The Tesla principle: agility and speed

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The Tesla principle: agility and speed-agility

Almost every vehicle that comes off the assembly line at Tesla is unique because changes are made every day that make the car unique. If you own a Tesla, there’s a good chance it’s unique. Tesla is the only automaker in the world to do this, and it’s a competitive advantage that nobody talks about but that everyone should know about. This article explains what every Tesla investor should know to understand what he or she is invested in.

Many wonder what makes Tesla so special compared to other automakers, and there are many wrong answers to this simple question. Whether it’s the CEO, the battery or software advantage, autonomous driving or production. All of these are often cited as reasons, and none of them make it clear that it’s the organization that is unparalleled in the industry. What once made Toyota the largest automaker in the world is now happening at Tesla.

Elon Musk’s response to my tweet that “manufacturing will be Tesla‘s long-term strength” means to most that it is due to new innovative manufacturing technologies like the large foundry machine, the purpose-built gigafactories or the speed of innovation, but they miss the most important aspect – the organization. While much is written about Tesla every day, I haven’t seen a single article that highlights and explains the massive competitive advantage that other automakers can’t duplicate, and most won’t even understand why they should.

In a Model X, 27 hardware and software changes are made every day. 27 unique differentiators that add up to a theoretical 135 per week, 540 per month, or 5.400 total per year. A conventional car manufacturer delivers a model refresh after 2 years at the earliest and often only after 5-7 years. During that time, the Model X and all other Tesla models have undergone thousands of hardware and software changes that make the vehicle safer, faster, easier and cheaper to manufacture, and better in every way.

What a Tesla customer cannot express in words, but usually in feelings, is the result of thousands of small changes made by the automaker that traditional automakers deliberately avoid, believing it to be costly and their organization is not designed for this. In short, they think it’s impossible.

Because Tesla vehicle hardware and software changes so frequently, Tesla has a local authority worker on site every day to inspect and confirm each individual car’s registration, ensuring it’s ready for delivery to customers is qualified. No other car manufacturer has one person constantly in-house who inspects every vehicle, is constantly responsible for registration and has his or her own desk in the factory. What sounds inefficient is a new, previously unknown paradigm in mass production.

Tesla: More software and hardware companies than car manufacturers

With the high frequency of production changes per day, Tesla once again proves that it is more of a software than a hardware company, because this method and work organization was invented in the software industry. The benefits are impressive, and despite all the mainstream automakers’ claims that this can’t work for mass-produced vehicles, Tesla has shown that it does work.

While the approach of agile, small, iterative improvement steps in the automotive industry is completely new and revolutionary, Tesla has used the same process in building its gigafactories. The rapid construction of Giga Shanghai, Austin and even Berlin is a testament to the company’s agile approach. In Germany, the authorities initially described the new and unfamiliar approach to building the Giga factory in Grunheide as chaotic, without realizing the astonishing benefits. Today many are surprised how it is possible to implement such a large project in 2 years.

The factory in Shanghai in particular has impressively demonstrated that small daily changes can significantly speed up construction and lead to the desired result more quickly. The iterative adjustments were also submitted to the approval authorities in Brandenburg, which led to small but fast and effective project progress. The same method is used in Shanghai and Austin, while all other great constructions are planned first for years and then executed strictly according to a plan without deviation. However, almost everything changes over the years, and by the time the factory is completed, it will already be outdated. The same flexible approach is also used by the Elon Musk company SpaceX, which explains the incredible and unprecedented speed of building and launching rockets that SpaceX has already achieved.

27 hardware and software changes per day on the Tesla Model S/ Model X

According to Joe Justice, a former Tesla executive and expert on the “Agile for Hardware” movement, the Model S’ hardware and software is changed 27 times a day, which equates to one innovation every three hours. In marked contrast to Tesla, other automakers introduce hardware changes by a fixed date such as April 1, 2018. July to e.g.B. better manage parts logistics and try to avoid frequent changes to optimize lead times, purchasing efficiency and costs.

The automaker closest to Tesla with hardware changes every 3 hours is Toyota with changes for Fast Track products every 2.5 years or about every 9.125 days to be carried out.

Assuming 2-shift production, Tesla is almost 14 when it comes to integrating new systems and parts.600 times faster than the fastest competitor. At VW, BMW and Daimler, hardware changes are made about every three to four years, at Ford, GM and Stellantis it even takes almost four years before the first hardware change. In addition, since the established car manufacturers like to do everything at once, many unexpected integration problems of parts and systems arise than if they integrate only one new part at a time. The decentralized optimization of parts and systems, which is common in conventional car manufacturers and in which costs are a priority, is at odds with integration and the speed of innovation, which have comparatively much greater leverage on costs and profits. Instead of considering the overall optimum and defining it as a guideline, a partial optimum is preferred. A division of labor shows its disadvantages in this example.

