"A first principles physics analysis of automotive production suggests that somewhere between a 5 to 10 fold improvement is achievable by version 3 on a roughly 2 year iteration cycle. The first Model 3 factory machine should be thought of as version 0.5, with version 1.0 probably in 2018."
What that really means: Tesla is going to lose a ton of money per car on the Model 3, or raise the price, until at least 2022. That's realistic. His two top production guys quit when he announced 2018 as the delivery date for the Model 3. His new production head, from Audi, may have given Musk a reality check.
Tesla produced about 50,000 cars in 2015 with 13,000 employees, about 4 cars per employee. Ford produced 3.2 million cars in 2015 with 187,000 employees, about 17 cars per employee. Toyota produced about 9 million cars with 344,000 employees, about 26 cars per employee. So Tesla needs to get their productivity per employee up by 4x - 7x to play with the big guys. Clearly Musk has done the same calculation.
Now, though, he's admitting that they can't do it by 2018. This is prepping the stockholders for bad financial news. Tesla is going to burn a lot of cash through at least 2022.
There's no reason that Tesla can't get their productivity up to at least Ford levels in time. Ford has a much broader product line, and Tesla's car isn't that complicated mechanically. But it's not instant.
Ford can have fewer employees per car because they're at full scale, they've outsourced nearly all their engineering and have outsourced their sales as well via an antiquated dealer model.
This, citing employee numbers is somewhat meaningless without any data on the number of non-employees working in your supply chain. Could indeed very well be a case of outsourcing differences rather than a difference in productivity.
No industry counts the number of employees within a supply chain. It might be impossible and it's half the point in having separate SC entities...it's irrelevant to a car manufacturer how many miners various aluminium companies feel they need to hire, say.
Yeah, possibly. It depends on the industry. Like you couldn't directly compare Intel to ARM because their strategic groups are too divergent, even though they ostensibly do the same thing.
But within the same strategic groupings, it might become more appropriate to say "outsourcing or more/less integration is/isn't a good choice for this industry due to xyz". So at some point you might expect to see (for example) the manufacturer who mines their own metal's revenue to increase if there's ever a global shortage, compared to competitors who rely on other companies. So as in, the mining car company might have lower production numbers per employee than competitors due to a larger staff, but if vertical integration makes sense in that industry, you'd expect revenue per employee to demonstrate that over time.
In this case, if Tesla have lower production numbers per staff due to less outsourcing then that's just necessity, due to the fact that it's a tentative young company which sells a highly niche product. It'll work out over time if they can establish themselves in the industry.
But basically yeah you're correct, it doesn't make sense to look at a single metric in isolation, without taking a wider view.
Well you'd measure 'value addition' in revenue, and Income per Employee is already a metric used, but it still wouldn't extend beyond the bounds of your own company, as an entity in a wider supply chain/network.
This seems more like a sneer than a legitimate criticism. AFAIK Tesla's business is fundamentally pretty solid. They make a net profit on their cars, but they are currently investing it all into aggressive expansion. Is it surprising that a young, growing company is spending a lot on growth compared to a century-old company? Do you think it would be better for Tesla if they didn't invest in the future?
I admire what Tesla has been able to achieve from a technological and a marketing point of view but I wouldn't call their business "fundamentally solid". Tesla stock has been one of the most heavily shorted equities for some time and it's because their balance sheet is a train wreck while their valuation is sky-high. Tesla burns cash at a phenomenal rate and regularly has to take on debt and / or raise new capital through equity offerings in order to stay in business. Of course they have to invest in the future- automobile manufacturing is a highly competitive, extremely capital intensive business and every OEM (Ford, GM, Toyota, Volkswagen,..) has to regularly invest huge sums of money in staying relevant. Tesla is no different in that regard.
$ 182,482,000 in Research and Development last Quarter.
$ 282,267,000 net loss in the quarter.
So even if we got rid of Tesla's ENTIRE R&D department, they lost $100 Million last QUARTER. The primary cost of Tesla is "Selling, general and administrative", which was around $300 Million.
The only other cost that's larger than their administrative costs were the $779,316,000 spent on parts.
#1 Cost: The parts (~$780 Million)
#2 Cost: Selling, General, and Administrative. $300 Million
The statement you linked clearly shows a gross profit and net loss. "Selling, general and administrative" is not a cost of revenue, hence why it does not count against the gross profit. These are fixed costs not tied to the sales volume that covers the basic operation of the company, advertising, executive compensation, and other overhead costs not directly tied to generating revenue or R&D (since it is a separate line item).
Tesla takes in more revenue than their cars cost to build. It currently is not enough to cover all the other expenses of the company.
You specifically referenced a line from the post you are replying to as such:
> > They make a net profit on their cars, but they are currently investing it all into aggressive expansion
> Citation needed.
