Elon Musk Interviewed by Sandy Munro, New Tesla Semi Photos, Tesla EU Battery Funding

Hey everybody, Rob Mauer here, and today we have a new Elon Musk interview to discuss, this time with Sandy Munro, so some pretty interesting details there. We also have a new sighting of a Tesla Semi, what appears to be a new iteration. Then we have some news on batteries, and a couple other stories as well. Quickly looking at the stock, Tesla did dip a little bit in premarket today as news went out about Tesla officially going forward with the recall for the MCU1 on Model S and X vehicles through early 2018. We've talked plenty about this over the last couple of weeks, so I don't think we need to go into too much more detail here, but I did notice in the communication here, Tesla wrote quote, If you already paid for repairs that address the condition covered by this recall, you may be eligible for reimbursement. Tesla will share details about reimbursement and eligibility by the end of March 2021. End quote. I know some people had expressed concerns about that, so nice to see Tesla address that here. And as for the markets part, I think once the people or algorithms figured out that this recall was what has been in the news for the last couple of weeks, Tesla recovered very quickly early this morning. Alright, so let's get into the takeaways from Sandy Munro's interview of Elon Musk. I'll put a link to this in the show notes if you haven't watched it. It's only 48 minutes, I would definitely recommend it. With this being Sandy Munro, obviously this is a little bit more engineering focused, and they do go into more detail than what we would normally see in a Musk interview. And of course, Sandy Munro had to ask about panel gaps, that was kind of where they started. He was asking how can he have a 2021 Model 3 that has significant panel gaps, and then come across one on his road trip that was essentially flawless. He said that it's as good as anyone could possibly do. So Munro was asking, why the variance? On quality in general, Musk said that, quote, took us a while to kind of iron out the production process, especially during a production ramp, end quote. Adding that when friends ask him when is the right time to buy a Tesla, he's very honest and says, quote, either buy it right at the beginning, or when the production reaches steady state, end quote. As for the variance between these particular Model 3s, Musk said that they did make a lot of progress on paint quality and panel gaps late last year, even in the course of December. And as for the variance between individual vehicles, it's just a matter of getting processes fixed as Tesla ramps up production. So he gave an example of paint, noting that by ramping up the pace of production, that could sometimes cause cars to have a minute or two minutes less to dry, which was causing problems then with the paint that they did not discover until reaching that point in the production ramp. Of course, that is just one example, but that does demonstrate the kind of issues that additional speed can present. And Musk did acknowledge, as he has in the past, that Monroe's criticisms have been fair. This then led them into a discussion on the seats in the Model 3, which Tesla does in-house. Monroe said the seats are phenomenal, quote, best seat on the planet, there's nothing better than that, end quote. Elon said they've been through quite a few iterations already even on the Model 3 seats since 2017, noting that they've come an extremely long way from the early Model S, which Elon noted had, quote, the worst seat of any car I've ever sat in, end quote. After seats, they went into a discussion on casting. Monroe was expressing disappointment that they did not see a single rear-piece cast underbody for the 2021 Model 3. Elon did say that at some point they'll probably convert over to a single-piece casting for the Model 3, but, quote, it's hard to change the wheels on the bus when it's going 80 miles per hour down the highway, end quote, and that they should probably get the Texas factory and the Berlin factory going first, because, quote, we need an opportunity to kind of redo the factory without blowing up the cash flow of the company, end quote. Like we talked about yesterday with Giga Shanghai, once those factories are up and running and producing that cash flow, Tesla will be less reliant on the production and sales from Fremont. They'll have an opportunity to take an extended downtime there to convert over some things that they might like to do. Now, any shutdown there would still have to pay off in the long term, even looking at that isolated factory, so that's why Elon Musk is saying probably here, is my guess. I'm sure they'll just evaluate that when the time comes. The conversation on casting led into structural batteries because the long-term vision is for a single-piece rear casting, a single-piece front casting, connected at the center with the structural battery, and Elon Musk talked about some of the benefits of that, from vehicle rigidity to using the batteries for shear transfer, which is the force parallel to the cross-section of the battery, which reduces the other materials required as a part of the structure. Elon described that by saying that basically the batteries in electric vehicles today are carried like a sack of potatoes, which effectively has negative structural value. So a lot of the stuff that they talked about at Battery Day, but just a little bit more detail given here. Maybe the one piece of news to come out of this interview is that Elon did say that the refreshed Model S and Model X will use a lithium-ion 12-volt battery, rather than a lead-acid battery, which traditionally most vehicles use. Elon noted the advantage there is that there's more capacity, and the calendar and cycle life match that of the main battery pack in the vehicle. That powers things