Driving Change – Demographics & Trends

Proactive management presupposes an organized approach to anticipating change, in so far as that is possible. Sometimes, a recognition of the underlying factors driving change helps to do that. This post, reprised from one of a series of posts on proactive management from about two years ago, offers a “heads up” on demographics and trends that may affect your business as the future makes itself manifest. — C.H.

Driving Change

In order to survive – let alone thrive – in the 21st century, management must proactively cope with ceaseless waves of change. One way to proactively approach the future (which doesn’t yet exist) is to examine existing conditions that are likely to drive change as the 21st century unfolds. There are a daunting number of current realities that, jointly or severally, are likely to drive change. For convenience of organization, this blog groups change drivers as:

Globalization

Sustainability

Technology

Demographics & Trends

This series of posts examines a few especially significant change drivers in each of the four categories. This post, the last in this series, focuses on Demographics & Trends along with two of the change drivers associated with demographics and trends:

The Future is Now?

No, the future isn’t now. But demographics and trends allows one to reasonably project into the future. For example, given the number of people in the world who are 20 to 30 years old today, it is straightforward to approximate the number of people who will be 40 to 50 years old 20 years from now. Accordingly, demographic and trend information is at the core of the insurance industry. Insurers use demographic and trend information to approximate the number of life insurance customers will die in the year 2035, or the cost of replacing the insured houses that will burn down next year. For health insurance, segmented demographic information (segmentation by age, sub grouped by gender, medical history, lifestyle and so on), along with critical trend information such as medical treatment cost trends and advances in medicines.

Reliable demographic and trend information is powerful stuff. Especially demographics or trends which indicate that the future will be substantially different from the present. This isn’t just for insurance companies. A systematic means for continuously paying attention to a wide range of demographic and trend information can help businesses anticipate opportunities and avoid disruption.

Here are two “zoomed out” examples that may well affect every business:

Aging Populations

World Fertility RateIt is my personal opinion that the single most important technical innovation of the 20th century isn’t space flight, penicillin, the internet or atomic bombs. Nope. It’s practical contraception. Practical contraception has already sharply reduced birth rates globally, and continues to reduce them. The graph labeled Total Fertility Worldwide, 1950 – 2050 indicates that the rate at which children are born has been cut it half (from 5.0, down to 2.5) since 1950 and is trending toward 2.1 around 2050. The projection to 2.1 is especially significant: a fertility rate of 2.1 corresponds to zero population growth, worldwide!

Of course, fertility rates, hence rates of population growth, vary widely from country to country. Rates in most economically developed countries are near or below 2.1 (populations in Japan and in some western European countries are already shrinking). People in less economically developed countries still prefer to have, on the average, more children, hence growing populations.

Changing age profiles within populations have enormous consequences for businesses – opportunities along with dangers. Population pyramids, a graphic device, helps make this clear. Rather than explaining, here is a five minute TED educational video titled Population Profiles: Powerful Predictors of the Future. It is worth your time to watch:

www.youtube.com/watch?v=RLmKfXwWQtE

Global Financial System

Many, if not most American manufacturers have foreign components in their value chain, on the supplier side, on the customer side, or both. Those who do not still need to be aware of possible foreign suppliers or customers (or financiers, or competitors) in the future. So, an understanding of trends within the global financial system that makes globalization practical.

Today’s global financial systems consist of remnants from the Bretton Woods accords, elements from socialist systems and several quite new wrinkles, especially:

>> Fiat currencies – most national currencies today have no extrinsic value, save the credit worthiness of the issuing nation. Some of us remember dollar links to gold or silver. Those links no longer exist, so, to borrow John Maynard Keynes’ observation, the financial system and the economies that system supports “has no anchor”.

>> Currencies that do not correspond with national borders – The Euro comes to mind here. Each member of the Euro group is a sovereign nation, entitled to set its own national tax and spending policies. The rub comes when financially stronger members of the group are expected to support the weaker ones. The current situation with Greece and Germany is a primary example.

>> A trend toward perpetually unbalanced national budgets – Chronically unbalanced budgets – intentional or otherwise — result in ballooning national debt. Growing national debt means growing present and future interest obligations. Interest rates today are at historic lows. But many of us remember double digit interest rates not so long ago.

The point here is that the financial system that supports today’s globalized economies is quite fragile. Nobody really knows how that system might react to another situation like the 2008 financial meltdown.

This post mentions only a few of many demographics and trends worth following and understanding. There are many more. Because of the scale of these matters, the resulting conditions as they specifically affect your business may prove to be surprising. In the 21st century, it is absolutely necessary for even small businesses to follow and understand these zoomed-out, big picture change drivers, so that proactive steps can be taken.

Chuck - Mt. HumphriesThoughtful comments and experience reports are always appreciated.

…  Chuck Harrington

This post and its associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome.

