> Who knew that a factory design doesn't have to be "big design up front" and can instead be more software style iterative design?
Anyone who's ever done manufacturing? Anyone who's ever built something with their hands? Anyone who realizes that when assembling anything from 30,000 parts, it's going to take a lot of time and iteration to get your build quality to an acceptable level?
Now, this may all come as a shock to software people, but anyone who has actually built stuff out of real, physical objects, would be aware of this... And why you should never buy a version 1.0 of anything.
I legitimately don't understand why software engineers think that other professionals can't understand the concept of iteration. When GM builds a car factory, they aren't doing it from zero. They are building it on top of a hundred years of manufacturing experience and iteration. When Tesla was building its first car factory, it had nearly-zero years of institutional manufacturing experience and iteration. Of course a big up-front build was going to be a disaster. It's why they still can't figure out how to align the interior panels in their cars.
Yep. I know Tesla has manufacturing people who get it, but some of Tesla fans are just lost in the wilderness. "Tesla's plant has so many robots!" -- that's every car plant these days! Nobody wants to pay for labor or deal with recalls for inconsistent welds.
Here's a random video of a GM SUV production process -- just filled to the brim with robots.
They're obviously aiming to cut cost and build time as much as possible, so they automate where they can without sacrificing quality for things like spacing gaps. Over time, that'll be automated too. GM as an example spends like $30 billion/year in CapEx -- that'll buy a lot of robots!
That is the problem. The Execs at GM are MBAs who are good at pulling financial levers. "Reduce costs by X%", "Increase R&D budget by Y%".
Tesla is playing a different game based on first principals. "How low can we get cell cost?", "How can we get range to 300 miles without extra costs?"
Obviously finance is important. If you run out of cash you can go bankrupt. But in the long run whoever is innovating the fastest without going bankrupt wins.
This is pretty meme-y. Elon's got a degree in physics and econ... Mary Barra has an engineering degree and managed an auto manufacturing plant. Which is probably why GM makes a profit on every car they sell and Tesla.. doesn't...
There is no doubt Tesla is a revolutionary company and as a "car guy", I'm ecstatic that they somehow bootstrapped a new American auto manufacturer. Their commitment to reducing electric car costs likely put a huge dent in the trajectory of climate change which as an unequivocal good. My only point is that they could have done all that and built a "normal" manufacturing plant in the South somewhere and never have been two weeks away from shutting the company down vs. trying to "First Principles" design a new way to build cars that had them reinventing the wheel in messier, more expensive way.
GM (and all other auto manufacturers) include their R&D expense in their COGS since they acknowledge they must release new models every year. Tesla, doesn't.
Tesla also doesn't include showroom costs in their COGS, but they can't sell cars without them.. (all other autos only include the revenue they receive from their dealer networks as the top-line revenue figure).
These are the kinds of thing that makes people suspicious about their ultimate financials.
I don't care at all about stock prices, I'm actively shopping for an electric car and Teslas are near the top of my list since they're so technologically advanced, but they're just not very well as a manufacturer or as a responsibly run corporation which annoys me since I'm in corporate finance.
As an example, if Tesla and GM both had $10,000 cars for sale. GM's "Cost of Goods Sold" would include the manufacturing costs, costs for R&D and their revenue would only be $8k since the dealer networks have their own books - but then GM isn't responsible for all of the showrooms and sales staff, etc.
Tesla's revenue would show $10k, but would only include the cost to manufacturer (the R&D expense is "below the line") and they wouldn't include any costs to have hundreds of showroom locations - even those those showrooms are necessary to sell cars at any volume, and Tesla has to pay for out of that $10k sales price.
It's obviously not apples-to-apples to compare those "GAAP Gross Margin" between those two things.
Your original statement "Tesla doesn't make a profit on every car" is a blatant untruth. That's an understandable mistake for a layman to make given the misinformation out there, but you claim to be in corporate finance and should have better standards.
I felt like “by the accounting standards used by literally every other company in the auto industry” was implicit. So apologies - “Tesla doesn’t make a profit on every car, If you use the accounting standards in place for every other auto manufacturer.”
There are a lot of weird short seller conspiracies out there but “In order to increase apparent profitability, Tesla uses different accounting than every other auto company” is a factual statement and so is “If you use actual industry GAAP, Tesla isn’t yet GM profitable.”
I hope they get there! I hope they sell 10M cars per year.. but to hold them up as a manufacturing leader is pretty silly.
If you understand the point about COGS, it's pretty disingenuous to try and compare GAAP between the two and make that claim. If you don't understand the point about COGS, you're not really in a position to denigrate his standards on corporate finance.
If you are so certain that you are correct and these are a fair comparison, can you please explain how his breakdown between the two is either incorrect or not relevant to your point?
He said that Tesla was unprofitable on a per car basis. The whole company including R&D, SG&A etc was profitable, so unless the solar part of the company was subsidizing the car business, that's a flat out falsehood. We can reasonably argue whether GM or Tesla are more profitable per car, but that wasn't the original claim.
Sorry for the late response, but, yes, their car business is being subsidized. They lose money on each car. It is not being subsidized by solar, however.
Multiple states in the US require companies sell a certain amount of zero-emission vehicles or buy regulatory credits from companies that do sell that amount. Tesla is one of these companies they buy credits from. They were paid 1.6 billion USD in 2020 for these credits. That is more than double their 2020 net income. [1]
I see, sounds like GM's financials are in good shape. I hope that helps them in 14 years when they are no longer making ICE cars that those dealerships make all their profits off of from maintenance.
Yeah there's no doubt they're in for a really big disruption - and I think dealers are just about the least sympathetic "businesspeople" in America so I won't mourn their loss.
Anyone who's ever done manufacturing? Anyone who's ever built something with their hands? Anyone who realizes that when assembling anything from 30,000 parts, it's going to take a lot of time and iteration to get your build quality to an acceptable level?
Now, this may all come as a shock to software people, but anyone who has actually built stuff out of real, physical objects, would be aware of this... And why you should never buy a version 1.0 of anything.
I legitimately don't understand why software engineers think that other professionals can't understand the concept of iteration. When GM builds a car factory, they aren't doing it from zero. They are building it on top of a hundred years of manufacturing experience and iteration. When Tesla was building its first car factory, it had nearly-zero years of institutional manufacturing experience and iteration. Of course a big up-front build was going to be a disaster. It's why they still can't figure out how to align the interior panels in their cars.