Understanding Tesla: The First Principles Edition
Should we care about what Tesla is building?
Tesla gobbles market share in the US as soon as they launch a new product. In 2012, Tesla introduced the Model S to address the Luxury Sedan Market and captured a third of it, about 32%, in 4 years. Towards the end of 2015, Tesla launched the Model X and laid the foundation for its Luxury SUV business. In 4 quarters, they captured 10% of that market. When they announced their Model 3, they generated around 400,000 deposits, which equals about $16 Billion on a look-through basis.
From the above statistics, Tesla looks like an electric car company. However, on a deeper engineering assessment, it is clear that Tesla is not a car company. Tesla’s mission doesn’t have the words car or electric in it.
Tesla’s Mission:
Accelerating the World's Transition to Sustainable Energy
World? Energy? Transition? Sustainable? Accelerate?
What?
That is a bold claim for an engineering company that is less than 20 years old.
To help us paint a picture here is an almost comprehensive list of initiatives Tesla has been building for more than a decade:
Tesla’s first challenge was to rethink bringing the cost of the battery packs down. To solve it, the engineering team started thinking about the battery packs from the first principles: break down the battery to its most basic parts and build it in-house. Turns out, building it with first principles thinking helped them cut down costs drastically, without which Tesla won’t be able to produce any car at all. As of this year, Tesla began making 4680 dry cells, their first pilot near its Fremont, California Plant. Battery cost is seen as critical by a majority of Tesla investors.
The second biggest challenge was to manufacture cars at scale. Manufacturing cars to meet production targets is something Tesla has to learn to get good at with time. It was difficult then and it is difficult to even today. To achieve massive scale and accelerate production, the engineering team at Tesla came up with the Giga Factory. As Tesla describes it, a machine that makes the machine. Giga factory takes raw materials from one end and outputs cars from the other end. As of 2022, there are in all 5 Giga Factories.
To drum up consumer demand, Tesla offered lifetime free charging at their Super Charging Network. Tesla builds and operates the world’s largest one-of-a-kind superchargers network. Just this year, they are opening up their connector design to make it a new standard in North America.
Solving Full Self Driving has been another bet by Tesla since the early days. Engineering teams at Tesla have been doubling down on building custom hardware: from building their own AI Chip to their in-house supercomputer Dojo, they are going all in. As of today, all Tesla vehicles come with hardware to support Full Self Driving. Now, it’s a matter of time. Once proven safer than human drivers, Tesla plans on deploying a Robo-taxi business that can deliver ride-hailing services without a driver.
Customers that drive Tesla cars have some great things to say about the experience of driving. This is enabled by the software that brings all the fun features and easter eggs right in front of the drivers and passengers on a single touch screen. From sales to servicing to interacting with Tesla daily, the software provides a seamless end-to-end experience. Tesla has now also launched an insurance service for its customers that leverages data to observe driver behaviour and updates premium payments in real time.
The Cybertruck, Roadster, and Tesla Semi are products that leverage the platform Tesla built previously to reimagine transportation. While the engineers are working hard to solve the manufacturing challenges, customers are excited. At the same time, industry experts are sceptical.
Solar Roof, Solar Panel, and Energy Storage is Tesla’s effort to solve the sustainable energy problem. Tesla is serious about helping the world accelerate the world to sustainable energy. Acquiring SolarCity in 2016 was a fundamental step towards building the technology to build Tesla's Energy business. The mission of Tesla Energy is to “power everything”. As ambitious as it sounds, it has delivered promising initial results. However, “everything” is a long way to go. Engineering the systems for a massive scale is the only solution to deliver that.
Tesla imagines a world where humanity leverages the most prominent fusion reactor, the sun, to generate electricity from solar panels and store it in battery packs. This will power our homes, devices, and our economies globally. This will also power full self-driving cars that require no human interaction to go around our cities and are safer than human drivers. And to achieve that, Tesla will build Giga factories and robots to achieve massive-scale production of all the technology to get us there.
While Tesla is at it, I encourage you to share your questions and thoughts with us. We’re building a community of readers just like you and your feedback would mean the world to us.