Tesla Investor Day
Focus on total cost of ownership by comprehensive vertical integration. New developments in drive train technology. Data Center of Wheels. Software Defined electric power generation.
Problem Statement
Over 80% of global energy comes from fossil fuels, and only one third of it produces work or heat.
Currently, the global economy produces 165 peta watt-hours of energy per year, mostly from fossil fuels, but it doesn’t utilize all of it because of waste. Electrifying this would reduce energy production to 82 pWh/year while increasing the actual work and heat from that energy. The main advantage of electrifying the global energy infrastructure is to reduce waste and increase flexibility.
Innovation in the Drive Train and Drive Unit
In the prelude to the investor day, we said we’d like to see two key contributions. First, we wanted to hear more about how Tesla is working on lowering the total cost of ownership, and second, we wanted to hear more about powertrain and/or drive unit innovations.
They delivered on both fronts. Tesla CFO Zach Krikhorn made it clear that lowering the total cost of ownership is at the core of Tesla’s strategy. Most presentations on investor day were centered around vertical integration and how a system is built to continuously integrate to take costs out of the system. Colin Campbell's presentation on the drivetrain was also excellent. In particular, Colin alluded to the fact that Tesla wants to build lower-cost, high-efficiency drive units without Rare Earth materials. To us, this seems like a big deal. Eliminating Rare Earths has environmental and social benefits. But what it does more than anything else is change the architecture of the drive train and open new avenues for innovation. Colin said that the next generation drive unit will use a permanent magnet and have NO RARE EARTHS. That’s huge because this means that Tesla is working on structural design, coiling, and power electronics to design drive units and power trains with the same and potentially even better performance but is not using Rare Earths to achieve some of those propertiesAnother exciting area of innovation is simulation. Colin did mention a simulator that helps Tesla design drive units and power electronics for the drive train and drive units so that cost can be lowered and performance can be increased. We believe that part of the solution to replacing unwanted materials is to use simulation and/or AI techniques, such as Deep Mind’s approach to physics problems by using reinforcement learning methods. Tesla didn’t talk about this, but we conjecture that part of the solution to eliminating Rare Earths is to use simulation and/or artificial intelligence (AI) to better align materials to achieve the desired properties.
Software-Defined Hardware
Another crucial presentation was delivered by Pete Bannon and David Lao. You could summarize their mission as creating a data center on wheels. Let me elaborate. Pete is in charge of the power electronics in the car. There are lots of things in a car that need to perform tasks, such as lights, seatbelts, suspension, etc. I am not counting the actual driving, which is separate and controlled by the FSD team under Ashok. Pete concerns himself with how to make the car more chip-like so that you can manipulate the functionality of the car with software. David is the software guy. If you look at the car from a software stack perspective, there are the chips, microcontrollers, sensors, networking of controllers, and connection to the data center where compute happens on traditional servers. David said in the presentation that Tesla is thinking of the car as a fully integrated system from sensor to data center.This matters for many reasons. One is the ability to do over-the-air updates. Another is the ability to diagnose failures even before they happen. David also talked about anonymous telemetry, which collects data from the Tesla fleet to learn about driving behaviors and conditions. For example, Tesla is building a map of road conditions based on driving behavior and then automatically adjusting suspensions and seat belts when the car is driving towards a bumpy section of the road. We believe there is an opportunity here to open the Tesla platform to third parties and create something like an app store where third parties develop solutions to problems via apps. There are plenty of things we can think of now, such as flat tire prediction or self-parking, just to mention two applications we believe customers would appreciate.
The concept of software-defined hardware is very interesting because it brings Moore’s Law closer to the hardware. In fact, we wonder why Moore’s Law is not penetrating faster.
Pete spoke about the desire to upgrade the voltage of the power electronics in the car to 48 volts. That is a big deal. With 48 volts, you can push more power through the cables and enable more granular, precise control. You also increase the current, which allows for more power.
V=R*I (Volt = Resistance * Current)
Pw=V*I (Power = Volt times Current)
You can push more power through the system with a higher voltage.