Post-Paris Pragmatism

The Paris Pact

In December 2015, an international agreement was reached whereby almost 200 nations, along with other political and commercial entities, agreed to significantly reduce annual greenhouse gases (principally carbon dioxide). Many also agreed to participate in a US$ 100 billion U.N. administered fund, intended to help less developed nations reduce emissions and abate damages due to climate change*. The sizes of each entity’s commitments vary widely.

President Obama’s commitment was for the U.S. to reduce greenhouse gas emissions to 25% – 28% below 2006 levels (the highest ever) by 2025, and to make substantial contributions to the U.N. administered fund. Neither the agreement nor President Obama’s commitments were submitted for ratification by the U.S. Senate; hence lack the obligatory nature of a formal international treaty.

Earlier this month (June 2017), President Trump announced that the U.S. will withdraw from the Paris agreement, apparently after substantial discussions with many people. The President’s decision was greeted with both applause and cat-calls, as one might expect. International reaction was almost entirely negative, since withdraw of U.S. support greatly weakens the viability of the Paris agreement.

The properness of the President’s decision has been widely discussed in the media. No need to add to that here. Rather, this post attempts to assess the pragmatic realities going forward, especially as those realities affect smaller manufacturers.

Going Forward

Regarding Emissions Reduction:

>> I think that achieving President Obama’s commitment for the U.S. to reduce emissions by 25% by 2025 is going to happen, Paris or no Paris. The advent of “fracking”, advances in renewable energy technologies and improvements in energy utilization efficiency all have too much momentum. The economics of power generation are rapidly favoring replacing the old with the new.

As you can see from this graph labeled “Energy-related carbon dioxide emissions”, U.S. emissions peaked near 6 billion annual metric tons about 2006. A 25% reduction by would mean emissions near 4.5 billion tons by 2025. The graph projects emissions around 4.9 – 5.3 billion tons for 2025, considering eight different cases. However, these extrapolations specifically exclude technical advances not already in place (or required to be in place by regulation or legislation) at the end of 2016.

CO@ Emissions Projections

Global CO2 EmissionsNevertheless, even if the U.S. and everybody else achieve their emissions reductions commitments in full, the concentration of greenhouse gases in the global atmosphere will continue to increase, not decline. This occurs because increasing populations and increasing per-capita incomes in the developing world will generate additional emissions well in excess of emissions declines in the economically developed nations.

The graph labeled “Figure 9-1”, where “OECD” refers to economically developed countries, illustrates this.

Projected Global Emissions>> President Trump has reversed the EPA’s Clean Power Plan, meaning that some coal fired electric generation plants will stay on stream longer than they would have otherwise. However, “fracking” (cheap natural gas) and rapid advances in renewable energy are making coal fired plants increasingly less economically attractive here in the U.S. However, “fracking” and cheap natural gas are not generally available worldwide, so, in many places globally, coal will remain a low cost choice for years to come. The graph labeled “ES-8. World energy related carbon dioxide emissions by fuel” illustrates this. Coal is dying, and has been dying since around 1950. But coal isn’t dead just yet.

>> You may recall that, prior to the election last November, then-candidate Trump chastised Ford Motor Company about Ford’s plans to move small car production (and jobs) from the U.S. to Mexico. Ford reversed their decision. Then, early this year, Ford’s then-CEO Mark Fields asked President-elect Trump to reconsider the EPA’s Corporate Average Fuel Economy (“CAFE”) program that mandates a series of increases in miles per gallon fuel economy for automobiles. Ford’s problem is that small cars are expensive to produce in the U.S. – and Ford needs to produce and sell a lot of them in order to sell a lot of large (and profitable) SUVs (the “corporate average” part of “CAFE”). To date, there has been no change in the CAFE requirements, nor do I, speaking personally, expect any.

>> It was the Obama administration’s policy to actively support research and development for emissions reduction technology. The Trump administration is expected to be less aggressive in doing so. Government supported R&D is, in my view, best applied to fundamental research and I expect that to be where most government R&D dollars will spent in the next several years. So, most practical, year over year advances in technology will continue to come from the private sector. 

The U.S. contribution to the U.N. climate change relief fund.

>> Take another look at the graph labeled “Figure 9-1”. Total global emissions are equal to the sum of the two lines. For 2012, for example, the sum of the two lines is about 13 + 19 = 32 billion metric tons. In order to reduce the concentration of greenhouse gases in the atmosphere, the sum of the two lines has to decrease year after year, not increase. Even if the U.S could somehow eliminate its entire 5 billion tons of emissions, that would not, by itself, be sufficient to stop the sum of those two lines from increasing.

>> Quite obviously, any viable solution lies requires substantial mitigation of expected future increases in emissions everywhere in the world. That is the purpose of the fund. However, there seems to be very little public discussion of how the fund will actually work: for example: what types of projects will be funded, on what basis the money will be dispersed, and how transparency of the disposition of the money will be assured.

The U.S. withdraw from the Paris agreements have likely confounded expectations as to who pays and how much. It is not clear how the less economically developed nations are actually going to reduce emissions, rather than continue to increase them. Perhaps the international private sector will take the lead in doing so.

