Comment by Robotbeat | Hacker News Reader

Comment by Robotbeat | Hacker News Reader

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This is true. But a key point: Tesla doesn't actually have to beat state of the art in automation to be profitable. Their cars are already great, electric cars are simpler, they've streamlined the sales process in a way that already gives them at least 10% greater cost advantage if everything else is equivalent (while also eliminating a major pain point for consumers).

But it goes beyond just the fact that technology has advanced: Tesla is willing to pursue alternative approaches where others have long stopped (and this is a point the author of this article makes later on). The fact that Tesla doesn't have the conservative culture of other car makers means that they'll make mistakes like this, but also that they'll find new solutions (or recognize existing solutions in similar fields that haven't become industry standard) whereas others would not.

You cannot automate EXISTING car designs much. And Model 3 does make improvements, but in many ways is built similar. It's like trying to automate soldering components by hand. Automation of electronics required a change in the fundamental way electronics were built. Through-hole is hard to automate but relatively easy to build by hand. Surface mount is simple to automate and ultimately better in several ways, but is super annoying to build by hand. Tesla needs to find the surface mount of car manufacturing. And I think they're trying.

Something particularly hard to automate for automobiles is the wire harness. There are many degrees of freedom; it's kind of like tying your shoe: easy for humans, hard for machines. The Model 3 uses less wire than the Model S/X, but only by a factor of 2 or so. Model Y, on the other hand, is supposed to use like an order of magnitude less. This is like optimizing a circuit board for automation by only using a few through-hole components, relying mostly on surface mount.

So Tesla is going to have to continually redesign their vehicles to be more and more amenable to automation. They can't do this as a step function, and Musk has realized that now. (This is another good point the author makes.)

Tesla has yet to sell a car at a profit (using standard accounting practices, known as GAAP, for the auto industry or even in general). They're still losing money on a per-car basis, so the more they sell...the more money they lose.

And don't give me that crap about R&D blah blah blah. Other car makers include R&D and other related capex in their per-car profit accounting.

This doesn't sound right. As far as I heard they make something like 20% or more profit on sold cars but due to constant heavy investment they burn through cash reserves.

Tesla makes a 20% profit per car if you ignore standard auto industry accounting practices and use magic voodoo accounting and ignore the capex that goes into developing and building those cars. Notably, the only sites claiming that Tesla realizes per-car profits are tech companies which defend the use of non-standard accounting practices.

Note: Most other car companies make hundreds of thousands of cars at each of their factories, and sell hundreds of thousands to millions of cars each year, which substantially reduces the per-car capex. Tesla sells comparatively very few cars, so its per-car capex dwarfs the rest of the industry.

Except that Tesla is now producing at a weekly rate equivalent to hundreds of thousands of cars per year at their Fremont factory, comparable to other car companies.

But they're still ramping up. The factory will be outputting something like 500,000 to 700,000 cars per year after they're done ramping. They'll need Model Y and/or Semi and at least another factory before they're going to be comparable to other mid-range manufacturers. They'll need at least half a dozen factories to be a major manufacturer. Or they'll need to change how cars are made entirely.

If they can get millions of cars from a single factory, then the high automation that they're shooting for (and which Model 3 had to back off of) might make sense (and is required for getting that kind of production from a single line). But even that will likely need multiple factories to justify the R&D into the factory line itself.

Tesla is now producing at a weekly rate equivalent to hundreds of thousands of cars per year

That's only true if you're a time traveler from the future. But it's only April 2018 here, and Tesla is producing about 2600 cars a week. They produced 12000 cars during the first 3 months of the year.

https://www.bloomberg.com/graphics/2018-tesla-tracker/

Also it would be very difficult to get millions of cars out of the Fremont facility.. they already ran out of space there over a year ago.

You forgot the ~2000/week Model S and Xes they’re making in the same factory (although not the same line, obviously).

It's an annualized rate of hundreds of thousands if you include all the models. For the model 3, 2600/wk makes for well over 100k/yr. Model S and X combined are going at an annualized rate of about 100k/yr, extrapolating from last quarter's 24,728 number. Altogether it's over 200k annualized.

you're right.. I missed that it said model 3.

although q1 production was 34k x 4 = 136k.. so they still have some growth before it's hundredS.

I don't know accounting stuff so I can't say, but I wonder if they stopped every and all activities except building and delivering cars and fired all personnel not involved in those, would they stay afloat?

It's not "magic accounting" it's looking at different aspects of the business. You can look at the cost to make each vehicle (in terms of components + labor) vs. the price you're selling it at, or you can look at the cost to run the entire business divided by the total number of sales.

Both are important, but if you're looking to invest in a business that's growing, you care more about the first number because you're assuming that if the business grows enough then the second number will take care of itself. If Tesla has been in business for 100 years and is unlikely to grow its base, like more established automakers, then you care alot more about that second number. And you also care about a lot of other numbers like the dividends paid out, how likely that something will change to move the stock price, etc.

It doesn't make sense to compare Tesla to other car companies that way. The others have much higher volumes to spread costs on and they have been doing this stuff for over 100 years. That means the basics of car manufacturing has already been developed.

Tesla R&D isn't just about creating yet another model, but about creating the very first car model in that category that they have ever done.

I think it would be very odd if they kept having equally high R&D when upgrading their models.

Good analogy. With gas cars it seems that the engine bay has become so crowded, all the degrees of freedom are used up by making everything fit. Electric drivetrains give an opportunity to totally rethink the topology of the car with automated assembly in mind.

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