The Tesla principle: agility and speed-principlegofra /

Elon Musk has rightly said that “in the long run, it’s the pace of innovation that counts” that encompasses a new product and its parts and software integration, and even Herbert Diess, the CEO of the VW Group, understood the issue when he said: “The big question is: are we fast enough? If we keep our current pace it will be very difficult.”. Many who fail to understand why Tesla is valued at a market cap of $1 trillion, more than the entire auto industry combined, fail to understand that enterprise value is a reflection of rapid new product launches.

As long as the entire automotive industry released a new product every three to four years on average, containing parts and systems for vehicles that had hardly been modified, the consumer got used to it and considered it normal. However, as Tesla is now a global company, manufacturing and delivering on all three continents, frequent hardware and software changes are now considered normal by consumers, with all the benefits that come with it. If you cannot offer these advantages as a manufacturer, your products and your services are inferior to the customers. Also for this reason, the quasi non-existent software updates of German manufacturers are a big problem for their future prospects.

Other manufacturers can not act as fast as Tesla?

But if the rapid introduction of new products and parts makes the decisive difference, why do not make all the automakers as fast as Tesla today? The main reason why you can not get it faster and probably never get to the speed of Tesla is your organization. It’s not just about what processes can be carried out, but about that it does not need any processes and organize employees and teams themselves to solve problems and challenges.

It is not easy to change the organization of an established company, and if the changes required are fundamental, it is better to start a new company from scratch than to try to adapt an old one. The difference in Tesla‘s organization is so fundamental that not all conventional automakers will be able to adopt it, and that’s an unrecognized competitive advantage.

All products that come out of a company are an expression of the organization and interfaces of the company itself, and you need agile people to enable an agile company.

In a traditional car manufacturer, there are several central decision-making levels, departments and committees that determine, coordinate and organize which parts are included in the next NPI (New Product Introduction). These departments spend years on it because the process is lengthy and most of what was previously decided is already outdated by the time it is launched and needs to be revised. You literally run in an endless optimization circle and can’t find an exit.

At Tesla, there is only a small cross-functional but decentralized team that organizes itself and makes all decisions without authorization or central coordination, e.g. B. when changing the heat pump design. As a result, they do not have to wait for someone to tell them what to do and can make decisions very quickly and flexibly. These teams are called “full stack” because they have all the required expertise on the team and if they need additional expertise, they simply bring it on board through the right people.

No middle or even top manager has to make decisions for parts for which he does not have the expertise anyway. No one needs to be persuaded in lengthy meetings or compliance processes just to release the required budget. When feedback or approval for an NPI at Tesla is urgently needed, you are guaranteed a response from management within one hour. Preventing or restricting an employee from speaking to any manager in the house, up to and including Elon Musk, is grounds for being fired.

Daily test routines and checks as a guarantee of success

Tesla has a lot of teams that change every day. As an employee, you never quite know what the new day will bring, and you may end up drilling, screwing, or assembling alongside Elon Musk on the assembly line. Statements from workers on the assembly line are weighted more heavily than statements from top managers who did not work there. Every day, every third hour, decisions are made that have significant safety, cost, efficiency and profit implications without management even realizing it. At Tesla, responsibility, accountability, and decision-making are shifted back to where they belong, to the people and teams with the right knowledge and expertise.

All modifications must be tested to ensure they are safe for production and use of the product. Instead of reducing the frequency of testing like incumbent automakers do by cumulating all changes every 2 to 4 years, Tesla has instead reduced the cost of the changes. A model change at a conventional car manufacturer costs on average between 10 and 100 million dollars, which is why they try to avoid changes and accumulate them every 2 to 4 years. Tesla is going the opposite way and has automated the testing process, drastically reducing costs.

The Tesla principle: agility and speed-comes assembly line Tesla uniquegofra /

A good example of automated testing is the Dojo computer, which is essentially a training and testing environment for FSD algorithms. Each algorithm revised by Dojo is a software change and involves innovation. More innovation means more value creation and more value creation means more market capitalization. While analysts view market cap as the imputed result of a linear progression of margin, units and earnings, the “Tesla Principle” is that each innovation adds an exponential and multiplying growth factor to earnings and margin. Since innovation is enabled and implemented in a decentralized manner, not even Tesla‘s top management knows the future margins. The unleashed potential for margin and profit growth within Tesla is unlimited and continues to grow as the room for improvement is near infinite. Inventing an organization that can access areas of improvement not expected and known today is like an endless process of self-improvement and a constant generator of value.

