Tesla stock dropped more than 5% after hours as Musk explained what had gone wrong in the making of the new Model 3, the company’s first affordably priced electric car. Investors had sensed something was awry a month earlier, when Tesla said it had only made 260 of the Model 3 last quarter, well below the nearly 2,000 it had forecasted; some reports said the bottleneck was due to the carmaker assembling the vehicle by hand.
“Nine levels of production hell” are not unusual when you launch a new product. Especially if it is a product of such a scale never produced by the company before.
A while ago I wrote about Tesla’s different approach to sales and distribution of their cars, employing online direct sales for a customer experience from build to customer service. For their new S90 flagship model, Volvo has gotten some inspiration from this direct-to-customer approach.
Volvo has a new system in place for the launch of its flagship S90 sedan that kind of mimics that experience: you can spec out the exact car you want online, then submit it to a “Volvo Concierge” who will finalize the order for you within a day or two.
The Verge – Ordering Volvo’s new flagship sedan is a little like ordering a Tesla
The order process looks indeed similar, however you still are not buying your Volvo directly from Volvo. A Volvo dealer is handling the fulfillment and delivering the car to you. The full Tesla sales and distribution process (and thus cutting out the dealer) is very difficult to imitate for a “classic” OE such as Volvo, as they have legacy structure of existing dealerships and service locations to maintain.
Fascinating Bloomberg article about former-iPhone-hacker George Hotz who has outfitted his Acura with cameras, lidar, and computing power to go for autonomous driving. His plan is to prove that he is able to build better technology and algorithms than companies like Tesla or other car manufacturers.
The technology he’s building represents an end run on much more expensive systems being designed by Google, Uber, the major automakers, and, if persistent rumors and numerous news reports are true, Apple. More short term, he thinks he can challenge Mobileye, the Israeli company that supplies Tesla Motors, BMW, Ford Motor, General Motors, and others with their current driver-assist technology. “It’s absurd,” Hotz says of Mobileye. “They’re a company that’s behind the times, and they have not caught up.”
In fact, Hotz has turned down an offer from Elon Musk to work for Tesla.
Hotz, though, broke off the talks when he felt that Musk kept changing the terms. “Frankly, I think you should just work at Tesla,” Musk wrote to Hotz in an e-mail. “I’m happy to work out a multimillion-dollar bonus with a longer time horizon that pays out as soon as we discontinue Mobileye.” “I appreciate the offer,” Hotz replied, “but like I’ve said, I’m not looking for a job. I’ll ping you when I crush Mobileye.” Musk simply answered, “OK.”
Hotz plans to get more data and experience with his prototype and then demonstrate it by “filming a video of the Acura outperforming a Tesla across the bridge, and then follow that up by passing the final test on I-405 in Los Angeles where Musk lives.”
Tesla remains skeptic on the success of Hotz, releasing a statement on their website accordingly:
We think it is extremely unlikely that a single person or even a small company that lacks extensive engineering validation capability will be able to produce an autonomous driving system that can be deployed to production vehicles. It may work as a limited demo on a known stretch of road — Tesla had such a system two years ago — but then requires enormous resources to debug over millions of miles of widely differing roads.
There was some media buzz during last weeks regarding a mysterious new billion-dollar EV company, operating out of a former Nissan site in California. The company called “Faraday Future” (FF) has assembled a strong leadership team consisting of former Tesla and BMW guys plus a couple of hundred other employees, and seems to be planning to launch a new EV vehicle around 2017.
First reports have indicated the possibility of Faraday Future being a dummy company for Apple’s EV project, given the lack of an known CEO and the seemingly extremely fast and high funding of the new company. A closer look at the incorporating documents has revealed, though, that FF’s chief executive is a partner of Jia Yuenting, founder of LeTV. Thus, Faraday Future is more likely to be the potential future home of LeTV’s SSE (Super Electric Eco-System) car project. This project is not just about the “old-economy” style “moving a car out to the dealer” type of business, but will try to treat the car more like a smart phone. Subscriptions, apps, car-sharing and other service revenue streams seem to be an integral part of the envisioned LeTV EV car project.
The race towards the fully automated car has only just begun. Car makers and their new potential competitors from the Tech industry have different views on the best approach for a driverless future.