like the power electronics, windows, lights. So good news there, but not as good of news as a 48-volt system would be, which would allow for thinner, lighter wiring, which is something that Tesla has talked about wanting to move to in the past, and Elon did reiterate that still is a long-term target. As for other topics that did talk a little bit about autonomy and full self-driving, Sandy Munro had his first experience with full self-driving beta on this trip. He was extremely impressed with it, he's urging Tesla to get that out to as many people as possible. Elon said, yeah, they're just taking it slow because there's sort of this middle ground where people can be comfortable, but the system can't handle corner cases well enough, which can of course lead to a false sense of security or complacency when monitoring. Sandy also asked how many lines of code Tesla is using in the full self-driving software. Elon pointed out that that's not necessarily the critical factor when operating neural networks, saying that he considers lines of code to be bad, not good, and that they've never really counted, but somewhere around a few hundred thousand lines of code or something, which I think brings up again the stark contrast that we see between Tesla and some other software efforts from companies like Volkswagen. Last year, for example, Volkswagen made a pretty big deal about hiring 10,000 different software engineers and talking about how there are already a hundred millions of lines of code in the ID.3, and that Volkswagen expects that to triple in the next few years. Now that's not apples to apples, Elon's answer here was on the full self-driving software, not the total Tesla vehicle, but definitely a significant difference in how the two companies are talking about the subject. Last couple of notes from the interview, I think this one is the most important. Elon, when talking about vehicle quality and some of the engineering and design decisions that have been made in the past, he said, quote, Organizational structure errors, they manifest themselves in the product. End quote. We've actually heard Elon talk about this before, we've talked about this on the podcast back when he had an interview with Tim Dodd over at Everyday Astronaut, that was of course about SpaceX, but we talked at the time about how that also applied to Tesla. I think this is a huge difference between Tesla and other companies, Elon here is talking about how that caused negative impacts at Tesla, but the organizational structure of Tesla should be far superior to other automakers that did not start off as electric vehicle manufacturers. Elon Musk's knowledge of engineering, which by the way was well displayed during this interview, provides Tesla with a huge advantage there as well, because how do you determine the best organizational structure if you don't have the knowledge at the top to understand when some of those engineering decisions are suboptimal from a higher level? Throughout that portion of the conversation too, it was clear just how much room left there is for innovation still, whether that be with a 48 volt power electronic system, whether it's because of casting, Elon noted that that reduced the number of robots on the line by about 300, bringing the total down to about 1000, and that when they start doing the front casting, that should eliminate another 300 robots, and this is before we even get into talking about anything related to battery manufacturing, so clearly a ton of opportunity remaining, and I think Tesla is well structured and well positioned to capture that opportunity. Alright, moving on from the Musk interview, we have an update here on the Tesla Semi, this was shared on Twitter by the Kilowatts. Last evening they spotted a white Tesla Semi on a flatbed trailer, a color that we have not yet seen on the Tesla Semi, and it appears to be a slightly different design, it looks like the window wraps around a little bit further, and the windows may be segmented a little bit differently than what we have seen on the Semi in the past, so to me it is looking like this is probably a new iteration of the Semi. Really great to see some hopeful signs of progress there, as a reminder in Tesla's Q4 earnings report, they did say that they expect to deliver their first Semi by the end of the year. Even if that does come to fruition, I wouldn't expect any big volume from the Semi this year, I expect Tesla to ramp the Semi particularly slowly, as they work with customers to validate use cases, cost of ownership, and build out routes with megachargers on them. Next up here we have some news on batteries, we'll start off with Europe, this has kind of been developing for the last couple of weeks, but the European Union has approved 2.9 billion euros in funding for what they're calling the European Battery Innovation Project, to support battery development and production from more than 40 different companies, one of which being Tesla. So since that's been approved, Business Insider now yesterday is reporting that Tesla is in line to get more than 1 billion euros of that funding, or about 1.2 billion dollars. That Business Insider article is paywalled, but per Reuters, quote, Business Insider quoted German government sources as saying Tesla would get subsidies of more than 1 billion euros from the federal government and the regional state of Brandenburg, where the Tesla factory is being built, end quote. So the exact funding details are still just rumors at this point, and apparently will take several more weeks to be finalized, but it looks like Tesla may be in line for a significant subsidy here from the EU. This kind of surprises me, because when I first saw that news about the 2.9 billion euros in subsidies, I figured that would act as a form of protectionism, to try to help European OEMs catch up with Tesla, despite the fact that Tesla