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In reverse order: Was large organization, not spin off, left Tier 1 to do more advanced and challenging technical things. Got tired of quoting actual working solutions and getting undercut by a solution that ended up not working.
Which leads into the advantages of vertical integration.
If you are a supplier, the OEM lets you make some profit. If you make a cost saving change, most of that is going to go into a price cut to the OEM. Supplier takes all the risk, and get little reward. (and cost down is needed due to pricing agreements).
In a vertical setup, the cost of development is the same, but there is a larger bottom line improvement, so there is more motivation to do it.
Tesla is also in the advantageous position where they do not have long standing entrenched ways of doing things, nor do they have a huge existing human capital base to keep busy. So they have the freedom to do it different the first time. Starting from a blank sheet with a guaranteed volume lends itself to a different approach than Tier 1, where the vehicle line might get cancelled after you've already tooled up for it.
For technical people in Tesla, it seems like they need to innovate or else there is no justification for their position/ replace with crank turner.
As before, I don't disagree. The reason the issue came up was my original comment on someone else's explanation about why M3 was going to sell so well. In it they compared similarly appointed 3 vs. others, with the others having a higher price. The response to my question was that Tesla would be cheaper through vertical integration. All my follow on was just to show that vertical integration isn't a guarantee of cost savings, by any means. In reality, it's not binary at all. There can be benefits, there can be drawbacks. That was really my point. Vertical integration is not inherently positive, but just a different approach, with both positive and negative consequences.
I'm sure it could work out that way. However, I think the main thing I would point out is that those cost saving changes are going to be made by the supplier, because if they don't, the competition will, and you lose the contract. True, not always, but when an opportunity presents itself to make yourself more competitive, you are probably going to do it, even if your bottom line doesn't increase, because your profits will definitely decrease if you lose the contract because someone else is making the change.
We'll see how things turn out. I'm not predicting imminent bankruptcy or anything, just questioning whether Tesla is going to be the slam dunk success some seem to think is a foregone conclusion.
In other words, all of the previous posts were to point out that it's not _certain_ that the model 3 costs less to build, despite the _likelihood_ that it would be cheaper to build. Mongo's tier 1 experience and dmckinstry's committee being less intelligent than individuals that seals the deal for me.
I'm afraid Tesla probably won't address that root cause. But since they're going for full vertical integration, I doubt it matters. More worrisome is the chaotic and poor communication *within* the company.
However, each time I hear a leak about the reasons for Model 3 production ramp delays, I feel reassured... because so far, all of the production delay causes which have been leaked are the sort of stuff Tesla has been very good at solving. They have a *record* of solving problems like this. They have an incredibly good automation team with specialists from many different areas of automation.
I haven't heard any serious problems of the sort which Tesla has been *bad* at solving, namely communications problems or software validation. (Yes, they have some problems with hardware validation, but they've solved all of them so far: while the software problems persist.)
Thanks for the reply containing an actual argument. It's wrong, but it's an argument.
(On top of this, Musk has somehow managed to create brand cachet for what you'd expect to be a pure price business. I have no idea how.)
You've badly underestimated the size of the stationary battery market, which means you've misestimated the risk. The risk is nil for five years at least, because even with lots of competitors the market isn't even close to saturated. They'll all be selling as much as they can make.
I realize that spotting the size of the market here requires looking at the big picture: Australia's manipulated electricity market, the situation in Puerto Rico, the situation on islands, etc. I have done so. There's a reason J B Straubel thinks the business may be bigger than automotive.
What "risk"? They will sell batteries as fast as they can make them. The business was entered as a hedge against possible shortfalls in automotive demand!
Is it a low-margin business? Eventually it will be, but Tesla appears to have the lowest production cost at this time, so they have the highest margin among competitors.
Eventually. But not until the market is saturated, and it's nowhere close to saturated.
(On top of this, Musk has somehow managed to create brand cachet for what you'd expect to be a pure price business. I have no idea how.)
You've badly underestimated the size of the stationary battery market, which means you've misestimated the risk. The risk is nil for five years at least, because even with lots of competitors the market isn't even close to saturated. They'll all be selling as much as they can make.
I realize that spotting the size of the market here requires looking at the big picture: Australia's manipulated electricity market, the situation in Puerto Rico, the situation on islands, etc. I have done so. There's a reason J B Straubel thinks the business may be bigger than automotive.
What "risk"? They will sell batteries as fast as they can make them. The business was entered as a hedge against possible shortfalls in automotive demand!