Another innovation is localizing controllers. Tesla is designing their own local controllers around the car. These controllers are connected through Ethernet, which allows for a decentralized computer network. While this opens new problems, such as issues surrounding the Byzantine General’s problem, it also opens many new avenues of innovation.
This system of decentralized controllers with proprietary designs allows Tesla to produce faster at a lower cost and deliver more software updates over the air. In other words, when controllers need adjustment for, say, suspension, airbags, seatbelts, etc., they can be adjusted with OTA updates easier and more precisely.
OTA updates + Data insights through anonymized telemetry allow for faster iteration and more innovation. Iteration!
Robot on Wheels
According to David Tesla thinks of [sensors + Ethernet + connection to data center + data center]. The car is a robot on wheels and also an extension of the data center.
Why isn’t there an app store? Why is Tesla not more application driven?
Software can be used to better control the manufacturing process. Test parts when they are added to vehicles on the production line and make sure they are the right parts.
Powertrain and Drive Unit
Colin Campbell
Tesla’s power train is roughly 25% more efficient than the competition. Efficiency is measured in miles per kilowatt-hour. Why is Tesla more efficient? For starters, Tesla vertically integrates the design and manufacturing of drive units, thus improving performance and lowering cost. Another big innovation is a simulation engine that helps Tesla drive train engineers better design rotor and stator configuration. Eventually, so Colin, Tesla wants to build a drive unit with a permanent magnet and NO RARE EARTHS. That is a big deal and opens new avenues of innovation. Benefits of Rare Earths to power electronics are 1/4 high electric conductivity 2/4 High magnetic strength 3/4 Small 4/4 High thermal stability.
Rare Earths are particularly important for electronic devices that operate at high power rates, such as Tesla cars. Why? Because they are more thermally stable, they allow for more current, more power, and less heat sensitivity. Colin wants to reduce Rare Earths. How? The key to Tesla's approach is vertical integration.
Examples of power electronics innovation are Microcontrollers for charging are designed in-house by Tesla. They enable less weight for the same power and lower cost. Colin talks about simulating the drive unit design. The drive unit consists of a stator and a rotor, and fine-tuning those components can improve performance, reduce heat, and thus reduce the necessity for cooling. Parameters that influence the performance/cost equation of the drive unit are: 1/4 The strength of a permanent magnet 2/4 The number of wire turns in the stator 3/4 Design of a motor cooling system 4/4 Shape of the stator and rotor. Simulating these parameters improves the motor.
Vertical integration plays an important role. Colin talks about the collaboration between the powertrain team and the team that designs the machines to build the power train. How much of their manufacturing equipment does Tesla themselves? How can you design a drive unit with no Rare Earth? This is huge. Colin says that the next generation drive unit has NO RARE EARTHS, while still using a permanent magnet motor. You can replicate the magnetic properties of Rare Earths with other elements such as nickel and cobalt and probably add software control through power electronics to improve the magnetic properties of the drive unit while avoiding undesired materials.
Charging
by Rebecca Tinucci
Like all other presenters, Rebecca focuses on cost and vertical integration. Innovation is much easier when you control the value chain. For example, Tesla is self-installing most of the superchargers. Rebecca has to support the overarching goal of bringing more renewable electricity to the Tesla fleet. How can she do that? Offer charging opportunities at times when renewables are operating, such as the sun during the day and the wind at night. Rebecca spoke about having more charging options so cars can charge when idle during the day when the sun shines.
Drew spoke about this, too. He said the best way for Tesla to improve the economics of renewables is to offer low-cost storage. That way, the cars can be charged with renewable energy when needed. There are several ways to bring more renewable electricity to the Tesla fleet. One is a trip planner, where you direct people to charging stations that have available capacity, and in the future you might also prioritize according to the availability of renewables.
BRING CHARGING TO WHERE IT’S NEEDED AND WHEN RENEWABLES ARE AVAILABLE.
You can do that by building out a fleet of low-cost storage and networking the storage with power electronics to support the grid and help direct the electrons to where the most effective usage is.
