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Earnings S-Curve . . . . . . at our Doorstep

Analysts have consistently underestimated Tesla's earnings:

1662036724700.png


Their consistent underestimation is difficult to understand. Tesla's earnings (EPS) have been somewhat linear over the past several quarters.

1662036732625.png


The analysts would have been more accurate just by plotting a number along the trend line.
My Non-GAAP eps is $1.31 for Q3 (on the linear line) but analysts have $1.05 for the quarter.
(Q1 2022 peeked above the trend at $1.07 due to a one time gain of $285m in reg credits)

But . . . .this easy trick won't work any longer starting in Q4 as Tesla will now enter the Earnings S-Curve.

1662037340662.png


This Q4, we reach the inflection point in my opinion:

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In Q4 I estimate that we break from the linear trend and start the ascent up the S-Curve.
I am a conservative forecaster so the slope up can be more dramatic than what my chart shows.
Also you need a few more years added to the chart to really appreciate the S-Curve slope

Here is James Stephenson's EBITDA chart (a good proxy for earnings) going out to 2025.

1662037691842.png


Why the S-Curve now? With Berlin and Austin ramping . . .earnings will be impacted by the Multiplier Effect (not sure if I can borrow this term here).
Earnings are impacted by higher deliveries and also by higher average selling prices and also by lower cost of goods per vehicle and operating costs growing slower than sales (leverage).

Most analysts won't be ready for this. And we may not see a reaction in the stock price immediately as its not often clear that a company has entered the S-Curve until 2 to 3 quarters in. But at some point the spring gets sprung in 2023.
 
Tesla, Toyota, and The Next Generation of Lean Manufacturing
The Toyota Production System and the Toyota Way revolutionized not only the automotive industry but also the entire global manufacturing sector. I've worked as a quality engineer at Boeing and another major industrial company in a different industry. Like many companies, my employers designed their own production systems basically as rebranded variants of the TPS adapted for their own purposes. In manufacturing, it is common to use Japanese words taken straight from the TPS, like andon, poka-yoke, kanban, gemba, kaizen, muri, and muda. The propulsion shop at my Boeing plant even had posters on the wall of Taiichi Ohno and some of his most famous sayings. The prosperity we live in today is in no small part due to the contributions of the Toyota Production System and the Toyota Way to changing the way businesses are run.

The fact that Tesla is now blowing the TPS out of the water is, therefore, astonishing. However, most of what Tesla is doing in their manufacturing efforts is not really new fundamentally (and the same goes for SpaceX and Boring). Tesla's production system is based on the same principles established in the TPS and Toyota Way and raising the standard of execution on them in practice to new levels never seen before, while massively amplifying the effect with modern computer technology. I don't know if Tesla is intentionally copying Toyota and pulverizing them at their own game, but in effect that is what's happening. There has been no sign of Tesla using Toyota's terminology and they've never said they're learning from Toyota, so it's quite possible Elon has reinvented the wheel on a lot of this by failing a bunch and learning quickly from his mistakes, but in the end it doesn't really matter why he follows the principles because either way the principles work and the outcome is the same.


Elon came up with some catchier phrasing for the principles but the foundations of Lean Manufacturing have been known for longer than he's been alive. For instance, compare Toyota's "8 Wastes" to principles Tesla uses for industrial engineering.
  1. Waste of overproduction (largest waste)
  2. Waste of time on hand (waiting)
  3. Waste of transportation
  4. Waste of processing itself
  5. Waste of excess inventory
  6. Waste of movement
  7. Waste of making defective products
  8. Waste of underutilized workers
Reducing these forms of waste is the first principle of industrial engineering. This is self-evident. If you expend valuable resources doing any these 8 things that the customer doesn't value (or values negatively), then by definition you are wasting resources. An effective organization transforms inputs of a certain value into outputs of a higher value.

The key problem with adopting Lean and attempting to reduce waste is not in understanding the framework, but rather the problem is, and always has been, psychological factors, especially within management and even more so in top management. Ego, fear, lack of teamwork, arrogance, laziness, greed, distrust, resistance to change, short-termism, and other age-old human flaws stand in the way of the right stuff happening. I believe that this is fundamentally where Tesla and Elon Musk excel, and why they are now stomping on Toyota. Manufacturing will be Tesla's long-term competitive advantage and in this essay I want to summarize my thesis for why.

After WW2, American armed forces and other Allied powers continued occupying Japan, helping rebuild Japanese society and industry, in part due to a desire to increase American influence in East Asia and prevent Japan from descending into communism under Soviet shadow control, as eventually happened in North Korea, China, Mongolia, Vietnam and many other Southeast Asian nations. In 1947, General Douglas MacArthur requested that a statistician named Dr. William Edwards Deming be transferred to Japan to help the government census in Japan and to help with rebuilding Japan in general. Deming had an academic background in physics and mathematics at Yale and prior to his first trip to Japan he had been working for the US Census Bureau helping them implement much better internal quality processes and statistical sampling techniques.

Twenty years prior, Deming had learned radical new techniques and management frameworks while working at Bell Labs with Walter Shewhart, a fellow physicist who had pioneered modern statistical process control. As physicists who came of age in an era during which the very philosophical foundations of science were being questioned question as theories like Relativity and Quantum Mechanics were coming into vogue, both men had a keen intellectual interest in epistemology, the study of where knowledge comes from. As scientists by training, both also possessed the skills and mathematical understand to actually apply the Scientific Method correctly. They transferred this knowledge and mindset into their ideas for improving organizational processes with rigorous empirical techniques. Deming was enamored with Shewhart's ideas and helped Shewhart develop them further. By the time the war happened, Deming had gained a substantial reputation, especially within the federal government after having improved efficiency at several departments and especially during the war when he trained many American workers on quality improvement.

At the time, Japan had a well-deserved reputation for producing junk. They had serious problems with quality and low productivity, and so the Japanese Union of Scientists and Engineers had keen interest in improving. Meanwhile, North America was the only area of the world with advanced industrial capacity that hadn't been damaged by the war, and America in particular had undergone a revolution in quality management and statistical process control in the years leading up to WWII and then especially during the war when production was mission-critical and they had to figure out how to quickly get women trained and up to speed on the production lines. Many of the techniques of acceptance sampling and statistical process control developed during this period are still in use today, and I personally used them while at Boeing. Deming himself was quite influential in the spread of these techniques for supporting the war effort. The Japanese, humbled after losing the war, were ready to learn from what others, particularly the Americans, were doing so much better than they were. Meanwhile, the Americans took a turn away from what had helped make the war production effort so successful, and they began focusing less on quality and more on piece cost reduction and cranking out maximum production quantity at the expense of everything else. This appeared to work for a while, largely because of the USA having overwhelmingly the best postwar industrial capacity which fed the immense demand from American allies whose factories and roads had been leveled by bombs, and also because of the cheap domestic American oil and coal of the 20th century. Japanese engineers and industrial leaders frequently visited America during this time and absorbed knowledge from industrial titans like Ford, Bell, and Westinghouse, and even American retail and grocery stores.

So, while working for the US government rebuilding efforts in Japan, in 1950 Deming received requests from the Japanese Union of Scientists and Engineers to give lectures and hold seminars on quality and statistical process control with engineers and leaders of industry within Japan. The lectures were a smashing success and demand for his services within Japan continued to grow throughout the 50s. Deming's teachings ended up being extremely influential in shaping the postwar Japanese economy and business culture and he became a national hero. Joseph Juran had a similar story a few years later, and he too taught the Japanese novel management techniques for quality management after receiving an invitation from JUSE. Deming and Juran's work was a crucial factor in Japan's post-WW2 economic miracle from 1950 to 1980, during which Japan rose from a disgraced and demolished nation to having the world's 2nd largest and most productive economy after the USA. Among the people enthusiastically following the advice were the leaders of Toyota.

Taiichi Ohno was the industrial engineer and later executive who was the primary architect of the Toyota Production System. While there is no evidence of a direct link between him and Deming, the TPS clearly came from the quality culture within Japan that Deming fostered almost single-handedly, and we can see that in the clear links between the principles Ohno inculcated into Toyota employees and managers. Additionally, Toyota has directly said that they were implementing Deming's teachings during their spectacular, disruptive rise to the top of the automotive industry. According to the Deming institute (link), "Years later, in 2005, Dr. Shoichiro Toyoda, Chairman and former President (1982-1999) of Toyota, accepted the American Society for Quality’s Deming Medal. In doing so, he offered: Every day I think about what he meant to us. Deming is the core of our management.” In that speech, Toyoda also said:
"…Dr. Deming came to Japan following World War II in order to teach industry leaders methods of statistical quality control, as well as to impart the significance of quality control in management and his overall management philosophy. He was an invaluable teacher…, playing an indispensable role in the development and revitalization of post-war Japan. Industrialists as well as academics earnestly began to study and implement Dr. Deming’s theories and philosophy. Dr. Deming soon became widely known not only as a brilliant theorist, but also as a kind and modest man. In 1951, the Deming Prize was founded in order to promote the widespread practice of quality control based on Dr. Deming’s philosophy. We at Toyota Motor Corporation introduced TQC in 1961, and in 1965 were awarded the Deming Application Prize…. As we continued to implement Dr. Deming’s teachings, we were able to both raise the level of quality of our products as well as enhance our operations on the corporate level. I believe that TMC today is a result of our continued efforts to implement positive change in pursuit of the Deming Prize..."
The revolutionary changes within Toyota in the 1950s transformed the company from a nearly bankrupt manufacturer of unreliable junky cars to the global champion of the automotive industry and arguably of the entire manufacturing sector of the global economy.

Notably, Ohno pushed Toyota to operate much like Tesla operates today, as illustrated by his "Ten Precepts":
  1. You are a cost. First reduce waste.
  2. First say, "I can do it." And try before everything.
  3. The workplace is a teacher. You can find answers only in the workplace.
  4. Do anything immediately. Starting something right now is the only way to win.
  5. Once you start something, persevere with it. Do not give up until you finish it.
  6. Explain difficult things in an easy-to-understand manner. Repeat things that are easy to understand.
  7. Waste is hidden. Do not hide it. Make problems visible.
  8. Valueless motions are equal to shortening one's life.
  9. Re-improve what was improved for further improvement.
  10. Wisdom is given equally to everybody. The point is whether one can exercise it.

This has clear parallels with how Tesla operates. For example:
  • Sleeping at the factory, putting all engineers next to the production line, requiring everyone to spend less time in meetings and more time directly engaging with the product
  • "I'd rather be optimistic and wrong than pessimistic and right."
  • "Optimism, pessimism, f*** that; we’re going to make it happen. As God is my bloody witness, I’m hell-bent on making it work."
  • "I don't ever give up. I mean, I'd have to be dead or completely incapacitated."
  • Jumping right into trying ideas immediately, almost pathologically impulsive innovation and impatience (e.g. Deciding to start the Boring Company, immediately planning for buying a boring machine and digging in the SpaceX parking lot, then actually starting work just five months later.)
  • Use of relatable analogies, humor, and repetitive mantras like "Prototypes are easy. Manufacturing is hard."
  • "Don’t delude yourself into thinking something’s working when it’s not, or you’re gonna get fixated on a bad solution."
  • "The worst mistake smart engineers make is optimizing something that shouldn't exist"
  • Continual optimization, making changes at astonishing rate
  • Empowering all employees to make suggestions, decisions and actually be heard by management

If Deming were still alive and could tour Giga Texas, I think he would be delighted beyond measure to see what Tesla has done and even more delighted to see it happening in America. After the war, Deming had been mostly ignored, shunned and scoffed at by leaders of American industry. 30 years passed after his first trip to Japan in 1950 until Americans finally were starting to panic about Japanese competition taking over. In 1980, NBC broadcast a highly influential documentary called "If Japan Can, Why Can't We?" that changed everything. If you only check out one video in this essay, this is the one I recommend the most. They talk specifically about Deming's role in part IV.


The credit Deming received from NBC for transforming Japan led to a surge in interest for his services in America and throughout the West and also led to his being hired at Ford, where a young tool-and-die maker named Sandy Munro was working. As it turned out, Sandy Munro ended up being directly mentored by Dr. Deming when both of them were employed at Ford in the 1980s. Few seem to understand the profound influence that Dr. Deming had on his protégé. In 1988, Deming directly recommended to Sandy that he leave behind Ford and its clueless, stubborn, arrogant managers and start his own consulting company, and thus Munro & Associates was born.


In 1982 Sandy Munro met Dr E. Deming and everything in his career changed. Dr. Deming’s ideas regarding reducing variation to increase quality resonated with Sandy and he became a zealot in reducing variation wherever he could find it. While working with Deming, Sandy started to think about how to tackle and eliminate variation and waste in the design phase that was unique to the product development process.
...
Sandy helped Ford utilize DFA [Design For Assembly] to save billions of dollars, improve quality and reduce development cycles during the early 1980’s, most notably in what became known as the “Taurus Shock” where Toyota who was starting to rise quickly and powerfully in the market due to the use of Kaizen and their TPS systems, found itself flabbergasted that in such a short time their competitors created such cost savings and innovation on the Ford Taurus design.
...
By a weird fluke, Sandy was moved into finance staff where he finally had the chance to look deeper into the heart of why poor design was such a large driver of poor manufacturing quality.

With great successes coming from the application of these tools in industry, Sandy was asked to speak alongside his teacher, adding to Deming’s speech that “As variation is reduced Quality will increase” (Deming), “all variation stems from design.” (Sandy Munro)
...
Truly, the underlying Deming spirit and philosophy is evident in all the Munro products and services.

Hear Sandy himself describe meeting Dr. Deming and what he learned when he became a self-proclaimed "Deming disciple":



So Munro and Associates was formed because of Deming's recommendation, with the explicit purpose of spreading Deming's message far and wide. Sandy basically copied his entire playbook from Deming’s principles, which are almost universally accepted as self-evident but which are, in practice, rarely executed with perfection. Here are some more Munro Live videos discussing Deming's influence on Sandy.



Elon & Sandy: Design Philosophy Parallels | PART 2

Deming's philosophy was foundational for building the Toyota Production System and Munro & Associates, and now the Munro team and the man himself are gushing with praise for Tesla's design for manufacturing and overall corporate management and culture.

Think about that.

