The billionaire CEO pointed to his experience at Tesla.
Among the hundreds of carmakers worldwide, few are as self-assured as Elon Musk, the CEO of the world’s top electric car manufacturing company. That’s why Musk’s comment on car production being “hard” turned heads.
On September 7, 2021, Musk shared an excerpt from British inventor James Dyson’s new book. In the book, Dyson spoke about his eponymous company’s failure at making an electric car. Musk could sympathize. While sharing the excerpt, Musk tweeted, “Production is hard.” He added that production along with generating positive cash flow (when more money flows into your business than out of it) is “extremely hard”.
Car production is all the more challenging for startups
Musk went on to add that large carmakers sell their cars at low to zero true profit margins, meaning that there is barely any profitability. “Most of their profit is selling replacement parts to their fleet, of which 70 percent to 80 percent are past warranty,” he shared. New car companies do not even have this advantage. Additionally, he mentioned, new companies also lack sales and service infrastructure.
In a 2018 Vox interview, Musk noted, “As a startup, a car company, it is far more difficult to be successful than if you’re an established, entrenched brand.” In general, he said that it is “incredibly difficult” to survive as a car company. Even companies with a strong customer base, dealers and service providers fail. According to him, that’s because they spend their capital in their factories and often go bankrupt. So, evidently, it is not any easier for startups.
Manufacturing cars at Tesla: the trials, tribulations and triumphs
Musk’s experience in building cars at Tesla has been “excruciating”. So much so that he finds it absolutely “absurd” that Tesla is still alive.
During a webcast, he compared car manufacturing to eating “a lot of glass”—painful and difficult. He expounded, “There are 10,000 unique parts and processes that have to work.” Even if one part is missing, the car cannot be shipped. He illustrated that chip shortages are just one of the many supply chain problems for car manufacturers. “For example, a big struggle this quarter was the module that controls the airbags and the seat belts. And obviously, you cannot ship a car without those. That limited our production severely worldwide in Shanghai and in Fremont,” he said.
Still, he feels that Tesla’s success has been remarkable. That’s not because Tesla made an electric car or became a noteworthy startup. Instead, he finds it remarkable because, through it all, Tesla didn’t go “bankrupt in reaching volume production”.
For aspiring car manufacturers…
Excelling in the automotive industry is no easy feat. In May 2021, Musk tweeted that “prototypes are easy, and production is hard”. It’s no wonder that he could identify with Dyson’s failed attempts at making an electric car.
Indian billionaire Anand Mahindra, Chairman of Mahindra and Mahindra, a car manufacturing company, also echoed the sentiment. Responding to Musk’s tweet, he wrote, “You said it, @elonmusk. And we’ve been doing that for decades now. Still sweating and slaving away at it.” He added, “It’s our way of life.”
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