So What?

The point here for pragmatists is that, Paris pact or no Paris pact, efforts to reduce greenhouse gas emissions are going to continue, regardless of individual views on the reality of Climate Change. The Trump administration is expected to be considerably less aggressive than its predecessor in forcing emissions reductions. Still, there is substantial pressure from governments abroad, from the U.S. private sector and from other interested groups to continue to push for reductions.

As usual in business, dangers and opportunities – of which there will be many, in operations and in marketing — are two sides of the same coin. Operate your business.

Chuck & Joan in ParisThoughtful comments and experience reports are always appreciated.

…  Chuck Harrington (Chuck@JeraSustainableDevelopment.com)

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome.


* “Climate Change”, as that term is used in the Paris agreements and almost everywhere else, refers to a set of negative events (changes in the global climate) caused by increases in the mean temperature of the Earth’s surface (“Global Warming”). The Paris pacts are predicated on efforts to restrain temperature increase to two degrees Celsius (2o C) compared to temperatures before the beginning of the Industrial Revolution, about 250 years ago. Increases in atmospheric greenhouse gas concentration are regarded as causing Global Warming.

Graphs are from the 2016 International Energy Outlook (IEO 2016) and the 2017 Annual Energy Outlook. Both are published by the U.S. Department of Energy and are available free on line at www.eia.gov

 

Another Look at Continuous Improvement

Dreamstime - Crystal BallEverybody knows that the reality of globalized manufacturing is a continuous spiral of faster, better, cheaper. Regardless of how good your processes, practices and products are, it is essential to keep improving. On Continuous Improvement, a post from November 2015, takes a pragmatic look at continuous improvement, with some thoughts on how that might actually be accomplished. Another look at On Continuous Improvement is always timely. — C.H.


On Continuous Improvement (from November 2015)

Remaining Competitive

Everybody understands the need to be truly competitive in this globalized economy. What’s more, since everybody knows, everybody is trying to improve – so the bar is continually being raised. The 5th of Dr. Edwards Deming’s famous 14 points is characteristically blunt: [1]

“Improve constantly and forever the system of production and service.”

In practice, there are two ongoing modes of improvement. The first mode consists of numerous incremental improvements to existing products, processes and practices. The second mode involves fewer, larger improvements such as new products, new equipment, or R&D advancements. This essay focuses on the first ongoing mode of improvements.

What to Improve Continuously?

Rereading Deming’s 5th point clearly answers the “what to improve” question: “the system of production and service”. The “system of production and service” means the entire assemblage of manufacturing and processes, procedures and practices, along with their interactions and inter-dependencies, through with your organization functions. It is necessary to appreciate that Deming’s use of the term “system” is not an accident.  A “system”, as Deming intends that term, is assembled in order to serve a specific purpose (Deming prefers the term “aim”, rather than “purpose”).

Deming says that the aim (purpose) of a business is to “stay in business, create more and more jobs”. To me, that means a sustainable business that can continue to grow indefinitely.

To be more specific, it is necessary to constantly improve our products, our manufacturing processes, procedures and practices; as well as our business processes, practices and procedures. Further, it is necessary to do so in a manner that advances the overall aim of the system. Improvement in one component of the system at the expense of another component is counterproductive. Usually, most improvement efforts focus on diminishing variation and waste.

How to Improve Continuously?

Deming tells us that wanting to improve is not sufficient. It is necessary to have a method for doing so. Fortunately, there are several methods that are widely used by manufacturers, each with many books, publications, courses and consultants ready to assist. Generally speaking, my personal preferences are Lean Manufacturing (especially for reducing wastes), Shewhart Cycles with control charts (for reducing variation) and Theory of Constraints (for prioritizing improvement efforts).

Lean Manufacturing

Competitiveness starts with the systematic elimination of waste in all of its many forms. “Waste in all of its many forms” includes losses due to hazardous working conditions, unsafe work practices, emissions to the environment, inefficient use of energy, and on and on. Lean Manufacturing provides a proven, readily available means to do that.

Lean Mfg Text Box

Just about everybody in manufacturing has heard about Lean Manufacturing, or about the stunning success of the Toyota manufacturing system, which serves as Lean’s global model. The fact is that Lean Manufacturing is good sense, systematically applied. Lean doesn’t require computers, robots or big capital outlays. It does require access to the know-how, a willingness to apply that know-how, and a person experienced with Lean implementations to lead the effort.

Shewhart Cycles

Dr. Deming was a statistician. Early in his career, Deming met Walter Shewhart, a pioneer in statistical quality management. He learned of Shewhart’s work with control charts and PDCA improvement cycles. Control charts provide a ready method to plot process outputs and, importantly, to distinguish variation due to the process itself (common causes) from variation due to other causes (special causes).

Variation can be reduced by identifying and eliminating special causes. Shewhart Cycles, more commonly called PDCA Cycles, provide a way to do that. Shewhart Cycles consist of four steps:

Deming PDCA CycleStep 1: The first step is to study a process, to decide what change might improve it. Organize an appropriate team. Do not proceed without a plan.