These are obviously not just hollow opinions, because the Munro team have visited hundreds of factories and are tearing apart the cars and painstakingly reverse-engineering them, so they have all the experience and all the data needed to form an informed opinion. The fact that Sandy Munro is saying this is a primary reason why I'm confident in saying that Tesla is following the same timeless principles that other champions like Toyota have used, except Tesla has raised the bar for execution in a way nobody even thought was possible, making Tesla the new gold standard for quality control and lean manufacturing. Sandy (along with the late Joseph Juran) has been the American champion of Deming/Japanese-style lean design and quality engineering for the last three decades since Deming's death, and he is explicitly telling us that the way Elon does it at Tesla is the best example of quality engineering ever. This matters.

Some of Dr. Deming's final words on his deathbed in 1993 were, according to a USA Today article quoted by Wikipedia, "When asked, toward the end of his life, how he would wish to be remembered in the U.S., he replied, 'I probably won't even be remembered.' After a pause, he added, 'Well, maybe ... as someone who spent his life trying to keep America from committing suicide.'[41]" Sandy Munro, like his mentor, has been pleading for American industry to change and implement these principles for decades and has been mostly ignored or scoffed at until gaining celebrity and influence in his old age.

Let's examine more specifically why Tesla's principles align with Toyota's, and how Tesla is crushing Toyota and everybody else on execution.

Relentless optimization was championed by Taiichi Ohno and Toyota and is known today throughout industry by the Japanese word kaizen, which means going to the source of problems to see for oneself what is going wrong and always trying to implement improvements on a daily basis. It also involves grassroots improvement efforts coming from the people actually doing the work instead of command-and-control projects forced down from upper management onto the subordinates.

Kaizen is a daily process, the purpose of which goes beyond simple productivity improvement. It is also a process that, when done correctly, humanizes the workplace, eliminates overly hard work (muri), and teaches people how to perform experiments on their work using the scientific method and how to learn to spot and eliminate waste in business processes...People at all levels of an organization participate in kaizen, from the CEO down to janitorial staff, as well as external stakeholders when applicable...While kaizen (at Toyota) usually delivers small improvements, the culture of continual aligned small improvements and standardization yields large results in terms of overall improvement in productivity. This philosophy differs from the "command and control" improvement programs (e.g., Business Process Improvement) of the mid-20th century. Kaizen methodology includes making changes and monitoring results, then adjusting. Large-scale pre-planning and extensive project scheduling are replaced by smaller experiments, which can be rapidly adapted as new improvements are suggested.
Tesla definitely does kaizen, whether or not they label it as such.

At Tesla they leverage their software prowess to dramatically magnify the usefulness of kaizen. Tesla's two decades on infrastructure investment in automation and simulation tools have made what Joe Justice aptly calls dev ops for manufacturing. Design changes can be implemented on production vehicles quickly, in some cases almost immediately, because of simulation software has pre-validated that the change is likely to work.

Artificial intelligence using neural nets is fundamentally just fancy inferential statistics, because AI involves drawing inferences about a population based on a representative sample. Tesla's use of AI in the production As an outsider and a non-expert in AI, I'm limited in how much I can know about this. The difference is that neural nets can use brute force computation to run models that are vastly more sophisticated than what can be solved with classical statistics. The statistics of Deming and Shewhart still has a place for solving simpler problems, but for some more complicated challenges, we need machine learning. I speculate, as a company outsider, that Tesla is making extensive use of AI for end-item inspection and efficiently feeds that data back into machine learning models for. Joe Justice has claimed that Tesla does so as part of their digital self-management, but he's the only inside source I've heard it from.

They also benefit from having a leader who is autistic and trained in economics. The autism helps him not care much about saving face to maintain a high status position within a social hierarchy. The economics training helps him know to avoid the sunk cost fallacy and properly understand tradeoffs. Thus Elon is able to admit he is wrong easily, change direction when needed, and get everyone else at the company to follow his example.

One of Steven Mark Ryan's earliest YouTube videos captured this well in 2019.

"Elon Musk is a walking logic machine. Screw convention and what others think. Does it make sense? Is is right? Then do it! Not giving a s*** what others think and not living a life of convention can rub people the wrong way, hinder interpersonal relationships, and encourage unwarranted inputs from others, but none of this matters. What matters is doing what makes sense."


Tesla's kaizen efforts are also more productive due to compound effects of other aspects Tesla is getting right, including colocation of all factors of production into one gigafactory, vertical integration, and nearly zero inventory. More on this in later sections of this essay.

Tesla's goal is to minimize the amount of distance each atom travels from raw material extraction from ore to the customer receiving delivery. Even the selection of Austin for the new Tesla headquarters was partially because it's close to Boca Chica, so Elon doesn't have to travel as much.

Vertical integration allows Tesla to produce everything in one location, and a huge benefit of this colocation is that Tesla's people and material flow requires less transportation. For instance, Gigafactory Austin makes its own plastics, batteries, die castings, and seats all in one building. The pieces travel on the order of 1-100 meters to the subsequent production step. I mean, just look at the glorious efficiency in the factory layout shown below. Elon said while presenting this at the Cyber Rodeo Keynote:

You know a factory is advanced when it feels like an alien dreadnought landed. And so, the team's doing great work in Fremont, California, but we took a lot of lessons learned from that, where the buildings were all separate, there's a lot of movement between the buildings, and the thing that we thought made sense is to really think of it like a chip, like an integrated circuit. Combine everything into one package and now this is what you get. So this is a case of raw materials come in one side, they get formed into cell, they get formed into a pack, then we cast the front and rear body, the pack itself is structural, and out comes a finished product. So it's raw materials in one side, cars out the other side. (33:00 in presentation)

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Giga Texas also has four floors. Most car factories have one floor. Multistory designs have been attempted before. For instance the Lingotto factory in Turin (link), Italy which made the first Fiat 500s. Ultimately the concept has not been successful, but when orchestrated well with robust software control, it can fundamentally improve production efficiency by reducing transportation waste. Building upward does increase construction cost, but it saves on land cost and allows more production capacity in a given site size. This speeds up pace of innovation due to proximity effects, and this is most important in the long run. Another simple advantage of going multistory is employees don't have to waste as much time walking between their parking space and their workstation. Less sprawl is better. The Boeing factory I worked at had this problem. Building jumbo jets inherently requires sprawl and going multistory would be total nonsense. The product is just huge and there's no way around it. But this unfortunately makes for a 7-15 minute walk for most people each way. That's a significant amount of time each day not used to its maximum potential.

Some companies ship their supplies halfway around the planet, or in some cases, as Elon has said is the case with some minerals like nickel, the material is shipped enough distance to circle the Earth multiple times over. Tesla will be getting lithium from places like Nevada and North Carolina and nickel from Brazil and Canada. Tesla will build some kind of battery or vehicle factory onsite in Indonesia using lithium from Australia and China. Etc.

The best part is no part. The best process is no process.
Reducing part count in a design typically results in reducing the total processing required to produce a manufactured object, because each part has associated process steps for ordering, fabrication, transportation, storage, installation, quality verification, and nonconformance rectification. Tesla has been drastically reducing non-value-added processing by reducing non-value-added part count and design complexity.

Examples:
  • Gigacastings replace hundreds of stamped parts and machining operations with two monolithic chunks of metal and a structural battery pack.
  • Munro & Associates teardowns have revealed a continual trend of simplification and part count reduction of Tesla vehicles, and as a result the amount of processing required is coming way down.
  • In response to chip shortage, Tesla has been rewriting firmware to reduce chip count and combine features into fewer microcontrollers.
  • Octovalve and heat pump cuts out unnecessary hoses, clamps, bottle, etc. for thermal management

The ideal stated by the TPS is to have a "pull" demand system with "just-in-time" logistics instead of a "push" supply system, meaning that there should be a cascading signal from the end customer upstream to the supply chain all the way down to Tier 3 suppliers, inspired by the way a grocery store restocks shelves in response to customer demand--but no more than that--then places orders for shipments of just what they need. The idea is that everything should be synchronized to customer demand. The opposite is a push production system that makes a certain amount of inventory and pushes it onto customers (internal or external), even if that means offering discounts to get rid of supply gluts or having shortages when demand gets high. The goal is also to avoid overproduction in individual process steps in the value stream, because if the next process downstream can't handle the output, then inventory piles up, cluttering the factory or causing an increase in scrap, interest and/or warehousing costs.

Tesla takes just-in-time to the extreme, but for one exception: that their customer order backlog is months or years long, forcing the customer to wait. This is temporary though, because Tesla can only scale so quickly, but eventually they will reach a scale where they can catch up on orders and deliver a completed car to a customer within days of them ordering it. Tesla's online, haggle-free, software-heavy approach to vehicle configuration, production and delivery drastically cuts the minimum lead time possible. This is how Tesla avoids inventory costs and write-downs on overstock and doesn't have to own a giant portfolio of real estate for traditional dealership parking lots.

Tesla has just 4 days of sales' worth of completed vehicle inventory on hand. No dealerships, customer order fulfilled within days of vehicle leaving factory.

In Q2 '22, Tesla had $8.1B in inventory on their balance. Tesla's 10-Q filing (link) for Q2 showed that the majority of the inventory was raw materials.

Note 6 – Inventor

Our inventory consisted of the following (in millions):


June 30,December 31,
20222021
Raw materials$4,949$2,816
Work in process1,3701,089
Finished goods (1)1,1851,277
Service parts604575
Total$8,108$5,757

(1)
Finished goods inventory includes vehicles in transit to fulfill customer orders, new vehicles available for sale, used vehicles, energy storage products and Solar Roof products available for sale.
We write-down inventory for any excess or obsolete inventories or when we believe that the net realizable value of inventories is less than the carrying value. During the three and six months ended June 30, 2022, we recorded write-downs of $23 million and $49 million, respectively, in Cost of revenues in the consolidated statements of operations. During the three and six months ended June 30, 2021, we recorded write-downs of $33 million and $56 million, respectively, in Cost of revenues in the consolidated statements of operations.
This is shockingly low, because their quarterly gross profit from operations was on average $4.8B in the first half of 2022. $8.1B / $4.8B * 3 months = 5 months of total cash flow from operations worth of inventory. This is very impressive when you consider that Tesla manufactures a lot of parts from scratch in-house and also owns their own distribution and service network for the customers, all of which means a significant amount of raw materials and work-in-process.

By comparison, Toyota's Q1 report showed they had a staggering $34B of inventory! However, this shot up recently due to supply chain shortages, so let's use their prior average inventory level of $23B. Toyota's quarterly revenue is usually ~$65B, so this is 23/65*91 = 32 days of sales' worth of total inventory for Toyota. This seems better than Tesla until you realize Toyota outsources a bunch of their raw material and work-in-process inventory cost to suppliers and doesn't have the dealership inventory.

I wrote about the benefits of Tesla's inventory minimization earlier this year.
Near-Zero Inventory
At Shanghai they literally do not even have a supply warehouse for materials and parts inventory, according to a few videos Tesla released in 2021 (links below).

Additionally, in the videos, I have noticed a conspicuous absence of almost any lineside inventory; hardly any shelving, carts, pallet queues, kanban bins or any other typical lineside storage can be seen. It seems they barely even use forklifts.

Semi trucks show up to the site, unload supplies on the side of the factory directly adjacent to the production line, and within probably an hour at most, the materials/components are on vehicles. They said at the time of the interview that they were processing nearly 2,000 shipping containers per day in the 97 loading docks. This works out to approximately 20 containers per bay each day, for an average cycle time of merely 70 minutes or so. Plus, they also localized the majority of their supply chain to nearby Chinese suppliers. In effect, this too reduces Tesla's inventory in their overall value chain because fewer parts and materials are in transit at any given moment.

Additionally, I'm astonished by the implications this all has on the level of quality control throughout the entire value chain that must have been achieved in order to enable having inventory buffers this low in the first place. Inventory exists fundamentally to accommodate variation by allowing the show to go on while an operation is deviating from an ideal state of continuous one-piece flow. If Tesla is producing thousands of cars per week from Shanghai with such low inventory, then this is strong evidence that they have drastically reduced variation and thus have increased first-pass quality to a level unheard of in the industry.
Massive Direct Cost Savings

Inventory reduction on this scale saves big money for Tesla.
  • Less capital required for work-in-progress
    • This increases overall return on capital, because the company earns nothing extra from this investment since inventory is non-value-added to the customer.
    • An ideal production line would, by magic, instantaneously transform raw materials to a completed widget in the customer's possession.
  • The upfront costs of the storage
    • Land
    • Building design and construction
    • Storage equipment: Bins, Drawers, Shelving, Racks, Pallets, Labels & Scanners, etc.
    • Transit equipment: Trucks, Forklifts, AGVs, etc.
  • Recurring warehouse operating and maintenance costs
    • Property tax
    • HVAC
    • Lighting
    • Building maintenance
    • Janitorial services
  • Extra transportation of materials
    • Moving items to and from storage locations is non-value added to the customer
    • Ongoing forklifts/truck/AGVs operating and maintenance expenses plus compensation for operators
    • More opportunity for a vehicle breakdown to disrupt production flow, introducing opportunity costs, overtime labor costs, expedited shipping costs, etc.
    • Safety costs (forklifts and trucks are one of the most common causes of severe industrial injuries, and even when no one is getting hurt, they still have to spend time and mental energy focusing on avoiding nearby vehicles)
  • Risk to the materials themselves
    • Damage in transit
    • Damage while stored (fire, leaking pipe or roof, earthquake, etc.)
    • Expiration (for materials like chemicals)
    • Theft
    • Accidental loss from misplacement

Design-Build Cycle Acceleration
Besides the fact that reducing inventory is obviously a fundamental goal of industrial engineering because it directly helps with lean just-in-time manufacturing, the advantage is compounded by the way Tesla uses extremely agile rapid-change design engineering practices. The shorter lag time from design modification to new parts arriving on the production line means pace of innovation is less often going to be constrained by this factor.

Reducing inventory also improves the areal and volumetric density of value-added steps within the building, which also improves the rate of innovation. Obviously, inventory takes up space on the factory floor. Having worked at the enormous Boeing campus in Everett, I saw how distance can be a big impediment to having tight feedback loops. For instance, the delivery flightline is a 20 minute walk from the factory or 5-10 minutes by tricycle. And most of the design engineers work in buildings that are 10-20 minutes of walking away from the factory and adjacent production facilities. Having the shortest possible distance between production steps facilitates communication, visual controls like Andons, and more productive gemba walks. In an interview from earlier this year, Tom Zhu, the president of Tesla China, said he spends at least an hour every single morning doing a full walk of the production line. The less distance he has to walk, the more information value he's getting out of each minute of walking. Also, psychology and time constraints dictate that in general, most people will not walk more than about 100 meters to solve a problem face to face rather than ignoring it or making a phone call. So, the density of people per 100 meter radius has a big impact on how fast ideas will spread, or be sparked by random conversations. Overall, simply having less junk in the way speeds up innovation.