Supply Chain
The Tesla supply chain managers are a key, integral part of the team. First, they are involved in the early design process for cars and for manufacturing equipment. Second, they help build out the supply chain across all the value networks that affect Tesla. Even when components are produced by third parties, the Tesla supply chain engineers help Tier 1 and particularly Tier 2 suppliers get up to speed. Building out a comprehensive supply chain is absolutely crucial for Tesla’s mission.
Energy Storage
Drew Baglino: "Storage is the product that retires fossil fuels."
Nobody is as aggressively driving the Tesla agenda as Drew. He is fully into it. His mantra is:
Renewables + Storage + Power Electronics
Another way to look at Tesla energy storage is to think of it as Software-Defined-Electricity. What does that mean? You produce the electrons with wind and solar power and deliver them when and where needed. Drew and Mike Snyder, who are in charge of Megapack at Lathrop, emphasize the need to build solutions, not just low-cost battery systems. Energy pack solutions help stabilize the grid and also enable renewables to be deployed more aggressively.
In order to achieve that power, electronics are key. They enable more flexibility for the grid or car, wherever they are used. Power electronics contribute to grid stability. With software, you can make the battery behave like a giant spinning machine so the grid thinks it’s a conventional gas-fired plant. That way, you can manage grid stability.
The energy density of the battery is key. Other factors are longevity, cycle time, and, of course, cost. Tesla is innovating across all those vectors.
Texas wind power can be used at night. 30$/months unlimited overnight charging because wind is available at night. Think of energy storage as a distributed system of renewable electrons.
Tesla produces more energy than it consumes. Regenerative growth.
Finance
Zach Kirkhorn
The algorithm for Tesla Finance is to lower the total cost of ownership and simultaneously improve quality and performance. Do that with vertical integration to reduce the cost of goods sold and drive overhead efficiency. The latter is helped by an in-house enterprise resource planning system. Tesla has built a proprietary enterprise management system to help the company reduce overhead. Zach emphasizes the importance of this system. Cost is what matters.
Normalizing for 2018 the price of the Model 3 decreased by 30%.
Cost reduction at Tesla deeply engrained in culture. It is easy to reduce costs. But reducing costs and improving products is key.
Zach gave a conceptual overview of the Tesla operating model:
Volume Growth
Productivity
Overhead Efficiency
Product Improvements
Engineering Efficiency
Localization
Supplier Scale
Next-generation vehicle
The goal of Tesla is to produce 20 million cars and 1 terawatt-hour of storage by 2030. Zach estimates an additional investment of 150 billion USD to achieve this goal.
Q&A
What can you do to improve the situation for renewables?
Drew: Build low-cost storage that increases the value of renewables.
How many models?
Musk: Not so many. It will be like phones.
How can we improve operational efficiency?
Drew: You can only improve what you measure. So focus on measuring stuff. Figure out how to measure and what to measure.
Key bullet points:
1. Car is data center on wheels, driving Moore’s law down to sensor level
2. Why not an app store for Tesla functionality?
3. Software defined hardware and software defined manufacturing
4. How can Tesla reduce or eliminate the use of rare earth materials. It looks like this is a good opportunity to innovate not just the rid yourself of China dependence but to re-architect power electronics
5. Going from 12 volt to 48 volt. Huge
6. Drew Baglino said “Best way to improve renewable energy is to offer low cost storage. That way we can charge EVs whenever needed with sun or wind.
7. Charging. Key is to bring vehicles to places where renewables are available when charging is needed. Trip planner + storage + more flexible charging options
8. Supply chain is not just about parts because parts are not parts. Parts are a set of steps across supply chain. Tesla controls are crucial steps to help build the tier 2 supplier get up to speed
9. Batteries will add value to the grid by adding stability to grid through power electronics.
10. Power electronics are key: Renewables + Storage + Power Electronics + EV
11. Bring electrons to where they are needed and when they are needed and make sure they are renewably produced
12. Problem statement. 80% of global energy comes from fossil fuels and only 1/3 produces energy or heat
13. Why is Moore’s Law not penetrating the car industry faster? Or is it?