The citation is right in the statement. They make a gross profit, which means they make a profit on their cars. The in turn spend more on activities that do not involve getting cars to customers. The activities that cause the company to have a net loss are not "cost of revenue" activities. Presumably the majority of that non-revenue expense involves expansion of the company.
I agree with, basically Musk is hoping that investors won't lose confidence in the company for several more years.
However, this model has so far proven worked with Amazon and a few others and I think there is enough shareholders willing to keep the stock that long.
Tesla strikes me as too much of a cult of personality, at least from an investor's perspective. Amazon is another business that reinvests all its profits and then some, but Bezos could walk away without destroying the investment brand. I don't think that's true of Musk and Tesla.
Unlike Ford, GM, etc... Tesla has a much narrower market potential.
Yes Tesla's cars are "cool" and everybody wants one, but even the new "cheaper" model costs far more than the average person spends on a car. Right now, Tesla caters to the luxury market, and is viewed as a "cool alternative" to more traditional luxury makes.
Ford, Toyota et al, have models that cover just about every price range and every type of customer, from the extreme budget oriented to the extreme luxury sports car fanatic. Toyota owns Scion, Toyota, and Lexus for example - so if you need a car, chances are one of the Toyota offerings will satisfy your needs and budget. This opens the market potential to include just about every person.
The one thing that has worried me about Tesla for a long while, is Musk's claims that next year they'll sell 30% more cars, every year - something that's now proving to be an impossible feat. At some point, they were going to hit a ceiling of maximum potential sales as they attempted to wedge into the already entrenched high-end luxury sports car market - there just aren't enough buyers to keep that growth at these prices.
The Model 3 (Tesla's cheapest option) starts at $35,000, which means average price point is well above your link's cited $35,000 (remember, those prices in the link are after upgrades, very few people buy a completely stock vehicle).
I agree, they have an extremely compelling and valuable product. They have aggressive aspirations and so far have a track record of achievement. This is pretty similar to other companies that rarely turn a profit e.g. Amazon.
That said they certainly have a huge hill to climb, but as he said its one we all need to climb so great that they are pushing ahead with a business model to make it there
Remind me- is Tesla a for-profit corporation or are they a non-profit organization? Making a profit is sort of the main point, though obviously not the only point. They've been around since 2003 so it's not like they're a scrappy Y-Combinator incubator company.
Right. What Tesla is attempting is orders of magnitude more difficult than your typical YC app shop with an exit strategy. I think they deserve a bit more slack than you seem willing to cut them. If it all blows up in their faces you can have your day with a smug "I told you so" but you won't be able to deny the benefits they've already provided to society via Musk's aggressive strategy and the effect that's had on the wider industry.
Musk founded Tesla with a vision to make the world more sustainable, and not with the vision to become obscenely rich. Being profitable is a means to an end for him, and not the other way around.
And that's fine. The founders of a company are free to specify its purpose in the company's articles. There is no legal requirement that says corporations must seek profits.
> Tesla Motors was incorporated in July 2003 by Martin Eberhard and Marc Tarpenning who financed the company until the Series A round of funding.[37] Both men played active roles in the company's early development prior to and after Elon Musk's involvement, with Eberhard the original CEO of Tesla until he was asked to resign in August 2007 by the board of directors.
I'm a fiduciary serving on a board of directors, so yes, it rings a bell. We talk about our duty of care, our duty of loyalty, our duty of good faith.
Now, I'm on the board of a non-profit, but I can tell you that even for for-profit corporations, fiduciary duties consists of those three duties. There is no duty of maximizing profits. There's not even a duty of maximizing share prices, which is probably what you're thinking about.
To quote the US Supreme Court: "While it is certainly true that a central objective of for-profit corporations is to make money, modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else, and many do not do so. For-profit corporations, with ownership approval, support a wide variety of charitable causes, and it is not at all uncommon for such corporations to further humanitarian and other altruistic objectives. Many examples come readily to mind."[1]
Tesla needs to state their goal as "make the world more sustainable" so people becoming owners can do so with understanding of that goal. Shareholders need to back this goal. But fiduciary duty means they have to serve the interests of their principals, not that those interests are profit over all else.
Let's not play this game of "there is only one legitimate goal for a corporation". That's not true, de facto or de jure.
Making a profit is absolutely not a goal of Tesla's right now. If they were trying to and missing that would be a cause for alarm, but clearly they're not trying to do that at all.
Weeellll, except for that $30B loss from 2006-2008 [1] leading to them taking a $5.9B government "loan" in 2009. (It should also be noted that while not directly dipping into the $80B bailout pot, Ford told Congress that not bailing out other companies threatened Ford's continued existence. [2]) Plus they were second only to Toyota in the amount of money they drew from cash-for-clunkers - not exactly standing on their own two feet.
The ship has been righted for now, but it was pretty good in 2000 as well.