Video References
These videos contain a lot more juicy manufacturing info than just inventory reduction stuff, but they clearly show the inventory system Tesla is using.

Inside Giga Shanghai new video w/ english subtitles

[English-Subtitled] Tesla Gigafactory Shanghai Exclusive Media Tour interview Part 1
and Part 2
and Part 3

Inside Gigafactory Shanghai - a Guided Tour of Tesla's most productive Factory

Selected Screenshots

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^ Supertub - Slide 42 of 2019 Impact Report


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^ Insertion and mating of completed dashboard assembly from feederline


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^ Marriage of body-in-white and chassis/partially completed interior assembly, facilitated by elevators and AGVs

Tesla had a rough start with vehicle build quality but now leads the industry in the parts where it matters, and this is mainly due to radical simplification, design for manufacturability and ever-improving software and global team. As Elon has remarked, the tendency is for companies to slow down their rate of innovation as they scale, whereas incredibly Tesla's rate of innovation is increasing as they scale and it seems like they're just getting started.
    • Gigacastings have millimeter-level precision and consistently produce structures within tight geometrics tolerances because of lack of machining and lack of tolerance stackup of multiple small parts joined together. It's physically impossible to match this precision with traditional techniques.
    • According to an interview with a local Tesla China executive from Giga Shanghai, all of Tesla's wrenches are digital to ensure correct torque and recording data when it's applied.
    • Dry battery electrode deposition eliminates solvent and high heat in evaporation ovens, which should improve yield for that production step after the process is honed.
    • Tabless electrode design eliminates possibility of defects from traditional tab welding
    • Structural battery pack design allow for much easier and more ergonomic general assembly for the cabin.
    • Octovalve and supermanifold thermal management system architecture deletes a bunch of hose routing, clamping and termination operations
    • Munro teardowns have shown continual removal of screws and other threaded fasteners, increasing usage of plastic snap-fit parts, and in general lots of clever poka-yoke (mistake-proofing, designing part to be physically impossible to be installed incorrectly)
    • Tesla latest generation of motor and battery pack assembly almost entirely automated
There's not much to add to this section that I haven't already written about, because all of the wastes we want to reduce in lean design are connected. Deleted parts and processes can't be defective, because they don't exist. Quality is about reducing variation, and nothing can reduce variation more than eliminating a part or process. For the rest, the Tesla Automation team helps by making much of the production process be performed by reliable machines.

The greatest victory is that which requires no battle. -Sun Tzu

Back in the 1950s school of management thought, it was commonly accepted that labor relations conflicts were an unavoidable part of the manufacturing industry, that injuries were the unavoidable price to pay for production, and that manufacturing technicians were to do exactly as they were told and follow orders, just as their supervisors were expected to obey orders and so on up the "chain of command". People at the bottom were often berated and openly disrespected by management. Supervisors blamed employees for problems caused by variation, even though most the variation was caused by the system and the product design.

I think the greatest irony in this story is how the United States of the early Cold War years was obsessed with preserving free-market capitalism with generally free social policies, yet in that same era Americans tried to run their own private companies like miniature communist economies complete with centrally planned top-down control, suppression of opposing thought, enforcement of social conformity through at times arbitrary and capricious rules, and poorly aligned incentives that failed to encourage workers to give their best work, Big industrial companies also usually made the people working there feel like mindless drones whose ideas didn't matter and whose creative instinct was worthless, even though they were the people closest to the work with the best understanding of the processes. People didn't have authority to make decisions directly related to their work and there was a communication bottleneck caused by the chain of command edict that all communication to other managers should go through one's own manager. From a modern perspective we can easily see the obvious negative consequences that such poor management would have on safety, quality, productivity, employee retention rates, and most of all innovation, but in the 50s this was generally accepted as the normal way to run a company.

Toyota and the other Japanese industrial rising stars of the 1950s started looking at management differently. At Deming's recommendation, they started viewing their workforce as competent human beings who had ideas about how their work should look and what investments should be made to improve it. They believed if people were treated well and given room to improve their work, they will come up with ideas management never could have thought of. Managers offer ideas to, but it's much less about command and obedience than it was about collaboration. Controversially, Toyota even gave individual line employees the authority and responsibility to hit a button to stop the line whenever a quality issue arose, and then teams would swarm to solve issues directly on the production line. Taiichi Ohno would take chalk and draw a circle on the shop floor and instruct managers and engineers to stand in the circles for hours and observe production until they developed an understanding of what was going wrong for their team. Toyota also avoided having any layoffs for decades. On the technical side, they began capitalizing on Deming and Juran's methods for richer data collection and statistical analysis for root cause corrective action, prioritizing what to go after in kaizen efforts based on frequency of occurrence and magnitude of problem. This system inspired incredible employee loyalty and devotion, and it unleashed their creativity in the most efficient way possible because of the prioritization aspect. As a result, Toyota's pace of innovation, especially in manufacturing technology, dramatically outpaced everyone else in the car industry and they reaped the rewards of having more satisfying work that had fewer problems and earned big profits.

Elon spends the vast majority of his time these days right on the line with production teams, and observing for himself what was going on and how to help fix it. This is a very good sign. The Vice President of Tesla China also has said he spends a big portion of his day walking the line first thing in the morning after getting off the 6 AM call with the North American team. This is exactly what I want to see Tesla executives doing. There is no substitute for actually being next to the action. The amount of information you can absorb and process efficiently with your own senses is much greater than the information you can get from secondhand communication. The job of the plant management team is to set the team up for producing quality with systematic elimination of waste. So it's fundamentally better for the management team and other support teams like engineering to be at the production line where the poor quality and waste is happening and also where they can get rapid empirical feedback on whether their attempted innovations actually were working as hoped or not. This practice speeds up the maximum possible rate of innovation. In other words, it is waste of underutilized talent both in management and employees if employees are not authorized to make substantial decisions affecting their works, and also a case of underutilized talent in support groups wasting precious time and opportunity sitting in an office instead of being lineside. Since Tesla overwhelmingly avoids BS wastes of time like low-value email, useless meetings (most of them) and PowerPoint presentations, Tesla uses their talent to its maximum productive capacity.

Tesla empowers all the employees to make changes. Elon has mandated that the organization is flat and that everyone has an obligation to solve problems with their own brains and an obligation to speak to whomever is necessary for solving the problem. Also Tesla employees are required to experiment with changes in an attempt to innovate or else they will be fired, but on the flip side there's little to no punishment for sincerely trying to innovate and failing. This simple incentive structure produces a lot of extrinsic motivation for a ridiculous amount of innovation and unleashes the potential of the workforce, making them want to work long, hard hours because they're having fun and solving important problems at ludicrous speed, which generates excitement. The Tesla Anti-Handbook Handbook (link) emphasizes this point:

Trust
We give everyone who joins our team a lot of trust and responsibility. We operate with the assumption that everyone will do the right thing, including you...
...
Communication
Anyone at Tesla can and should email or talk to anyone else according to what they think is the fastest way to solve a problem for the benefit of the whole company. You can talk with your manager, you can talk to your manager's manager, you can talk directly to a VP in another department, you can talk to Elon--you can talk to anyone without anyone else's permission. Moreover, you should consider yourself obligated to do so until the right thing happens.

Job Duties
... Your #1 job -- everyone's #1 job -- is making this company a success. If you see opportunities to improve the way we do things, speak up even if these are outside your area of responsibility...make suggestions and share your ideas. Your good ideas mean nothing if you keep them to yourself.

Elon has also said everyone is supposed to think as though they were Chief Engineer. Workers don't waste time waiting for authorization to do things, and their ideas can be experimented with immediately instead of percolating through four layers of management in the "chain of command". They also minimize time wasted in meetings, even developing a new social norm of getting up and quietly leaving a meeting if you think you can add more value to the company by not being there. Joe Justice has harped on this point repeatedly.

Here's an excerpt from a big leaked email from 2018 sent by Elon to all employees (link):

Btw, here are a few productivity recommendations:

– Excessive meetings are the blight of big companies and almost always get worse over time. Please get of all large meetings, unless you’re certain they are providing value to the whole audience, in which case keep them very short.

– Also get rid of frequent meetings, unless you are dealing with an extremely urgent matter. Meeting frequency should drop rapidly once the urgent matter is resolved.

– Walk out of a meeting or drop off a call as soon as it is obvious you aren’t adding value. It is not rude to leave, it is rude to make someone stay and waste their time.

– Don’t use acronyms or nonsense words for objects, software or processes at Tesla. In general, anything that requires an explanation inhibits communication. We don’t want people to have to memorize a glossary just to function at Tesla.

– Communication should travel via the shortest path necessary to get the job done, not through the “chain of command”. Any manager who attempts to enforce chain of command communication will soon find themselves working elsewhere.

– A major source of issues is poor communication between depts. The way to solve this is allow free flow of information between all levels. If, in order to get something done between depts, an individual contributor has to talk to their manager, who talks to a director, who talks to a VP, who talks to another VP, who talks to a director, who talks to a manager, who talks to someone doing the actual work, then super dumb things will happen. It must be ok for people to talk directly and just make the right thing happen.

– In general, always pick common sense as your guide. If following a “company rule” is obviously ridiculous in a particular situation, such that it would make for a great Dilbert cartoon, then the rule should change.

If there is something you think should be done to make Tesla execute better or allow you to look forward to coming to work more (same thing in the long term), please send a note to [redacted]

Toyota is still the most profitable manufacturing company in history other than Samsung and TSMC, but Samsung and TSMC make their money selling high-margin semiconductor chips that require extremely advanced fabrication techniques and heavy capital investment in R&D and facilities. The semiconductor fabrication industry, unlike the car industry, has always tended towards having a couple dominant players making almost all the profits. TSMC and Samsung make gross margins of 40-50%. Toyota gets gross margin of more like 17-20%, which is exceptionally good for a manufacturer in a competitive industry selling their kind of volume.

Toyota has been an outlier in the global manufacturing industry for decades, but the days are numbered for Toyota's reign. Toyota epitomized the Japanese quality revolution and transformed how the world thinks about manufacturing and many other industries. Yet now, Tesla is mere months away from permanently surpassing Toyota in net income, despite Toyota having 5x greater unit volume, a 69-year head start, and much more old vehicles past their warranty expiration date generating high-margin sales for replacement parts. Tesla is beating Toyota by an enormous margin, and as they scale production in the next few years this gap will become ever more apparent.

Meanwhile, it appears that Toyota has calcified, lost their innovative edge, and are being mismanaged by their current CEO who probably was selected based on nepotism (considering that he is the grandson of Kiichiro Toyoda, the founder of Toyota's car division). As an outsider, I can only speculate. Perhaps complacency and haughtiness crept in over time. Akio Toyoda blamed it on excessive focus on growth in the 90s and early 00s (link). Overall, it seems to me that like so many individuals and organizations, Toyota has gotten away from disciplined application of the principles that made them successful in the first place, and they now find themselves in Stage 3, "Denial of Risk and Peril", of Jim Collins' organizational decay arc described in How the Mighty Fall.

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What's even crazier is that Tesla is accomplishing this with only two products pulling almost all the weight, Model 3 and Model Y, and these are arguably just two variants of the same product, considering that they share 75% of their parts in common. The $65k+ Y is soon going to be outselling the Toyota Corolla, which has firmly held the top spot for half a century. Toyota has a diverse product portfolio serving a wide variety of market segments. Tesla still hasn't even begun to sell their best product, the Cybertruck, which is going to knock another half-century king off the throne: the Ford F-150. This all means that Tesla still has plenty of room to expand their range of offerings over time. Therefore, Tesla has a clear path to leveraging their design, manufacturing and distribution advantages across at least 10x as many car deliveries, because the S3XY lineup only addresses ~10% of the car and light truck market. Tesla's automotive division, excluding the FSD wildcard, is likely to be at least 10x the money-printing behemoth that Toyota has been.

The disruption that Toyota, in its heyday, brought to the automotive industry ended up radiating out to the entire global economy. What then will happen when Tesla makes an impact that dwarfs what Toyota did in the 20th century? Everybody eventually copied Toyota, or at least tried to, or failing that, at least paid lip service to trying. Toyota's success was too undeniable to ignore, and most people are followers anyway, including many of those who like to fancy themselves as leaders and independent thinkers. People, and especially kids, look to the high-status winners on top and attempt to emulate their behavior, often without even conscious awareness of the emulation. Tesla's success will be an order of magnitude more undeniable just on the car manufacturing business, not even counting the potential of FSD, Energy or Optimus. As the leader to whom everyone will be looking, Tesla will actually start influencing the entire macroeconomy, like Ford and Toyota before them. We can already see the beginnings of this with Ford and Volkswagen admitting that Tesla is kicking their asses and they need to copy Tesla as fast as possible. I expect this will eventually spread to all manufacturing companies.
 

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Wow This US Tax Change is Huge
After all the consternation and moaning in the last year about the US government wanting to screw over Tesla while claiming to support sustainable energy, now that the dust has settled what we actually are left with is amazing. I'm stunned the the US government actually passed a law that's this heavily in favor of getting off fossil fuels. I'm estimating $23 billion of impact to Tesla's profit just in the first two years.

The Inflation Reduction Act gives:
  • $45/kWh subsidy to battery cell and pack manufacturers
  • $7.5k refundable EV tax credit to people of most normal income levels
  • 30% of total cost of residential solar + storage cost in refundable tax credit

Megapack
Tesla says the Lathrop, California plant is going to produce 40 GWh. Let's assume Tesla isn't sandbagging like they are with Shanghai's ">750k" number.

$45 / kWh = $45M / GWh --> 40 GWh gets $1.8B subsidy per year, which is $0.50/share with 3.6B shares outstanding next year.​

Semi
The Semi would get a $45k subsidy for a 1 MWh battery pack, which is 22.5% of its $200k list price.

$45M subsidy for every 1k Semis sold in USA.​

Cars
For every car Tesla sells with average battery size of 80 kWh, the subsidy is $3.6k.

If the average revenue per car is $60k by next year, that's 6% increase in gross margin for free.​
Tesla will sell ~1M cars in America next year, so that's $3.6B, or $1/share, straight to the bottom line.​

Direct Subsidy Total
So Tesla could get in total $1.8B + $3.6B = $5.4B or about $1.50/share in direct subsidy incentives from the US government in 2023.

