August 24th, 2019 by Zachary Shahan
Final 12 months, discussing Tesla’s problem producing a $35,000 Mannequin three, Tesla CEO Elon Musk used the phrase “sport of pennies” to spotlight their efforts to carry down prices one step at a time, in each little manner potential. These pennies add up when on the size of a whole lot of hundreds and even hundreds of thousands of automobiles per 12 months.
Together with Elon’s remark a couple of “sport of pennies,” the graphic above references an engineer in the Tesla seat factory telling us, in different phrases, that it was basically a sport of seconds for them — they should continuously search for methods to carry down the time it takes to supply a seat. (Nevertheless, the phrase “sport of seconds” may additionally relate to CleanTechnica, since now we have solely so many seconds in a day to supply content material.)
The phrase “sport of pennies” got here to my thoughts once more this week as I used to be eager about the assorted methods wherein Tesla incessantly brings down the price of electrical automobiles, and thus leads the market in EV cost-competitiveness. I assumed the sport of pennies supplied a brand new, distinctive, and helpful manner of conceptualizing Tesla’s place available in the market.
In the long run, whereas a sport of pennies could sound small and mundane, the eventual financial savings and competitiveness end in billions of dollars of sales stolen from different automakers. Let’s take a fast take a look at a few of the methods wherein Tesla has obsessively labored to carry down EV prices.
Gigafactories: Probably the most necessary and apparently sensible approaches Tesla took to carry down prices was constructing its first gigafactory, an concept quite broadly seen as loopy on the time (even by Panasonic executives who partnered with Tesla on the deal). Defying all of the naysayers, Tesla has constructed out a big portion of Gigafactory 1, and it’s even nearing manufacturing at Gigafactory three (Gigafactory 2 is a photo voltaic manufacturing unit). The economies of scale, the unique rights to batteries in a good market, and the enhancements in battery manufacturing processes have saved Tesla properly forward of the curve on the subject of battery costs — primarily based on every little thing I’ve seen relating to EV battery costs.
Whereas it could have appeared like a wild wager years in the past, as Elon defined on the time, it was a essential wager. The Mannequin three wouldn’t be a prime vendor in so many international locations — properly, it wouldn’t even be potential — if it didn’t have the large battery provide Tesla and Panasonic developed at Gigafactory 1. It will be one other low-selling electrical automobile.
Batteries: Okay, batteries are already famous above, however there’s one other part to Tesla’s battery management. The corporate has a few of the brightest minds within the battery world on its group and it continues to drive down prices by chemical enhancements, acquisitions, and extra environment friendly battery pack designs. Whereas different automakers merely outsource this work and depend on exterior battery corporations, Tesla realizes that its progress and survival depend upon decreasing battery prices. That is probably precedence #1 at Tesla. With hundreds of battery cells in every battery pack, and battery packs accounting for a large portion of Tesla automobile prices, Tesla’s “sport of pennies” on the subject of bringing down battery prices is a novel and revolutionary sport. And, to steal a phrase, Tesla simply retains going and going and going … and going.
Seats: This one might not be as essential, nevertheless it stood out to me due to how uncommon it’s and since Tesla’s in-house manufacturing of this half is mostly unacknowledged. This can be a massive, outfacing automobile part that’s in each automobile on the market, but not a lot consideration is placed on the truth that Tesla designs and builds its personal. That makes me surprise what else is principally unacknowledged that Tesla does in-house. In fact, we got an exclusive tour of the seat factory this 12 months, in order that brings this part to thoughts as properly.
Probably the most notable factors on this matter is that there are three–four seat producers that produce seats for all the key automakers. That’s nearing a monopoly degree, and it additionally doesn’t provide a lot in the best way of client selection or flexibility. Low competitors = low selection and low flexibility.
I feel Tesla’s seats are unmatched within the auto business, particularly the white ones, and these do-it-yourself seats are presumably one other manner Tesla cuts prices.
Electronics: Prime auto business consultants, competing auto execs, prime auto journalists, and even inventory analysts who’ve put out destructive views on Tesla have all acknowledged that Tesla is in a league of its personal on automobile electronics. A few of them have talked about military-grade electronics constructed in-house, house know-how, and magic — seriously. Tesla’s capacity to place high-value electronics inside its automobiles in a easily built-in manner and at a comparatively low price leaves it with the perfect in-car laptop , infotainment, navigation, and extra. That doesn’t essentially “decrease Tesla’s prices” relative to its rivals, however what it does is it places Tesla electronics and sure efficiency specs on an entire totally different degree from rivals. It provides worth that different producers can’t add to their automobiles, actually not at so low a value. How do different automakers catch up? When do they catch up? Good questions! I can’t image the solutions.