Classic management is looking for in vain

In a traditional company, the management plays an important role in feedback, coordination, approval and decision-making, but in a company of Elon Musk, the management plays a subordinate role and works literally side by side with the regular workers on the front. Big and small innovations are decided in a MUSK company of small cross-functional teams that decide quickly and implement what is best for the well-being of the company. You do this because your main compensation is based on stock options and the value of the shares rises faster if you improve profit margin, profit, productivity and security features quickly and reliably. Part and system design and budget decisions are made by these small teams, while traditional companies require multi-year processes where departments and management coordinate complexity, costing time and money.

The rewards system for Tesla employees, which is determined by stock options rather than salary, has already earned many employees millions of dollars, but they still work on the assembly line every day toward a greater common goal. Motivation is a secret source of Tesla‘s continuous improvement process and the incredible pace of improvement. Because the company and its products are evolving so quickly, the main reason employees leave is that after a few years they prefer a quieter lifestyle, but what they have given Tesla through flexibility and improvement is worth more than that, what Tesla gave them back in millions of dollars in stock options. Bonus and penalty systems are a major limiting factor why traditional automotive companies will never be able to implement an agile organization.

Anyone who claims that departments such as procurement, purchasing, F&E or budget and investment cycles are essential, didn’t understand how real value creation works at Tesla. Companies driven by customers and their feedback thrive, while companies driven by management are average at best. When the company that performs best is powered by small cross-functional teams, and a successful company works best with customer feedback as a starting point, then that means employees need to have access to that customer feedback. Each member of the teams at Tesla described above has up to 25 apps on their smartphones that provide a wealth of information about what’s not going well with customers and how the situation could be improved.

The teams are not initiated centrally by management, but by decentralized employees who have a good idea and use the expertise of a self-organizing group to improve the product. Because they are self-organized, no manager needs to tell them what to do and when.

In traditional companies, entire departments and large numbers of managers are busy every day just planning and telling others what, how and when to do something. Elon Musk has eliminated much of the work and inefficiency by putting responsibility and accountability on those who deserve it – the employees.

What you need for this are the right employees, people who want to change and improve something independently. Many who graduate from college, college, or college with a passion for action have the drive, spirit, and hunger to make that change, and these are the kind of people Elon Musk’s companies want to hire. At the end of the day, a company’s organization is never brought to life by an organizational chart, but by the employees.

All of this is a revolution for traditional companies and the reason why the incumbent automakers and space industry manufacturers will not be able to match the speed and innovative power of Tesla and SpaceX. Everything I’ve described I call the “Tesla Principle” because it’s more than just agility – it’s a fundamental paradigm shift.

Disclaimer: This article was inspired by former Tesla executive Joe Justice and the interesting insights he provides in his highly recommended YouTube videos, as well as interviews and conversations I’ve had with Tesla employees.

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11 thoughts on “The Tesla principle: agility and speed”

  1. It is undisputed that the classic automotive companies with their very traditional management approach need to change something. It is also undisputed that this takes time, because these are existing companies with ongoing production and ongoing projects. They have something to do there and VW communicates its issues quite publicly, others like Toyota even refuse to see a problem at all and want to continue as before. At Toyota, this can be a real concern in the medium term.

    But now to Tesla: Considering that the processes are supposedly all so agile, the output is rather modest. Soso, changes to the heat pump design. Tesla has only had heat pumps since the 2021 model year. That was a commercial decision, for example in the e-Golf it has been an option since 2014. So for seven years you had less efficient temperature management than was necessary because Musk didn’t want to spend money on it. Nothing team, nothing NPI.

    In the same way, the prophet makes many fundamental decisions and they are usually fatal. The FSD mentioned in the article has been exactly the same. mobileye’s excellent software was used irresponsibly well above specification. Protests behavior unheard. According to the first hearings on the occasion of the inevitable fatal accidents, which only returned to Teslas inhumane-observed pensive policy, Mobereye has terminated the partnership and Tesla went back to the Stone Age. Stand Today the evening sun or a sign bridge with dynamic speedimiles is recognized as a traffic light. Or do we take the decision for the model X, commercial, constructive and in demand a GIGA flop. Or the idiotic cyber truck. Or the refusal to CarPlay and HUD. There’s no team. For other technical changes you are already at risk of disruption, because you have z.B. so much invested in a 400V net that it falls hard to change to 800V. Also, you will also solder HR 8256 tiny round cells to a battery together, while the EQS gets significantly more capacity from only 216 cells. And cell-to-pack is just around the corner.

