Issue 14  June 3rd 2016

Tesla held its annual shareholder’s meeting on Tuesday afternoon in Mountain View, Calif., and the event was partly a trip down memory lane, partly a confessional of early missteps, and partly a series of thank you’s to partners and employees that helped build Tesla over its 13-year history.

In an event that spanned over three and a half hours, Tesla CEO Elon Musk and CTO JB Straubel—in addition to a series of Tesla executives—candidly discussed many of the issues and problems that plagued a young, inexperienced, and cash-strapped Tesla in its early days. Musk also talked about more recent problems for Tesla, like challenges with getting the software and doors to work on its Model X, an electric SUV car.

Musk said that he thought Tesla had a 10% chance of succeeding when he started the company, working with engineer and co-founder Straubel. Musk described their early efforts building the company as having “no idea what we are doing,” and “completely clueless.” Musk said he wanted to put in 99% of the Series A funding because he thought the company’s chances were so low that he didn’t want to lose investors’ and friends’ money.

The Model Y is the second vehicle Tesla plans to release on its third generation platform – with the Model 3 being the first. There’s no official timeline for when the automaker plans to bring it to market, but it is expected to follow not too far behind the Model 3, which set for a release in late 2017.

Tesla CEO Elon Musk tweeted last year that the Model Y will have Falcon Wing doors like the Model X, which leads us to believe the Model Y will be a crossover or small SUV version of the Model 3.

The only way to bring the Model 3 to market at the proposed base price, he said, “is to decouple (free supercharging) from the cost of the Model 3.” Free access to the superchargers could be purchased as an option, or a package, Musk said at the meeting in Mountain View, Calif. “But it will not be free long-distance charging for life unless you purchase that package.”

Tesla is making the cars for as little as it possibly can, and pricing them accordingly, Musk said. “The Tesla price is based on a roughly 20-25% mark-up on our cost of production,” he said. “The price is based on what our car is costing. Then we aspire to add roughly 25%, which has to cover all of our sales costs, and the overhead and the engineering and the R&D and investment for future product.”

If the company adds a charge for something extra, like super charging, a higher trim level or special technology, Musk said, “it’s because we can’t figure out how to make it less expensive.”

The CEO said that he recently – in the last 2 or 3 months – came to the realization that the potential for improvement is at least a factor of 10 greater in manufacturing vehicles than in the actual vehicle engineering. He shared his excitement for a new focus on the machines building the machines:

“We realized that the true problem, the true difficulty, and where the greatest potential is – is building the machine that makes the machine. In other words, it’s building the factory. I’m really thinking of the factory like a product.”

“When you think of a manufacturing facility, for a given size of factory, the output is going to be volume times density times velocity. If you look at our factory and say what is the density of useful to non-useful volume. It’s crazy low. It’s like 2 or 3 percent if you look volumetrically – not on a footprint basis. Then you look at velocity. What is a reasonable expectation for the exit velocity for the vehicle coming out of the factory. You might think that some of the most advanced car factories in the world are very good at making cars and they are maybe making a car every 25 seconds – that sounds fast, but actually, if you say the length of the car plus some buffer space is approximately 5 meters so it’s taking 25 seconds to move 5 meters. That’s 0.2 meter per second or not much faster than a tortoise.”

Musk then said that he would expect cars to come out of a factory at at-least walking speed. He also sees a potential for an order of magnitude improvement in density from 2 or 3 percent to 20 to 30 percent.