To truly conquer the market, one crucial factor must be addressed: affordability. While the Tesla Model 3 has soared as a global bestseller, its price still falls short of reaching the masses. But fear not, for Elon Musk has unleashed Tesla’s next-generation platform, a game-changing innovation that will pave the way for a cutting-edge electric vehicle to penetrate the true automotive space.
Tesla’s strategic plan involves implementing a range of interdependent measures to achieve a remarkable 50% reduction in costs compared to Model 3. This significant cost reduction has the potential to tap into an extensive customer base that was previously inaccessible. As the price of Tesla’s offering falls below the current Model 3 range, the potential market size expands exponentially, demonstrating the ingenuity of Elon Musk’s vision.
Today, let’s witness the dawn of a transformative chapter in the automotive landscape, with Elon Musk and Tesla at the forefront, propelling us toward a future where sustainable transportation is within everyone’s reach.
Elon Musk’s trilogy of Tesla Master Plans has always been an open secret, outlining a roadmap for the next decade and beyond and aiming to garner support from employees, investors, and the general public. Even competitors have the opportunity to recognize Tesla’s trajectory if they choose to do so. However, during Tesla’s recent Investor Day, where Musk revealed part three of his master plan, many seemed to misunderstand or grow weary of the company’s ambitions and vision for a fully sustainable future on a global scale. It’s akin to feeling indifferent during a detailed explanation of a cure for a life-threatening disease.
Tesla faces the enormous challenge of transitioning industries that heavily rely on fossil fuels to renewable and electric alternatives, which presents an incredible opportunity. Transportation lies at the heart of this endeavor, and Tesla has dedicated significant efforts to this sector since its inception. According to Tesla, replacing the entire global vehicle fleet with electric cars would result in a remarkable 21% reduction in fossil fuel consumption worldwide. Tesla has already established a lineup of vehicles to tackle a substantial portion of this mission. However, the critical missing element is a widely affordable car, which will ultimately constitute the majority of the company’s vehicle sales.
Transformation in vehicle cost
In January, Elon Musk hinted that Tesla had already commenced work on a platform to achieve this goal, emphasizing that vehicles utilizing this platform would be manufactured at a higher volume than all other Tesla vehicles combined. However, to realize the production of a low-cost car, Tesla must undergo a significant transformation in terms of vehicle cost, necessitating a complete reevaluation of manufacturing processes. It is important to note that Elon Musk is not undertaking this endeavor alone. By keeping the master plan an open secret, Musk aims to gain widespread support from all stakeholders involved.
It appears that Elon Musk has set forth a directive to challenge every individual and team within Tesla to reimagine the car manufacturing process and reduce costs by 50%. To address this challenge, Tesla’s CEO has issued a similar mandate, guiding and directing the company in alignment with the next phase of his plan. Tesla’s response involves establishing a unified foundation where design, engineering, manufacturing, and automation converge under one roof. For the first time, all teams responsible for these processes are situated together, fostering communication and collaboration to advance the development of the next vehicle platform. It’s important to emphasize that this level of integration at such an early stage of Tesla’s development is unprecedented.
Traditionally, different teams within a company are often divided by separate managers or other organizational barriers, but in this case, all these teams report to a single person. This unique structure, combined with Tesla’s extensive experience and infrastructure, has enabled the company to redefine the manufacturing process for vehicles.
One of Tesla’s initial steps involves a comprehensive plan to design and produce 100% of the hardware controllers for its next generation of vehicles. These controllers encompass various components such as the age controller, infotainment system, charging mechanisms, tire pressure monitors, and more.
By taking control of the supply chain at the component level, Tesla gains greater oversight and influence. While Tesla will still rely on suppliers for materials and parts necessary for building and assembling these controllers, internalizing their production will not only enhance their quality but also reduce lead times for component delivery. In the case of the Model Y, 61% of its controllers were built in-house, and Tesla aims to increase this figure to 85% for the Cybertruck. Ultimately, the next-generation vehicle will see all controllers produced internally, reaching 100% self-sufficiency. This strategic move also brings additional benefits, such as having granular control over the software of each component, enabling seamless communication between them.
Tesla provides the example of sentry mode, which may require precise information from various vehicle sensors, cameras, and more, all of which need to work together to trigger an alarm or send alerts. By internalizing controller production, Tesla avoids potential limitations in accessing certain data from outsourced components that could further enhance the accuracy of the sentry mode.