Well Tesla also relies on government subsidies as well a loan (which it paid back early, as did Ford). Also Ford is more than a 100 years old, so it's bound to have a bad period. We'll have to see what happens when tech companies are that old ( or will they even survive)
I don't trust the government to manipulate the free market efficiently. It's comprised of hapless morons who don't know what they're doing and whose favor is for sale to the highest bidder. Case in point are the tremendous number of bankrupt alternative energy companies built upon favorable treatment by the government. Market intervention doesn't suddenly become justifiable simply because the outcome of advancing the sustainability agenda is positive.
> Case in point are the tremendous number of bankrupt alternative energy companies built upon favorable treatment by the government
That's like saying the top VC firms are all inept because most of the startups they fund fail.
It has often been the role of our government to make risky bets in order to advance step-changes in our society's progress. Those bets have resulted in such things as spaceflight, modern telecommunications, lasers and the internet to name just a few.
If Tesla indeed transforms the world as they are poised to do, their success will far exceed the cumulative failures of Solyndra and the like.
Not to mention, Tesla's competition are subsidized in many ways, most of which are more subtle than the tax credits for alternative fuels that you allude to. Failure to price in the health and climate externalities of fossil fuels amounts to subsidy, as do the trillions of dollars spent on overseas entanglements to secure fossil fuel supplies.
DARPA et al do not represent an analogous scenario. As for portfolio theory: I'm not questioning something that fundamental. I'm saying the government has little to no hope of deploying it efficiently. If you had a technocracy of highly intelligent people perfectly resilient to corruption, then this might be a different story. And if you know anything about VC, you know that there's a long tail of failing ones that underperform standard benchmarks (you probably do know; that's why you said "top VCs"). Also, if you want to view USG market interventionism as an aggregate portfolio, guess which way that's going to go.
I love it when people champion entities like Tesla benefiting from incentive structures when it's conveniently aligned with their personal beliefs about the superiority of the tech industry, their political agendas, and/or the idolzation of people like Musk, but forget that there's a far broader and more insidious reality here.
Reply to Below: Not libertarian. I believe strongly in government regulations where appropriate and that limiting our personal liberties in certain ways is essential to guaranteeing economic and physical security. I happen to agree with the sustainability agenda as well. I disagree with the mechanism being employed to advance it. USG should instead focus on taxing/penalizing for carbon emissions as a negative externality, which would have an ancillary benefit of making alternative energy companies overall more competitive. Asking the government to make decisions about structuring incentives, by contrast, is positively asinine (you get things like ethanol). Furthermore, I have a serious problem with the government deploying tax dollars to directly benefit corporations when there is no immediate and tangible return, regardless of the context.
The last sentence of your post is strange and difficult to parse. You love it when people communicate in ways that align with their worldview? OK fair enough.
But you're really just throwing around a bunch of innuendo and five-dollar words to suggest the incentive structure that Tesla (and all other automakers) have at their disposal is bogus. You've provided no evidence, and Occam's Razor offers a much more reasonable explanation: becoming energy independent and sustainable would be in our national interest in a massive way, and policymakers decided these incentives offer a reasonable risk / reward for accelerating that goal.
If you object on some philosophical / libertarian grounds then fine, I disagree with you but can understand where you're coming from. But don't throw around unsubstantiated claims of corruption and "insidious realities" and expect anyone to be sympathetic to your argument when you're not actually saying anything of substance.
And I don't trust that a profit-based only incentive is good overall, for example: if it wasn't for governments meddling with making oil less desirable as an energy resource (higher taxes, stricter regulations about pollution, more incentives for alternative technologies) we wouldn't be seeing a shift so early as we still have plenty of oil to burn and it's very profitable to do it.
These blanket statements are often wrong, there are really bad instances of a government trying to manipulate markets but there are also instances where it is needed to keep businesses in check.
I would rather live in the world as it is right now than in a Corporatocracy.
> It's comprised of hapless morons who don't know what they're doing...
This sounds exactly like the free market to me. Hapless morons who don't know what they're doing—but try to reach their goals nonetheless—as far as the eye can see.
You'd be surprised what happens when people are risking their own money. But now we're just getting into Capitalism 101..
Edit: I feel like I have to clarify this everywhere perhaps because it's an unorthodox viewpoint: of course companies need to be regulated; I'm arguing against government-sponsored incentives and subsidies. Stick to making it more expensive to burn fossil fuels, thereby increasing receipts (use it to fund alternatives research, studies, etc similar to how Big Tobacco has to pay for anti-smoking ads) instead of less expensive to buy someone's product, at the cost of taxpayer dollars.
More electric vehicles will get on the road when there is a realistic economic rationale to buy them. Without the subsidy, an $80,000 car that can only go 200 miles is a lot less appealing.
