SALN #3 -Read these 24 facts about Tesla’s future technology.

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Tesla is expected to have matured and function without its founder and Superpadre Elon Musk after the Model 3 launch in 2018. 

We in Europe stayed up late last Wednesday to watch Tesla’s first investor day, much like a few weeks prior when we stayed up for the Super Bowl. We observed an excessively sales-oriented show.  

But investors did not get the expected answers. After the show, the TSLA stocks fell -5%.   

In this newsletter, we summarized 24 points about Tesla’s future. In addition to what was announced, what was not said is quite telling. However, the presentation was packed with information, and some important topics may have been overlooked, but they are still worth considering. 

What we observed:

1. Once again, “to the Moon 🚀“: Tesla’s sales volume target is 20 million cars. With a portfolio of 10 models, Tesla aims to capture 20-30% of the total global passenger car volume.
2. This target is part of a plan to tackle one of the world’s biggest problems: global climate change. Their proposed solution is the electrification of the economy, achieved through massive battery farms that store, balance, and convert wind and solar power into base load. Tesla is no longer just operating in the realm of mobility but is creating a new utility branch with innovative technology. 

3. Tesla wants to convince investors to have grown beyond the “Elon Musk hype” with core technical capabilities, deep moats, and a capable management team: 
   • Drew Baglino (Batteries)
   • Tom Zhu (China and Manufacturing)
   • Zach Kirkhorn (CFO)
   • Lars Moravy (Engineering)
   • Franz von Holzhausen (Design)
   • Brandon Ehrhart (Corporate Secretary)
   • Rebecca Tinucci (Charging)

What was oversold to us:

4. The demand for Tesla is not endless. Despite all major OEMs over a certain size struggling with cannibalization, stakeholders in the market will fight fiercely against a monopoly of Tesla. Plus, the day will come, as observed for any car, when a Model 3 in red, white, or black is just boring. 
5. The positioning of solving climate change has a matching problem: it is not necessarily a primary customer concern, but rather a societal agenda topic.
6. AD is not fully automated yet. Automated driving was discussed in Ashok Elluswamy’s presentation, but the presentation did not go beyond explaining how AI infrastructure is used in Tesla’s Full Self-Driving (FSD). There was no comparison made to competition, nor any mention of strategies to deal with regulatory challenges. 
7. While the advantage of vertical integration and small teams may be significant, it will inevitably fade as the organization grows. 
8. Managing the supply chain for Tier 1 producers is a widespread practice that has been in place for decades, but it also points to the challenge of scaling.
9. The effects on productivity that come with ramping up a plant are observed in any industrialization.
10. Musk mentioned that Tesla might be building heat pumps.

What we have not seen:

11. Concrete data to build the trust of investors, such as a cycle plan for new products, timing, or specific data on productivity. For example, aiming for an OEE target of 90% is not a usual KPI in the industry, and is vague. Avoiding sharing specific financial data, such as the cost of future cars, does not help the mission: Tesla stock fell 5% after the event. 
12. Indicate how to mitigate the risk of China’s current geopolitical environment, as the 20–million–plan can be eliminated overnight. In addition, competitors closest to Tesla are from China. Although sharing an emergency withdrawal plan publicly would upset the Chinese government, without China as the largest global market for cars, the 20-million-car Master Plan would be cancelled immediately. 
13. Highlight risks or lessons learned from other automotive companies that failed to scale in the past. For example, closely examine VW’s Dieselgate and its organizational fallout, which occurred after a massive growth phase. As the saying goes, “History doesn’t repeat, but it rhymes.” 
14. Demonstrate a walking OPTIMUS on stage. Only a rendering of the robot assembling another robot was shown on the screen, much to viewers’ disappointment. 