Consumer $7.5k Credit
That $5.4 billion is in addition to whatever extra revenue Tesla ends up getting due to the $7.5k consumer tax credit, either from more price rises or more customers using some of the savings to buy upgrades like paint, wheels, tow hitch, FSD etc. If half of that, $3.7k, goes to Tesla as increased revenue and Tesla sells 1M cars in the US in '23, then that brings us up to $9.1B or $2.54/share estimated for the government sustainable energy incentives.

Residential Solar + Storage 30% Credit
The IRA also extends the life of the 30% tax credit for home solar, and now it includes storage such as Powerwalls too.

I have to guess more with this one because we don't have good data on this and I haven't looked much into the current state of the solar side. Tesla deployed 100 MW of solar in Q2. If that's at an average price on the order of $2/W and half of Tesla Solar was for residential instead of commercial or utility scale, then that's $100M of residential solar revenue which is about to resume getting a 30% government bonus for the customers, plus the same bonus for all Powerwall sales. As the solar business grows to a multibillion-dollar operation this incentive will partially flow back to Tesla, but it's not as significant as the battery and EV credits.

Stacking It Up
This law is very likely to stay in effect until at least the end of President Biden's 1st term, which is over in January '25. Since Tesla will sell even more in the US in '24 than in '23, that might be more like $4.00/share in benefits from the policy, for a combined total of ~$6.50/share or $23 billion of estimated value just in the first two years. This isn't counting the 30% solar benefit, which would add even more bonus.

For a sense of scale:
  • Analyst average forecasts according to Marketwatch (link) are for Tesla to earn $5.81/share in '23 and $7.02 in '24.
  • Tesla has earned $3.54/share total cumulative net income since turning profitable in 2019.
  • The 2024 subsidy estimate is almost as much as annual US federal subsidies for the entire agriculture industry.

What If the Law Lasts Longer?
If the law persists any longer than that, then the benefit to Tesla will be enormous. In theory the IRA doesn't have these credits expire until after 2032.

Here's an idea of how crazy this could get if Tesla grows like they say they will and the law stays in place, I estimate they would garner a cumulative total of $670 BILLION in subsidy impact. I seriously doubt this law will last in its current form much past 2025 or 2026 because it will get increasingly hard to justify to voters why Tesla is getting such big handouts, and the total cost will include subsidies for all the hybrids and batteries from other companies that can meet the sourcing requirements.

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StorageCars & PickupsSemiTotal
YearDelivered Batteries (GWh)Subsidy Benefit ($B)Delivered Vehicles (Millions)Delivered Batteries (GWh)Subsidy Benefit ($B)Delivered Vehicles (Thousands)Delivered Batteries (GWh)Subsidy Benefit ($B)Delivered Batteries (GWh)Subsidy Benefit ($B)Cumulative Subsidy ($B)
202340$ 1.8180$ 7.311$ 0.0121$ 9.1$ 9.1
202460$ 2.71.5120$ 11.01010$ 0.5190$ 14.1$ 23.2
202590$ 4.12.3180$ 16.41414$ 0.6284$ 21.1$ 44
2026140$ 63.2250$ 232020$ 0.9410$ 30$ 74
2027210$ 94.1330$ 302525$ 1.1565$ 41$ 115
2028300$ 145430$ 393333$ 1.5763$ 54$ 169
2029500$ 237550$ 514040$ 1.81090$ 75$ 244
2030700$ 329700$ 655050$ 2.31450$ 99$ 343
20311100$ 5012900$ 847070$ 3.22070$ 137$ 480
20321600$ 72151200$ 110100100$ 4.52900$ 187$ 666
Total4700$ 210604800$ 440360360$ 2010000$ 666$ 2,200
 
Giving Tesla a 15-year head start was a bad idea
Being the first mover in a market has advantages and disadvantages. Advantages include economies of scale, brand positioning, patents, and supply chain relationships. Another underappreciated advantage is gaining knowledge and information in the early stage before others have gotten started, which can be leveraged in later stages of the game to accumulate yet more knowledge and information in a virtuous cycle. Wright’s Law is not just an industry-wide model; it also applies to individual firms. The game is actually a race down the Wright’s law learning curve, as well as a competition over whose curve has the steepest slope—that is, who extracts the most innovation potential out of each doubling of cumulative production. This is why pace of innovation is all that matters in the long run for any market in which there is still a significant cost delta between the best producers and their less successful competitors.

I think for the car market, this first mover advantage is strong for engineering, including supply chain, design, manufacturing, and servicing. Tesla’s head start is a gigantic and probably insurmountable barrier to competition in many ways. Today I want to focus on how it’s given them data and experience.

Apple and Foxconn, for instance, are formidable companies but they haven’t even started an attempt at EV mass production. New companies like Rivian and Lucid have been working longer but are much less capitalized and less known than Apple & Foxconn, and they still haven’t actually been shipping cars to customers for years. Apple coming to the car market would be like when Michael Jordan left basketball to play baseball in 1993. Despite being a world-class elite athlete at the peak of his athletic prime, he did not even make it to the Major Leagues as a baseball player. The obvious reason was that he had not practiced baseball since high school.

When engineers design a machine like a car, they have simulation models and physical test data showing that stuff should work in theory, but there's still significant uncertainty. Engineers also have models and test data for the manufacturing system and associated uncertainty. Automotive engineering has even more uncertainty than most machine designs because the duty cycle is intense, customer expectations are high, and the vehicle spends most of its time outside with all the accompanying stress from vibration, temperature, salt, moisture, even UV radiation. Plus, the expected service lifetime is more than a decade. Accelerated life testing is crucial for planning this but you just never really know until actually putting the cars in service and waiting for them to get old.

Any new car company has to learn all this from scratch. Sure, they can hire people who have worked in the car industry and they can do their best to copy industry best practices, and they can even buy all the latest commercial off-the-shelf software tools, but there's still a limit. Companies have institutional knowledge, policies and procedures, relationships between people, and habits that are hard to transfer over bit by bit to a new company. Tribal knowledge tends to be indigenous to the environment of the tribe. Companies also have critical data that they’re generally unwilling to share.

With greater design uncertainty, engineers need to apply bigger safety margins and sometimes need to add extra layers of redundancy in case of failure. All of this comes at a price: reduced vehicle performance on key design criteria like cost, range, acceleration, handling, safety, etc. Uncertainty also brings the risk of setting margins too thin and having a higher-than-anticipated failure rate in service, like Nissan's battery degradation in the first-generation Leaf, GM's spectacular f-up with the LG pouch cell partnership and Ford's melting high-current electrical contacts. In the fog of misunderstanding, mistakes happen, especially in organizations where decisions are made based on politics, deceit and confrontation instead of logic, honesty and cooperation.

Drew Baglino discussed this in his Stanford interview earlier this year, saying that a decade ago Tesla had been too pessimistic about Model S battery cell electrochemical degradation, but too optimistic about the other stuff like pack moisture sealing, battery management electronics, mechanical shock and vibration, and thermal cycling. Notably, Drew said that these things "don't show up until you've been in the field for ten years". Yikes. So even the big brains at Tesla were too conservative in some areas and too aggressive in others. It was only after years of vehicles being in the fleet and millions of cars produced that they’ve advanced this far in fixing these problems, making the cars with more reliability, more quality, and less design fat.

Tesla also gets the most data per car per unit time. because they actually had the foresight to design the car for remote data collection and cloud computing. Tesla has been putting electronic sensors on their BEVs since *2003*. One of the very first things they did as a startup was setting up vehicle data collection for trying to reverse engineer the AC Propulsion t-zero prototype. I heard Elon and a few other early Tesla employees talking about this in a panel interview from around the early Model S years (I can’t find it anymore, so no link). I think I recall Elon referring to it as trying to tease out “the ghost in the machine”, because the t-zero used custom analog power electronics and nobody really knew how the hand-crafted mule actually functioned.

All of this means Tesla alone has the luxury of running the tightest tolerances in the industry for their BEV designs, because no one has has produced 3 million BEVs over the last decade. This is like going camping in the wilderness. A novice might be a smart and conscientious planner, but their unawareness of the actual needs of the trip will inevitably result in worse selection of supplies to bring compared to a person going on the same trip who’s done it many times. The novice will bring along some stuff that’s unnecessary and not bring (or not bring enough of) other stuff that they actually do need. The expert also will have a better understanding of which equipment suppliers have the best options. The expert knows what to spend money on and what to go cheap on. The novice needs to spend more time researching and shopping and even then they will probably end up wasting money in some areas and get junky equipment for other items. The expert’s advantage is information and experience.

Novices can surpass experts in the long run. Tesla sucked at making cars 10 years ago, but that was with some prior learning on the original roadster and Tesla-level pace of innovation. This is not normal progress over the first decade of attempting to grow to being a mass manufacturer of cars. I don’t anticipate an iCar or any other competition having a meaningful negative impact on Tesla’s business for at least ten years.

Tesla’s data and expertise lets them get by with less stuff such as:
  • Structural material
  • Welds
  • Fasteners
  • Battery cell depth-of-discharge reserve
  • Warranty reserve
Tesla also gets performance gains, such as:
  • Range per kWh
  • Charging speed
  • Weight
  • More storage space and cabin interior space
  • Handling
  • More repeat sprints before power needs to be throttled
  • NVH (Noise, vibration & harshness)

Tesla's inventions compound each other's gains due to these feedback loops, augmenting Tesla's resultant lead.

Weight reduction and chassis stiffening, for example, reduces the power required to move the vehicle around, reduces NVH, and improves handling which makes the vehicle more efficient, which then enables reduction of the battery size needed for a given set of requirements for range and performance. Weight reduction also in many cases increases cabin storage space by opening up more room, as Tesla has shown with their masterful gigacasting design making for more spacious trunks and frunks. Better understanding of battery degradation and better thermal control means that a more aggressive charging curve can be allowed. And so on.

Example of tech with compound benefit:
  • Octovalve and integrated thermal management across all vehicle subsystems
  • Gigacastings with optimized new alloy
  • Structural battery with seats directly mounted on top
  • Cell-to-pack architecture
  • Motors best in the game according to Munro testing and cost accounting (kW/$, kW/kg, kW/cm^3)
  • 4680 batteries
  • Aerodynamics
  • Cybertruck folded stainless steel stressed skin structure
I don't think it's physically possible for a competitor to try all of this stuff in their first BEV. They have a long road ahead of them to implement these technologies that are necessary to have a product that can compete with Tesla vehicles on specs, features and cost.

Even Tesla is still learning how to optimize their own inventions. Listen to remarks from the Q2 call:
Elon Musk:
So structural pack where we get dual use of the battery cells as structure and as energy storage in the same way that an aircraft gets dual use of the wing as a fuel tank and as a wing is, I think, unequivocally, from a physics standpoint, the superior architecture. It's the A architecture. Now because it is new, we'll start off getting, I don't know, aspirationally a C within an A architecture.

But the potential is there for to get radically better and then unequivocally better than a battery pack, which is carried like a sack of potatoes.

Drew Baglino
Yes. And we've gained the perspective through putting our first structural pack in production that it is actually the A architecture. Like before we did that, it was a hypothesis that was backed with a lot of modeling and first principles analysis. And now we've actually built and are more confident in that assertion.



Drew Baglino:
Getting to the optimal design, right? Like you always start with some excess. Some people might call it fat, but that's not really what you think it is initially. It's that you don't know how lean you can get it until you've done it a couple of times.

Elon Musk
Yes. I mean there's some platonic ideal of the perfect product where the atoms -- you have exactly the right atoms and they're in exactly the right position, and you asymptotically approach this platonic ideal. But it takes a lot of effort over time to figure out actually what is the platonic ideal and then actually gradually approach that.

Drew Baglino
Yes. I mean, you might need to create a new alloy. Then you need to figure out how to cast it, then you need to ramp the casting machine with the new alloy.


Drew Baglino
Yes, I was going to say the same thing, right? Like we're not just evaluating the pack in idol either. It's the pack plus the body, the integration, do we have mass in the right places, we have the cost in the right places and only just the right amount. And I think we've gone through one iteration. We're going to do another one with Cybertruck.
I mean, we're taking the learnings and doing. The next version hopefully is a B-plus in A architecture. That's certainly a target.

The Rich Get Richer
All signs point towards acceleration of Tesla's pace of technological innovation. I think Tesla is in a runaway snowball effect situation now.

The EV market has an accumulative advantage dynamic with strong preferential attachment effects. Preferential attachment means a tendency within a competitive system for resources to be biased towards flowing to entities that already have more resources than other entities (i.e. "the rich get richer" / "success breeds success"). Preferential attachment was observed by Italian economist/engineer/sociologist Vilfred Pareto in his famous observation that 80% of the peas in his garden came from 20% of the plants and 80% of the wealth and land in Italy was owned by 20% of the families. The early advantage gained by some pea plants due to genetics or lucky position in the environment made them grow bigger more quickly as sprouts, and they leveraged this small advantage to consume more of the local sunshine, water and root space to grow even bigger, until a minority of plants dominated the garden. This relationship shows up in all kinds of phenomena like formation of stars and planets from dust after a supernova, crater size on the moon, frequency of words used in any language, and much more.



Preferential attachment usually results in a power law distribution, also known as a Pareto distribution. There are theoretical justifications for this and if you want to see the math I recommend reading the link. The stronger the preferential attachment effect, the steeper the Pareto curve is. Whenever there is a Pareto distribution in results of a competition, we can be pretty confident that some kind of preferential attachment effect exists.

1662588756536.png



In some cases, we observe power law rank relationships in which one or two outliers exist at the top, way off the trend line. This is called the king effect. Kings don’t conform to the statistical distribution of the rest, like how China and India have exceptionally large populations while all other nations fit neatly into a Pareto curve.


The EV industry in the US, Tesla's home turf, shows a typical Pareto distribution with one king, Tesla, which alone still holds most of the US BEV market share, and holds all of the profit. Soon enough they'll have more profit than all of the rest of the auto industry combined, including all cars, not just BEVs.