Hence they are subsidized. People with a bit of forward vision realize that without an economic incentive today, there may not be an economic rationale tomorrow, since the technology will not miraculously develop itself.
What I think people do not realise is that incentives to adopt cleaner car are just one side of a coin.
The alternative would be making petrol-car drivers paying for the actual costs of cars including healthcare for diseases related with pollution, possibly at any level of the production chain and so on.
Hidden costs are often cut away and offloaded on community (I couldn't find anything specifically related with cars (didn't have time to look for), but for comparison here's a short video that shows the real costs of meat https://www.youtube.com/watch?v=uZDsSnpYZrw). Incentives make it a little bit more explicit. While it may be true claiming that Teslas cost would be higher without incentives, for sure Ford's car would be way more expensive if everything had been taken into account.
Exactly. Maybe I should have been more clear earlier that I'm referring to incentives- driven intervention. Penalizing companies for the negative externalities they inflict on society is practically a first principle of good governance, and USG has failed dramatically.
What's sad is that so many people seem to take an all-or-nothing stance on this politically. Either laissez faire or nanny state. Moderation is a dying art.
Yes, moderation is dead. To embrace moderation one need to have doubt about his beliefs, to accept that someone else might hold a part of the truth. It's difficult and tiring and imply to constantly change one's state of mind and ideas. Moreover, it's much more fun and easy to treat everything as a sport match where you choose one side and you are against the other side.
In some way I notice the irony that these incentives for automakers (aimed to reduce pollution, to keep jobs, to communitize part of the drawbacks related with cars, ecc...) are a form of socialism in the US. Well done Yankees.
> there may not be an economic rationale tomorrow, since the technology will not miraculously develop itself
And if we don't invade country X, it may come back to bite us some day, right? And if we don't prop up the auto industry buying clunkers and robbing shareholders to pay union reps top dollar, people will have to start riding bikes and millions will be out of work, right?
If you're hoping for miracles, the government would be the last place to go looking for them. Necessity is the mother of invention, and while one could argue that our society "needs" this technology just like it "needs" to invade other countries, centralized decision making never leads to optimal outcomes, let alone "miracles".
If this was the only thing that mattered for businesses, we wouldn't have Amazon as Walmart has consistently produced more net profit over Amazon since the last 22 years. 1
A difference is that Tesla hasn't really managed to execute its original plan, in particular:
- Use that money to develop a medium volume car at a lower price
- Use that money to create an affordable, high volume car
Amazon is way better at making money to invest in growth. Tesla ?still? is in a fairly deep well, and will need investments to crawl out of it. Big question is whether they will.
That would depend on what your definition of “use” is. Musk is using a surprising definition of “use” that includes “leverage.”
The income increases the cash flow, which is obviously important, but it also signals to investors and bankers that there is a business, and they can invest or loan with better confidence.
What? There are room for multiple companies that make a profit. The point is that claiming a business sucks that still makes a profit and provides value to lots of people is tone deaf.
Amazon was never a profit machine. I do think that's part of the core business, re-invest everything and more... and they turned into a giant comparable to Walmart.
It's not really the same thing. Amazon don't turn a profit because they intentionally re-invest they money they would make into areas that they think will make them money in future. (Once or twice they've screwed this up and accidentally ended up making a profit.) Tesla don't turn a profit because they're making and selling cars at prices below their total costs.
They have basically a single source of revenue AFAIK which is selling cars. They sell X amount of cars per year making $Y. They don't turn a profit. Last year they lost close to $1B mostly because of their R&D costs. They need to either sell more cars (assuming that they can make money per additional unit like they say they can) or charge more for the ones they do sell, or both. Fortunately they are expected by investors to follow the Amazon model so they can get away with it for the foreseeable future.
Spending on R&D is exactly the same as Amazon intentionally reinvesting in areas that will make them more money. How does this not make them like Amazon?
The only real difference is that they have higher bootstrapping costs due to the type of product they make. i.e a physical object with a complex production pipeline. The only way to ever get profitable is to heavily and intentionally reinvest in R&D. Musk is doing the only thing that a startup in this space can do and expect to succeed outside of getting acquired which would be pretty much directly counter to the stated goals of the company.
That's of course incorrect. Amazon doesn't lose money on every sale. Their business is profitable and generates a lot of cash. Their retail business is also profitable. They lose money in retail only on new segments and similar, not on the older existing segments. That has been well known about them for years now.
For fiscal 2015 they were positive on net income: $596 million.
Q1 2016: $513 million in net income
They'll be generating $3 billion in annual net income in just another year. Sounds like a business to me, even if half of that net income comes from AWS.
Reminds me of the old accounting joke.
CFO -> CEO We have a major problem, recent price cuts mean that we are now making a loss per unit on our major product lines.
CEO -> CFO Don't worry about that, We'll make it up on the volume!