While car OEMs like BMW or Daimler (and even newcomers like Tesla) are adding more and more driver assistance features such as lane-departure warning, brake assist, traffic jam assist, or parking pilot, in order to increase automation step by step over the next years, Tech industry companies like Google think of “leap-frogging” to as much automation as possible.
There are good reasons for both approaches. The classic step-by-step approach is very much in line with technology development and refinement, and with the slow moving other stakeholders such as governments and insurances. Ultimately a fully autonomous car would challenge the existing regulations and insurance schemes intensively, bringing up many unsolved issues of liability. What happens, for example, if a malfunctioning autonomous car hits a pedestrian? Driver or car maker liability?
The fully autonomous car, though, has the potential to be much safer than a car steered by a human, so naturally there is some incentive to go to as many automated functions as fast as possible. Especially as there are some indications that drivers in a only partly-automated car might be too slow to take over control in a situation that the partial automation cannot handle. As Chris Urmson, Head of Google’s Self Driving Car program, said in a recent article: “The better the technology gets, the less reliable the driver is going to get.”
Depending on the level of automation and intensity of alert, some drivers took an average of 17 seconds to respond to a takeover request and regain control of the vehicle, in a study just released by the National Highway Traffic Safety Administration and supported by Google and several leading automakers and suppliers. In that time, a car traveling at 60 miles per hour would travel more than a quarter of a mile.
Automakers, Google take different roads to automated cars
The future looks bright for an Uber manager, thinking of all the fully-autonomous vehicles that will roll through our streets in a couple of years. If you need a car you just fire up your Uber app, and a couple of minutes later you will get in a self-driving Uber car. No need anymore for Uber to sign up new drivers and make sure that always enough of them are on the street. Automatic algorithms can simply dispatch autonomous cars on the streets, depending on actual and expected demand. And all 160,000-something drivers of Uber can slowly be replaced with a safe and smart “robot car” … Everyone is happy! 🙂
As soon as all technological and regulatory challenges are met to have the fully-autonomous car ready for sale, Uber just hast to make sure to get enough cars for their business. So far, it looked like as they had already identified a potential partner – Tesla. Steve Juvertson, a Tesla board member, is pretty sure that Uber is going to fill Tesla’s order books:
“Travis [Kalanick – CEO of Uber] recently told me that in 2020, if Telsas are autonomous, he’d want to buy all of them. He said all 500,000 of estimated 2020 production, I’d want them all,” Jurvetson said. “But he couldn’t get a return call from Elon [Musk – CEO of Tesla].”
“I’m not saying you’re all going to have robocars. But, for those of us who have a chance to be in one, there’ll be one of those epiphanies. You’ll never go back.”
Uber will buy all the self-driving cars that Tesla can build in 2020
However, it seems that Uber is not only relying on Tesla or other OEMs to build the car for them. Recently Uber has invested in a couple of areas that indicate their potential interest to build their own self-driving cars. First, Uber set up shop close to the Carnegie Mellon University’s robotics center in Pittsburgh, USA, in January 2015. From there they went on a hiring spree to get more than 50 people of the top staff from the robotics center for their newly set up subsidiary.
“They took all the guys that were working on vehicle autonomy — basically whole groups, whole teams of developers, commercialization specialists, all the guys that find grants and who were bringing the intellectual property,” recalls a person who was there during the departures. “These guys, they took everybody.”
Uber gutted Carnegie Mellon’s top robotics lab to build self-driving cars
Later on, Uber and Carnegie Mellon University announced that they will form a strategic partnership, with “focus on the development of key long-term technologies that advance Uber’s mission of bringing safe, reliable transportation to everyone, everywhere”.
This was not the last new development, though. In August 2015, Uber announced that it will partner with University of Arizona for self-driving car research.
Uber has signed a partnership with the University of Arizona focused on research and development in the optics space for mapping and safety. We’ll work with some of the world’s leading experts in lens design at the University to improve the imagery we capture and use to build out mapping and safety features. As part of this partnership, Uber will also be donating to U of A’s College of Optical Sciences — supporting the next generation of optical scientists and engineers as they make new exciting breakthroughs.