Step 2: Carry out the tests or make the change, preferably on a small scale.

Step 3: Observe the effects.

Step 4: What did we learn? Repeat the test if necessary. Look for side effects.

Theory of Constraints (TOC) [2]

TOC regards a manufacturing facility as a system consisting of interacting and interdependent processes. Those processes are not all equally important to increasing throughput. A few, usually one, process limits — constrains — the system. TOC focuses on identifying the limiting process and addressing that limitation. “Addressing that limitation” means increasing the capacity of that process, such that it no longer bottlenecks the facility. In addition, TOC uses a buffer before the constrained resource and a raw materials release system to prevent overproduction at non-constrained resources.

Once a constraint is addressed and throughput increases, another constraint will be revealed — otherwise, throughput would be unbounded. So, TOC is an ongoing process of identifying and addressing constraints. As production capacity increases, the constraint to increasing revenues eventually moves from the factory to the market or to some business practice or policy.

Concisely, Theory of Constraints provides a convenient way to prioritize opportunities for improvement so as to improve the aim of the system.

Chuck - Red Rocks3Thoughtful comments and experience reports are always appreciated.

…  Chuck Harrington

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome.

Image: PDCA Cycle ID 46845201 © Raducomes | Dreamstime.com


[1] Understanding continuous improvement starts with Dr. Deming. For those not familiar with Deming’s work, I suggest Mary Walton’s The Deming Management Method, Perigee Books (1986)

[2] To learn more about the Theory of Constraints, see Appreciating the Theory of Constraints, this blog, http://jerasustainabledevelopment.com/2015/06/27/appreciating-the-theory-of-constraints/

Radical Uncertainty

Sustainability and Uncertainty

A Sustainable business, says Adam Werbach, is one that is able to thrive in perpetuity. [1] The same definition also applies nations, civilizations and even humanity as an entirety. The term “perpetuity”, however, involves anticipation of the future, so that appropriate actions can be taken in the present.

“Prediction is very difficult, especially about the future” – attributed to Niels Bohr, (or maybe Yogi Berra).

In some circumstances, prediction is not so difficult. For example, it is easy to predict that a roll of two dice will result in an outcome between 2 and 12, and the probability of each outcome (from 2 to 12) is readily calculated. Insurance companies prosper because probabilities of morbidity, mortality and other risks within suitably defined groups can be reliably estimated.

However, prediction becomes increasingly difficult as situations become increasingly complex and the set of possible outcomes becomes less well defined, as they do in the real world. Uncertainty prevails. And it gets worse:

“Radical uncertainty refers to uncertainty so profound that it is impossible to represent the future of a knowable and exhaustive list of possibilities to which we can attach probabilities… when businesses invest, there are no dice with known and finite outcomes on the faces; rather they face a future in which the possibilities are limitless and impossible to imagine.” [2]

The concept of “radical uncertainty” originated in macroeconomics. [3] Macroeconomics, of course, deals with the aggregate economic behaviors of large groups of people, their enterprises and their governments. Aggregated economic behaviors can be viewed as systems that can, at least in principle, be modeled mathematically. Such systems are usually complex, with components that interact, time dependences and feedback loops. When complex systems are perturbed, outcomes can be quite surprising. This applies to macroeconomic systems and to other complex system, especially those where human behaviors are involved.

Here are several examples where complex systems might well threaten a firm’s, a nation’s, or even humanity’s ability to thrive in perpetuity in today’s globalized world:

>> Climate Change – As a recent post to this blog explained, the term “Climate Change” refers to a set of negative effects expected from warming of the Earth’s atmosphere due to human – induced increases in the concentration of greenhouse gases — especially carbon dioxide – in the atmosphere. The atmosphere and its behavior as expressed in weather patterns is a complex system indeed. The nature, magnitude and timing of effects (changes in weather patterns) due to increases in greenhouse gas concentrations remain to be seen.

>> World Financial System: Over the last half century or so, the American economy has experienced recession about once a decade. Over that time, the financial systems that support national economies have globalized and changed in very significant ways. In 2007 – 2008, a major disturbance occurred that, we are told, very nearly resulted in total collapse of those financial systems. Instead, we experienced about seven years of pernicious recession.

However, very little has been done to make those financial systems more robust to future disturbances. The periodic occurrence of recessions suggests that the financial system is not stable. If the episode of 2007 – 2008 very nearly resulted in total collapse of the world’s financial system, worse may well be in store in the future.

>> Global Epidemic: The 20th century witnessed a dramatic reduction in epidemic outbreaks of communicable disease. In the aftermath of World War I, an outbreak of “Spanish” influenza resulted in more deaths than the war itself. “Childhood diseases” including mumps, chicken pox and measles (along with many other once common diseases) have all but disappeared.

