In a rare appearance, Elon Musk talked at the 29th Annual Baron Investment Conference, on November 4, 2022 in NYC. For this article, I am sharing the parts of his talk that were about Tesla. Thanks to Ron Baron for this opportunity to hear Elon talk. Highlights,
- Why he works so many hours
- Why Tesla patents are free
- Why autonomy matters
- Elon’s First Principles Algorithm, 2 examples
- Finding out the “Dilbert Ratio” of a company
- On being all-in with his teams
- Extreme Engineering Challenge
- Tesla needs to get into the mining business
- Investing in TSLA and the value of Autonomy and Optimus
- Self-Sustaining Tesla Superchargers for the Zombie Apocalypse!
Tesla and SpaceX
“I think what I’m working on has an important effect on the future, in the case of Tesla, I think it’s fair to say that Tesla has significantly accelerated the advent of sustainable energy. Before Tesla, no one was doing electric cars, and now as a result of Tesla, I think, almost every major car company in the world is building electric cars and I think that’s a pretty big deal. But there’s still a long way to go to transition the world to a sustainable energy economy and so we still have a lot of work ahead of us at Tesla, but that’s our goal there.”
“For SpaceX, I think it’s important for the future to be exciting and for humanity‘s existence to be assured of in the long term, I think we must become a multi-planet species and a space-faring civilization. We’re here like 4 1/2 billion years after earth got started, 13.8 billion years into the age of the universe. It’s only now recently the last 5000 years that we even invented writing. I would say, date the first civilization by when there was the first writing, which was in ancient Samaria around five or 6000 years ago. So, we’ve basically just been here for a very brief instant. All of human civilization is a blink of an eye, if there was an eye, on an evolutionary time scale. So, I think its important we take the actions to ensure that the light of consciousness continues because we should really view consciousness as a small candle in a vast darkness that could easily go out.”
Elon Musk explains why Tesla’s Patents are 100% Free
“I think there is a role for patents. I would say if somebody’s spent a lot of money developing a particular medicine and has to go through expensive stage three medical trials and then they finally get some medicine that is approved but where the drug itself is cheap to manufacture, then I think a patent, in that case, makes sense, otherwise, no one would go to the trouble of doing stage three medical trials.”
“There are definitely roles for patents. In the case of Tesla, our goal is to advance sustainable energy and we can’t just do it by ourselves, we need the whole industry to go that way, so we gave them our patents for free in order to help them accelerate electric vehicles.”
The Importance of Autonomy
“We’ve not formally announced our next car program, so I can’t talk too much about our vehicle program or programs that have not been announced, but we do expect to make cars that are more affordable than the current Model 3 or Model Y (big applause by the audience here). I think by far the biggest factor is autonomy, in terms of the value of the car because right now, cars get driven for about 10 or 12 hours a week maybe 1 1/2 hours a day, but there are 168 hours a week and so if they were autonomous the cars could drive for 50 or 60 hours to see a five-fold increase in the utility of the car that could do autonomy. This is a really gigantic thing. It would also mean that we wouldn’t need anywhere near as many parking lots and this would also be helpful for the environment because you would need far fewer cars.”
Elon explains his First Principles Algorithm
“Well, I think the full explanation or at least an accurate explanation would take a long time. because the first approximation of a car is made of 10,000 unique parts and process steps. Tesla is, at this point, probably the best at manufacturing in the auto industry, which I think nobody was expecting.”
“Well, I’ve got this first principles algorithm that I find to be very helpful in the design and manufacturing of anything. People here may find it helpful. The first thing that you should do is make the requirements that you’ve been given less dumb. Whatever constraints and requirements you were given, they were to some degree, dumb, and you want to make them less dumb. If you don’t start with this, then you get the right answer to the wrong question. And the requirements must be given from a person who can explain the requirements, not from a department, because then you don’t know who to talk to. Then step two is to delete the part or delete the process step. This sounds extremely obvious, and yet, over and over again, we have found that parts are not needed, they were put in there, just in case, or by mistake. Or there was a step that someone thought was needed but was not actually needed. This sounds insanely obvious, but we have deleted so many parts from the car that did nothing.”
Two Examples of First Principles Algorithm
“There are so many examples, one example is there were three fiberglass mats on top of the battery pack. They partially covered the battery pack. I was on the battery pack production line, and the number one thing choking battery pack production was gluing these fiberglass mats on top of the battery pack. So the reason I repeat this algorithm myself is I try to first do things backwards. First, I try to automate it, then I try to accelerate it, just go faster, then I try to simplify it, and only then did I delete it. Because it turns out that the team at Tesla that does noise and vibration minimization, sort of making the car quiet, thought that the fiberglass mats were there because of the battery safety team for battery fire protection. Then I asked the battery fire prevention team what they were needed for and they said noise and vibration (laughter here)! So then we had two cars drive, with the microphone in each car and you could not tell the difference. So, we went to all that trouble for a part that should not exist.”