Not to over-analyze a comic, but the business model might not be awful in this case. They sell all potions for 20gp kind of like the original dollar stores. The one particular item is at a loss, but the majority may be at a profit or at least the aggregate based on volume is a profit. Basically they have loss-leaders to get people to use them as their only store.
This may seem like a ridiculous strawman, possibly because it's presented as a comic strip, but I've seen similar conversations on the TV show Kitchen Nightmares. Possibly worse actually, as the business owners didn't even know how much it cost them to make their most popular dishes.
Amazon has diversified income streams, they don't just resell products they purchase wholesale. They have a pretty sweet deal with 3rd party sellers, they make a big cut providing a sales channel for inventory owned by others, either seller-fulfilled or FBA.
When ford came on the market, it only had to be better than a horse. A tesla has to be better than a masarati on the high end, a jaguar on the "medium" end, and a subaru on the "low" end.
That's not true. Other automakers existed before Ford; he had automotive competition.
In what world is a Jaguar a "medium" end car? The high end Jaguars extend into Maserati territory.
If Tesla wants to be better than a Maserati or Jaguar, they need to observe how much nicer the interiors of those cars are. Consumer Reports doesn't care about that above a certain level of basic competence, but a Maserati or Jaguar buyer does.
> If Tesla wants to be better than a Maserati or Jaguar, they need to observe how much nicer the interiors of those cars are.
Indeed. I was shocked when I first hitched a ride in a Model S – the interior is more spartan and cramped than that of a 90s Japanese keicar (an impressive feat, in a sense) apart from the entertainment system, which had an uglier, clunkier UI than what any web developer could have drawn you up in a week.
The sales rep's "oh don't worry about battery replacement cycles, nobody keeps a car for longer than five years anyway" statement was only the final nail in the coffin.
That's his sales market. Tesla wants fanboy buyers who will be upgrading within five years and that's not a bad thing. They are such a small player that they can do this. I used to lease SUVs on 2-year lease. They had massive incentives and very high residuals because the manufacturers realize they can sell you 5 cars every decade if you are loyal. I did it because the savings were awesome, but I eventually stopped because I got sick of shopping for a new car every two years.
Not at all, but it was incredibly affordable considering that in 10 years I never had a car older than 2 years. There is zero maintenance other than a few oil changes. Like I said, the residuals were usually so high that the buy-out was not realistic. That kept the lease rate very low and made it unthinkable to keep it at the end.
See above. That is a valid claim to subsidy, but it's not the one I'm referring to, which involves, depending on your view / word choices: total factor costs, solar emergy cost, or natural capital costs.
It's a net decrease in total wealth, if you include natural capital in that metric. Various authorities differ on that. As early as the late 19th century, Adam Smith's biographer and scholar Edwin Cannan was noting that Smith's definition of wealth, "the annual labour and produce of the nation", doesn't account for natural capital: farmland, forests, fisheries, game, topsoil, and natural resources.
How much would it cost you to create a barrel of crude oil?
Not "extract from the ground", the usual meaning of "producing oil", which borrows rather more from "produce the evidence" than "manufacture the good". But actually start with high-entropy substrates and some energy source and synthesize oil.
Why do markets not account for this cost?
(Hotelling's Rule is ignored, and is, moreover, based on faulty logic. Curiously, Bohm-Bawerk, an Austrian Economist, gets far close to the truth in his theory of value, an exceedingly rare case in which I find myself agreeing with any Austrian principles.)
Why would it make any sense to account for the effort needed to produce oil from high-entropy substrates and an energy source? If you're going that far, why not take it to its logical conclusion and ask how much it would cost to create a barrel of crude oil starting from nothing at all, creating your own Big Bang and going from there? As Sagan said, if you wish to make an apple pie from scratch, you must first invent the universe.
There are certainly implicit subsidies for oil, in the form of the externalities like health and environmental damage from the pollution emitted when using it. But it makes no sense to me to account for the work that went into creating the oil. Hordes of microbes already did that work millions or billions of years ago. It's done, it's there, and the cost of taking advantage of that work is just the cost of extraction and use.
Looking at the actual cost of formation of fossil fuels makes sense from a total accounting standpoint. That's a depletion of an existing capital stock -- a bank account, if you will. Might want to talk to the good citizens of Nauru about their experience.
And actually, tracing back resources to their antecedents is useful -- there are compounds which formed through biological activity (fossil fuels, limestone, most iron ores, a particularly interesting study), and elements which formed, variously, through stellar fusion (most helium in the universe, though not on Earth, for various reasons, also C, N, O, F, and a few others), supernovae, neutron star collisions, including gold and platinum-group metals (the alchemists were really out of their league...), and, if you want the antecedent of hydrogen itself, yes, the Big Bang.