Autonomy: One of many issues these enhanced electronics present is robust management in autonomous driving. Which may result in Tesla robotaxis properly forward of the competitors having such automobiles. The potential income enhance from which is insane. Even when the robotaxi dream finally ends up being a lot tougher to attain than Elon Musk envisions, Tesla’s Autopilot and Full Self Driving options already make its automobiles incomparable. Effectively, prime rivals typically catch as much as the options Tesla is providing, however then Tesla implements one thing new (by way of over-the-air software program updates, which solely it makes use of at this level) and it’s once more in a league of its personal. For instance, the corporate presently presents a “Navigate on Autopilot” onramp-to-offramp function wherein the automobile will cross automobiles by itself and do every little thing essential to go from the beginning of a freeway to the top primarily based on the instructions in your navigation. The corporate is now on the verge of implementing the flexibility for automobiles to acknowledge cease indicators and pink lights and punctiliously navigate themselves by metropolis visitors.
Gross sales: Much less talked about lately, Tesla does profit from a direct-sales enterprise mannequin that cuts out the center man. Reducing out the center man saves pennies, and even hundreds of dollars. Slightly than promoting its automobiles to auto sellers who then promote them to prospects, Tesla sells its automobiles to prospects. Which means the Tesla Mannequin three would nonetheless outcompete the BMW three Collection Electrical if every little thing else was equal between them (and if such a automobile existed).
Not solely has Tesla minimize prices with its extra streamlined shops and gross sales strategy, nevertheless it additionally focuses closely on funneling prospects by the car-buying system on-line. It consists of easy, clear design studios for every automobiles, and there’s not a lot want to enter a retailer for assist alongside the best way. (Although, that’s to not say shops aren’t useful. Extra on that coming quickly.) Tesla consumers usually provoke and full the shopping for course of on-line, quite than having prospects and employees spend hours upon hours beginning the method and filling out paperwork at a dealership.
I’ve purchased and leased automobiles from dealerships and I’ve purchased a Tesla on-line. The latter is a lot faster and clearer, is completely painless, isn’t tremendous annoying and greasy feeling, and is definitely really easy that you just really feel like you have to have missed a step or 50. Absolutely, this streamlined shopping for expertise each cuts prices and makes prospects happier.
Advertising and marketing: It’s well-known that Tesla has by no means spent a cent on conventional TV or web promoting. Automakers prime the world in TV business spending. I don’t wish to say Tesla doesn’t spend any cash on promoting, however its types of promoting — buyer referral packages, social media enjoyable, product occasions, and YouTube movies — serve a number of functions and are seemingly less expensive than standard auto promoting approaches. Once more, “pennies” right here is extra like hundreds of thousands.
Add It All Up
I’m certain there’s much more, however these are the biggies that stand out to me and that’s sufficient to make the purpose clear. Whenever you add up all of those price financial savings, you may higher see why it’s that Tesla can produce and promote the Mannequin three whereas no different automaker can produce and promote a automobile (electrical or gasoline powered) that comes near competing with the Mannequin three.
There’s completely no automobile that beats the Tesla Mannequin three since you get much more from the automobile than you get from another automobile in its value vary. It’s been the ninth greatest promoting automobile in america this 12 months, however I’d argue that the one two causes it’s not #1 are: 1) not practically sufficient individuals know in regards to the Mannequin three or perceive its benefits (the massive bulk of the explanation), 2) even when total cost of ownership is expected to be low, the upfront value of the automobile (and client capacity to get loans for that a lot cash) restrict who should purchase one rather more so than others automobiles within the prime 10.
The Mannequin three has the bottom likelihood of damage of any automobile within the US, is insanely fast, has probably the most superior infotainment and navigation system available on the market, is clearly trendy, and has a 5 12 months price of possession that’s maybe similar to a Honda Civic’s or Toyota Corolla’s in lots of circumstances. There’s genuinely no different automobile in its class. The Mannequin three is in a category of its personal.