Elon Musk's manufacturing obsession could make Tesla into an industry — and make him a 21st century Henry Ford
Elon Musk is busy with machines that build machines. Tesla
Tesla has just reported its fifth profitable quarter in a row and is preparing for its first annual profit.
On a call with analysts and investors to discuss third-quarter results, CEO Elon Musk returned to his preoccupation with manufacturing, an area he believes could be Tesla's greatest asset.
Musk wants Tesla to do things very differently from the rest of the auto business to develop a new, vertically integrated industry beyond building cars.
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Since Tesla's volatile profitability (or lack thereof) settled a year ago, CEO Elon Musk has been able to spend more time talking about what he's really interested in.
They are not cars. They are factories.
That concern crept into Musk's comments on a profit call with analysts and investors Wednesday night after Tesla reported a fifth profitable quarter in a row, with results beating Wall Street's expectations on both the upper and lower levels.
Unlike other winning calls in Tesla's past - unpredictable, circus-like affairs dominated by Musk's moods and bells and whistles - Wednesday's conversation was downright dumb. In response to a question from Baird analyst Ben Kallo, Musk tackled an issue that has been overshadowed by Tesla's struggles in recent years: manufacturing.
"We are very vertically integrated," said Musk. "So we design and build so many more cars than other [automakers] who mostly go to the traditional delivery base and what I call cataloging." So, Musk said, most new cars look very much like old cars.
Musk defies the way cars have been built since the 1980s
Robots assemble Tesla body frames in the company's California factory. Tesla
Since the 1980s, the global auto industry has used a manufacturing model based on the Toyota Production System, a series of methods developed by the Japanese automaker giant and later incorporated into a late 20th century approach to vehicle assembly called the referred to as "slim". or "just in time" production.
Going Lean is based on global supply chains that can produce components of relatively uniform quality and deliver them to factories around the world. Automakers don't need to stockpile large stocks of parts or finished vehicles. You can dial up or down the system as needed, depending on market demand.
This is in contrast to the older, vertically integrated model that Musk alluded to. The most famous example that Musk seems intrigued by is the River Rouge plant that Henry Ford opened in the late 1920s. The Rogue River was almost entirely vertically integrated: legend has it that railroad cars filled with iron ore rolled to one end of the facility, while finished cars rolled to the other end.
Musk's version of this is referred to in his wildest dreams as the "Alien Dreadnought" - a factory so highly automated and vertically integrated that it would look like nothing else on earth.
Tesla's progress in building the alien dreadnought has stalled at best. An unfortunate attempt to automate assembly of the Model 3 sedan in 2017 had to be abandoned. But Musk did not support its manufacturing activity.
"Tesla's long-term competitive strength will mainly be in manufacturing," Musk said on Wednesday. "It's not intuitive, but I'm pretty confident that it will happen."
Building factories is more important than building cars
Tesla Gigafactory in Berlin is shown here in a rendering. Tesla
Tesla's big experiment with that ambition is now underway. Since around 2010 the company has operated a factory in Northern California (once jointly owned by Toyota and General Motors, as a test bench for GM to learn how Toyota works).
Late last year, Tesla added a second assembly plant in China that was 100% owned by a foreign company. The plant went from groundbreaking to production in about a year, a very fast process by industry standards.
Tesla already has a highly automated battery factory in Nevada that is powered by Panasonic. New plants in Germany and Texas are slated to go online in the next five years. These "gigafactories" for automobiles could join new facilities that make battery cells and solar panels, and overall, they provide ample opportunity for Musk and Tesla to perfect the "machine that makes the machine," as Musk put it.
If you weren't an established automaker and just wanted to build electric cars, you wouldn't take this approach. They would do what designer and entrepreneur Henrik Fisker does with his new car company, Fisker, Inc. Fisker has just announced a contract with Canada's Magna International to build the startup's first vehicle, the Ocean SUV, in Magna's contract factory in Austria.
Fisker has the concept, the business plan and, thanks to a $ 3 billion merger with a blank check company funded by Apollo Global Management, the money to hire someone else to make his car.
"We don't want to be a vertically integrated car company," Fisker told me in an interview. "We're not going to produce ourselves. It would be stupid for an EV startup to build a brand new factory."
Tesla has to do something radical to be worth as much as cops expect
For Tesla, it's about a lot more than just cars. Tesla
To understand why Musk takes the opposite view, you need to take its manufacturing ambitions seriously, regardless of Tesla's position as the currently dominant EV maker in the world. I addressed this back in June when the coronavirus pandemic put the auto industry in an unprecedented shutdown mode where no one was sure how things would play out. Even then, Musk redoubled his plan to create not only a new market for electric vehicles, but a new way of making things.
"It wasn't the Model T that made Henry Ford's fortune - it was the moving assembly line that allowed workers to build the car quickly," I noted. "It wasn't the Camry or Corolla that made Toyota the most valuable automobile company in the world - it was the 'Toyota Production System' that replaced Ford's earlier innovation. For Tesla, the giant factories are more important than the vehicles."
If you look at Tesla's market cap, which makes it the world's most valuable automaker at nearly $ 400 billion, and compare it to the company's actual vehicle production (less than what Ford or GM in six months with pickups in full size in the US do US alone) one would have to conclude that Tesla needs to do a lot more than build cars to build investor confidence.
How can this gap be closed? Imagine the machine that makes the machine not only makes machines, but creates a level of vertical integration that has never been seen before. Tesla would entirely own this machine and be able to use it for many, many other things.
Because of this, some of Tesla's most outrageous cops, who believe the company could be worth more than Apple or Amazon, might be right. And since Tesla's fights are obviously behind it, Musk can now spark her enthusiasm.
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