There are several factors to consider, and source resource costing (solar emergy cost, or exergic potential cost) are among them:
1. Solar (or other source) emergic cost. What was the initial energy influx basis for the resource creation. For fossil fuels, Jeffrey S. Duke's 2003 paper, "Burning Buried Sunshine", provides an excellent breakdown. Humans are burning fossil fuels at the rate of about 5 million years of accumulation per year of present consumption. Given ~200-300 million years of accumulation, and at best a partial recovery rate (not all resource can be feasibly extracted), that's a quantifiably finite period.
2. Production / renewal rate. Another response on this thread looks at water. If you live in a region where rainfall levels are high, say, Seattle, with over 1,000 mm/year, you're starting with a basis of 10 million litre/hectare of water. In Las Vegas, with 100 mm/yr, you're down to 1 million litre/hectare, and have evaporation and soil absorption to deal with as well.
If you're a farmer in western Nebraska, you might want to consider that the water you're pulling from your well represents a few thousand years of accumulation per year of use. That's not going to be particularly sustainable. And figuring your costs only on the drilling and pumping costs, rather than a capital depletion allowance for the water itself, is significant.
While the work which went into creating that resource wasn't contributed by you, it's work that isn't being performed today, at rates equivalent to present usage.
An alternate formulation which might make sense (and this is similar to the description Hotelling used in his original paper, though I came up with it independently and realised that later): say you've discovered a sudden and unexpected inheritance. Not just a rich uncle, but a rich family line has died and left you an accumulated inheritance worth, well, a lot of money.
There's a restriction. You can only withdraw as much of this as you can comfortably carry at a time, it takes some rooting around to actually provide you with the cash, and you've got to take a taxi across town to the bank in order to withdraw your funds.
Does it make sense to account for your cost of withdrawal as only the cab-fare and time costs you incur directly, or to figure in the depletion value of the account itself. I'm pretty sure a bookkeeper or accountant would want to include the latter.
Your next question concerns the size of the inheritance. If it's $10,000, you might spend much of it within a few months, if you were living on it exclusively. At $100,000, a year or two, at $1 million, you could live comfortably for some years, at $1 billion, assuming you were merely spending it down, you could live out your lifetime. The size of the account matters.
(I'm ignoring pollution and other secondary effects here.)
You might even cut others in on the deal if the total value were, say, a few trillions of dollars. Which might make it run down faster.
I'm looking up total resources (that's the total material amount, recoverable or not) of coal and oil. A 1975 USGS estimate was 14.5 trillion tons of coal, and a GeoScienceWorld estimate give 3 trillion barrels of petroleum (http://geoscienceworld.org/content/global-resource-estimates...), though that I believe excludes previous consumption, which I'll assume as that again, so a 6 trillion barrel total original endowment.
If you were to consider the equivalent energy content from what humans previously relied on for biofuel, namely wood, that's ... a lot of wood. A ton of coal is roughly the same energy as a cord of wood -- about 30 million BTU per cord of oak, 14.5 trillion tons is about 13 trillion cords. And 6 trillion barrels of oil is about 7 trillion cords of wood.
We had a 20 trillion cord total fossil fuel resource.
Swapping out that fossil fuel resource for wood production leaves us looking at 200,000 years of equivalent global timber harvest.
Again: we've consumed roughly half that -- 100,000 years of tree growth -- in just over 200 years (and most of that within the past 50). Mind that here we're not talking about input energy (emergy) but the total available energy equivalent (exergy) from fossil fuels. The input would be hundreds to millions of times as much.
(This also has a great deal to inform the question of offsetting carbon output through forestry -- we'd need phenomenally rapid plant growth, and no liberating of that carbon.)
As to your first point -- you're actually correct, we don't necessarily need to figure our cost on the basis of what it took to produce the resource we're using. We can consider the best available alternative fuels, and their cost and flux characteristics. Still doesn't look particularly promising.
Another interesting, though to me fascinating study is to look at the history of extractive resource pricing and price management over time, particularly over the past 150 years or so (the fossil fuel era). Early oil extraction especially was characterised by massive overdrilling -- the "derrick forests" of Titusvill, Oil Creek, East Texas, Los Angeles, and Kern County, all speak to that. Rising alongside this were efforts to create coordinated systems for managing that activity: John D. Rockefeller's Standard Oil, the 1931 initiation of extraction quotas managed via certificates of clearance through the highly inaccurately named Texas Railroad Commission and US Department of Interior (a fascinating history, see chapter 13 of Daniel Yergin's epic on oil history, The Prize, also https://www.tshaonline.org/handbook/online/articles/doe01, https://tshaonline.org/handbook/online/articles/mlc03, and http://www.reuters.com/article/usa-oil-export-controls-kemp-...), as well as national producers and OPEC.