“Another example: And these were examples of chokepoints in the entire production system, I was running around the production line, just trying to fix the production line, just like a maniac, like a Tasmanian devil, just running around the factory, like a lunatic. The body production line for Model 3 was stuck because we had a laser welding cell to weld a small crossbar beam in the passenger footwell of the front seats. I’m looking at this beam, and I’m like “what the heck does that do?“ because the entire factory is stopped trying to get this laser weld cell to work. And I can’t imagine what this thing could do, and the production team said it was for crash safety. So then I called the crash safety team and I said ‘Is this for crash safety?’ and they said ‘Oh no this didn’t do anything we should delete it!’ It turned out to be totally useless, they forgot to tell the production team!”
What’s Your Dilbert Ratio!?
“Honestly, a bunch of these things just feel like you’re living in a Dilbert cartoon. I’m like, ‘Oh no what’s that one?’ Like any given company should have a question, ‘What’s your Dilbert ratio? It’s not zero! Dilbert quotient? Try to keep it low!”
Elon is All-In with his Teams
Around the time Elon Musk was living / working in Tesla Femont Factory, he gave a tour to Marques Brownlee on August 20, 2018. See https://youtu.be/mr9kK0_7x08
Ron Baron asked Elon Musk if this was him or somebody else who found these production problems. Elon responded,
“It’s literally me, it’s not someone else who did this, I was living in the factory in Fremont and Nevada for three years straight. It was my primary residence. I’m not kidding, literally. I actually slept on a couch in a tent on the roof at one point. And for a while there I was just sleeping under my desk, which is out in the open in the factory for an important reason. And it was damn uncomfortable on that floor, and when I woke up, I would smell like metal dust.” Ron Baron mentioned that he went to visit and they bought Elon a couch. Elon responded that “I stopped using the couch, which was in a conference room, and I just slept on the floor under my desk so, during shift change, the entire shift could see me, and that’s important because, the team, if they think their leader is sort of off somewhere having a good time, or drinking mai tais on a tropical island, which I could definitely have been doing and I would have much have preferred to do, I’m not actually a masochist, I think! (Elon raises one eyebrow and smiles) But the thing is, since the team could see me sleeping on the floor during shift change, just with nothing, they knew I was there. and that made a huge difference. and they gave it their all!” (lots of applause)
Ron asked Elon how he retains his best employees, wondering how Elon prevents them from leaving when they don’t really need the money. Elon said,
“Well, we do have that problem a little bit, so as a company has prosperity, and then people become wealthy, then for a lot of people, once they become independently wealthy, they just can’t bring themselves to work, or they just don’t want to work, and that’s totally understandable. No judgment! And so you know, I have a lot of friends who are extremely talented, they had some success earlier in life, and they just decided that was enough trauma, a good friend of mine said “Starting a company is like eating glass and staring into the abyss.” So when people say to me, “What can you do to encourage entrepreneurs to start companies?” I say if you need encouragement, don’t start a company!”
Extreme Engineering Challenge
“Well, my memory for technical matters is very good. But I think what a lot of people don’t realize, is what I do 80% of the time is engineering. You know it’s actually quite rare for me to give a talk. My day-to-day work at SpaceX and Tesla is almost entirely engineering and design and also production. Production is key, although I consider that to be part of engineering. Starship is something special. The holy grail, like the critical thing needed to make life multi-planetary and for humanity to be a spacefaring civilization, is a fully and rapidly reusable rocket!”
“We’ve gone most of the way there with Falcon 9, you’ve seen the rocket booster come back and land. And we also recover the nosecone or faring. But we do not recover the upper stage. So we’ve gotten to the point where we are about 70 to 80% reusable with the Falcon 9. With Starship, we are going for 100% reusable. iI’s difficult to see how profound a change this will be. A fully rapidly reusable orbital rocket has the potential to drop the cost of access to space by a factor of 1000. (applause) And I should say also, Starship is a very big rocket. It’s more than twice the thrust of a Saturn 5 and about twice the mass. The entire ship is designed to land propulsively. So it can land on any solid surface in the solar system. If we can make Starship work, then it enables us to over time, to get anywhere in the solar system! It’s a very difficult engineering challenge! If this was a video game, the setting would be at extreme difficulty. Not impossible, but extreme difficulty!”
Tesla Delivery Logistics and Tesla Mining
“I believe I’ve said in the past publicly that our aspiration is to reach 40,000 cars a week by the end of the year. We had a bit of criticism for our Q3 (2022) results because we had a lot of cars in transit and the reason why is we got too big for our cars to be transported in the final few weeks. There just weren’t enough car carriers, and there weren’t enough shifts. But it’s actually good in the long run to smooth out deliveries and actually have cars in transit at the end of the quarter because then you’re not rushing to get everything delivered by the end of the quarter and paying all the expedite fees.” When asked if cars could be autonomously delivered, Elon replied, “We can also, if you’re in the area, we can have the car just drive it to you!”