On a linear scale we can see just how far ahead Tesla is. Note that the pink colulmn is the grand total, the red column is Tesla, and the blue columns are the rest. On a logarithmic scale we can see that the power law model is a good fit, because all the data points fall appromixately in a line. All of them except Tesla, whose sales number comes in an order of magnitude higher than the power law rank relationship would predict.
1662590674131.png

1662590549040.png

Total193481
Tesla139338
Ford11751
Kia11483
Hyundai9675
Nissan5980
Audi5100
Volkswagen3527
Mercedes-Benz2641
General Motors1648
Rivian1145
BMW611
Lucid582
Source: Inside EVs (link)

The dynamics that caused this result are not likely to change any time soon. The rank relationship for 2018 looks almost identical, again with Tesla an order of magnitude ahead of where the Pareto distribution of the rest of the market participants would predict Tesla to be. The numbers have gotten bigger and and the also-rans have shuffled around in the rankings, but in four years nobody has gotten any closer. In fact, if you look closely at the trend lines, Tesla’s deviation from the distribution has almost doubled since 2018, suggesting that indeed they are accumulating relative advantage over time.

1662592740300.png

Total239003
Tesla191627
General Motors18019
Nissan14715
BMW6889
Fiat2250
Volkswagen1354
Smart1219
Kia1134
Honda948
Jaguar393
Hyundai345
Ford70
Mercedes40
Source: Inside EVs (link)

Tesla has the lead in data and experience giving better products that cost less
--> Attract customers, investors and employees​
--> More scale, more capital​
--> Faster iteration cycles, more fun at work​
--> More data and experience​
--> Better products that cost less​
 
The report from Lora Kolodny quotes the Tesla VP of Gigafactory Operations, Hrushi Sagar, as saying:

"I have some idea on the candidates [for the next Gigafactory] but I don’t think I’m at liberty right now to disclose those candidates because of the confidentiality around some of those things.” He did offer, “There is an exciting future for North America and all around the Americas.”

Elon visited Brazil and President Bolsonaro this year on May 20th. The official purpose of the meeting was to discuss the rollout of Starlink to remote jungle communities in Brazil and also monitoring the ecological health of the Amazon rainforest with satellites.

I thought about it and researched some more and now I think Brazil is likely to get a Tesla project announced in the next couple years, as former member jbcarioca suggested in May.

Brazil's Advantages:
  • Abundant local and regional supply of critical minerals
    • Nickel, Lithium, Copper
  • Mercosur common market membership
    • Free trade and movement between
  • Solid supply of high-quality engineers
  • Only country in South America that ever has had significant automotive manufacturing mass production of more than a few hundred thousand units per year (Mod: edited at user request --ggr)
  • Eastward-facing coastline with parts directly on the Equator
    • Optimal for efficient rocket launches because that's where the planet rotates fastest
    • Helps with SpaceX's mission objectives of minimizing fully considered cost per ton to orbit as well as maximizing total cargo capacity to Mars achievable with finite launch capacity
  • SpaceX could legally operate in Brazil because it's eligible for American export of defense articles under ITAR (international traffic in arms regulations)
    • SpaceX technology export is governed by ITAR
Brazil has the best nickel reserves in the Western Hemisphere by a wide margin. It has a sixth of the world's total reserves.

Nickel Reserve Rankings
  1. Indonesia - 21 million tons
  2. Australia - 20
  3. Brazil - 16
  4. Russia - 7
  5. Cuba - 6
  6. Philippines - 5

Brazil is conveniently right next door to the Lithium Triangle, a region of the Andean high desert salt flats which spans the common border of Bolivia, Argentina & Chile. The Lithium Triangle is by far the greatest lithium deposit on the planet. It holds the majority of the world's lithium reserves and is cheaper to mine and refine than spodumene hard rock ore in places like the USA, Australia and Canada. Maybe Tesla's salt-based clay extraction method for their land in Nevada will be even cheaper, but we don't know yet and it will be a while before Tesla mines substantial amounts of lithium from there. Bolivia doesn't mine much lithium yet because of a mix of factors including having reserves that are more difficult to access and the government corruption and instability. In the long run I think this resource may become available. Argentina and Chile, however, mine a bunch of lithium.

Lithium Reserve Rankings
  1. Bolivia - 21 million tons
  2. Argentina - 17
  3. Chile - 9
  4. USA - 7
  5. Australia - 6
  6. China - 5

1662771333445.png


Map of the Lithium Triangle within the Arid Diagonal of South America.

Chile also has an enormous endowment of copper, by far the largest on the planet, and Peru has about a third as much as Chile. Tesla vehicles, solar roof, and batteries all rely on copper for wiring. Chile and Peru have 31% of the world's copper and can easily support a Brazilian Gigafactory.

Copper Reserve Rankings
  1. Chile - 200 million tons
  2. Australia - 93
  3. Peru - 77
  4. Russia - 62
  5. Mexico - 53
  6. USA - 48

 
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Stunning CapEx Efficiency
Tesla has spent cumulatively $12.7B on capital expenditures since Q2 2020 when Gigas Berlin and Texas began construction. There has also been investment in Shanghai and Fremont as well as other capital expenditures not related to vehicle capacity expansion, so this is an upper bound for how much the new factories cost.

Q2 2020$ 546
Q3 2020$ 1,005
Q4 2020$ 1,151
Q1 2021$ 1,348
Q2 2021$ 1,505
Q3 2021$ 1,819
Q4 2021$ 1,810
Q1 2022$ 1,767
Q2 2022$ 1,730

These initial phases of capacity in Berlin and Austin should be able to yield around 500k cars per year each, or 1M combined. Thus, we can roughly estimate that Tesla can expand production capacity for at most $12.7B / 1M cars/yr = $12.7k per car of annual capacity.

In H1 '22 Tesla earned $9.62B auto gross profit off of 565k deliveries, for a global average of $17k gross profit per car.

Neglecting time-value of money effects to keep this estimation simple, this means Tesla is getting roughly (17-12.7)/12.7 = 30% return on investment just in the first year of factory operation. In other words, the factory pays for itself within less than a year of volume production plus a 30% bonus and then every year thereafter is just gravy.

If we model the factory as lasting 10 years before needing new investment, the cashflows look something approximately like this, and the internal rate of return for the project is a whopping 92%!!

YearCash FlowIRR
1-6.3592%
2-6.35
317
417
517
617
717
817
917
1017
1117
1217

But wait! This was with excessively conservative estimates. Berlin and Austin definitely didn't cost $6.3B each because Tesla also spent a large portion of their CapEx budget on Shanghai, Lathrop, R&D, Berlin/Texas future production, Superchargers, and more. So let's say these factories actually cost closer to $4B each (or $8B combined) for that 1M/year capacity. Now the estimate is $8k investment per car/year.

Also, the new factories are going to earn much more than $17k per car. I think Berlin and Austin will earn closer to $25k per car on average. Now we can estimate that the factories will have paid for themselves 3x over in the first year of volume production, and shockingly the IRR is 169%.

YearCash FlowIRR
1-4169%
2-4
325
425
525
625
725
825
925
1025
1125
1225

169% compound annualized return on investment. WTF.

The ROI is so absurdly high I don't actually even need to model for 10 years of cashflows, because almost all of the IRR is coming from the first two years of volume production. If you could invest $1k in a security at this rate of ROI, then after 10 years you'd have $20 million. Wow.

I can't estimate this precisely, but with such an extreme result it doesn't even matter for practical purposes. I don't know of any other business in any industry that can generate returns like this, let alone with investments carrying such low risk. It's not like this is some speculative venture that we hope will work, like we might see in biotech or pharmaceuticals. This is just for building out more Model Y production facilities.
 
Looking at those actuator slides and looking at shots of Tesla factories they already know how to make those actuators. Frankly looking at every single bit of the bot itself they already know how to achieve the $20k and >30% GPM. I am slightly surprised by the 2.3kWh, and my guess is that many applications will either have a corded power input, or a backpack power extender. Ditto for tools and other add-ons, both HW and SW.

This presentation was outrageously brilliant. I'm in Europe so watched it after my breakfast and it was gobsmackingly good. I stopped only once for a tea and a pee, when the questions started. Some of the meh questions were even turned into good responses, Elon et al have learned. The systems engineer in me was grinning from ear to ear when he said "emergent". I was stonked when I saw the semantic approach they are now taking to some aspects; fantastic convergence going on. We are indeed watching generalised AI coming into view, and I think I've said that before wrt what it is taking to bring FSD to fruition.

The whole presentation was excellent and pretty much fully covered the necessary topic space. Products, tools, theories; HW, SW, data, training, design processes, architecture selection, optimisation goals, utility functions, people, use cases, costs. FSD, DoJo, compute, Optimus. Learning, feedback, and correction loops. All these were necessary and sufficient for the ostensible event purpose (recruiting) and the underlying purpose (inform investors and industry), and a further purpose (motivate team to deliver capstone at a milestone event). Two areas I did not see covered, likely because they are less relevant for this purpose are the input/output communication layers for interacting with humans (hellish difficuty), and the (trivial) one of the acquisition cost-benefit (like, a large chunk of humans are literally not worth employing in the near future, ouch).

I do not see any organisation in human history that is/has performed so well at such scale and is accelerating even as we watch. Tesla is evolving.

Fantastic - and deliberate - show of the breadth and depth of talent. Poach her, not a problem. Vacation him, not a problem. Sabbatical him, of course. Not dependent on Elon. No one in that team is irreplaceable, that alone reduces risk of prima donna behaviour and reduces weak points.

Brilliant selection of problems, solutions, pathways at all levels (including choosing to go for Optimus itself). Great flexibility and learning in approach, changing course, backtracking, adapting. Delivering.

High correlation with SpaceX mission.

I am unsure whether inequality will increase or decrease amongst humans. There are a lot of factors in play. My expectation is it will grow, that is the long run default. If it does grow then there is a distinct possibility that being at the top of the stack in the future will be highly correlated with being a Tesla shareholder now.

I am blown away.
 
So Much Talk of Exponential Growth, But So Few Logarithmic Charts

Exponential growth appears as linear growth on a chart if the vertical axis is converted to log scale. I think this should really be the standard way of presenting Tesla's growth because with this format it's a lot easier to see just how consistent the exponential growth has actually been and also easier to visually extrapolate.

We are now at the 10-year anniversary of Tesla first achieving a feeble resemblance of real volume production for the Model S in Q4 2012, giving the first real glimpse at a future in which EVs might be profitable and triggering TSLA's first bull rally in 2013. That's ~60% annual manufacturing volume growth for a whole decade.

"...it is about the cleanest exponential I've ever seen." - Elon Musk, Q4 2018 Tesla earnings call

1664746558339.png


This is almost on par with the 70% growth Ford achieved during the fastest portion of the Model T ramp.
1664749135748.png

The best indicator of future growth is the trend for the 3/Y family, which too has grown at a 60% compound annual rate since Q3 '18 (by which time the majority of Production Hell was finished; the growth rate for 3/Y is much higher if we include the initial three quarters). Most of this growth happened amidst global supply chain problems that substantially shrank production volume for all the other major car manufacturers.

1664750584536.png



Tesla Total Production
QuarterQuarterly ProductionTTM Production
Q4 20122,750
Q1 20134,900
Q2 20135,150
Q3 20135,50018,300
Q4 20136,58722,137
Q1 20147,53532422
Q2 20148,76341185
Q3 20147,78548970
Q4 201411,62735,710
Q1 201511,16039,335
Q2 201512,80743,379
Q3 201513,09148,685
Q4 201514,03751,095
Q1 201615,51055,445
Q2 201618,34560,983
Q3 201625,18573,077
Q4 201624,88283,922
Q1 201725,41893,830
Q2 201725,708101,193
Q3 201725,336101,344
Q4 201724,565101,027
Q1 201834,494110,103
Q2 201853,339137,734
Q3 201880,142192,540
Q4 201886,555254,530
Q1 201977,138297,174
Q2 201987,048330,883
Q3 201996,155346,896
Q4 2019104,891365,232
Q1 2020102,672390,766
Q2 202082,272385,990
Q3 2020135,036424,871
Q4 2020179,757499,737
Q1 2021180,338577,403
Q2 2021206,421701,552
Q3 2021237,823804,339
Q4 2021305,840930,422
Q1 2022305,4071,055,491
Q2 2022258,5801,107,650
Q3 2022365,9231,235,750
(Some of the "production" numbers from early quarters are actually the delivery numbers because Tesla didn't provide production data.)

Tesla 3/Y Production
Q1 20189,766
Q2 201828,578
Q3 201853,239
Q4 201861,394
Q1 201962,975
Q2 201972,531
Q3 201979,837
Q4 201986,958
Q1 202087,282
Q2 202075,946
Q3 2020128,044
Q4 2020163,660
Q1 2021180,338
Q2 2021204,081
Q3 2021228,882
Q4 2021292,731
Q1 2022291,189
Q2 2022242,169
Q3 2022345,988

Ford Model T Production
YearProduction
190910,666
191019,050
191134,858
191268,773
1913170,211
1914202,667
1915308,162
1916501,462
1917735,020
 
I have let the AI day sink in a bit. Regarding Optimus, I am now even more bullish than before. What Tesla has done is so different than anyone else. Tesla are serious about their development, the rest are just playing at cute demos.

(My background: I have studied and worked with Mechatronics, Mechatronic Design, various courses in control theory, sensor fusion, SLAM, probabilistic robotics, machine learning, neural networks etc. I am far from an expert(Tesla would not hire me) and have not worked with this for the last few years, but I like to follow the progress in the field and understood like 90% of AI day)

So what have Tesla done with Optimus? Imo executed a very sensible plan, and executed it very well.

First they did a quick and dirty solution, see how far they get could before they find any holes in their plan. Used a lot of off the shelf stuff, put it together, got it to walk. Ported the occupancy network from the FSD to the Robot reference frame, added a navigation SLAM(simultaneous localization and mapping), did a quick and dirty segmentation of the camera images. Then they did a list of subtasks such as locomotion, picking up object, manipulating objects and trained them for various changes in the enviroment and objects. Got that to work pretty damned well, maybe even close to state of the art for object manipulation for bipedal robots.

So this was the prototype. Well done. Really well done.

Then they did their first alpha version of the robot. Inhouse everything, choosing parts cleverly with an optimization algorithm optimizing for cost, scability and performance. Used a database of actuators, used simulation to calculate forces and optimized the *sugar* of it. This is a the first serious attempt at actually making a well designed robot, the first was just the quick and dirty sketch. Here they will try to do it right and see where their model fails, what issues arises, understand what the actual use cases will be etc. Gather more data for the next iteration of the robot.

