I get it.
Elon Musk is a genius.
Please don’t think I’m being sarcastic - you look at what he’s done with PayPal, Tesla, and SpaceX. It’s light years beyond anything we normal humans could accomplish.
But I think David’s article How A Boring Finance Call Shows That The Big Three Will Never Understand Tesla misses the mark by painting established auto OEMs as a bunch of whiny, jealous doubters.
Disclaimers: Like David, I’ve worked at the Big Three (I worked at GM in a corporate strategy team for two years). If it helps assess my sentiment, I got laid off when they went bankrupt. I also worked for Samsung for 5 years following that, again doing corporate strategy and competitive intelligence.
So, I think that gives me a pretty balanced view of what’s going on here and why I think it’s so hard for them to see eye-to-eye. And also explains in particular why former-GM’s Jon Bereisa overestimates Tesla’s engineering and production costs.
The TL;DR version is that for better AND worse, the two camps are starting from different points of view.
Tesla doesn’t have decades of class-action lawsuits and recalls to drive it to over-engineer (and spend years validating) its vehicles. It also has extremely patient consumers who are comfortable with the uncertainty - and headaches - that go along with being an early adopter of unproven technology.
Anyone who’s spent time replacing parts on old cars knows which parts you can get cheap at the local parts store and which parts you need to get from the OEM (or at least the OE supplier).
Even more, OEMs know where they can save money on parts and where they need to spend money. Even then, sometimes saving money is re-using tried and true parts instead of something cheaper, like this wheel bearing example I stumbled across (I don’t own anything this bearing fits. Why was I looking at it? Because I’m sick...)
Right now, Tesla is young enough as a company that it doesn’t have that information, so it seems like they just went cheap on everything and are seeing what breaks and where they need to spend more money next time around.
One analysis indicates that as many as two thirds of early Model S cars will need their drivetrains replaced by the time they hit 60k miles. There are other issues as well.
They also aren’t overbuilding (like the Big Three and other established OEMs) for the extreme use cases a relatively small percentage of consumers experience.
When I was at GM, someone who worked with Jon Bereisa told me they solicited a bid on Volt batteries from Tesla. When Tesla got the technical requirements (particularly the required temperature operating window), they told GM “that’s impossible.” GM then sourced the batteries from LG.
But Tesla obviously has had little problem with using batteries built to their own technical requirements. That huge difference in assumptions - and the engineering required to meet those assumptions - drives an incredible amount of cost.
Well, mostly little problems. Sometimes it doesn’t matter. Sometimes it does.
Obviously, it matters enough that Jon Bereisa was off by $70/kWh - or around $4,000 total cost - when estimating the Model 3's battery pack costs.
Luckily, Tesla consumers remain undeterred, aided by Tesla’s fantastic warranty and customer service practices. In fact, the pro-Detroiters would argue that Tesla’s awesome customer service is actually carefully calculated to pacify buyers despite the car’s less-than-stellar quality.
The real problem is that these issues hurt resale value, which matters because resale plays a huge factor in determining lease rates.
But Tesla has also mitigated this issue as well, by launching a “Resale Value Guarantee.”
Another brilliant move by Musk, but again - fixing problems is more expensive move than avoiding them in the first place.
While Tesla is still having quality trouble with the Model X.
All a long way of showing that Tesla’s “different” point of view looks a lot like ignorance / inexperience to many industry veterans, who see these problems as evidence Tesla is cutting corners.
While Tesla sees a lot of waste, groupthink, NIH syndrome, and “this is how my grandpa did it” mentality.
The truth is the two sides are unlikely to ever see eye-to-eye, but both are likely to make efforts to learn from what the other is doing to cut costs and increase innovation (in the case of the Big Three) or reduce warranty expenses and increase quality (Tesla).