Editor's note: Here's a slightly edited full transcript of a July 26 conversation between Automotive News Publisher Jason Stein and Tesla CEO Elon Musk. Go to autonews.com/dailydrive to hear the podcasts that were drawn from the discussion.
Jason Stein : It's good to talk to you again.
Elon Musk: It's good to speak with you, Jason.
So I know you're in the center of a hurricane at this moment, or at least a tropical storm. Tell me a little bit about -- I know you're not a weatherman -- but what is life like down in Brownsville, Texas?
Well, I think this was a relatively light hurricane as they go. I think this maybe a Category 1 or something like that. A lot of water and a few things got blown over, but overall it was no big deal. We [laughter] -- yeah, it was fine. It was no problem. We just had some drinks, and watched the wind blow all night. It was actually was an epic scene, it looked great.
You've had a big week. You had your first-ever streak of four consecutive quarterly profits. You have announced --
Finally. [laughter] It took us a while. I mean there were certainly a lot of people who said that would never happen. And yeah, they had some chance of being right. But the Tesla team worked incredibly hard. It was such an honor to work with such great people, and as a consequence of their great efforts, we were able to achieve four consecutive quarters of profit -- not a lot of profit, just so people see that we're making money here. But you know, one percent, one-and-a-half percent, Q1 was, I think, point-one percent. So it's just by the skin of my teeth, really. But thanks very much to the hard work and innovation of the Tesla team.
Some people are now lauding you as being a legitimate player on the global scene, thanks to --
What? [laughter] Finally! Yes! I'm legit! It sure has taken a while. We've had, you know, some conversations over the years and -- what was it like, five years last time we had a conversation, or like that on--
Five and a half. [Elon Musk was a speaker at the 2015 Automotive News World Congress.]
Wow. Okay, so--
Things were different then.
Yeah, very different. So you've obviously seen the whole trajectory of Tesla, basically from nothing, where we started off with just five people, and to where we are now, and we're about 60,000 people. So yeah, from five people in early 2014, to 60,000-plus people in 2020. And it will probably be 65,000 or so by the end of the year, because we're hiring a lot of people.
When they talk about you being one of the industry's strongest brands, and you reflect on the last few years, you must take some sense of satisfaction. The fact that now you're being lauded for the things that we talked about five and a half years ago.
Yeah, actually I wonder -- you know, because obviously I assume that you have that recording, or at least notes -- I sort of wonder: Did the things that I said would happen, did they happen? I mean we missed -- I guess we still need to get to full self-driving, of course, but... You know what? I'm just curious. What's my report card? What's the Tesla report card, for "said we would do it" versus "did it"?
I think it's fair to say that many of the things that you said that you were going to do, you've done.
Oh, thank you.
You are now producing vehicles on a regular basis, and let's just go back the last two years, where you said you were mired in "production hell." Now, you're saying, just even this past week, that you think the long-term sustainable advantage of Tesla is going to be manufacturing. So what changed?
Oh, no, actually – well, I think the reason I say the long-term sustainable advantage of Tesla will be manufacturing is that I think it's actually the hardest thing to do in manufacturing is scale effectively. And if you say -- it really depends on what time frame. If you go a certain number of years into the future, like if you go 10 years into the future, probably almost all cars will be fully autonomous. Although sometimes, I think the industry is getting [inaudible] faster than it does. But that's just new cars, you know. There's two billion cars and trucks on the road in the fleet, and there's a hundred million made per year, roughly. So this is something I often have to remind people of - even if all cars tomorrow were electric and autonomous, it would take 20 years to replace the fleet. So you'll have this strange situation, kind of like when they had horses and automobiles going down Main Street at the same time for a few decades. Probably several decades. You'll have that with electric autonomous and fossil-fuel non-autonomous vehicles. So essentially if you assume other companies will eventually figure out autonomy, or somebody will provide them with that solution, then they will also have autonomy, and we will have autonomy. But we would just need to be better at manufacturing than them.
And when it comes to manufacturing, you obviously feel that you've learned a lot in this journey. Now, you're going to be in a position where you have multiple plants, as you said over the next 12-18 months, running at high efficiency, and just frankly getting better.
What was the biggest thing that changed?
I'm sorry, with respect to improving manufacturing? Or how I thought about manufacturing?
Maybe improving manufacturing.
Well, I tend to take a first principles view of things, like physics first principles view. And say like, how good could manufacturing be if you really optimized the velocity and density of a factory, such that every cubic meter was doing something useful, and the speed at which things move through the volume of the factory was maximized? You can think of a factory like a CPU or a microchip, or something like that. You bring the circuits closer together, you increase the clock speed, and then you can calculate some theoretical limits for the output of a given silicon fabrication technology. I think the same is true of factories. And so if you actually look at the volumetric efficiency and the velocity of automotive factories, their volumetric efficiency is extremely low, I would say in the low single-digit percentage or a couple percent maybe for volumetric efficiency. The speed is much slower than walking speed. A very fast automotive factory would be exiting a car roughly every 25 seconds. If the car length is 5 meters, that's only a speed of 0.2 meters per second. That is one-fifth of walking speed. So the fastest car factories in the world are only producing a car at one-fifth of walking speed. This is not very fast; it's quite slow. You have poor volumetric efficiency combined with low velocity, so you have to figure out how to increase the volumetric efficiency and increase the velocity. Then just like a microchip, you will have vastly greater output. So basically what I'm saying is, I think it is possible to improve automotive manufacturing efficiency by at least a thousand percent, and possibly ten thousand percent.
That would be an incredible number.
Yeah, small cars you need.
Speaking of cars, you announced that you're going to Texas to expand your manufacturing capability. How important was that decision? And why Texas?