Absent specific limits on rates of oil extraction, in the aftermath of "Poppy" Joiner's "Daisy No. 3" well, oil prices in Texas (and the US) fell from $1/bbl, to $0.13/bbl, and then further to $0.02/bbl, as wildcatters fought to out-extract one another, often on leases too small to individually segregate underground pools. It wasn't until government coercion, at force of arms (Texas and Oklahoma's governors called out their respective national guards, Texas also the Rangers, to sieze wellhead operations), that the overpumping stopped.
Again: without some level of collective, coercive power, the tendency was to simply suck wells as fast as possible, despite falling market prices (lower prices actually promoted ever-more-frantic pumping due to loan obligations), even if that destroyed longer-term productivity and potential of wells. Rockefeller described a similar rationale for his privately organised control system.
Hotelling's 1931 paper alludes to this in its introduction:
"CONTEMPLATION of the world's disappearing supplies of minerals, forests, and other exhaustible assets has led to demands for regulation of their exploitation. The feeling that these products are now too cheap for the good of future generations, that they are being selfishly exploited at too rapid a rate, and that in consequence of their excessive cheapness they are being produced and consumed wastefully has given rise to the conservation movement."
When you consider that under-priced energy, again, possibly by a factor of 100x to 1,000,000x, substitutes for labour and depresses the costs of virtually all other production, this becomes more than a passing concern.
That's all very interesting, and I totally agree that when you're extracting a resource faster than it's being created, you need to somehow account for the fact that the available quantity is finite.
But I don't see why looking at the energy used to create the resource, or the cost of creating it from scratch, is useful. All that matters today is what's there and how much we use. For example, consider oil versus uranium. In terms of usable energy content, there's a lot more uranium than oil on the planet. I haven't run the numbers, but I'm guessing that stellar nucleosynthesis of heavy elements like uranium is way less efficient than turning CHON into oil with photosynthesis and time. Certainly, if we were creating this stuff today, it would be way cheaper to create a megajoule of oil than a megajoule of U235. But, who cares? We have more uranium, so it ought to be cheaper per megajoule, all else being equal (which it very much isn't, of course).
You say that we're consuming about five million years of fossil fuel production per year, and that there's about 200-300 million years total. The rate is basically ignorable compared to usage, so what really matters is reserves divided by consumption rate. The relevant number is 40-50 years of reserves at current rates. For example, say it turns out that the geologists and petrochemists got it wrong, oil is actually much more energy intensive to produce naturally, and current reserves actually represent 400-600 million years of accumulation. The energetic cost accounting changes dramatically; each barrel of oil now represents twice as much input energy! But our economic situation today doesn't change one bit.
Taking your inheritance analogy, it doesn't matter how much money your rich family line started with, all that matters is how much is there now. It doesn't make a bit of difference to your spending whether your $10 million inheritance is the paltry remains of a $10 billion fortune, or the amazing end result of a $10 investment.
The whole business of input energy and cost to recreate just seems so very arbitrary. For example, why are you counting the cost of the oil, but not the cost of the oxygen you use to burn it? Both parts are necessary, and the fact that oxygen is ubiquitous and easy to access just makes it even more of a subsidy. Shouldn't we be counting not only all the fossil energy needed to create the oil we burn, but all the fossil energy needed to crack all that oxygen out of CO2?
Ethanol is highly subsidised and reliant on petroleum and natural-gas fed processes. 40% of US corn goes to provide about 10% of motor fuel as ethanol, with a net EROEI that's very close to break-even -- some studies show a net energy loss, a few a slight gain.
At the turn of the 20th century, when horses were used for local transport, about 25% of US grain production went to transport fuel supply -- as horse feed. In Europe, historically, that value was closer to 33%.
Pricing these in terms of labour equivalents without mechanisation or fossil-fuel derived fertiliser and pesticides probably gives the fairest comparison.
Scaling biofuel production to present levels of petroleum consumption is entirely nontractable.
Biodiesel costs range from $300 to $1000 /bbl. That's 3-10x petroleum at its peak prices, and 10-30x its recent price of ~$30 bbl.
As an opportunistic adjunct to fuels, biomass from waste streams and some dedicated fuels production may make sense. At present scales of fuel use, it cannot and almost certainly never will compete. We'll either have to use far less fuel, or have far fewer people. Which may happen regardless.
so your thinking Tesla isn't buying completed components from third party suppliers? Really? That antiquated dealer model also protects consumers against manufacturers who would otherwise ignore them as large companies can. It also would probably do well against an executive who tends to mock customers (and even lose in court with having to buy cars back)
Sorry, but you don't understand Tesla's manufacturing or that of any automaker. A large amount of the assemblies are outsourced. For the larger companies even drive trains and transmissions can be but that is rare. Ford and GM cooperated on ten speed transmissions recently so that is a benefit of such sourcing.
How about the employees at all of the subcontractors each of the incumbent manufacturers uses for completed components?
Number of employees per car output is one metric meant to be a proxy for something else. Use it in a TED Talk or a newspaper editorial to make some larger point, since it is a compelling takeaway, but it's actually pretty meaningless on its own.