Is it a low-margin business? Eventually it will be, but Tesla appears to have the lowest production cost at this time, so they have the highest margin among competitors.
Stop right there: Tesla's in the centralized business as well. Remember Australia?
Heh. I guess in that case they should hire me -- my 2 AM no-sleep-for-days code is all properly structured, documented, and comes with test cases. (I'm not saying it's good code, but it isn't spaghetti code.) Apparently it's hard to find programmers who do that....
Yeah. They do module assembly for S/X in house as well. The 3 design isn't very different, but there was a blatant screwup in assembly, apparently.
This is a very good example of the sort of thing where I have reason to believe that they know how to fix the problem and will fix the problem.
If the problem were in an area where they had a record of previous failure to fix problems, I'd be a *lot* more worried.
I'm quite fond of deciphering terrible, ancient code and refactoring it, while identifying errors as I go. I seem to be quite good at it too. I guess most people don't like doing it? I think it's fun. If I needed a job, I'd probably look for one in that field.
Thanks.
Can't help but wonder if the Director Of Battery Tech(Tesla’s Longtime Battery Technology Director Leaves Company) , was day dreaming about opening his own shop all this time.
Could it be like a Waymo-Uber like situation ? (hope not)
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I believe your assessment 100%, but I'd also add that there are probably several other problems (problems on the Panasonic cell production side, problems with steel welding, etc.) which *are not currently bottlenecks* but which *may become the speed-limiting bottlenecks* once fix #2 is installed. I am sure that they are working on fixing these issues simultaneously and they may in fact be fixed before fix #2 is installed... or they may not, in which case we'll see a new plateau after fix #2 is installed, until whatever the next bottleneck is is resolved. I expect there are quite a lot of problems vying to avoid being the next bottleneck! So don't be surprised.
It's true, you get a huge stock boost when a monopoly is broken up. AT&T is the example I personally profited from.
I will add that while all of these components exist in a Model S (not all in the pack), we do not know which ones are assembled by machine. The Model S final assembly line is largely human labor; the Model 3 final assembly line is largely robot labor. I expect there is some human labor in Model S chargeport assembly and/or pack assembly.
Krugerrand
Meow
Says who? Not every company wants to be a 'big boy', nor should they. Smaller companies have lots to offer; like attention to detail, passion, custom orders etc...
Maybe, maybe not. They'll be good at copying in large quantities. Other than that, they'll need to be judged on the products. Let me just pick one off the top of my head: Takata. How'd that work out?
So the upstart in Silicon Valley that goes by the name of Tesla couldn't be competitive, eh? Hmm...I think there was another upstart called SpaceX that also couldn't be competitive. Oops.
Bigger is not always better. Bigger doesn't guarantee anything.
Reciprocity
Active Member
Leave it to neo to find a post from a week ago to comment on. Yes, I like beer.. you know it, I know it and the American people know it.100 KWh of beer on the wall, 100 KWh of beer?...
Like those of you who are or were in academia, I chuckled about the individual mind vs a committee.
However, there are some tricks to committee work. One, is to always arrive about 10-15 minutes late. They never get to work starting until there's a period of socializing to begin with and you can save a lot of time in a day if you have other obligations. Second, try to be the first with a proposed solution which can often permit controlling the subject by what in politics is called "framing the issue." Third, if you must be chair, try some staging to avoid problems in advance. I was chair of our university's fiscal affairs committee which was usually dominated by an ex-officio member from the administration, the treasurer. He had access to much more information than we but was very good at telling stories or having long involved explanations which soaked up time and opposition. At the first meeting under my leadership I arranged to have a very large stopwatch used in laboratory demonstrations at my side so I could time and thus stem any tirades. None occurred. Finally, and most important, it is nice to have friends in high places who can defend you or who welcome change in the right direction.
That year of the fiscal affairs committee (we called it fickle affairs) the president of the university was preoccupied by a bipolar wife who often burned his arms with cigarettes so badly he slept the next day in his office. The academic vice president was a wonderful guy most sympathetic to faculty governance on a one year appointment to clean up things. He hired an econ prof with considerable computer experience as his assistant. The prof developed, as one innovation, what he called an induced course load matrix (I think this was before we called such charts a spreadsheet) where we could see the budgetary impact on a university-wide basis what would happen if a requirement were changed, say, on enrollment in that major and any other department it served, or vice versa. The econ prof and I with some others used to ogle a bartender over lunch at a local watering hole. Those are unique circumstances.