However, a recent outbreak of Ebola fever in Africa emphasized the ease with which today’s global transportation system can change a local outbreak into a global catastrophe. Further, science has learned that pathogens can evolve rapidly into new forms that require new vaccines or new treatment techniques – which may require considerable time to find, prove, and distribute.  

>> Black Swans: Nassim Taleb teaches us of the ubiquity of Black Swans:

“A Black Swan is an event, positive or negative, that is deemed improbable, yet causes massive consequences”

“… the world is far, far more complicated than we think, which is not a problem, except when most of us don’t know it. We tend to ‘tunnel’ while looking into the future, making it business as usual, Black Swan free, when in fact there is nothing usual about the future.” [4]

What to Do?

The world, then, may well be “far, far more complicated than we think”. Radical uncertainty may be considerably closer to the norm than we appreciate. If so, how does an individual, a firm, a nation, or humanity as a whole best approach the future? Look for some thoughts on that in the next post to this blog.

Chuck - SedonaThoughtful comments and experience reports are always appreciated.

…  Chuck Harrington (Chuck@JeraSustainableDevelopment.com)

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome.


[1] Adam Werback, Strategy for Sustainability (2009), Harvard University Press, page 9

[2] Mervyn King was Governor of the Bank of England during the financial crisis of 2007 – 2008. This quotation is from his 2016 book The End of Alchemy – Money, Banking and the Future of the Global Economy.  This book includes a full chapter entitled Radical Uncertainty: The Purpose of Financial Markets.

[3] Dr. Frank Knight, often referred to as the “father of macroeconomics”, introduced the concept of radical uncertainty in a 1921 academic paper, Risk, Uncertainty and Profit, University of Chicago.

M. Keynes, likely the most influential economist of the 20th century, devoted Chapter 12 of his best known work, General Theory of Employment, Interest and Money (1936) to the concept of radical uncertainty. (Keynes, incidentally, did not hold a degree in economics, doctorate or otherwise. He studied mathematics, emphasizing probability, at Cambridge.)

[4] These quotations are from Nassim Talib’s New York Times bestseller The Black Swan (2016) Talib and his book are both engaging, as well as perceptive.

Carbon, America and the World

Climate Change

For a business to be Sustainable – that is, able to thrive in perpetuity [1] – requires that the world remain a viable place in which to thrive, in perpetuity. The world faces a number of substantial threats to its continuing viability to support a prosperous humanity. Climate Change is arguably the most discussed of these just now. Unfortunately, Climate Change is highly politicized and not generally well understood.

To clarify:

Climate Change refers to significant changes in the world’s climate that diminish the natural world’s ability to adequately support humanity and its civilizations.

Climate Change, in the sense intended here, refers to an increase in the global mean temperature.

Climate Change, then, is a set of negative effects caused by Global Warming.

Global Warming, again in the sense intended here, results from a “greenhouse effect” – a change in the composition of the earth’s atmosphere that results in retaining a greater portion of the energy from sunlight.

Carbon Dioxide (CO2) is a rapidly increasing “greenhouse gas” component of the earth’s atmosphere.

Energy generation from combustion of fossil fuels contributes most of the approximately 34 billion metric tons of CO2 that are currently being added to the earth’s atmosphere annually.

Most of the world’s nations, through the United Nations Framework Convention on Climate Change (UNFCCC), have reached agreement on the necessity to reduce global CO2 emissions quickly and significantly.


The American Situation

At a meeting of the UNFCCC in December 2015, President Obama expressed an intention for the U.S. to reduce its greenhouse gas (essentially CO2) by 26% to 28% below 2005 levels, and to do so by 2025 (that is, 8 years from now).

This graph, from U.S. Department of Energy’s Annual Energy Outlook 2017, projects America’s energy related CO2 emissions to 2040 in a number of cases (sets of assumptions). As you can see, none of those cases provide substantial reductions in CO2 emissions, compared to present levels.

CO@ Emissions Projections

The Global Situation

Global CO2 EmissionsThe graph labeled Figure 9-1 [2] plots global CO2 emissions, broken out as emissions from OECD [3] countries (which include the USA) and non-OECD countries. Add the two together to get total global emissions (for 2016, approximately 13 billion metric tons from OECD countries + 21 million metric tons from non-OECD countries approximates 34 billion metric tons). Annual emissions from the OECD countries are projected to be approximately constant over the period through 2040. Annual emissions from the non-OECD countries are projected to increase substantially.[4]

Two points here: (1) Annual global CO2 emissions are projected to increase, not decrease. (2) Even if the USA could drive its CO2 emissions to zero, that reduction, of itself, would not prevent total annual CO2 emissions from continuing to increase, not decrease.

So, in order to contain Global Warming and it’s predicted negative effects (meaning Climate Change), annual global CO2 emissions need be reduced substantially, pronto. However, the Department of Energy’s figures, based on existing policies along with world demographic and economic projections, indicate that emissions will continue to rise, at least through 2040.

What to Do?