Driving Innovation In Arizona
I am not convinced that we will see a self-produced Uber car on the road, though. There would be much more invest needed in order to get to be able to produce a working car than just forming strategic partnerships and investing in knowledge. The necessary asset invest would be huge as well, completely going against the current Uber model. However, it is a good way for Uber to keep all strategic options open. They could, for example, partner with an existing OEM sometime in the future and add additional engineering capabilities to make sure to get exactly the right car for their future “driver-less” business model.
A long and interesting read at Forbes on Tesla’s approach on building a car. Coming not as the classic ‘disruptor’ gaining traction only as an alternative slightly inferior product for the price-conscious customer (e.g.what Skype was compared to classic long-distance phone calls in the beginning), Tesla positions itself as ‘high-end disruptor’.
High-end disruptors produce innovations that are leapfrog in nature, making them difficult to imitate rapidly. They outperform existing products on critical attributes on their debut; they sell for a premium price rather than a discount; and they target incumbents’ most profitable customers, going after the most discriminating and least price-sensitive buyers before spreading to the mainstream.
Forbes – Decoding Tesla’s Secret Formula
While still losing money, Tesla is constantly refining its processes and products, learning from other industries than automotive. Customer experience – similar as Apple’s approach -is everything, even if it means to have to spend more money than necessary.
Learning in an environment of uncertainty requires a willingness to admit mistakes and move quickly rather than digging in and doing nothing for fear of admitting failure. In fact, obsessively attempting to avoid failure can lead to the greater failure of missing the big opportunity.
Forbes – Decoding Tesla’s Secret Formula
Have you bought a Tesla car yet? If not – which is actually quite a high probability given the car price – you haven’t seen how easy it is to buy a car with just a few clicks.
You go to Tesla’s site and click the prominent red order button. It is directly on the frontage:
You get some options in the design studio for configuration, but basically you can as well just simply click on order…
… and the only thing you do is to pay the 2,500 USD (for the Model S) down payment. You can even do that by paypal! Your car will then be delivered to your door later this year.
(By the way: their process is standardized world wide. So if you are in China and want to order your Tesla, it looks and feels the same. You can simply 订购 and get your car delivered. Of course Alipay is supported as well.)
Sounds and looks familiar? Looks like online shopping for books or DVDs? Exactly! Tesla is a car manufacturer, but in its processes it incorporates a lot of ideas from the tech industry. It is not just for the order process, though. There whole sales and distribution is optimized to be different from classic car OEMs. This is partly due to their (still) low volume of car production, which makes it difficult to attract dealers without getting lost and compete in a sea of gasoline cars around them.
A more important aspect for Tesla is to be able to control the product experience from build to customer service. Elon Musk, Tesla’s Chairman, wrote a blog post a while ago on this topic. They want to educate customers about the product and use outlets such as own stores and gallery locations with high foot traffic for that. The product specialists at those outlets are not on commission though, and thus will never have to pressure for customers for sales. As Elon wrote: “Their goal and the sole metric of their success is to have you enjoy the experience of visiting so much that you look forward to returning again”.
With their “build-to-order” approach they enjoy advantages such as low inventories and being able to build the right product-market-fit close to their customers. With their order-and-pre-payment model they generate additional cashflow from the deposits they get from the customers several months in advance before delivering (or even building) the car. Their tight control of the service chain allows them to offer compelling after-sales packages for customers for more customer retention. In fact, they even integrate loyalty / affiliate programs such as the newly announced referral program. “For every referral that current owners generate, they’ll get $1,000 — and the new buyers will get $1,000 off their purchase. (…) The referrals will be made through a custom link offered to current owners, which makes it sound a lot like any other referral program on the internet”.
However, Tesla does have to battle other challenges in their existing model, especially if their car volumes are continuing to grow. They have to deal with a potential logistics nightmare of direct selling and delivering more and more cars to end consumers, they still have to invest in their showrooms and outlets, and they still have to provide service for the cars somewhere. For customers it means that they cannot simply walk into a Tesla outfit and buy one on the spot, which might harm their sales in markets, such as China, which appreciate the instant availability.
Time will tell how much benefit Tesla and their customers will get. One thing is for sure: for Tesla those different approaches to sales and distribution could be a long-term differentiator to other “classic” OEMs, as a lot the things Tesla does you can only do if you do not have a legacy structure of existing dealerships and service locations.