Posted on December 26, 2016 by Matt Pressman
Guest Blog Post: Dave T. is editor of Tesla Weekly* a weekly email newsletter highlighting the top Tesla news.
One of the main reasons I started Tesla Weekly* two years ago was because I was bothered by the endless misinformation in the media regarding Tesla. As a result, every week I parse through 100-200 articles and choose for my newsletter only the best ones that present a fair and informed view of Tesla and what they're doing.
Over the years, the misconceptions around Tesla [NASDAQ: TSLA] have changed. In 2012-2013, the biggest misconception was that Tesla wouldn’t be able to sustain demand for the Model S and thus go bankrupt. What people didn’t realize then was that Tesla was continuing to improve the car at a rapid pace. Tesla improved the Model S's ride, fit & finish, sound insulation, added Autopilot, built many more superchargers, and increased acceleration from 4.2 seconds to 2.5 seconds. The aggressive set of improvements (and more) would serve to offset any potential decrease in demand. Most people back in 2012 didn't expect and imagine that Tesla would improve their product so relentlessly.
So what are some current misconceptions I see regarding Tesla?
The first misconception is that Tesla is burning cash and in bleak financial condition. Tesla’s finances have actually radically improved over the past couple years. They’ve been doing aggressive cost reduction efforts led by their CFO, Jason Wheeler. And they’ve completely revamped their expansion plans through adding density to existing factories, rather than just building new ones. One example, is that the Gigafactory is now expected to be able to provide batteries for up to 1.5M cars… original expectations were 500k cars.
Besides cost reduction, Tesla’s finances have also benefited from Model S/X ramping now to an annual run rate of 100k cars/year. This rapid increase in revenue has provided Tesla with ample cash that is now more than offsetting their expenses… thus they’re showing positive cash flow from operations. The big turning point was last quarter. Most people haven’t caught how big of a quarter last quarter’s earnings were since the SolarCity acquisition tainted people’s mood/view of Tesla. However, when you look at the numbers, it’s quite impressive and Tesla is now able to use their positive cash flow from operations toward capex for Model 3, thus self-funding a large portion of the Model 3 rollout.
A second misconception is that fully self-driving cars are 5-10 years away and require LIDAR. Most people who think along these lines don’t fully understand what a huge upgrade Tesla’s Autopilot 2.0 hardware/software system is compared to their AP 1.0 system. And they probably haven't spent significant time using Tesla's very impressive AP 1.0 either. Tesla's AP 1.0 system was severely handicapped and limited by Mobileye’s algorithmic image detection method (not neural net/machine learning) and also by Mobileye's refusal to grant raw stream access to Tesla.
As a result, Tesla had to work with what they had and managed to create a very capable L3 driving system that later integrated a more aggressive radar safety feature. However, AP 2.0 is a huge leap forward and Tesla has laid the groundwork for a neural net (machine learning) software approach (along with 360 degree camera view) that they’re expecting will take them to fully self-driving within 2 years. I think as each month passes, it’ll become increasingly evident how revolutionary AP 2.0 is and by end of 2017 many people will start to acknowledge Tesla is by far the clear leader in autonomous driving (especially as Tesla showcases a coast-to-coast fully self-driven trip by end of next year).
A third misconception is that competition is going to hurt Tesla and weaken their position. Legacy auto makers are going to have a difficult time keeping up with the rapid innovation pace of Tesla, and even with the help of large tech companies providing self-driving tech the large legacy auto makers are still slow to integrate and take the necessary risks to truly innovate. Startups will try to challenge Tesla but the big challenge with startups is that they don’t have access to the economies of scale that existing auto makers have. Tesla is starting to enter the fray of large auto manufacturing with the Model 3, and will soon enjoy the economies of scale that come along with producing 500k+ cars/year.
Once Tesla taps into these economies of scale, it’s going to be next to impossible for a startup to out-compete Tesla… that is until the startup is able to get to a threshold where they too can benefit from true economies of scale. Along with economies of scale, Tesla also benefits from industry-leading vertical integration, integrated customer sales/service/charging, and a software expertise that’s integrated into vehicle development. Tesla is also just getting started with beginning to apply true technological innovation to their manufacturing plans.
*Source: Tesla Weekly