The USA can institute policies that directly affect its own emissions. It can only influence, not control, the emissions of other countries. Here are three possible approaches that the USA might choose to take. None of them can promise to radically reduce annual global CO2 emissions within the next decade or so.

Whatever it Takes: This approach posits that the USA forgets about costs and domestic economic growth, shuts down existing U.S. emissions sites on a crash schedule, and uses moral suasion, political pressure and an open checkbook to persuade other countries to follow suit.

Lead by Example: The approach starts by embracing, then building on President Obama’s expression of intention to reduce emissions. From there, the USA would lead by further reducing its emissions, while using diplomacy, economic incentives and coalition building to encourage others.

Pragmatics: The USA could continue to encourage the development and implementation of economically viable technologies, continue to research new emissions control and decarbonization approaches, and work with other nations to encourage them to do likewise on a mutually beneficial basis.

Considering present and your expectation of future political and economic realities in the USA and elsewhere, what do you think the USA should do? What approach should your business or organization take?

My House with Solar Panels

Google Map View of Chez Chuck, with Solar Panels

Thoughtful comments and experience reports are always appreciated.

…  Chuck Harrington (Chuck@JeraSustainableDevelopment.com)

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome.


[1] Adam Werbach, Strategy for Sustainability, Harvard Business Press (2009), page 9

[2] The graph labeled Figure 9-1 is from the U.S. Department of Energy’s International Energy Outlook 2016 (IEO 2016). The Annual Energy Outlook and the International Energy Outlook are available fro free download at www.eia.gov

[3] OECD, the Organization for Economic Co-operation and Development, is a group of 34 relatively developed countries. The USA is a member.

[4] The non-OECD countries are growing significantly faster than the OECD countries, both demographically and economically. People in less economically developed countries understandably want to catch up with those in OECD countries on a GDP per capita GDP basis.

 

Producing the Tesla Model 3

Everybody knows that Elon Musk has a “problem” – how to ramp up production sufficiently to fill the nearly 400,000 orders for Tesla’s new Model 3 in a timely manner. The production rate increases required are comparable to Henry Ford’s “problem” –ramping up Ford Model T production a century ago.

One post from May 2016 compared Musk’s “problem” with Ford’s “problem”. A subsequent post elaborated on plans for Model 3 production. They are both reprised below, to provide some prospective when the hype builds up around the start of actual Model 3 production, expected in the third quarter of this year (2017).


Henry and Elon (From 1 May 2016)

I’m writing this post just one month after Tesla Motors’ Model 3 electric automobile was introduced and made available for advance orders. As you may have heard, in the first week following that introduction, Tesla received more than 325,000 orders, with $1,000 deposits – reportedly a record for any product, ever! Now, a full month from launch, the order book reportedly totals around 400,000.

The question now is “can Tesla produce enough cars to fill those orders before the folks in the queue get tired of waiting and demand their fully refundable deposit back?” Sounds like a fair question, especially considering: (a) that Tesla produced only about 52,000 cars in all of 2015, (b) that Tesla will want to continue to produce their existing Model S and Model X cars, presumably in increasing volumes, and (c) that lots of additional Model 3 orders will keep rolling in. As a practical guess, let’s rephrase the question this way: “can Tesla deliver a cumulative 400,000 Model 3 automobiles by the middle of 2019 without retarding growth of their other product offerings?”

Henry Ford’s Model T

Let’s start to answer the Model 3 production question by considering Henry’s Model T of a century ago. Ford introduced the Model T as a practical and affordable automobile for everyman in late 1908 and started deliveries in the 1909 – 1910 model year. Here are the production figures:

Ford Model T Production Figures

1910 Ford Model TStarting at zero, it took Ford about four and a half years to produce the first 400,000 Model T Fords. Unlike Tesla, Ford did not start with 400,000 orders in hand. Henry Ford had no idea, from the start, how many he would be able to sell: “everyman” had not even dreamed of owning an automobile in 1908. So, Ford didn’t know how much manufacturing capacity he would need, nor did he know how raw materials would be sourced in sufficient and timely quantities.

For Ford, it was necessary to vertically integrate from iron ore deposits to metals castings all the way through finished vehicles in order to assure adequate supplies of all of the components necessary to keep production going. Tesla has integrated vertically to build a “gigafactory” sufficient to mass produce batteries in the quantities that Model 3 production will require. The “gigafactory” is already in operation, although far from full capacity.

Compared to Ford and his Model T, Tesla has a century of manufacturing technology to draw on, along with the infrastructure that supports an industry that can produce about 15 million vehicles annually. With 400,000 orders in hand (and the $400,000,000 from the deposits), Musk and Tesla are certainly in a much better position to find financing for the facilities and capital goods necessary to produce the Model 3 than Ford was in 1908.

Building and operating a 21st century automobile factory that can produce 400,000 automobiles by the middle of 2019 is a big job. The manufacturing technology is impressive, but it’s not rocket science. By the way, Elon Musk is a rocket scientist – he is the Chief Technical Officer of SpaceX, maker of 21st century rockets.