Being boring, and looking at sustainable production costs and what consumers are willing to pay is far closer to what matters than the shorthand of looking at employees per car.
At first that seems right. But there is a big BUT. Even Tesla has outsourced a lot of components. A lot of the components except the drivetrain is being outsourced. There are only 2 manufacturers for airbags in the world. There is only 1 good quality manufacturer in the world for the in car rearview mirror. There is only 1 manufacturer for the Homelink system with its best features developed by an Audi engineer I personally know. (All the Homelink systems in the premium cars are this only one system and I know the 2014 numbers sold to Tesla at that time.) The brake system in the Model X is from Bosch. And so on.
So Tesla is at the same level of outsourcing like every one else. So actually you can compare the numbers.
It's a very important metric. The number of man-hours per item is a good stand-in for production costs. It isn't perfect, materials are outside the math here, but it works.
I'm interested to hear of how much staff time is put to new production/development and how much is dedicated to maintaining the current fleet. I have to believe that Toyota walks away in that area too.
I think this is different between companies but not in the way you are suggesting.
For example, concerning the subject we are discussing in the first place, Tesla because of the specificity of their cars probably have to produce themselves a huge part of the components of the car whereas Ford, Volkswagen,... are now to a point where a huge amount of the parts of their car are similar and can be outsourced to contractors that will decrease costs by producing only one type of components in huge quantity and provides to multiple constructors (who looks more and more like assemblers nowadays).
So I agree that it is in fact not easy to compare manufacturers on this metrics but I would believe that it's actually suggesting that Tesla does a lot more in-house than conventional car manufacturers.
> It isn't perfect, materials are outside the math here, but it works.
Not sure but we might be having an apples-to-oranges comparison here:
If man hours pr item are significantly better for one but the other has much lower materials cost pr item (motors, sales etc) or enormously lower fixed costs then it is not so easy to say anymore.
You are comparing premium tesla sedans with ford and Honda cars, of course premium car will take longer to build. Porsche for example produced 189,000 cars [1] in 2014 with 19,000 employees. And the average price of Porsche car is also lower than Tesla's.
[1] - http://press.porsche.com/news/release.php?id=897
The premium car will have lot more parts, like 26-speaker sound system etc, additional soundproofing, double-pane glass, heated _and_cooled seats etc. That takes work to install.
Next, the QA on a premium car has to me more stringent, simply because the expectations are higher.
So I can't imagine luxury car not taking more time to make than a budget car.
By which accounts? I've honestly never heard anyone complaining about QA or "Not Premium Enough"
For example, Top Speed suggests that all other manufacturers are still playing catch-up. That it'd be nice if the seats had been updated a bit, but otherwise things are great.
Buyers of premium cars expect details that are expensive to manufacture. That doesn't necessarily mean that it has to be difficult to manufacture them or that the productivity has to be low.
but tesla's production rate is increasing. the end of q2 saw rates of over 2k cars/week, which would be on target for >100k/year, over twice 2015's rate.
employees per car is irrelevant metric as business lines are totally different. Exclude people working on the charger network, dealerships and home products (powerwall) and then it will be more or less apples to apples comparison.
A certain amount of optimism is a necessary prerequisite of being an entrepreneur. Nobody would ever do it if they knew from the start how hard it would be.
I think some of this might be offset by the fact that this plan doesn't seem to focus on just cars. A solar product described in the first step of the plan could help fund the cars.
> Ford produced 3.2 million cars in 2015 with 187,000 employees, about 17 cars per employee.
This is an awesome analysis. Do you happen to know the numbers for BMW, the most frequently compared "like" to Tesla that I've seen? (or a similar luxury company)
shhh, everyone knows ford is an antiquated company run by morons who think a computer is just a fancy light box and tesla is going to run them out of business within 5 years.
What that really means: Tesla is going to lose a ton of money per car on the Model 3, or raise the price, until at least 2022. That's realistic. His two top production guys quit when he announced 2018 as the delivery date for the Model 3. His new production head, from Audi, may have given Musk a reality check.
Tesla produced about 50,000 cars in 2015 with 13,000 employees, about 4 cars per employee. Ford produced 3.2 million cars in 2015 with 187,000 employees, about 17 cars per employee. Toyota produced about 9 million cars with 344,000 employees, about 26 cars per employee. So Tesla needs to get their productivity per employee up by 4x - 7x to play with the big guys. Clearly Musk has done the same calculation.
Now, though, he's admitting that they can't do it by 2018. This is prepping the stockholders for bad financial news. Tesla is going to burn a lot of cash through at least 2022.
There's no reason that Tesla can't get their productivity up to at least Ford levels in time. Ford has a much broader product line, and Tesla's car isn't that complicated mechanically. But it's not instant.