    It may be that Musk used to be beaten up regularly at school and was damaged as a result. He writes that himself. But it doesn’t help working at Tesla when he greets an employee: “Hey, I thought I fired you yesterday?”. The three-digit million fine for racism and the fact that Tesla is not invited to the president when it comes to automotive issues shows that the management of employees is so devastating, even by US comparison, that it is seen and sanctioned. While rapid changes in senior management are not uncommon in the US, they are taking it to a new level at Tesla. The potential that lies in the employees if they are treated with respect has ergo been raised to 0% by Tesla so far. And understands the topic just as little as Toyota does at the top of this article.

  2. The term “agility” in product development usually makes the hair on the back of my neck stand up. Very few companies that claim to develop physical products in an agile way. Software is easy to develop agilely. If Tesla is really that agile as described, then I take off my hat. Converting productions from common project methods to agile is almost impossible. Internalizing this completely different approach to production usually fails. However, if you can do it, you have a great advantage with agility. Tesla focused on agility right from the start and is now benefiting from it. I take my hat off to Tesla and don’t envy the competition for wanting to catch up on anything. But competition is known to stimulate business. And Tesla is clearly still setting the pace.

  3. Aha, and what exactly is new there…at the other OEMs, changes are constantly being incorporated into production.
    It’s quite normal, only at Tesla they act as if they had reinvented the wheel.
    Therefore, when repairing, the workshop always asks in which week the vehicle was produced…since the parts could have changed.
    If a part has been improved, then it’s produced with it…it’s quite normal and nobody makes such a fuss about it.

  4. The article contains some statements that are extremely questionable, which is a shame, because the topic certainly deserves serious consideration without glorification. Some examples:
    “Since innovation is enabled and implemented in a decentralized manner, not even Tesla‘s top management knows the future margins.” What? No manufacturer knows the future margins because they will be generated in the future.
    “The unleashed potential for margin and profit growth within Tesla is unlimited and continues to grow…”. The potential for margin and profit growth is unlimited? Geez. Since the author seems to be the ability to expect loud enthusiasm.
    Etc. …

  5. FUD David / Davi (you already need 2 accounts to get the necessary likes for your FUD 😉 )
    You really seem to believe every crap that is published somewhere)
    When it came to the topic of source criticism in politics class, you probably skipped it and preferred to try it out at the Porsche dealer.
    I will not say any more about it
    Should everyone watch the video and form their own opinion 😉

  6. Those who enjoy marching in lockstep got their brains by mistake, said Albert Einstein, with the side note, those who remain silent don’t always agree, they just sometimes don’t feel like arguing with idiots.
    For Berlin, I say that Grunheide will blow a new wind through the country, which has its origins in the Berlin start-up scene.
    If our start-ups make themselves aware of, with which shitstorm they have to calculate in the event of a tangible success, no one would do the work and continue to build the world in boredom and pollution.
    Luckily there are many who deal with the future and innovations, and do not belong to the die-hards and the new self-proclaimed society of lateral thinkers.
    We simply need more free spirit to implement innovations and climate protection.

  7. Wasted time reading the article. Boringly written, no gain in knowledge. Praise Tesla in style: Tesla is the best because it is the best, and it keeps doing it. It would be interesting to know why the Las Vegas Loop needs so many drivers when you are constantly on the verge of autonomous driving. There are only Teslas in one-way streets with no oncoming traffic.

  8. Almost every vehicle that comes off the assembly line at Tesla is unique because changes are made every day that make the car unique. If you own a Tesla, there’s a good chance it’s unique. That’s probably nonsense.

  9. Is the art or the way?

    What is that please for a text?

    Is the early beta phase of a Tesla marketing ki, which should absolutely mischievous lobes hymns?

    So much hair-raising, fascinated, unfunded, facts that can be read in place is amusing.

    But should be a writer behind it, who says all this seriously and finds good …Then I’m almost a little sorry.

  10. According to Auto Motor and Sport, Tesla also occupied this year in the US quality ranking “Consumer Reports” again only the penultimate place due to poor product quality (https: // http://www.Car engine and sport.DE / Traffic / Consumer Report USA-2021-Electric Car Study-Tesla-Audi-Porsche /).At least the Feedback of the Customers in the United States is therefore in stark contrast to the praise of the Tesla production incl. Quality assurance, both by Elon Musk itself as well as the author of the artic.

  11. Geez….. when I read this article, I see an American reverent in my mind
    rambling on in some preacher circus tent. very American – very unlikeable


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