Four Points you may have missed from Tesla's 3rd quarter earnings release. Tesla has been in the news a lot recently. Some financial media outlets are throwing doubt on their ability to sustain the profitable growth, but their commitment to agile methodologies is continuing to yield impressive results. Here are four (4) important points to take away from Tesla’s earnings call and press release from Oct. 24th.
Congratulations to the entire Tesla team. Your embodiment of the agile methodology as it relates to all facets of your organization is an inspiration to forward thinking businesses everywhere.
0. Tesla's Model 3 energy efficiency smokes the competition
Tesla's Model 3 current miles of EPA range per kWh is approximately 45- 70% better than the competitions upcoming (2019) all wheel drive (AWD) alternatives.
Straight from the Q3'18 Update Letter, "By 2016, Model X energy efficiency was 3.1 miles of EPA range per kWh. This is an extremely important metric as it allows an EV to reach a long EPA range even when using a relatively small, inexpensive battery pack. With Model 3, energy efficiency improved dramatically to 4.1 EPA miles per kWh, the highest efficiency for any all-wheel drive EV. To put this in context, our current or upcoming AWD (2019) competition is expected to achieve 2.4 to 2.8 miles of EPA range per kWh."
1. Tesla’s GPU Hardware is about to get a SIGNIFICANT upgrade by a factor of 1000.
This was first announced during the second quarter earnings call (as reported by Electrek), but this is a huge competitive advantage. The current self-driving Graphics Processing Unit (GPU) processes 200 frames per second, while TSLA’s will be able to process 2000 frames per second with redundancy at virtually the same cost. This computer can be swapped out with the existing computer with a simple, 30 minutes service (probably done by TSLA’s mobile fleet).
Musk reiterated that the new computer will be offered as an upgrade to current Autopilot 2.0 (and up) owners by simply swapping the current computer. Further demonstrating the what Musk and team have learned while iterating through the design process, the computers will be compatible with models built in 2016 and later. This standardization allowing for interchangeable parts will keep maintenance expenses in check for the company. Apple has shown how effective a vertical hardware / software combination can be (more on this later) and Tesla is executing on a very similar strategy.
2. TESLA’s Model 3 assembly lines should be able to support ~7000 Model 3s / week through manufacturing efficiencies.
On the call, the management team indicated production of model threes can grow from ~5000 / week to ~7000 per week through manufacturing efficiencies. This likely means the assembly lines will continue to be optimized (possibly three, eight hour shifts operating 24/7?). This operating leverage should continue to support profitable growth with minimal CapEx.
3. Improving delivery times from production to delivery, will drastically improve the cash position.
On the earnings call Musk mentioned deliveries were taking approximately 30 days to get from factory to customer. With the volume of vehicles they are currently producing, this is a significant amount of vehicles sitting idle. He elaborated that every 10 additional days it takes to deliver a vehicle has a negative $750 Million dollars impact on the financial position. The goal is to drop the time between production and delivery from 30 days to 10, which would have a positive impact on TSLA to the tune of ~$1.5 Bln dollars.
4. Tesla as an Uber / Lyft / AirBnB combination (Tesla-as-a-Service).
TSLA’s management is indicated that the company plans to operate their own fleet of ride-sharing autonomous vehicles (in the future). For reference, recent headlines indicate Uber is proposing an IPO valuing the company at ~$120 billion dollars as early as next year, with Lyft following suit at ~$15 billion (TSLA’s market cap is ~ $54 Bln at time of writing).
Tesla owners will also be able to “AirBnB” their vehicles into the fleet to have their cars make money for them when / if the owner chooses, with a revenue sharing model similar to the app store (where the platform provider takes a 30% cut). Google has great mapping data and Waymo’s autonomous driving is supposedly making great strides, but I am skeptical that an OEM hardware / software partnership, will offer as good of a service as a vertically integrated provider like Tesla. This market is big enough for multiple players, but once the Tesla-as-a-Service is ready, they will be in the poll position.
Congratulations to the entire Tesla team. Your embodiment of the agile methodologies as it relates to all facets of your organization is continuing to yield impressive results and is an inspiration to forward thinking businesses everywhere.
About the Author:
Michael Guido is a systems engineer, agile practitioner, and the CEO of Kinetech Cloud.
