car company is so difficult
    • Similarly, car dealerships make ~50% of their profits from servicing cars. Electric vehicles, however, need much less servicing, making it difficult for Tesla to profit using the traditional business model.
  • The real test for any given startup is how well it responds to adversity, adapts, and just figures things out” – Elon Musk
  • Too many companies design products through spreadsheets and marketing surveys, instead of asking customers directly, “Do you love this?
  • Building factories on each continent will allow Tesla’s growth to skyrocket
  • Elon calls the Tesla Cyber truck their “best product ever”

Intro

An Update on Tesla

  • Tesla’s autopilot system is already pretty good, but the next update will make it even better
    • “3D labeling is the next big thing … This is probably a two or three orders of magnitude improvement in labeling efficiency, and a significant improvement in labeling accuracy.” – Elon Musk 
      • Instead of having to label individual frames at 36 frames a second, Tesla’s new autopilot software can label 1,000 frames all at once!
  • The auto industry is far behind Tesla in terms of electric vehicles
    • “There’s not a car available at the price of the Model S that has the capabilities of the Model S of 2012” – Elon Musk
  • The two significant technological changes in the car industry are electrification and autonomy
    • “The combination of those two is the only opening for a new car company to make it” – Elon Musk

Tesla’s Manufacturing Struggles

  • Building an electric car isn’t as simple as most people believe
    • “Something that looks cool and works well at an individual prototype level doesn’t necessarily scale … Doing the prototype is the easy part; building the production system is a hundred times harder.” Elon Musk
  • Over time, Tesla’s gone from manufacturing just two cars a day to 1,000+
    • From start to finish, Tesla can now make a car in ~48 hours
  • The manufacturing industry is incredibly difficult
    • Tens of thousands of unique parts are needed to make one Tesla, and both robots and humans are required to produce a finished product
      • “Given how much complexity there is in a car, it’s remarkable they cost as low as they do” Elon Musk
  • Top suppliers refused to work with Tesla early on—they already had many massive car companies as customers and viewed Tesla was a tiny blimp soon to go bankrupt 
    • This is what influenced Elon to vertically integrate the company: ”It was vertically integrate or die”

How Car Companies ACTUALLY Make Money

  • 🎧 The established car companies make most of their money by selling spare parts to existing drivers at high margins (they sell new cars at de facto zero margins, or even at a loss)
    • It’s the same business model as printers/cartridges or razors/ blades
    • The same goes for video game consoles: An Xbox costs about $600 to make, but it’s sold at a lower price due to the surplus of money made from selling video games
    • The problem: New car companies lack an existing fleet of drivers to which they can sell spare parts—this is the primary reason why starting a successful car company is so difficult
      • Existing car companies have 70-80% of their fleet outside of warranty—in other words, they have a ton of customers who need spare parts (Elon estimates that only 10-20% of Tesla vehicles are out of warranty)
  • Similarly, car dealerships make ~50% of their profits from servicing cars
    • Electric vehicles, however, need much less servicing, making it difficult for Tesla to profit using the traditional business model

SpaceX

  • SpaceX uses 3D metal printers to create parts for Starship
    • “I think SpaceX is pushing the envelope with metal printing more than anyone else” – Elon Musk

Startup Lessons

  • 🎧 “The real test for any given startup is how well it responds to adversity, adapts, and just figures things out … Most startups, when they start out, don’t make a lot of sense, but then, as long as you adapt quickly, you’re able to make the company work.”Elon Musk
    • For instance, so many things went wrong with the Tesla Model 3 that the entire company was once devoted to fixing its production system
  • “What you’ll see in any given product: the errors in the structure of an organization manifest themselves”Elon Musk
    • Tesla’s Model 3, for example, has both a top enclosure and underbody; why?
      • The battery team desired an enclosed battery pack, and the body team insisted on an enclosed battery—hence, there are two outer boxes when one would have sufficed
  • The lower the number of new players an industry has, the less innovation there will be (i.e., the auto and space industries prior to Tesla and SpaceX)
  • The chicken and the egg problem: You can’t manufacture high volume unless you have an affordable price, but you can’t have an affordable price unless you get to high volume
  • You can’t pour more money into R&D and expect an increase in innovation—innovation is the result of hiring high-quality engineers
    • “There’s a fundamental limitation on exceptional engineers; there’s not that many” – Elon Musk
  • Too many companies design products through spreadsheets and marketing surveys, instead of asking customers directly, “Do you love this?

Tesla’s Growth is About To Explode

  • Elon plans on being able to make cars on each continent; why?
    • By doing so, Tesla won’t have to pay transport costs, tariffs, etc.
    • Cars delivery will be expedited
      • A while back, it used to take 2-3 weeks to deliver a car to China; now with Tesla’s Shanghai factory, they can make and deliver a car within a few days
    • Each country has different regulatory requirements—one Model 3 can be quite different from another depending on which country it ends up in (i.e., Model 3s sold to England need the steering wheel on the right side), making things quite complex if Tesla manufactures all of its vehicles in the U.S.
      • (In one situation, a Tesla car shipment was refused entry into China because someone put the wrong stickers on the vehicles)
  • Merely having a factory on each continent will be a vast improvement—it eliminates having to deal with the wide array of problems that arise from shipping cars via boats (boats break down, get caught in storms, goods arrive damaged, boat traffic, etc.)
    • Tesla is currently building a factory near Grünheide, Germany to help produce cars in Europe
      • Why Grünheide? – The local and state government is very supportive, there’s a lot of talent in the area, it’s close to Berlin, and there’s affordable housing nearby for workers
  • China is very pro-electric vehicle—they have the biggest electric vehicle market in the world
    • “Half of all the electric vehicles are made and bought in China—something like that” – Elon Musk
      • Elon believes people don’t appreciate just how important having Shanghai factory is to Tesla
  • 🎧 By building a factory on each continent, Tesla will get paid by its customers before they’re forced to pay suppliers
    • “If you’re a rapidly growing company, it’s night and day if you get paid by your customers before you have to pay your suppliers”Elon Musk

Tesla’s Cybertruck

  • Elon calls the Cybertruck “Tesla’s best product ever”
    • Kimbal calls it “a badass truck”
  • Over 400k people pre-ordered the car
  • Why the aggressive design for the Cybertruck?
    • Many people buy trucks because they look tough, so Elon asked himself, “What’s tougher than a truck?
      • “What’s tougher than a truck is a tank—like a tank from the future”Elon Musk
  • What inspired the truck’s design?
    • Movies such as Blade Runner, Mad Max, Back to the Future, and Aliens
  • Speaking on the Cybertruck design: “You want to have these things that inspire people, that feels different, and aren’t like everything else” – Elon Musk
  • At first, Elon wasn’t sure if anyone would pre-order the truck, but the downsides were quite low as they’d yet to start manufacturing
  • Because of its unique exoskeleton, manufacturing the Cybertruck is sure to be a challenge

Additional Notes

  • Elon believes all transport (except for rockets) will go electric, even planes
  • Elon has considered putting a rollercoaster in Tesla’s Fremont factory
  • Tesla’s Model Y is due out this year
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Notes By Alex Wiec

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