Will the Tesla Model 3 deliver fast enough? Bet on it!


7 May 2016 – Additional Comments

On 4 May 2016, Elon Musk and Tesla’s management team held a conference call for business analysts and the financial community. Model 3 production planning was a primary area of discussion. Here are a few points that build on last week’s post:

Production Rate: Musk announced that Tesla intends to reach the 500,000 cars per year rate in 2018, instead of 2020 as previously indicated. I take that to mean total production of all three models, not Model 3 alone. The blue line on the graph labeled Model T Production indicates that Ford significantly exceeded the half million cars per year production rate in the 1914 – 1915 model year. The production rate in 1910 – 1911 was 53,192. So, within four years Ford increased production by more than ten times. Now, Tesla says they will do almost exactly the same thing – from about 52,000 in 2015 to about 500,000 in 2018 – in three years rather than four.

Operating Leverage: In a discussion on costs, Elon Musk mentioned that “our operating leverage means fixed cost relative to variable cost is going to improve dramatically”. How much is “dramatically”? The red line on the graph labeled “Model T Production” indicates the per vehicle selling price. For the 1910 – 1911 model year, Ford charged customers $780 for a Model T. The price was reduced to $550 for the 1914 – 1915 model year. That 29.5% price reduction was made possible through Ford’s increase in operating leverage.

Ford was selling the Model T into an entirely new market. Each time he reduced the price, he created an entirely new customer segment. Ford used price to keep his production rates increasing and the improvement in operating leverage funded the price reductions – with some left over for Ford and his Company.

 “Hell-bent on becoming the best manufacturer on earth”: Musk pointed out:

“Thus far, I think we’ve done a good job on design and technology of our products. The Model S and Model X are generally regarded by critical judges as technologically the most advanced cars in the world. We’ve done well in that respect. The key thing we need to achieve in the future is to also become the leader in manufacturing.”

Excellence in manufacturing operations results in high product quality levels and high throughput rates – hence strong operating leverage. It worked for Ford a century ago. It is working for Tesla today.


Everybody in manufacturing should read (or re-read) Henry Ford’s autobiography. The parallels between what Ford said and did with what Musk is saying and doing are truly remarkable. Of course, it goes without saying that a century does make a difference and a Tesla Model 3 isn’t a Ford Model T. Learn from Ford anyhow.

By the way, last week Elon Musk’s SpaceX recovered (landed) a rocket on a barge at sea, at night. SpaceX designed and manufactured that rocket. SpaceX will reuse the rocket, reduce the price for future satellite launches, and increase their throughput and their operating leverage. Musk and his crowd do know how to do things well.

Chuck & Joan in ParisThoughtful comments are always welcome.

…  Chuck Harrington

(Chuck@JeraSustainableDevelopment.com)

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome.

Model T Photo: Creative Commons via Wikipedia

 

What the Frack?

On January 17th of this year, the Annual Energy Outlook for 2017 (AEO 2017) was published by the Energy Information Agency, part of the U.S. Government.[1] The AEO examines U.S. domestic energy production and consumption, with extrapolations[2] into the future. Information from the AEO 2017 provides information and insights relevant to business management. This post focuses on petroleum and natural gas production through hydraulic fracture and directional drilling techniques (“fracking”).

America and Petroleum

The graphic labeled “Energy Consumption” is from the AEO 2017. The brown line indicates that petroleum and related liquids fuels about 35% of America’s energy current energy consumption.[3] Further, it indicates little change in annual petroleum consumption over the next 24 years, given the assumptions used to extrapolate the AEO’s “reference case”.

Over the past several decades, the U.S. has consistently consumed considerably more petroleum than it has produced. The difference has been imported, much of it from the Middle East. Since imports must be paid for, petroleum imports have resulted in a substantial drag on the U.S. economy. Further, securing continuing petroleum supplies from overseas has been a major determinant of U.S. foreign policy.

The graphic labeled “Net Energy Trade” illustrates that, in the years around 2006 – 2008, the U.S. imported amounts of petroleum equivalent to over 25% of its entire annual energy consumption, net of any petroleum exports!

Then something dramatic happened. U.S. domestic production increased rapidly from about 2010, resulting in a major decline in global petroleum prices. Accordingly, retail gasoline prices declined by about half during the last six months of 2014, resulting in boost to the U.S. economy that, in my opinion, triggered in the end of the Great Recession. Think of it this way: when a boatload of crude oil arrived in 2013 at $100+ per barrel, the U.S. shipped a boatload of greenbacks overseas in payment. By 2015, the price of crude was less than $50 per barrel and the number of boatloads imported dropped sharply. So, the U.S. shipped many fewer greenbacks overseas in payment. The rest stayed at home, within the U.S. economy. Since we are talking about millions of barrels every day, the difference really matters.