is obviously significantly investing in Europe as well. So this rumor, and particularly the amount of the funding that Tesla may be in line for, is definitely surprising to me. Certainly something we'll keep a close eye on going forward. The other news on batteries is from Panasonic, they have said today that they expect that this year, their business with Tesla will be profitable, and as I believe has been previously reported, they are continuing to plan to add a new production line at Giga Nevada, and they also plan to start test production of 4680 battery cells this year, which again, I also believe has been previously reported. Next today, Tesla has officially started taking orders for vehicles in Israel, adding the design studio and unveiling pricing, which seems to have come in quite a bit lower than what was expected. The Model 3 Standard Range Plus will start at just under 170,000 Israeli new shekels, which is equivalent to about 51 and a half thousand US dollars, but after value added tax and other taxes, it actually comes to about 205,000 shekels, so about 62,000 dollars, but that still seems to compare favorably to the lowest end BMW 3 series available in Israel, which looks to start at around 260,000 shekels after value added tax. That's about 79,000 US dollars. So Tesla should do relatively well in Israel, obviously it's still a pretty small market, it looks like the vehicle market is about 250,000 vehicles per year, and Hyundai and Toyota seem to be the market leaders at about 35,000 to 40,000 vehicles per year, where BMW, Audi, Volkswagen, and some others come in around 3,000 to 4,000 per year. I'd expect Tesla to end up somewhere in between. Next today, I just wanted to quickly share my thoughts on a rumor that's been going around. This is originating from OFWeek, apparently a Chinese online media source, published also by Qiosan.com, saying that Tesla is discussing a plan to buy a 20% stake in Chinese automaker BYD. I think this is extremely unlikely for quite a few reasons. First of all, that 20% stake, they say that would be about $36 billion, 10% in cash, 10% in Tesla stock. If that's the case, that would be $18 billion. Tesla's got $19.4 billion at the end of Q4 on their balance sheet. I just don't see any way that Tesla would drop 90 plus percent of its cash on a single acquisition. Plus the fact Tesla has to maintain a certain amount just for working capital, and just to have a cushion in case they need it. So the only way Tesla would be doing that is if they were to raise more cash. But generally, if that's the plan, you want to raise cash before you need it. So that doesn't make much sense, plus the fact that BYD, while they have had success with battery electric vehicles in China, they also make gas-powered vehicles and plug-in hybrids, and I can't see Tesla wanting to have any ownership stake in any of that business. So because I saw that rumor going around a little bit, I wanted to share my thoughts on it, but I don't think it's material. All right, last few things for today. A couple of reports here from Teslarati first on the Model Y. They're saying that some customers are being informed by Tesla that Tesla is no longer planning to produce the single-motor rear-wheel drive Model Y, and is instead asking customers to choose between the standard range or the long-range all-wheel drive versions. So this continues the pretty swift shift that we've seen in strategy there. A few months back, Musk had tweeted that they were not going to be producing the standard range Model Y, and instead opting for that long-range single-motor, and now that has completely flipped. So I'm sure many customers frustrated by that decision, but if there is a market for that shorter range Model Y and Tesla is battery-constrained, then it does seem like the best use of their resources to offer that standard range vehicle. The other report here from Teslarati is on Tesla Insurance. So I think last call was one of the few that we didn't have Tesla Insurance brought up, but it looks like Tesla may be on the verge of expanding that beyond just California into Texas. According to documents submitted to the Texas Department of Insurance, it looks like Tesla will be partnering with Red Point County Mutual Insurance, end quote, the program will be distributed through the digital insurtech platform from Tesla Insurance Services of Texas Inc., Tesla, formerly called Samson General Agency, Inc., end quote. So the insurance business is always a little bit strangely structured, we'll have to wait for more details here, but it would be great to see Tesla Insurance take that next step. Alright, last couple of things for today. Not directly Tesla-related, but SpaceX today did carry out their high-altitude test flight of Starship Serial Number 9, and overall looked like a pretty successful test, although again they were unable to complete the landing successfully. It looked like during that landing sequence, one of the Raptor engines failed to reignite, leading to that RUD, or Rapid Unscheduled Disassembly. And last quick note for today just in case you didn't see it, Jeff Bezos has announced he will be stepping down as CEO of Amazon. Amazon Web Services CEO Andy Jassy will step up into that role, and Bezos will be staying involved with the company, transitioning over to Executive Chairman. He says, quote, As Executive Chair, I will stay engaged in important Amazon initiatives, but also have the time and energy I need to focus on the Day One Fund, the Bezos Earth Fund, Blue Origin, the Washington Post, and my other passions. I've never had more energy, and this isn't about retiring, I'm super passionate about the impact I think these organizations can have. End quote. Alright, with that we'll wrap it up 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 tomorrow for the Wednesday, February 3rd episode of Tesla Daily. Thank you.