This version didn't walk yet, that was a few weeks away, but when it does I assume it will be a lot less shaky and a lot closer to Atlas in its smoothness and agility. Maybe not all the way there, but the difference will be a lot smaller. They will make a lot more of these maybe hundreds of robots used in many places for many tasks. Just to better see where their assumptions failed, what needs to be fixed. The learnings from this project will be used for the first mass scale robot.

Version 3, which might be ready in 6months and programmed to be better than version 2 in another 3 months is the one where all the kinks are worked out. This one will be manufactured in the thousands if not more. I expect it around summer 2023!

So the strategy for the hardware I give them 10/10. It's a sensible approach and they are executing it well.

As for software they have split the problem into a stack of different layers that each can be improved without breaking the the rest. They just need to make sure the interface between the layers are set, then each team can optimize the *sugar* out of each layer.

First layer is perception. They use an occupancy network to see where there is free space for the robot to move in. Looks good, maybe NERFs will improve this in the future.

They use some features and descriptors for SLAM and navigation, probably these are learnt by a neural network and can be improved.

They showed some segmentation of the camera image where the robot, the water can, the plant etc had different colors. This can be improved with more data and probably go to 3D and even add motion flow to it over time to make it 4D. Like FSD has evolved, this will evolve over time.

They showed a list of actions that a human had taught it how to do, how the human adds these and how they are learnt can be improved. Give it a few more months and the box of actions to chose from will be even larger and the motions will be more efficient and robust for more objects etc. Easy to improve.

They showed a simulation where the robot can learn basic tasks many times faster than it can in real life. By adding lots of noise to simulation, the robot will learn to adapt to the model not perfectly matching the real world and actually be useful for real world application. Also they will gather tons of real world data for the robot to learn from and to improve the simulation.

Basically the software is already close to feature complete and can easily be improved in each aspect. I give them 10/10 for the software approach and execution.

So what did the robot actually do? It moved a box in an office, it grab a water can and watered a plant, it moved some metal bars in a factory. WOW! This was the most impressive thing. It already did useful things. Maybe not well, but good enough and real stuff. I give the results 10/10 for being so early in the project.

Give it some time and they will add more capability and also improve the speed of which new capability is added. It will go from 0, to 1tasks to 3tasks(that they showed), to 10 tasks to 100tasks to 1000 tasks etc. Every few months they will improve the number of tasks exponetially.

So the bad news? There will be setbacks along the way. Two steps forwards, one step back. They will realize that their current stack is not capable of doing task X and need to add complexity that will break previous tasks. They will upgrade the hardware and the software will perform worse for a while before it performs better. This is to be expected. There will be many times where the bears will be laughing, but when you look back over a few months the progress will be staggering.

TLDR, I am super bullish on Optimus. Strategy and execution so far is 10/10. They have set themselves up to be able to iterate and improve very rapidly and already they are very close to feature complete. Give it another year and it will blow everyones' minds.
 
Here is a post that actually is investment and financial advice, in contrast to the unlikely doom and gloom possibilities about which I have written earlier today.

Do you find yourself with any or perhaps all of the following?
  • Rich, varied, healthy, delicious foods
  • Clean freshwater on tap that is reliable and cheap
  • Modern medical care
  • Computer, smartphone and broadband internet connection almost everywhere you go, and the literacy necessary to take advantage of it
  • Literal metric tons of material possessions
  • Electricity that is reliable and cheap
  • Automatic indoor heating and cooling, and even humidity control if you want it
  • Bed with a mattress and plenty of sheets and blankets
  • Ability to walk outside alone without significant risk of being murdered or mauled by a bear/other predator
  • Refrigerator, stove, oven, dishwasher, salt, herbs, spices, pots, pans and a wide variety of other unnecessary specialized kitchen tools and appliances
  • Motorized transport (car, bus, train, plane, boat, e-bike, etc.)
  • Multiple pairs of shoes and clothes, with fashion as the primary consideration
  • Washing and drying machines
  • Waste removal services for your poop and trash
  • A shower, and multiple options for soap and towels
  • Contraceptives
  • Toothbrush and toothpaste that prevents you from losing teeth and having severe gum disease by age 40
  • Cameras
  • Access to barbell equipment that could make you strong if only you'll use it
  • Access to scientific knowledge that wasn't even known until very recently
  • Access to billions of songs of your choosing and speakers that can play it on demand with nearly perfect fidelity
  • Low likelihood of compulsory military service
  • Low likelihood of you, your partner, or someone you know dying in childbirth or losing an infant to something like typhoid, influenza or yellow fever
  • Low likelihood of your government unjustly seizing all your property, or imprisoning you, or executing you
  • More high-quality entertainment options than you have time for
  • Freedom to say anything you want, within reason
  • Freedom to associate with anyone you want, within reason
  • Freedom to travel almost anywhere on the globe, or even get a spectacular view of the ground from the actual stratosphere while doing this travel
  • Freedom to elect who runs your country
If you have this stuff, or maybe even more additional amazing stuff like it, then I want to congratulate you, because your life is insanely awesome. You are fabulously rich in a way that the majority of humans alive today would love to have, and the majority of humans who have ever lived, even kings and emperors, couldn't even imagine. If you're here on the TMC investor forum, then I bet you're probably even very rich compared to the majority of the population in the country you live in, and they also have all this stuff.

If you have this stuff and still are experiencing fear about finances or anxiety ultimately rooted in worries about economic scarcity, is the problem that you don't have enough already, or the feeling itself? Is an irrationally falling TSLA stock price a good reason to be in a grumpy mood right now?

It's a very natural and understandable human feeling to experience, considering that historically contentment was never optimal for maximizing reproductive success.

But you are a modern rational human. Homo sapiens sapiens. You have that computer, that internet connection, that access to knowledge and ideas, strangers who can encourage you through books or podcasts or YouTube, and the free time (if you made room for it by sacrificing some of this aforementioned abundance) to come up with a new way of thinking about your situation that makes you happier and more joyful. Here's a couple good places to start:


If Mr. Money Mustache is not your cup of tea, how about recent wisdom from our Technoking?
Humans collectively are sort of a superintelligence as well, especially as we improve the data rate between humans. The Internet was like humanity acquiring a nervous system ... Any student of history would agree with this. Books would be incredibly expensive ... Only a small number people even had a book ... [Now] you can learn basically anything for free. It's pretty incredible. I was asked recently "What period of history would I like to be at the most?" and my answer was "Right now. This is the most interesting time in history".
 
Life is a highway.

Owning TSLA is like driving in the fast lane, except when there is a traffic jam and the fast lane becomes the slowest lane.

Buying TSLA on margin is like getting out of the fast lane to jump into the empty on-ramp lane to get a few cars ahead before pushing back to the fast lane. Sometimes it works out, however sometimes you get pulled over for reckless driving or hit a guardrail in the process. Margin call. Going in the fast lane is never fast enough for some people. They prefer to drive dangerously and put not only themselves in a precarious position, but also negatively affect the buy-and-hold drivers in TSLA. Overall buying on margin results in higher highs and lower lows. TSLA is seeing lower lows due in part to those being margin called today. IMO just as much as Twitter, war and Inflation scares.

What the market doesn't yet understand is that there is an HOV lane to which only Teslas can ride. The market sees a worldwide economic slowdown, war and environmental disasters, and does not understand that demand for Tesla products is not only not droping. Demand for all things Tesla is increasing. How can this be? Simple. It is due to consumers wanting less dependance upon oil, wanting less impact to our environment and ecosytems, together with products of longevity, durability, utilty and safety with cost efficiency that currently only Tesla provides.

It's about time TSLA takes the HOV lane out of this traffic jam. Enjoy the ride.
 
Great post except there's more to quality than most people realize. As a quality engineer I can tell you quality actually affects COGS, margins and production rates profoundly. Most of Production Hell was caused by quality problems; that is, production processes making output that deviated from nominal engineering requirements. It's not uncommon for companies to have like 20-30% of their cost structure actually being cost of poor quality. The challenge of making good quality product is one of the biggest reasons why manufacturing is hard.

Typically in quality engineering we break down cost of poor quality into four categories:
  1. Appraisal
  2. Internal failures
  3. External failures
  4. Prevention

Here's a pretty good version of the Juran "quality iceberg" diagram encapsulating some the most common manifestations of these costs:

View attachment 865190
(source)

Maniacal focus on quality was one of the biggest reasons Japan came roaring back after being in ruins in 1945 to become the world's second most productive economy by the 1990s. Deming and Juran came over to help them out with that and they listened. This quality focus also was the main reason Toyota Motor Corp took over the auto industry during those decades and garnered the best margins in the business. I wrote about this a few weeks ago in an essay about Toyota: #202.

When stuff goes right on the first try and parts fit together cleanly, you make more product faster, with higher utility for the customer and lower COGS.
Please place in correct location:
Moderators' Choice: Posts of Particular Merit

As we all know, such innovations as Octovalve, Gigapress, shared OS across all models and so much more are manifested first with higher quality, second with decreased costs. The Deming/Juran approaches were/are conveniently compatible with Elon Musk's 'first principles' thinking. All three are incentives to never accept 'good enough' nor do they easily coexist with delegation to third parties although all three are largely dependent on shared common goals.

Many people are seemingly devoted to a single popular quality process, such as Six Sigma. Those are often handy tools but no benefit at all without highly shared common goals.

We all have difficulty explaining why Tesla and SpaceX can be such overwhelming successes with such a flawed top executive. Forget about FUD follow @Gigapress lessons, then think about how the common elements of Deming/Juran/Musk lead to constant rapid evolution, consistently increasing efficiency and consistent high customer satisfaction. Adding the Musk component to the Deming/Juran thoughts ends out with very rapid evolution and doing impossible things very well, always improving. Safe and efficient Li-ion battery powered cars, Reusable rockets, steadily decreasing parts counts all came from the same principles combined.

@Gigapress deserves our gratitude for putting all this in succinct context. Coming hours before the quarterly earnings report is a serendipitous coincident.
 
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As we all know, such innovations as Octovalve, Gigapress, shared OS across all models and so much more are manifested first with higher quality, second with decreased costs. The Deming/Juran approaches were/are conveniently compatible with Elon Musk's 'first principles' thinking. All three are incentives to never accept 'good enough' nor do they easy;y coexist with delegation to third parties although all three are largely dependent on shared common goals.

Many people are seemingly devoted to a single popular quality process, such as Six Sigma. Those are often handy tools but no benefit at all without highly shared common goals.

We all have difficulty explaining why Tesla and SpaceX can be such overwhelming successes with such a flawed top executive. Forget about FUD follow @Gigapress lessons, then think about how the common elements of Deming/Juran/Musk lead to constant rapid evolution, consistently increasing efficiency and consistent high customer satisfaction. Adding the Musk component to the Deming/Juran thoughts ends out with very rapid evolution and doing impossible things very well, always improving. Safe and efficient Li-ion battery powered cars, Reusable rockets, steadily decreasing parts counts all came from the same principles combined.

For those who don’t know or who may not have read my Tesla-Toyota-Deming thesis (#202), Sandy Munro is a direct intellectual descendent from Dr. W. E. Deming, who pretty much passed the baton to Sandy in the '80s and told him to start running. Here's an excerpt:

"The credit Deming received from NBC [in their 1980 documentary "If Japan Can, Why Can't We?"] for transforming Japan led to a surge in interest for his services in America and throughout the West and also led to his being hired at Ford, where a young tool-and-die maker named Sandy Munro was working. As it turned out, Sandy Munro ended up being directly mentored by Dr. Deming when both of them were employed at Ford in the 1980s. Few seem to understand the profound influence that Dr. Deming had on his protégé. In 1988, Deming directly recommended to Sandy that he leave behind Ford and its clueless, stubborn, arrogant managers and start his own consulting company, and thus Munro & Associates was born.

History Of Lean Design® - Munro & Associates Inc.

In 1982 Sandy Munro met Dr E. Deming and everything in his career changed. Dr. Deming’s ideas regarding reducing variation to increase quality resonated with Sandy and he became a zealot in reducing variation wherever he could find it. While working with Deming, Sandy started to think about how to tackle and eliminate variation and waste in the design phase that was unique to the product development process...Sandy helped Ford utilize DFA [Design For Automation] to save billions of dollars, improve quality and reduce development cycles during the early 1980’s, most notably in what became known as the “Taurus Shock” where Toyota who was starting to rise quickly and powerfully in the market due to the use of Kaizen and their TPS [Toyota Production System] systems, found itself flabbergasted that in such a short time their competitors created such cost savings and innovation on the Ford Taurus design...With great successes coming from the application of these tools in industry, Sandy was asked to speak alongside his teacher, adding to Deming’s speech that “As variation is reduced Quality will increase” (Deming), “all variation stems from design.” (Sandy Munro). He found that at the heart of it, DFA although very helpful, didn’t cover enough of the shortcomings happening in design and started to formulate and pioneer the concept of Design for Manufacturability (DFM)...No matter how much one uses traditional cost saving tactics, as long as the design was inherently hard to manufacture and riddled with subsequent quality issues (some even arising out of the act of shorting suppliers and receiving lesser quality parts and materials) you couldn’t truly save money....Truly, the underlying Deming spirit and philosophy is evident in all the Munro products and services.
Hear Sandy himself describe meeting Dr. Deming and what he learned when he became a self-proclaimed "Deming disciple":

'The best way to fix problems is by changing the design'

'The idea was to make money, not fill up the factory with automation'

So Munro and Associates was formed because of Deming's recommendation, with the explicit purpose of spreading Deming's message far and wide. Sandy basically copied his entire playbook from Deming’s principles, which are almost universally accepted as self-evident but which are, in practice, rarely executed with perfection. Here are some more Munro Live videos discussing Deming's influence on Sandy.

The Lost Deming Stories - Previously Unreleased Sandy Footage

Elon & Sandy: Design Philosophy Parallels | PART 1

Elon & Sandy: Design Philosophy Parallels | PART 2

Deming's philosophy was foundational for building the Toyota Production System and Munro & Associates, and now the Munro team and the man himself are gushing with praise for Tesla's design for manufacturing and overall corporate management and culture.

Think about that.

These are obviously not just hollow opinions, because the Munro team have visited hundreds of factories and are tearing apart the cars and painstakingly reverse-engineering them, so they have all the experience and all the data needed to form an informed opinion. The fact that Sandy Munro is saying this is a primary reason why I'm confident in saying that Tesla is following the same timeless principles that other champions like Toyota have used, except Tesla has raised the bar for execution in a way nobody even thought was possible, making Tesla the new gold standard for quality control and lean manufacturing. Sandy (along with the late Joseph Juran) has been the American champion of Deming/Japanese-style lean design and quality engineering for the last three decades since Deming's death, and he is explicitly telling us that the way Elon does it at Tesla is the best example of quality engineering ever. This matters."