By bringing all processes in-house, Tesla gains the ability to swiftly introduce new features or access valuable data without undergoing lengthy cross-company procedures that could take months or even years or potentially never materialize. Another advantage of internalizing controller production involves Tesla’s ambitious endeavor to transition its low-voltage system from a 12-volt to a 48-volt architecture. This transition requires ensuring compatibility across all components, necessitating a simultaneous and coordinated effort. Traditional car manufacturers struggle with this task due to their reliance on numerous suppliers, making it nearly impossible to synchronize the development of all components. However, Tesla, through its vertical integration, can undertake this transition holistically.
Adopting a 48-volt architecture has several benefits. It reduces power losses by 16 times, significantly enhancing vehicle efficiency and increasing range. Furthermore, it enables the use of thinner wires and reduces material consumption, particularly copper wires, which can be costly. Tesla is also implementing local Ethernet-connected controllers to simplify the wiring harness. This approach allows for a reduction in the number of wires and connectors within the vehicle, streamlining the wire harness insulation process. Such changes not only make repairs and maintenance easier in the long run but also facilitate the potential reduction or elimination of cross-car wires. This revolutionizes the internal composition of the vehicle.
Regarding the vehicle chassis, Tesla previously filed a patent for casting the entire body and frame of a vehicle in one go using large-scale Giga Presses. The company has consistently increased the size of these Giga Presses, from a 6,000-ton press for Model Y castings to a 9,000-ton press for the Cybertruck underbody. It seems plausible that for a compact car like Tesla’s next-generation affordable vehicle, a sufficiently large Giga Press could cast the entire vehicle body as a single unit. This approach would expedite the production process and reduce the amount of material and welding required for assembly.
Parallel Assembly Process
Tesla did not mention the use of a large, full-car Giga Press. Instead, they introduced a parallel assembly process where the vehicle is divided into five main sections that can be built simultaneously and then joined together in the final step. This approach includes separate front and rear giga castings at different stations of the assembly process. It appears that creating a full vehicle casting would hinder progress, as Tesla workers would be obstructed by the large metal frame while inserting components, which goes against their goal of efficiency.
One of the purposes of implementing parallel assembly with five stations is to increase the number of operators or operator density at each station, accelerating the completion of vehicle sections for final assembly. Tesla also showcased rows of stamped vehicle side panels, indicating that they won’t be Giga Pressed. The use of a Giga Press for the compact and affordable Tesla seems limited to the front and rear castings. However, it is worth noting that Tesla could ensure the battery pack sits between the front and rear castings, entering through the vehicle’s floor. This arrangement would be impractical if the entire rigid frame, including the battery pack, was already pre-molded in a Giga Press, suggesting that a full-car Giga Press may not be utilized.
By transitioning to a parallel assembly process, Tesla aims to reduce its manufacturing footprint by 40% and decrease wasted time by 30%. During the Investor Day presentation, Tesla revealed that the vehicle used to be partially assembled, then disassembled for painting, and finally reassembled. This process was necessary to achieve consistent paint quality throughout the entire vehicle. However, it also resulted in the unnecessary painting of internal components like the giga casting, leading to material waste. To save time and money, Tesla now paints the vehicle once at one of the five core parallel stations, focusing only on the parts that require painting.
Tesla also announced the presence of a Robotaxi variant for the low-cost model during Investor Day. Considering Tesla’s plans to sell millions, potentially tens of millions, of units per year, this affordable model may have different key variants. If there is a stainless steel model that does not require painting, Tesla’s modular manufacturing process seems adaptable to accommodate different body types.
Elon Musk’s vision for the Robotaxi variant of Tesla’s next-generation car potentially excludes the need for a steering wheel, adding to the flexibility offered by the parallel manufacturing process. If Tesla can successfully achieve a significant cost reduction of 50% compared to the Model 3 by implementing various changes in wiring, controllers, voltages, and parallel assembly, they seem to be on track to deliver the $25,000 car initially announced by Musk at Tesla’s 2020 Battery Day event. Production of this vehicle is expected to commence at Tesla’s upcoming Gigafactory in Mexico, with car manufacturing projected to start in 2024, barring any major obstacles.
By producing the batteries for these vehicles in the United States, specifically at the Texas Gigafactory, Tesla can benefit from battery production tax credits of up to $45 per kilowatt hour for the battery cells and packs. Moreover, from a consumer perspective, the Mexico Gigafactory appears to be compliant with the IRS rules, making the vehicle eligible for a $7,500 tax credit if it is assembled in North America, including Canada or Mexico. This tax credit would lower the price of a $25,000 car to $17,500, making it highly affordable and competitive with some of the least expensive internal combustion engine vehicles available. This affordability would allow Tesla to tap into all segments of the automotive market.
Additionally, Tesla can leverage the lower labor costs in Mexico while still reaping the benefits of tax credits. This aspect further contributes to keeping costs low for Tesla’s next-generation compact car.