Well, it's high time that we built a second automotive plant in the U.S. Right now, actually 70% of all Tesla vehicles are made in Fremont in the San Francisco Bay area, which is a pretty expensive place to make cars. It's sort of counterintuitive, to say the least. But nonetheless, 70% of all Tesla vehicles worldwide are made in the Bay Area. Now once we have Berlin operating, obviously that will shift. We will finally have a factory in Europe, and not have to build cars in California, and then put them on a ship, and send them through the Panama Canal to get all the way over to Europe, and pay import duties, and all that stuff, and then put them on a truck. It's just not very efficient. It's not good for the environment. We should really be building cars locally, or at least on the continent where the customers are. So at least, we'll have Shanghai factory, a factory in China, a factory in the U.S., a factory in Europe. But we also need a second factory in North America, because we really should not be building cars in California and then transporting them all the way to the East Coast. It's expensive, and, again, not very good for the environment to be transporting cars across the entire country. We should be closer to the East Coast, and Texas is actually our second-biggest market in the U.S., even though there are some challenges in selling in Texas. Despite that, it's our second-biggest market in the U.S. And it's good even from a logistics standpoint: relatively easy access to the East Coast and obviously the center of the country. And there was also, you know, when talking to key members of the team that would need to move to Austin from California in order to get the factory going, Austin was their top pick, to be totally frank. That was a big factor in choosing Texas and Austin, specifically Austin. I guess a lot of people from California, if you ask them what's the one place you would move outside of California, it's Austin. So that was a big factor. I went to our team and said, "Where do you want to spend time? And where would you potentially move?" And they were like, "Well, Austin is just the number one choice," so that's why we picked Austin. And I asked them, "What about Dallas?" And they're like, "Well, no." They just want to go to Austin, so I'm like, "Okay." Yeah, [we have] a very talented team, and it really makes a difference where they want to go.
You had people in Oklahoma who also wanted you, as well.
Oh, yeah. No, it's not a question of who wants Tesla. It's just there's a certain critical mass of engineering and management talent that are needed to create this factory and do the manufacturing and engineering. Our factories are not just making a copy. Each factory is a product, and each factory has a lot of innovation, and each factory is more advanced than the last one. So there's a massive amount of manufacturing and engineering, and that wraps back into the product engineering. So we make the car design easier to manufacture, and we improve the manufacturing system itself. So basically, a lot of smart, talented people. It's not just, "Hey, let's just drop a copy machine somewhere." The factory itself is the product, as I said on the earnings call. The factory is the product more than the car. So it matters where all these very talented people are willing to go, and what is an uphill battle. Austin was not an uphill battle, that's why we picked Austin.
So could there be additional areas of the U.S. that you'd consider for manufacturing beyond this?
Yeah, I think at some point there will be a third Gigafactory. I'd probably imagine, you know, closer up in the Northeast most likely. But I'm not sure at this point. We've got our hands full between building Giga Berlin and Giga Texas. That's for sure. And all the vehicle programs that are coming down the pike, with the Cybertruck, semi, the new Roadster. Obviously on the solar side, we've got the Solar Glass Roof, the Powerwalls, the Megapack, the Powerpack. We have to make sure we solve the autonomy question. So there's a massive amount of stuff to do. But do I think at some point we will have a third plant in North America? I think that's very likely.
Over what kind of time frame? Can you even see the time horizon at this point?
Probably four or five years?
I would guess we would start construction probably -- this is not 'I know you just asked me, but let me consult my strategic plan.' This is actually just a spur of the moment, rough guess. Probably we would start construction in four years-ish? That's just my, sort of, stream-of-consciousness guess.
Sure. Are you still considering moving your headquarters out of California?
Well, that's going to require a lot more thought. Obviously, there's no question that our headquarters will remain in California in the short term. Long term, we will have to see. Certainly the vast majority of the Tesla management and engineering staff is in California. So that is certainly our headquarters for now, and for some time in the future.
Is it hard manufacturing in California? There have been some issues with paint quality, that's been well-documented, and one major reason is that the cars are made in an environment where there are stringent EPA guidelines and restrictions. Does that lead to a discussion about, maybe, the wisdom of building cars in California going forward?
I mean, for sure the permitting process in California is extremely onerous. Probably the Bay Area and LA are, they might be the hardest places to do any kind of emissions on Earth. Which means you have to be extremely clean in your manufacturing in those areas, which I do actually agree with, by the way. I would not lay blame on California for any paint issues that Tesla's had. I think I would internalize that responsibility and say that's kind of our fault, not the state. I do wish the state would process documents faster, and maybe consolidate some of the regulatory bodies. There's just so many regulators and so many regulatory agencies. Yeah, they all had a reason for being there at some point in the past, but I think it would be wise to just take a look at how many regulatory agencies there are and say, "Maybe we should combine some of these and not have, like, 12 referees on the field." We need referees on the field, but how many referees do you want on the field? You don't want more referees than players; that would be weird.But fundamentally, this is not California's fault. It's our fault.
We've had some issues, and in some case it was -- you know, the thing where we outsourced, like a bumper to a supplier, which was a mistake. And I think it's because they just had trouble doing paint matching, and it was -- Anyway, we just brought that bumper painting back in-house, and actually now it's good. I think actually our paint quality right now is pretty good, to be clear. We just had a few bumps in the road. Also, we were able to activate our south paint shop. So there's two major paint shops - north paint and south paint. And that was gigantic. And for a while, we were basically just operating out of north paint, and now we've almost got south paint fully activated, I think pretty close. And so we can focus north paint just on Model 3 and Model Y, and south paint on [Model] S and [Model] X. That allows us to really just hone in on the quality of those vehicles, instead of putting all four vehicles, which are very different sizes and shapes, through one paint job.