Since there isn’t a single non-flawed person on this planet, it means every single human endeavor is being executed by *gasp* flawed humans. It might behoove certain flawed persons in this room to keep that in mind.

So, no. I don’t have difficulty explaining any of Tesla’s or SpaceX’s overwhelming successes.

Let me sum it up: The flaws of the guy in charge are not relevant to business success.

I think the flaws are relevant. Preferably an organization would be run by a perfect person. However it's not necessary.

In my mind I often compare Elon Musk to Bill Boeing. There are many parallels:
  • Immigrant to America who didn’t receive much family support and whose fathers were quite displeased with the decision
  • Serial entrepreneur with a string of major successes
  • Engineer
  • Single-most important leader in getting a new futuristic transportation technology industry off the ground from being a science project for wealthy hobbyists to having viable commercial impact for millions of people to actually use for transportation and freight
  • Heavy focus on rapid iteration and scientific mindset
    • "I think we could build a better one" [said to Conrad Westervelt after seeing an early airplane prototype and deciding to co-found an aviation company at a time when "common sense" would've said that was foolishness]
    • "We are embarked as pioneers upon a new science and industry in which our problems are so new and unusual that it behooves no one to dismiss any novel idea with the statement that ‘it can’t be done!' "
    • "Our job is to keep everlastingly at research and experiment"
    • [In 1929] "They will someday regard airplane travel to be as commonplace and incidental as train travel"
    • "Let no new improvement in flying and flying equipment pass us by"
    • "Within a space of 12 years, an infant company with a personnel of less than a dozen men has grown to be the largest plant in America"
    • "We have already proved that science and hard work can lick what appear to be insurmountable difficulties."
  • Deep vertical integration
Mr. Boeing achieved monumental success in one of the greatest American technology startup stories of all time. He was also a white supremacist who, after his vertically integrated transportation company was split up by being directly targeted by the F. D. Roosevelt administration, took his money and devoted much of his time in retirement to setting up several “Restricted Residential Communities” a few miles north of Seattle.

AF639606-5442-49DA-B02A-AB8EB6910215.jpeg

I don’t mean to imply that Elon has this particular flaw, and I need to cut Bill Boeing some slack considering his social circumstances living in the early 20th century, but rather I do mean to illustrate that great things that profoundly change the world can be accomplished by people with deep flaws and even hatred in their hearts. Humans have problems. We're working on it.

Again a very good analysis!

My layman’s reasoning:

Legacy OEM’s R&D are mostly used for refreshing models every few years, those R&D hardly has any residual value outside of specific model’s lifespan.(Most reusable components are outsourced to suppliers)

While Tesla’s R&D is mainly towards software and chips, new manufacturing techniques and materials, that can be applied to all future products. Thanks to them only having 3 “aging” models(yes, Y is just a bigger 3), model specific R&D is minimal and probably can be ignored in comparison.

Hence, it makes sense for legacy OEM to count R&D in CoG while Tesla does not, and that also explains why Tesla R&D doesn’t correlate to sales.
(Tesla is a software company, yo!)
Plus the R&D Tesla is doing for car models is less for refreshes than for new products, because their portfolio of models is about to double soon with Semi, Cybertruck, Roadster, Robotaxi, Robovan.

Other automakers who already have an established portfolio are not preparing to double their total model count in the next few years.

The ENTIRE Financial Media (fully-funded by shortzes) proves that Wall St. works on emotion as much as on math and science. More, in the short term. And it's ALL short term to them.

This is why they chose to 'play the man, not the ball' years ago by attacking everything Elon says or does. Negative emotions are hard to separate out for most retail investors. Wall St. knows this, and works it. Hard.

Wall St. only cares about the $$$, not the Company. That of course is their bigest weakness, because it makes them blind to the obvious future.
Frankly I think the finance folks from the '80s got it wrong. Cocaine is the wrong drug for investing. 420 can be a performance-enhancing drug in many ways. Absolutely there are many people, places and times for which this substance is inappropriate, due to legal restrictions, medical contraindications, employment risk, needing to operate heavy machinery, etc. But for those of us who can and for whom it produces relaxation and creativity instead of anxiety and paranoia, it actually can be extremely beneficial. It helps with not reacting to FUD, with envisioning non-obvious ways the future might play out, and with making mundane spreadsheets seem strangely interesting. I am not kidding. This is not advice but I am saying it appears to have helped me quite a bit.
 
Recap of important forward-looking stuff

  • Stock buyback would be limited to $5-10B or so, no promises of it happening at all, and it wouldn’t happen until sometime next year.
    • My concern in recent weeks was that a buyback of this magnitude would happen in Q4.
    • Tesla's small remaining worst-case-scenario liquidity risk will be much lower in another few more months once Berlin and Texas are producing like 5k+ per week and making good cash flow that could financially support the rest of the business in a pinch, and we'll have several billion $$ more cash & equivalents on hand by then as well.
    • I am okay with this plan, especially since Elon said the team debated the issue extensively so it sounds like they're not rushing into this decision rashly, and they have better visibility of the finances and risk profile than I can have as an outsider.

  • Lack of any evidence of March/April price increases having come into effect in Q3 means that spring is now wound tighter for Q4 and Q1 than I had been expecting
    • Delivery estimate windows at the time were roughly Sep-Jan for most models
    • Many people have reported delays since then
    • Estimated timing points toward Q4 having the majority of the impact, maybe $3k or so, though exact timing still remains uncertain and probably impossible to predict without insider information on order queues and fulfillment prioritization

  • Semi deliveries coming on December 1st
    • Again confirmation that there'll be no cargo mass capacity penalty relative to diesel
      • though unclear if they mean at 80k lbs gross weight or 82k lbs
    • Aiming for 50k units in 2024
    • Not using 4680s

  • Demand still strong
    • Brushed off questions about potential price cuts and just said they'll sell everything
    • Will not reduce production growth even if recession
    • "real opportunity...to press forward in the most aggressive way" -Zach

  • Delivery wave finally going to end for real and this sawtooth nonsense will stop:
1666231217604.png

  • Confirmation that IR Act eligibility requirements will be met

  • Material and logistics costs trending down for 2023 but likely stable for Q4; Q3 was probably the overall peak.
    • Implies that avg COGS per car of $39.2k is going to come down substantially in Q1 as Berlin & Texas are in volume production at the same time as material and shipping costs decline

  • Cybertruck still on track for mid-2023 initial deliveries
    • Beta trial production is ongoing right now
    • They are really going to extreme lengths to hide the fraud and keep this charade going

  • Next-gen vehicle actually in work again
    • Last we had heard, it had been postponed indefinitely
    • They are pretty much done designing Cybertruck, Semi
    • Twice as many vehicles for same amount of work as Y; COGS would be around $17k and gross margin about 32% if $25k ASP

  • "We have no indication whatsoever that we will have to cut our production in Germany" [due to energy shortages/the war] - Elon. Backup plans in place for Tesla and suppliers.

  • Elon sees path to ~$5T valuation

  • 4680 ramp still growing exponentially and progress expected to continue
    • "going well", "looking good", "gonna be a very major factor"
    • Cycle time and yield dramatically improving
    • Still on original plan to implement Battery Day tech over time until 2026
    • No longer optimizing for ramp speed like in Q3 and switching to cost optimization, indicating adequate supply of other non-4680 cells
      • "We don't anticipate this [4680 supply] being any limiting factor for the Cybertruck or anything else"
    • $70/kWh expectation at cell level (unsubsidized) in the long term
      • Presumably for high-nickel cells, not iron which should be substantially lower

  • "Extremely confident in a great Q4"
 
Thanks. Except that I didn't put a lot of money into the stock. I put in a small amount (relative to my portfolio) so that I could feel that I was a part of this company. The amount was no big risk for me. I met a guy who put his whole retirement fund into TSLA. But at the time that was an extreme risk. One I was not willing to take. And I'd have had no income to live on.



...

Water under the bridge. I'm not selling now.
There are a good many people in analogous positions. It seems that many of us, as HODL advocates, have generally put relatively small amounts in things we regarded as wise risks.
With several such choices in my life the losers, in absolute numbers, outnumber the winners. In value the winners have been spectacular, led by TSLA and closely followed by a couple of others. Now, decades later in some, none of mine can be sold and do not need to be because one of them actually pays dividends that I live on.

Those of us who follow venture capital in the early stages (called 'angels' a bit ridiculously) are accustomed to writing off at least two-thirds of their investments. Thus, the initial commitment is generally very small.

Today that logic no longer applies to TSLA but quite a few institutions and more retail investors think of Tesla as a high risk quirky startup.

It really takes serious analysis to understand the reality. Many of us don't understand that, partly because in this forum we aggressively analyze every single thing. Most securities analysts are not idiots, but they also do not have time or inclination to analyze anything in detail. To understand Tesla one needs to understand a bit of metallurgical processes (mining, refining, smelting, presses), manufacturing process control (including robotics, factory OS), distribution, sales, logistics and even politics.

Who among securities analysts go to the huge time and study needed to understand those subjects? ...for ANY company?

Jus too name a few that have been subject to serious misunderstanding, on the way up and on the way down I offer just a few other than TSLA:
AMZN,XRX, KODK, BLIA
Each of these, and many others, had huge potential, huge success, with outlooks that turning bad long before the stock analysts saw, but careful followers all knew before they did.

When we have people here who question every rosy outlook, they are doing a real service by helping us to keep honest. There are ones among us who think competition will not come. Some of us even project Tesla market share of automobiles will not drop. We should be always vigilant to over-optimistic assessments of Tesla future prospects.

That said, if Tesla continues an average 50% per annum sales growth in Automobiles for five years, starting with making 1,500,000 this year they will have annual sales more than those of Toyota last year, about 10.5 million. Tesla would have automotive sales of about 11.4 million then.

Is it plausible that Tesla will accomplish that within five years? How about global infrastructure? How about global distribution?

When Tesla now has the Model Y as the largest selling vehicle in Europe for the last months?
When Tesla is not yet entering the NA biggest market, pickup trucks?
When Tesla consistency has one success following another?

Even the most bullish among us begin to see the limits of ~50% annual growth in vehicle sales sometime within the next decade.

If the absolute vehicle sales limits happen during the next five years, there is still Tesla energy, HVAC, grid services, industrial and residential VPP's plus robotics, FSD and much more not yet imagined.

The question is whether there is a limit to growth? Even if there is, we ignore Tesla huge earnings potential accelerated with huge manufacturing advances that are difficult to match.

Thus, I think of AAPL, that maintains a 42.3% ROS last quarter despite years of projections for their imminent decline. In my mind the Tesla advantages are quite analogous with those of AAPL. Year after year competent analysts think they're beyond their growth. Year after year others say they haven't competitive advantage. The juggernaut goes on...

There are major limitations to the analogy, of course, but AAPL over and over expands products that stay within their 'eco-system'. The range fo offerings continues to grow with subscriptions and repeat sales growing very profitably while their product sales continue with non-customer purchases regularly around 50% or so.

Tesla is doing quite similarly in many respects. The product line grows with seemingly invisible components such as subscriptions (e.g. FSD, Connectivity, VPP supply members) and things like various AI projects (e.g. robots, OS vehicle and factory) parts supplies (e.g motors for SpaceX) and so on.

In conclusion I think Tesla constantly innovates and never stays within the imagined constraints. In that respect it is analogous to AAPL more than AMZN;

AMZN has grown in innovative retailing and the systems needed to support that business, AWS, when then because a business of it's own. AMZN, though, kept concentrating on logistics to support retail sales fulfillment, including wholesaling. That has worked very, very well but is a model that has had quite mixed success for them outside the US. Thus the AWS business is one that can be fairly easily matched by decent competitors. The retailing side is more durably successful but still is subject to serious competitors, Alibaba an illustrative example. AMZN excels in logistics, but really hasn't figured out how to make Amazon Prime an independent subscriber model outside merchandising directly. The scaling ends out eventually absorbing too much resource to deliver consistent high profits.

TSLA is only scratching the surface and is innovating very efficiently in manufacturing, product innovation and logistics. Nobody else has managed all three so well. Thus, I conclude that the error for all of us is that we still tend to think of Tesla as a car company. It hasn't been just that for some time.
Thus HODL, for the volatility will not stop anytime soon.
 
Long-Term Thinking

I want to share why I'm not worried about the stock dropping even to crazy low levels beyond here.

Here is my fundamental investment strategy as of today. This is not investment or financial advice. It's my plan for myself.

Premises:
  • TSLA's trailing twelve month P/E ratio will always be greater than or equal to 15 (below S&P 500 at 20 today)
  • By 2030, Tesla will be earning at least $150 billion per year ($43/share with today's float)
Thus, TSLA will reach at least $650/share by 2030, 3.6x today's price. That's just rough guesswork, but it works as an acceptable floor for some conservative napkin math.

If the market forces me next year to go back to engineering employment instead of living off selling stock, I will invest the majority of my pay into Tesla stock and call spreads. At some point between now and 2030 the TSLA price would rise to $650+ and also my calls would blow up.

A lot of people tried going heavy on calls and LEAPS in the earlier years of investing in TSLA but got burned from 2014-2019 when the stock didn't reflect the progress the company was making.

Nevertheless, I think this new era is fundamentally different because Tesla has big earnings now and investors will only ignore cash for so long. If Tesla makes the kind of earnings I'm expecting, there are only three long-term options:
  1. Dividends
  2. Cash buildup
  3. Share buybacks
Dividends would pay me cash directly, meaning that I wouldn't necessarily care about the price of my TSLA shares on the resale market because I could make an ROI just by holding and collecting payments over time. At the same time, stock prices usually respond to dividends for the same reason, such that stable dividend yields over 10% are exceedingly rare.

Cash and buybacks would, all else being equal, tend to push the TSLA price up. It would be very strange if Tesla had $1T cash at some point yet still had a market cap of $0.6T like it does today, because that would imply Tesla's entire business has a negative $400B market valuation beyond the cash in their bank account. It would also be very strange if buybacks were to cut the share count in half without any stock price appreciation.

I feel calm because of taking the long view.

