Elon: I remember having a conversation with Jason that’s like “Jason, dude, we are doomed if we do not insource the battery pack, because we have a supplier in Thailand that is great at making barbecues but not at making battery packs” and the supply chain was so long that it would take six months from when the cells were built to when the battery pack was done and in a car…
The capital cost of that supply chain was gigantic because we would have to pay for all of that inventory and process and inevitably there would be mistakes made in the design or the fabrication of the battery pack and we’d have six months worth of battery packs that didn’t work. So this was sort of like doom on a stick. And it’s like, man, even though the idea of manufacturing in San Carlos was mad, it was less mad than outsourcing to a situation that definitely didn’t work. So it was like, “Jason, we have basically months to insource this operation so that we can iterate rapidly on the battery pack design, iron out our issues, and tighten the supply chain.”
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Jason: Extremely well-intentioned, but just absolutely no experience. The building was open to the air and so you would literally have animal droppings on the product and that’s when we were like “Alright, we gotta have a building, man, c’mon.”
Elon: Roofs are important, you know.
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Jason: So after two years of spending—I spent personally 50% of two years there [in Thailand]; a bunch of people in this room spent as much if not more time there getting the thing running, and like you [Elon] said also, the lag: We would show up in Thailand—I don’t know if you guys know what a pelican case is, but it’s this awesome plastic suitcase and we’d show up with seven of them at the airport and these [security] guys would just look at us like “What are you guys doing?”…Anyway, we brought [manufacturing] back in January of 2008. We packed up seven shipping containers, and we reassembled that factory in San Carlos…in about five and a half months.
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Jason: It was [a] really early telltale: vertical integration is the way to go. Some would argue we might’ve over-centered [on vertical integration] in some areas…but really we had control now. We had all the engineers right there. We didn’t have batteries on the water, not only from Thailand to England but then cars on the water from England to here.
Elon: Yeah. That’s what I meant by the six-month supply chains. So it would be like, we would only find out if there was an issue with either the design or the manufacturing of the battery pack six months after it was built. So you can imagine the insanity of having some built-in design or manufacturing flaw and have six months worth of inventory that all has that flaw.
Jason: Yeah, some of the same people we were working with building the factory in Thailand. We would do missions…to the UK to the Lotus factory again with these pelican cases full of glue and popsicle sticks and mixers, and we would do these retrofits of—I think the record was like 15 batteries in two and a half weeks, where we disassembled the whole thing, did the retrofit, assembled it. The Lotus guys thought we were insane.
Elon: Yeah they did.
Jason: They had a point.
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JB: I think that taught us a really key lesson that is still incredibly relevant today [in 2016], which is a lot of the technology and intellectual property was actually in how we make the products and I think that’s underappreciated by a lot of people…