AsymCAR 3: Road Trip

Screen Shot 2013-08-28 at 8-28-3.48.39 PMHorace Dediu and Jim Zellmer discuss the pleasures of traversing continents by road. This leads to a grand tour of powertrains, composites, fuel efficiency, regulation and Tesla’s luxury market entry. Which naturally leads to a conversation on emerging auto modularization, apps and ecosystems and where value will accrue. [32MB 67 minute mp3]

Show notes: Museum of the US Air Force, Strategic Air Command Museum, Mini Clubman D, GTI, Tesla, Google + VW Smile app, GPS HD app, diesel engine and diesel fuel.

Tesla S road trip.

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  • lik™

    Are there Shownotes anywhere? What was the name of that car app “XYZ HD” with HUD and so on?

  • Michael Burress

    Horace needs to leaven the Disruption Theory dough with Musk’s First Principles Principle. First Principles product design and market prediction is disruptive because unencumbered by the received ideas and conventions of sustaining management. Steve Jobs’ essentialism is closely related to Musk’s logic.

  • André J M Villar

    Hello Horace, am not sure if you dont buy the argument or if you are unaware as to why is tesla disruptive.

    It is this: Tesla is not, the eletric car is the disruption, what Elon Musk sees tesla as is an effort to make an eletric car that is better than most cars and thus accelerate the move towards eletric.

    Here’s a quote from an earnings report

    I will say that the goal of Tesla is really to accelerate the advents
    of sustainable transport.

    there’s not really a need for a new car company or another gasoline
    car company or anything like that. But there is a need for a company
    that’s pushing for sustainable transport, something that as we
    extrapolate into the future, we can see a sort of positive bright future

  • Laurent Giroud

    I had a hard time accepting your hypothesis regarding the motivation of Tesla’s buyers but after laying down the purchasing factors for the low end and high end segments of the car market I think it is spot on:

    Tesla cars are below average relative to combustion engine cars in terms of daily maintenance and range for all markets (but get closer at every generation) but they do over serve the high end in terms of affordability and are above average in terms of social signalling. In a large market such as the US, this could indeed be enough to trigger a statically significant percentage of sales.

    However in the high end they over serve in terms of performance and are much below average in terms of affordability which clearly prevents them from entering these markets until range and daily maintenance reach (then surpass) the average.

    It is true that Tesla’s job will be tougher when (if?) their competitors become wiser in this regard but I would not be so pessimistic for two reasons:

    First they have a clear technological advantage battery wise and possibly structurally wise as well. That is the reason why Toyota is licensing their power train.

    Second, this does not seem at all to be the direction high end manufacturers are currently taking: cf the i3 from BMW (http://en.wikipedia.org/wiki/BMW_i3) which seems to compromise performance, range and comfort (internal space) to target a not too high end market and obtain a more reasonable refuelling time. A fuel based car with the same characteristics would have a very small market.

    Tesla seems to be making the bet that there are more people willing to compromise on price than on performance, comfort and – as you suggested – social signalling. And obviously these people will be found in the high end of the market.

    Other manufacturers still seem to be reluctant to make that bet (although we do not know which products they are currently designing) but assuming the top down market approach of Tesla is the most sensible (given technological limitations) and the incumbent realize this fact, by the time they decide to produce these vehicles Tesla’s technological advantage – if maintained – means that they will be already producing vehicles which eat into the lower end markets.

    Finally you mentioned in several Critical Path episodes that should this happen the only thing the incumbents would need to do would be to buy Tesla but this assumes that the company was for sale at a price the incumbents can afford.

    I think several factors contribute to make this unlikely:

    Musk’s personality for one, he seems ideal driven and has cancelled previous plans of making his current companies public despite the apparent important demand and has claimed that both were currently profitable. If that profitability is enough to fuel their market expansion he has no financial reasons to make them public and he seems to have more than financial reasons to keep them his own.

    Second, very few players in the current car industry are actually in a good enough shape to buy a Tesla profitable enough to eat at their markets (competition between them would drive the price further away from what they can pay). However, this is somewhat mitigated by the fact that the most profitable car maker, BMW (http://energyclimatetransportation.blogspot.ca/2011/10/which-auto-manufacturers-earn-highest.html), feeds only on the high end market, so they might not have too much trouble making a large offering. However, if Tesla is profitable and successful enough that BMW would consider it enough of a threat to attempt to buy it and as long as it had a technological advantage over BMW it would make little sense to sell if the momentum is high enough to take over BMW’s market along with the lower end made available by sustaining improvements in Tesla’s models.

    This last one is a bit of a cyclic argument though, but anyway I think it’s far from a given that Musk best interest would be to sell rather than attempt to take over the market.

    Also, I initially thought that the high end of the market was not that much more profitable than the low end but this turns out to be false, BMW is a prime example of it (cf the link two paragraphs above) and seems to be to automobile what Apple is to the personal computer industry. The article I linked to – although it doesn’t cite its sources – lists BMW’s profit per car at 3000$ at the second place in the list (Daimler-Benz being first), third one being Renault at half that value at 1741$.

    So it might not be such a bad idea for Tesla to attack that segment of the market.

    • Laurent Giroud

      A good example of Tesla’s direct competitors (and part shareholder in this case) not getting the Musk bet is Mercedes: http://www.longtailpipe.com/2013/03/teslas-technology-inside-mercedes-benz.html and its more recent followup http://www.torquenews.com/1075/mercedes-launching-b-class-electric-drive-2014-starting-us

      The compromises are done very classically on range and charging time likely in order to offer an acceptable prize: only 115 miles between charges, about 4 hours of charging time on grid power, 2 hours at special stations (how many of them? I would bet not many), performance is voluntarily limited to 100mi/h. Who would buy an equivalent combustion engine car with such characteristics, especially in the US where fuel is cheap?

      I guess they will have a bigger market in the EU where fuel is expensive but still they are trying to buck the trend which consists in investing technological improvements into better performance rather than better efficiency. This makes little sense as long as energy prices allow the user to favour the irrational satisfaction of higher performance (which in urban usage most cars have no need for at all) versus the more rational one of higher efficiency and lower fuel cost.

      And actually maybe it would be even smarter for Tesla to not sell cars but to actually sell electricity, in the form of charging stations. Mobile network operators give away the iPhone in exchange for the high margin data plans and it might be more disruptive for Tesla to sell the cars at a large discount in order to sell the electricity at charging stations at say half the price of gas. Their patents on supercharging would protect them temporarily from competition from utilities which would not be able to charge cars fast enough for customers to tolerate it. Profits from selling the electricity could be reinvested in further extending the network and thus the attractiveness of the cars.

      I wonder how much that would make sense.