The Tesla team has thoroughly proven themselves at this point, in a way that they definitely hadn't back in 2018 when I bought most of my shares. EV market acceptance is also at an all-time high and now half the population wants one and is just waiting for a more affordable option or improved charging infrastructure. The competition is way behind and falling further away as Tesla accelerates. Tesla just needs to keeping chugging along and scaling and if they do then they're almost guaranteed to make obscene amounts of money, which will come back to shareholders one way or another. I think that I know this and the market doesn't, which has created an enormous opportunity to exploit. The timing of the payoff is uncertain, but the likelihood of massive success at some point in the next few years seems very high.

What I need to focus on in the meantime is:
  • Continuously staying financially solvent
  • Enjoying life and contributing to society, irrespective of my current brokerage account market value
  • Having reasonably accurate estimates of future earnings growth instead of deluding myself
The fundamentals always have the last laugh.
 
It's ok to admit that Elon's actions are causing some short term pain while creating way bigger long term gain.
No it’s not, because any time someone brings it up in the investor forum it’s deemed as off-topic, lol.

Having said that, I think probably everything on those topics has already been said.

While TSLA is clearly in the doldrums right now, I think investors should consider a few things:

1. It’s natural to want to give up on a stock and throw in the towel when it’s not doing well. This should only be considered if there are concerns about your thesis on the company itself. This is what shorts and manipulators want you to do. Recall that “sell low” is not part of a healthy investor strategy.

2. Has anything changed about Tesla, the company? No. They are on-track for a massive record this quarter, seemingly nearly catching up even with the shutdowns in Shanghai earlier this year.

3. Ask yourself: are recent downgrades such as those from Dan Ives really based on performance and health of the company? Of course not. Ives acted impulsively out of frustration, downgrading purely from Elon’s recent news. But Tesla the company is firing on all cylinders. This suggests to me that once the current news cycle has cooled off and things are more at a steady state, his price will return to reflect company performance.

4. It’s amazing that the market is *still* falling for the “competition is coming” thesis. Yes, competition is coming, as in “additional models coming to market”. But, (and this is a Sir Mix-a-Lot-sized but),

-Only Tesla is truly focusing on what’s needed to massively reduce cost and be prepared for massively-increased volumes.

Rivian has a cost problem. They’re working on additional models and factories without yet solving the cost problem. Little to no innovation in manufacturing.

Lucid has a cost problem. They’re working on additional models without yet solving the cost problem. Little to no innovation in manufacturing.

Ford has a cost problem. Same story.

GM has a cost problem.

All the OEMs except Tesla lack a unified, well-oiled charging network.

Only Tesla is actively pursuing vertically integrating the battery supply chain.

Only Tesla is developing new battery tech in-house, including DBE.


I could go on, but we’re kinda in the second “heads down, bust ass” stage of Tesla’s growth. The first was in the mid 2010s as they scaled up to volume manufacturing.

While all the others are tossing more announced car models at the problem (here’s looking at you, Mary Barra), or more batteries at the problem (hi, Lucid) or more manufacturing cost at the problem (hi almost everyone), Tesla is focused on doing the hard work now that will pay massive dividends in the not-too-distant future.

While ramping 4680 tech is not glamorous, and Wall Street is currently irrationally punishing them for Semi/4680 being “late”, ask yourself this:

-Will the Semi be profitable for trucking companies? If so, who else is making electric class 8 trucks? Ok, Nikola—kinda. But we know where that’s headed.

-Who else is working on their own revolutionary battery tech, AND bringing lithium refining in-house, AND probably bringing mining itself in-house?

Only Tesla. Because Tesla thinks 10 years down the road, not about propping the stock price up for the current quarter.

While this hard work can sometimes result in the stock price languishing for a while, it increases Tesla’s lead.

It’s analogous to two athletes. One spends all of his time making Nike ads and promoting his new shoes. The other spends his time practicing and working out.

Eventually the hard work pays off. It’s why no other private company has landed an orbital rocket and taken astronauts to space like SpaceX.

In the athlete analogy, which one do you think is going to win when they end up competing against each other?
 
Well this cleaned up quickly. I hope this improvement is sustained. Still going to focus on essays though.

Update: It was not sustained entirely yesterday, although it has seemed to improve. Here’s my last post on this topic.

To be clear, I already have obvious trolls on ignore. The current problem is that:

1) People (including me at times) respond to them to refute the BS, and TMC does not have a function for ignoring these replies​
2) More importantly, even useful members whom I don't want to put on ignore apparently are unable or unwilling to put their stuff in the appropriate threads.​

Among us we have doctors, engineers, scientists, financiers, accountants and other knowledgeable people, most of whom are twice my age and who have one, two, three or even four orders of magnitude more wealth than I had last year with TSLA at $400. Despite this potential for great content that attracted me and others here in the first place, evidently this year and this last month in particular it has been more compelling for some to whine and complain (with prolific post volume) about how much money they've lost and go off topic with low-value chatter. Reddit and Twitter are great places for that, and this thread is not. This is the one portion of the internet I've found where we can have a small group of elite and well-informed investors, and currently this behavioral tendency of the group is making this forum increasingly toxic and less valuable. Toxicity and low-value content can have a self-reinforcing feedback loop because it drives away those not interested in being around it.

Reminder:
NO ONE IS STOPPING YOU FROM SHARING YOUR THOUGHTS ABOUT THIS TOPIC. IF YOU THINK YOUR OPINIONS ARE IMPORTANT TO SHARE THEN FEEL FREE TO DO SO -- IN AN APPROPRIATE LOCATION.

I like this post from yesterday:
That is, nonetheless, very good advice. Despite the huge drop in share price I still am in an arena for which capital gains would seriously outweigh alternative choices. One benefit of HODL is ignoring the lows because the highs will also come. Were the fundamentals of TSLA not so compelling I would have a different story.

All of us should calmly review the future prospects of TSLA. If anyone thinks the prospects are bleak, liquidate or short the stock, or both. If thinking the prospects are positive HODL. As nearly all of us know by now, leveraged 'investing' or otherwise 'investing' in derivatives does expose risks greater than are the potential profits. For those who choose to do that, please do not expect commiseration in this thread.

We have many people who are feeling a trifle desperate just now. They are now populating the entire thread with their complaints. This thread is meant to be about investing, not speculation. There are other threads for speculation; please use them.

Here, please keep on the subject. We are in serious risk of using all the goodwill, and have our stellar contributors such as @Gigapress, @The Accountant and others leave. That is pretty much what happened a few years ago, too.

I've been though this since 2012 in one guise or another. Many of us have done that.
For every one who's happy polluting the forum with nonsense just keep in mind that those who actually provide content are leaving now. Is that what you want? If so keep it up.

Scatology, idiotic quotations, photos of pulchritude, all that fits well with Tinder. Keep it gone here. All the irrelevant commentary about unrelated subjects should be placed on different sites, not this one.

Then last week has had nearly no useful content. Everyone serious has limits.
Even the original creator of this thread has limits.

I recommend any of the other public sites, content free as policy. You'll be happier there.

The rest of us want to discuss TSLA and maybe a bit of SpaceX.

Let’s talk about demand and brand now. The hypothesis is that Elon’s Antics are causing big problems. The data backing this belief has been almost entirely comprised of intuitions, conjecture and anecdotal experiences.

Anecdotes are inherently biased, non-representative samples, which makes them worse than useless because they can lead to illusions and false conclusions. They’re a good starting point for an investigation but that’s it. Sharing yet another personal story about some people in your social circle who have a certain opinion or countering someone else's story with an anecdote about people with an opposing opinion is at best a pointless waste of space in a thread that's already too cluttered. Our goal ought to be lower quantity and higher quality because this increases efficiency for readers and makes it more likely that new people with good thoughts and knowledge will decide to participate after discovering this thread. That’s how we turn this into a positive feedback loop. As Tesla becomes increasingly mainstream over the years, maintaining discipline on this will become increasingly important to prevent the TMC investment community from devolving into chaos.

Now…Tesla has complete, up-to-the-minute information on order flow, tesla.com traffic, job applications, social media metrics, employee engagement etc. You know who doesn't have this data? You and I. At best we have proxies like Google search interest and Tesla.com estimated order delivery lead times.

So, why speculate? Surely by now Tesla, and Elon himself, would have been alerted to the existence of a major brand or demand problem caused by Elon’s Antics. Either that or they are witnessing a problem yet Elon is, nevertheless, pushing forward with what he's been up to lately. It seems pretty unlikely that the same man who spent years sleeping on the factory floor working intense 100-hour weeks to keep this company's mission alive would ignore clear, unambiguous warning signals just so that he can post tweets about Ye and Trump and argue with American politicians in public. Do we really believe he's that irrational and that bad at prioritization AND the Tesla board isn’t intervening? Do we believe he’s inexplicably switched from his normal tendency to avoid the sunk cost fallacy and his usual willingness to admit he’s wrong and change course when presented with compelling evidence that his prior decisions were mistaken? Are the board members just Musk sycophants who aren’t all-in on the mission?

Elon has pulled off what I view as a miracle: Gentrifying Mordor. Texas, which has an oil & gas industry that in isolation would put it in 4th place globally ahead of all other countries except the rest of the US, Saudi Arabia and Russia, actually rolled out the red carpet for a factory for electric cars and batteries. Tesla brought a massive Trojan horse deep in the heart of Texas and plopped it 20 minutes away from the State Capitol. In doing so, Tesla and Elon also gave Texan elected officials a way to save face with their voters even while Tesla systematically dismantles the largest industry in Texas with deep ties to the local culture, history and economy. This same industry is the largest donor to the current governing party in the state (excluding retiree lobbying which donates roughly evenly to both parties). Just a few years ago, certain demographics tended to view Elon as a socialist, tree-hugging, subsidy-chasing fraudster whose businesses were staying afloat only thanks to government support and Virtue-Signaling Coastal Elites with more money than sense. Now we have the Governor of Texas himself on Fox News praising Elon and Tesla and hyping Texan solar and wind leadership. I think people still are deeply underappreciating the significance of this shift. I never thought I’d see something like this.


Meanwhile, we still see Tesla setting new auto sales records quarter after quarter in California, up about 130% since 2019 which was right before Elon made a notable rightward shift in his public political commentary. Tesla’s YTD California market share is 11% which is 2nd only to Toyota with the gap rapidly closing. Most of this Tesla sales volume is going to the LA, SF and San Diego metro areas. News flash: These are some of the most liberal-leaning areas in the entire USA. I see similar statistical results in the Seattle metro area: Seattle and Bellevue are chock full of Teslas with more and more every year, but outside of King County the frequency drops off precipitously. If the American Left is abandoning Tesla now out of outrage and wanting to cancel Elon Musk, then why do they as a demographic keep buying so many cars (and solar panels and batteries) from Tesla, and why did the Democrat-controlled federal government recently make a law that will, if left untouched until expiry in 2032, funnel hundreds of billions of dollars of taxpayer subsidies to Tesla's bank account? Would someone whining and moaning about politics explain how this happened? I was under the impression that the dramatic move of Tesla HQ from California to Texas and lack of public comment on Texas’s abortion law last year was supposed to cause demand collapse and challenges hiring qualified workforce in Austin, yet here we are with Giga Texas already almost caught up with Giga Berlin. With respect to Tesla’s business outcomes, it was a big nothingburger.

Here's another mindblowing fact: a product can be economically successful without 100% of the population liking it. Only the people that actually are going to buy it need to like it, and it doesn’t really matter much if a given individual has passive disinterest or active dislike because either way they aren’t buying. This is a basic principle of marketing. Counterintuitively, controversy can actually increase net demand by attracting attention and conversation, especially for a consumer product with no paid advertising and general lack of public awareness of the value proposition the product offers to consumers. The fact that orders in America doubled overnight after this year’s Superbowl EV ad blitz despite no special actions on Tesla’s part is a strong statistical indicator that most people still don’t know much about the product and anything even indirectly attracting attention has the power to increase sales. Does anyone have a TSLA investment thesis that requires anything approaching 100% global car market share to justify an expectation that the stock is undervalued? I certainly don't.

Next year, Tesla is going to set an all-time record for car company profits with 3% global market share. 10 million vehicles per year in 2030 would be about 10% of the total market if we assume that it will recover and return to the long-term growth trend. Even if we believe the HIGHLY EXAGGERATED estimates of 50% of the car-buying population being permanently alienated from ever buying a Tesla and making their own lives substantially worse just to avoid association with Elon, then Tesla would just need to capture 20% of the remaining half and that seems doable to me.

Amazon, Microsoft and Facebook are compelling comparisons. Jeff Bezos is currently quite unpopular yet that hasn’t stopped Amazon from dominating e-commerce and cloud computing. Bill Gates was unpopular while running Microsoft yet that didn’t stop the domination of personal computing and office productivity software. Mark Zuckerberg is even less popular than Bezos and Gates but Facebook/Instagram still developed into a social media empire. At the end of the day the product’s value proposition is what matters and people will find a way to justify buying it if they want it enough.

If you would like to reply to this post then please do it in the politics or Twitter threads.
 
If he actually cared about the mission he would. He's lost his way.

By the time we see it the damage is done and it's too late to reverse it.
Musk has many missions, my friend.

I’m going to take a stab at listing the most obvious, but I’ll probably miss a lot. And I won’t even try to list them in order of importance, because they are all hugely important.

1. Reducing the climate impact of carbon emission.

2. Reducing reliance on oil from petroleum-rich countries.

3. Reducing pollution.

4. Reducing driving fatalities.

5. Reducing traffic congestion.

6. Lowering the cost of transportation.

7. Making transportation quicker and easier.

8. Creating a sustainable energy supply.

9. Becoming a multi-planetary species.

10. Lowering the cost of space exploration.

11. Providing Internet to rural and remote areas.

12. Creating interfaces between human brains and digital devices.

13. Building a general purpose humanoid robot, which itself furthers his missions of transforming the future of work, and accelerating the advent of a universal basic income.

14. Protecting free speech on the Internet.

15. Providing an unbiased alternative to the mainstream media.

16. Disrupting the costly financial industry with a universal online platform (X.com)

17. Promoting cryptocurrency and blockchains to reduce transactional costs and governmental restrictions.

18. Promoting world peace, and reducing armed conflict.

19. Advancing artificial intelligence, software and hardware.

20. Protecting humanity from the risks posed by artificial intelligence.

21. Improving education, particularly literacy. (That’s a passion of his that he doesn’t talk about much). See XPrize.

22. Have more fun. (Himself and everyone else).

These are not merely interests, or desires. He’s working on them! And he’s already made a dent in the universe on every single one of these (and he’s barely gotten started).

And you want to put a muzzle on this guy??
 
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