Elon Musk Discusses Tesla’s Future
Tesla Investor Day reveals cost-cutting strategies, energy plans, but no Model 2
Tesla’s 2023 Investor Day on March 1 at the company’s Austin, Texas, Gigafactory was short on new-product announcements but long on how the EV automaker will continue to refine its vehicles, manufacturing, and processes to maximize profits and growth. While anticipation was high for Tesla to unveil a new vehicle to its aging lineup – and provide a definite showroom date for its Cybertruck – multiple presenters on stage at the event each discussed aspects of the company’s “Master Plan 3.”
The overarching theme of Master Plan 3 is the company’s focus on providing a “sustainable energy solution,” CEO Elon Musk said at the beginning of the nearly three-hour presentation. “We’ll move to a sustainable-energy economy and do it on our lifetime,” he asserted.
Tesla plans to achieve this is not only by producing EVs that have changed the way the auto industry builds cars and does business, but also in adjacent areas such as energy storage, rare-earth refining and even AI and robotics. Together these technologies have “us rapidly heading to an electric and autonomous future,” Musk said,
Cost savings = more-affordable EVs
Funding the sustainable-energy push and the latest Master Plan is Tesla’s unprecedented profitability and huge market cap compared to incumbent automakers. Almost every executive who spoke during the presentation stressed continuous cost reductions as the reason for the company’s profitability. Operating expenses as a percentage of revenue dropped from 17.7% to 6.6% from 2018 to 2022, while the cost of building the Model 3 was slashed by 30% in the same period, the company said.
The savings are designed to help Tesla reach its goal to sell 20 million vehicles annually and also enable it to produce lower-cost EVs. “Demand is a function of affordability,” Musk said during the Q&A portion of the event. “And as we lower the price, it drives up demand,” he added.
Musk said Tesla could achieve its sales target with a maximum of 10 models. Tesla currently sells only four models and the company’s former top executive in China, Tom Zhu, who now oversees assembly plants and sales operations in North America and Europe, said Tesla just built its seven-millionth car. While it took more than a decade to reach this milestone, Zhu added that it required “less than seven months to build the last million.”
Process, manufacturing improvements
Tesla executives pointed to vertical integration, product and process innovation and efficiencies in areas from engineering and manufacturing to software and in-house support services as not only driving profits but allowing the company to improve vehicles and lower their costs. Going forward, the company said it plans to slash manufacturing costs by 50% (compared to today’s Model 3 and Model y) while simultaneously reducing the required manufacturing footprint by 40%.
Chief engineer Lars Moravy, formerly a suspension design engineer at Honda R&D, revealed a production process that will be used for future Tesla EVs. The process, known as “unboxed,” lowers costs by streamlining vehicle manufacturing — and therefore shrinking build time — by modularizing major sub-assemblies. Moravy called the traditional assembly-line method inefficient and “a silly way to build a car” since it requires moving a vehicle’s entire body from place to place during production, allowing a limited number of people to work on it at once. “There are people coming in and out of the car and there’s awkward movement,” he added.
“We take all these sub-assemblies and build all the sides of the cars independently, then assemble the parts of the car once – and only once,” Moravy said. “The interior is attached from bottom-up or top-down, so there’s more access for robots or people. We aren’t moving heavy objects around, so we’re doing more work on the car more of the time.”
Tesla also sees its lead over traditional automakers in software development as a huge advantage it plans to further leverage. While Tesla is more easily able to update its vehicles’ software over the air to add features compared to incumbent competitors, it will deploy this domain expertise in other ways.
David Lau, Tesla’s VP of software engineering, said the company has begun using its in-house software to test subassemblies before they’re installed in the vehicle to diminish production issues and subsequent recalls. He added that Tesla also is starting to use software to diagnose when a vehicle needs service, schedule a visit to a service center and even send needed service parts in advance. In another example, CFO Zach Kirkhorn detailed how Tesla is replacing generic third-party enterprise software with the company’s own operating system for services ranging from warehousing to human resources.
During the Q&A portion of the presentation – where Musk was joined on a crowded stage by the 17 other Investor Day presenters that some saw as a demonstration of the company’s decentralized leadership – the CEO confirmed that Tesla’s next vehicle assembly plant will be built in Mexico near Monterrey. “We're super-excited about it,” he said, while thanking Mexican officials in attendance.
But to the disappointment of Tesla enthusiasts and some financial analysts, the company didn’t discuss its next model beyond describing it as “next-generation vehicle.” While Tesla design chief Franz von Holzhausen said the long-awaited Cybertruck would be “coming this year,” Musk was mum at the event about the anticipated, low-cost Model 2.
When pressed for details about on the next-generation vehicle, Musk he responded curtly, “We will decline that question.”
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