Another way to control is, of course, to get dirt on someone. Another president of our university played that game with our Chancellor (head of the statewide system) who had mistakenly taken a free ride on Lufthansa. A feature of the California Constitution left over from the Progressive Era is that any government official who accepts a ride on a common carrier automatically vacates their position. Over several years that president was able to engage in many corrupt activities, both enriching himself directly while at the school but ultimately by assuming an executive position with one of the corporations he enriched even more. Later, Willy Brown, a very powerful Speaker of the California Assembly, "disciplined" the Chancellor with this threat to save many affirmative action programs.
Politics is a game for the wily at whatever level in whatever institution. What matters is whether cream or some other unmentionable rises to the top in any system, including for comparison the U.S. and Chinese Governments, Saudi Arabia, etc. Elon is cream. So is the Pope, but he's got a lot of **notcream** to deal with in the Church.
However, there are some tricks to committee work. One, is to always arrive about 10-15 minutes late. They never get to work starting until there's a period of socializing to begin with and you can save a lot of time in a day if you have other obligations. Second, try to be the first with a proposed solution which can often permit controlling the subject by what in politics is called "framing the issue." Third, if you must be chair, try some staging to avoid problems in advance. I was chair of our university's fiscal affairs committee which was usually dominated by an ex-officio member from the administration, the treasurer. He had access to much more information than we but was very good at telling stories or having long involved explanations which soaked up time and opposition. At the first meeting under my leadership I arranged to have a very large stopwatch used in laboratory demonstrations at my side so I could time and thus stem any tirades. None occurred. Finally, and most important, it is nice to have friends in high places who can defend you or who welcome change in the right direction.
That year of the fiscal affairs committee (we called it fickle affairs) the president of the university was preoccupied by a bipolar wife who often burned his arms with cigarettes so badly he slept the next day in his office. The academic vice president was a wonderful guy most sympathetic to faculty governance on a one year appointment to clean up things. He hired an econ prof with considerable computer experience as his assistant. The prof developed, as one innovation, what he called an induced course load matrix (I think this was before we called such charts a spreadsheet) where we could see the budgetary impact on a university-wide basis what would happen if a requirement were changed, say, on enrollment in that major and any other department it served, or vice versa. The econ prof and I with some others used to ogle a bartender over lunch at a local watering hole. Those are unique circumstances.
Another way to control is, of course, to get dirt on someone. Another president of our university played that game with our Chancellor (head of the statewide system) who had mistakenly taken a free ride on Lufthansa. A feature of the California Constitution left over from the Progressive Era is that any government official who accepts a ride on a common carrier automatically vacates their position. Over several years that president was able to engage in many corrupt activities, both enriching himself directly while at the school but ultimately by assuming an executive position with one of the corporations he enriched even more. Later, Willy Brown, a very powerful Speaker of the California Assembly, "disciplined" the Chancellor with this threat to save many affirmative action programs.
Politics is a game for the wily at whatever level in whatever institution. What matters is whether cream or some other unmentionable rises to the top in any system, including for comparison the U.S. and Chinese Governments, Saudi Arabia, etc. Elon is cream. So is the Pope, but he's got a lot of **notcream** to deal with in the Church.
There's a real sense in which this is not particularly important. We have a vague sense of how much gross profit they make when they sell a car -- between 20% and 30% of the sales price. Close enough.
What's important is that Tesla is not yet producing and selling enough vehicles to cover fixed costs. There is a reason all eyes are on the volume of production; they should be. Getting to high scale is the primary thing that matters in this sort of industry. To a first approximation, there's no such thing as a profitable small railroad and there's no such thing as a profitable small telecom company and there's no such thing as a profitable small auto manufacturer. You have to be large. Given this, and given that demand is not a problem, Tesla's breakneck rush to expand production is entirely logical (and I've seen it in those other industries with the same characteristics). It does create risks.
Krugerrand
Meow
Well, you're in the wrong place then. Tesla and SpaceX never set out to make money, not for themselves or for you or me. They want to make enough money to see their end goals. That they've made money, that you or I've made money on TSLA is actually a product of their a) failures, which have led to successes and b) their altruistic goals.
It was your example to make your point.
Maybe you missed the part where they opened their patents and encouraged others to copy them. The part where they partnered with Panasonic, which actually led to the revitalization and arguably ultimately the survival of Panasonic's battery division. Or the part where Tesla has always been willing to partner on the SuperCharger Network.
No, that wasn't his strategy at all. The only contractors getting fired are the ones that can't do what they were hired to do and left Tesla in a lurch with no other choice than to take it in house.
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