“The scaling constraints change as time goes by. At the beginning, we were very vertically integrated, because suppliers did not take us seriously. The best suppliers would not talk to us because a car start-up had not been successful in the United States since Chrysler in the 1920s when I believe they started up. So it’s been a century since a car start-up was successful in the U.S., that was not a foreign car company coming in that was already successful in their own market. For an American car start-up, Tesla is the first success in 100 years!
So, you can imagine, if you are an auto supplier, that does not sound like a smart, financial decision. So we had to build a lot of the stuff ourselves and be vertically integrated to create the car. And then that ended up being an asset. Because now we understood so much about the supply chain and what it took to build a car. So we were able to design an integrated vehicle that actually needed far fewer parts, and cost less and weighs less and has higher performance. But it is looking increasingly like for some of the critical elements of batteries that Tesla will need to get into the mining business: Mining and refining. We’ve never contemplated investing in Glencore, I’m talking about Tesla doing it ourselves.” (response to Ron’s comment)
Investing in TSLA and the value of Autonomy and Optimus
“I actually rarely try to convince anyone to invest in Tesla, and many times I’ve said to people, ‘Don’t invest in Tesla,’ and ‘Our stock is too high!’ But then people just ignore me, and keep buying the stock for some reason.”
“I think at a very high level I’d say autonomy is insanely a fundamental breakthrough. And no one is even close to Tesla for solving generalized autonomy or generalized self-driving vehicles. No one’s even close. And with the self-driving, as I talked about earlier, the car becomes roughly 5 times more useful. But it costs the same for both. Now can you imagine what would happen if the company was doing like 25 to 30% gross margins but suddenly that same thing was five times more valuable? What would that do to the value of Tesla and the value of that car? It boggles the mind, actually. So if you think of net present value and future cash flows, if you actually do the math on that, it’s insane. Then there’s also the Optimist program, which is our humanoid robot. We will leverage our manufacturing expertise and the intelligence we’ve developed for self-driving to have a useful humanoid robot. Now, the economy is fundamentally GDP per capita times capita. If you no longer have a constraint on capita because of the useful humanoid robot, it is not clear that there is any limit to the size of the economy!”
Self-Sustaining Tesla Superchargers for the Zombie Apocalypse!
Finally, in response to a question about if Tesla would use street lamp posts for charging cars, Elon Musk emphasized Tesla’s goal for Supercharging, “I think they are already doing that in London, and the long-term goal for our supercharger stations is that they will have Tesla Solar and Batteries at them so that as many as possible are self-sustaining. That the supercharger stations generate energy during the day, and then also have a localized battery pack so that people can charge at night. The Tesla supercharging stations would continue to function even in a Zombie Apocalypse! You just never know! That’s coming one day, we know it is, it’s just a matter of time!”
- Elon works so many hours 16-18 hrs/day because the mission of Tesla and SpaceX is so important for humanity.
- Tesla patents are free for all carmakers in order to accelerate the transition to all-electric.
- Autonomy is a huge deal: Elon says, “…right now, cars get driven for about 10 or 12 hours a week maybe 1 1/2 hours a day, but there are 168 hours a week and so if they were autonomous the cars could drive for 50 or 60 hours to see a five-fold increase in the utility of the car that could do autonomy. This is a really gigantic thing.”
- Elon’s First Principles Algorithm is very helpful in the design and manufacturing of anything.
- Every company has a “Dilbert Ratio” and it’s not ZERO!
- Elon is all-in with his teams, especially when there are challenges facing the teams.
- Extreme Engineering Challenge: Starship is the biggest to date!
- Tesla needs to get into the mining business, Elon said, “But it is looking increasingly like for some of the critical elements of batteries that Tesla will need to get into the mining business: Mining and refining.”
- We are going to enter an Age of Abundance! Elon said, “We will leverage our manufacturing expertise and the intelligence we’ve developed for self-driving to have a useful humanoid robot. Now, the economy is fundamentally GDP per capita times capita. If you no longer have a constraint on capita because of the useful humanoid robot, it is not clear that there is any limit to the size of the economy!”
- Self-Sustaining Tesla Superchargers with solar & batteries will function in the Zombie Apocalypse!
Author’s Note: Elon Musk also spoke about Twitter and X .com, you may listen to the full talk here. I write about Tesla and sustainable energy, so did not include those aspects.
Austin Skyline by Christofer Sherman.
Do you like reading interviews with Elon?
Exclusive to What’s Up Tesla – This article was created by Gail Alfar with the goal to preserve this interview in text or written form for the purpose of 1. education and 2. preserving the brilliant insight and words of Elon Musk. November 5, 2022. Here are links to Baron Funds, the sponsor of the interview above, https://www.baronfunds.com/insights/baron-partners-fund%E2%80%99s-investment-tesla-inc-and-how-we-manage-risk