Munro “Blown Away” By Elon Musk + Semiconductors, FCC Denies Tesla, Porsche Spinoff?

Hey everybody, Rob Maurer here, and today we're talking about some new comments from Sandy Munro about his time with Elon Musk recently. Turns out they spent a little bit more time together than just that 45 minute interview that we saw. We've also got a pretty lengthy article on the semiconductor situation from Reuters, and some news from Volkswagen. Tesla stock today looks like it'll be a pretty quiet day, I am recording before market close, but no major movements so far. Alright, so a couple weeks back we talked about the takeaways from Sandy Munro's interview of Elon Musk. When recapping that trip recently on Munro Live, Sandy Munro did share a little bit more detail about that trip and his conversations with Musk. He said they were able to take a two hour tour of the SpaceX facilities, do the interview, and then after that, Musk invited them to stay for a design review, which was an additional couple of hours. Here's the key quote from Munro about that design review, he said, quote, I was blown away. I've seen dozens of CEOs. I've never seen a CEO, ever, or a president, that knew more about the product, that knew the details of the product, that could bring an idea and discuss it, not in just grandiose hand-waving terms, but hey, let's use this formula, and rattle off a formula, or rattle off a material, or rattle off a process, that is kind of obscure, unless you're a detail engineer. I was blown away by that. That kind of stuff, you don't see executives know much about, end quote. My next point about this was going to be that it reminded me back to the Tesla Q days, where those betting against Tesla would try to claim that Musk is not an engineer, he doesn't know what he's talking about, if you actually work in that space, so I was going to go back a couple years and look for those quotes, but turned out I only had to go back 16 hours on the first Twitter search that I did to find a comment saying that Musk is not an engineer. Well, here we have an engineer that has worked in the space, both in automotive and aerospace, and Sandy Munro, who is saying that he's blown away by Musk's aptitude for engineering. As we've talked about many times before, this is huge, and this was in the context of SpaceX, but huge for both SpaceX and Tesla, because the CEO that has that sort of in-depth knowledge has a much better understanding of how to structure the organization to come to the best aggregate product decisions, rather than having to rely on individual leaders across individual different business silos to make those decisions for their own business units. So not that anybody really cares anymore what that Tesla Q group is saying, but it did just remind me of that, and apparently that train of thought still persists in some circles. One other important note here from Munro was his comparison between NASA projects and SpaceX projects. He said, quote, a launch vehicle was two years in the making for NASA. They're shooting for one every three days, end quote. The latter part of that about SpaceX, of course. I don't think Munro intended that to be a shot at NASA by any means, I think it really just is a strong comparison to highlight how differently SpaceX operates. A lot of that comes down to a willingness to fail, learn from that failure, and then rapidly iterate. I think risk aversion holds people back in a lot of ways, holds businesses back in a lot of ways, and the more mired down in bureaucracy an organization is, the more those different perspectives on risk aversion tend to creep in. Thinking about organizational structure again, I think every vertical level that you have could be seen as sort of a risk funnel or a risk filter, where you have all these different layers of people not wanting to let their manager down by failing, which sort of acts as a forcing function towards a more conservative, safer action plan versus a more aggressive, riskier action plan. I mean, in my career prior to this, I saw this all the time. For example, just because we were talking about inventory yesterday, at times in my career I was responsible for managing inventory, and we would get in way more trouble if we didn't have enough inventory versus having too much inventory. There would literally be these automatically generated reports that would flag you if you were too low on inventory, and then you would get called into a director's office and have to explain it. Well, when we think about why that might be, that manager is obviously having to explain why we have low inventory in some certain area to their manager, who probably doesn't want to be flagged on any reports to their manager. Now, of course, over time, the company realized that having too much inventory is also a problem because that leads to eventually having to mark down that inventory, put it on clearance, and then that hurts your profitability. A couple points here being that the more layers of managers you have, the more difficult it is to have that communication from bottom to top, the more prone to conservatism the organization will be. So I think having a CEO with a more holistic base of knowledge allows for a flatter organization that helps with risk tolerance, and then obviously the CEO's own appetite for risk plays a huge role there as well. I think a big part of that risk tolerance is time horizon, so someone like Elon Musk that is thinking in decades-long terms, that risk tolerance is going to be much higher than a CEO who is thinking more about their CEO compensation plan, which is often structured over a period of something like three years. It