What we might have overheard:

15. With the Cybertruck, car plants will lose press shops and paint shops. The Cybertruck’s body is constructed from sheets of stainless steel that do not need to be stamped or painted. Press and paint shops usually absorb a major chunk of the entire product investment.
16. Zonal E/E architecture with automated configuration of harnesses. Tesla has redesigned the architecture of the electric and electronic components of the car. This is expressed by zonal power supply for the controllers, connected via Ethernet. In the future, the wiring harness, which is typically configured by hand in today’s assembly, will be automatically assembled. 

17. The car computer’s capability to assess correct assembly while the car is being built. As the various components are assembled and connected to the car, the car computer runs tests and can signal assembly errors early. This increases the “first-run yield” and minimizes rework. Accumulating rework creates major havoc in the scale-up of plants.
18. Tesla finished the transition from lead batteries to lithium-ion batteries only in 2022. This underscores the fact that all players in the automotive industry are dependent on common standards, which makes rapid changes to old standards a lengthy process.
19. The change to 48V. The industry standard is 12V, and overcoming this is expensive and difficult. But the benefits are massive, since wiring weight, heating loss, and high current fusing can be significantly reduced.
20. Fast software cycles through OTA and fleet data. Tesla now has a fleet in operation of 4 million. All cars can be updated “Over-the-Air (OTA),” and vice versa, these cars deliver data back to Tesla. Tesla can assess functionalities in real life with these data sets.
21. Tesla has 129,000 employees, half of whom work in production. Meanwhile, a classic OEM has 80% of its employees in production. This demonstrates that the future of automotive is moving towards white-collar jobs.
22. Like the “Production Hell” of 2018, Tesla also experienced “Backoffice & Operations Hell.” Instead of turning to major ERP providers and consultants to implement new processes, Tesla has developed an in-house digital platform, improving internal processes. The productivity gains shown are impressive, such as in accounts payable (6x improved productivity) or document generation (e.g., for legal requirements) (7x improved productivity).

Other minor important things we noticed:

23. Another uniformity: No one was wearing a dress, suit, or tie. No one had gray hair.
24. It remained unclear how the 16 executives ensured governance. The group did not match with the Board of Directors, nor was there clarity on reporting lines, except for who the boss was. 
25. There were few women; only two out of 16 executives were female.
26. There was no mention of Twitter, Starlink, or SpaceX.
27. There was no reference to any political topics other than climate change.

Has Tesla really moved away from the “Elon hype”?

Tesla made vast progress in so many domains, but Elon cannot pass on the credits to the team. Tesla remains his brainchild.  

Tesla is in a teenager-stadium, on the search for its identity independently from the “Superpadre”. 

The widths and depths of innovation competency Tesla has developed as a car maker is just breathtaking. The speed of change is dramatic, and there is no doubt that Tesla has already successfully disrupted not only the car market, but how we as society perceive mobility. Customer expectations have changed, and Tesla has become not only the yardstick for any EV, but for cars in general. 

Tesla has not moved away from the cult. Elon Musk appears still as the brainchild of everything substantial, while process improvements can be done by the team. All presenters behaved like supporting acts to him. There is no lack of bold ideas and fancy technology, but there is a lack of clarity and thus, transparency. 

On top of that, the outlined vision is shared by most parts of the automotive industry. Does this approve it? 

Only the future can tell. Undoubtedly, humanity will achieve abundant, cheap non-fossil energy beyond wind and solar. Massive investments have been made, for instance, in new reactor designs, with innovations to the fuel cycle efficiency and risk impact elimination. These efforts will bear fruit one day, and impact the scenario described by Tesla. 

This would propel the adoption of EV, substituting any other drive train technology. But this would also render wind, solar, and batteries less competitive. 

So, the key question is: When exactly is “someday?” Musk stated, “During your lifetime.”  

But being right in timelines on this scale does not seem to be his key concern if we just think about the promises on automated driving. 

What is most relevant to us is the pace of learning at Tesla and the assimilation of new domains, like AI, chip design, cell manufacturing, software development, and charging at scale. This is exciting, this demonstrates new learnings in technology and conquering new business. 

Let us learn from Tesla. To use a metaphor supplied by one of Tesla’s executives: Let us peel the onion, layer by layer.