also doesn't hurt that Musk owns a fourth of the company, he's got a lot of control there, he doesn't really have to worry about being replaced. Alright, so I've said my piece there, let's move on to the Semiconductor article. This is from Reuters today and I think offers a good follow-up to our conversation last week on the subject, and I think can shed a little bit of light on how Tesla may or may not be impacted. So the article basically talks about how automakers have been deprioritized for things like consumer electronics, kind of like we talked about last week, as early last year automakers cut their orders and kind of left their suppliers hanging in that balance. Reuters writes about this saying, quote, In Germany, Volkswagen has pointed the finger at suppliers, saying it gave them timely warning last April, when much global car production was idle due to the coronavirus pandemic, that it expected demand to recover strongly in the second half of the year. That complaint by the world's number two volume car maker cuts little ice with chipmakers who say the auto industry is both quick to cancel orders in a slump and to demand investment in new production in a recovery, end quote. Remember, last year during that situation, Tesla did have to shut down, but Elon Musk was fighting tooth and nail to open as soon as possible, and Tesla's quarterly results showed at that time that they were least impacted from a demand perspective as Tesla was selling every single car that they could produce. So I think this again supports the idea that Tesla is less likely to be impacted by this, because Tesla fighting extremely hard to get production back up and running, not having a demand constraint, and extremely importantly here as well, being one of the only automakers to actually be growing production, Tesla was likely to be much more concerned with keeping supply coming in, especially as suppliers were facing similar production shutdowns, than they would have been with trying to cut orders from their suppliers. Continuing on, Reuters writes, quote, Closer to home, a source at another European chipmaker expressed disbelief at the poor understanding at one carmaker of how it operates. Quote, we got a call from one automaker that was desperate for supply. They said, why don't you run a night shift to increase production, this person said. What they didn't understand is that we have been running a night shift since the beginning. End quote. Now, maybe my opinion on this next part will sound a little bit biased, but I think Tesla probably works a little bit more closely with their suppliers because Tesla needs to manage for that growth. They can't just go out and say, hey, supplier, do the same thing you did last year and we'll be good. And then they get caught if circumstances change. Tesla has to have a deeper understanding of how their suppliers are operating because they need to manage those big year over year changes. Anyway, none of this is to say that Tesla won't have issues here. It's just trying to assess the likelihood of issues occurring. And even if there are issues, it doesn't seem to be all that significant. So even though we're hearing a lot about it, IHS market is now forecasting about 1 million vehicles at risk in the first quarter. That's up from last week when they were estimating no fewer than 670,000 at risk. So about 20 million vehicles per quarter across the total auto industry. A million of that is only 5%. The other possible good sign here for Tesla is the price cuts that we saw on the standard range vehicles that we talked about yesterday. Perhaps that enabling a greater number of vehicles produced. If that is part of the reason, then it wouldn't appear that Tesla would be having issues here. Next up we have a product update. This is not great news for Tesla. Remember a while back Tesla had filed with the FCC, Federal Communications Commission, for the use of millimeter wave radar technology in the cabin of the vehicles. Green the Only on Twitter has spotted the FCC's reply here. They say, quote, the current FCC position is as stated in the RNO in that mobile radar applications are not permitted under section 15.255 except for the very narrow exception defined therein, i.e. to support very short range hand gesticulation interactions with a personal device and that in-cabin sensing applications do not fall within the scope of what is permissible, end quote. So we don't know exactly what Tesla had in mind with that, but it is definitely disappointing to see the rejection here. It does look like Tesla could refile for equipment authorization again with the FCC, but I'm not sure why they would change their stance. Disappointing there, but we'll keep an eye out for any further updates on that situation. All right, lastly here, Bloomberg reported yesterday that Volkswagen is considering an initial public offering or spinoff of the Porsche brand. Bloomberg reports that Volkswagen has had conversations with advisors about such a scenario. According to their sources, no timetable has been decided, but a listing could happen next year. So this will be interesting to keep an eye on as automakers try to seek the most market recognition for the value they believe they have, and of course this would follow the announcement from Mercedes-Benz and Daimler that they intend to split up Mercedes-Benz and Daimler trucks later this year. So that will do it for today, as always, thank you for listening, make sure you're subscribed and signed up for notifications, you can also find me on Twitter at TeslaPodcast, and I'll see you next week for the Monday, February 22nd episode of Tesla Daily. Thank you.