The Fracking Revolution

Fracking – petroleum and natural gas production by directional drilling plus hydraulic fracturing – is a truly remarkable technological innovation. Look again at the graph labeled “Energy Consumption”. Notice the rapid increase in natural gas consumption from 2010. That too is due to fracking. As a fuel, natural gas is complementary to petroleum. Petroleum fuels primarily transportation. Natural gas fuels mostly stationary consumption, including industrial uses, commercial and residential heating, and especially electric power generation.  

Natural gas is difficult and expensive to transport, other than by pipeline. Fortunately, the U.S. already had a domestic pipeline network in place as the huge increase in natural gas production due to fracking became available. Prior to the advent of “fracking”, global natural gas prices generally followed petroleum (crude oil) prices. The increase in natural gas supply in the U.S. resulted in natural gas prices that are not pegged to petroleum, and that are considerably lower than natural gas prices elsewhere.

Implications, Domestic and International

>> Energy Independence: Due to increased U.S. domestic production of petroleum and natural gas, the AEO 2017 projects that U.S energy exports will exceed imports by 2026, using “reference case” assumptions. That means that, if necessary, U.S. energy production would be sufficient to satisfy America’s energy requirements, without relying on OPEC or anybody else.

>> Industrial Economics: U.S. domestic prices for natural gas are substantially lower than elsewhere in the world. This provides U.S. industry with two competitive advantages in global trade. First, energy costs are low. Second, many important petrochemicals can be produced from natural gas, resulting in lower raw materials cost for many products.

>> Petroleum and Natural Gas Reserves: Fracking is used in geological formations that are different from those where conventional petroleum and natural gas production methods are used. That means energy production becomes possible in geographic areas where it is otherwise infeasible. It also means that the world’s potential reserves of petroleum and natural gas have increased substantially.

>> International Development: Fracking technology can and will be applied in other countries. Correspondingly, many nations that lack conventional petroleum or natural gas production may be able to become producers, thus reducing dependence on foreign sources and gaining a degree of freedom from global energy prices.

>> Cleaner Fuels: Petroleum produced by fracking is generally light and sweet. That means it is easy to refine, with few byproducts such as sulfur or heavy metals. Refining light, sweet crudes is relatively energy efficient. Accordingly, less carbon dioxide is produced when light, sweet crude is produced and consumed. Natural gas is even cleaner.


There is a lot more information worth discussing in the AEO 2017. Look for more posts on other AEO 2017 in the future.

Chuck - Blue SweaterThoughtful comments and experience reports are always appreciated.

…  Chuck Harrington (Chuck@JeraSustainableDevelopment.com)

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome.


[1] The AEO 2017 is available for free download on the Energy Information Agency’s website, www.eia.gov

[2] I use “extrapolations” rather than “forecasts” to emphasize that the AEO is projecting present and recent past information into the future based on certain assumptions. The “reference case” refers to a “business as usual” set of assumptions that do not anticipate government policy changes or technological innovations, other than those already in place.

[3] Note: U.S. annual primary energy consumption is about 100 quadrillion BTUs.

 

The Globalization Gap

The Fly-over Zone

“The fly-over zone” is David Stockman’s term for the middle portion of the United States; the vast expanse roughly bounded by the Appalachian and the Sierra Nevada mountains. Stockman holds that people in the fly-over zone think differently from those on the coasts.[1] The election results from last November tend to agree.

In my view, Globalization, with its economic and social repercussions, provide insight as to why the fly-over folks think so differently from those on the coasts. In essence, Globalization has benefited Americans whose income relies on professional services and intangibles over the last several decades. Those who depend on tangibles, again speaking generally, have done considerably less than well.

 International trade, especially in consumer goods, and large-scale migration from less economically developed nations to more developed countries are two primary factors driving polarization of opinion about Globalization here in America, as well as in the European Union.

Free Trade

Global free trade is fundamental to increased and increasing global standards of living. Since the end of World War II, international economic history records a succession of moves to facilitate multinational trade by removing tariffs and other barriers to trade. One result is truly multinational companies, like GE or Nestle. Another is globalized value chains, even for small companies. Companies and consumers everywhere benefit from the lowest prices available anywhere in the world.

But it isn’t all good. Employees in some nations suffer as lower cost competitors abroad take business and jobs. Some nations import much more than they export, resulting in escalating debt. Some nations use access to resources as an economic means to political ends, like the recent Russian cuts in natural gas supplies to Europe or the OPEC oil embargo in the 1970s.

So, the benefits of free trade are widely spread, but difficult to recognize or quantify. The negatives, on the other hand, are localized and specific – those who have lost their livelihoods to free trade are not happy. And that unhappiness has resulted in political resistance to new trade pacts and movements in several countries to revise or rescind existing agreements.[2]

Migration

In 2013, author and investment banker Dan Alpert[3] wrote:

“The past twenty years have seen a transformation of the global economy unlike any ever witnessed. In the time it takes to raise a child and pack her off to college, the world order that existed in the early 1990s has disappeared. Some three billion people who once lived in sleepy or sclerotic statist economies are now part of the global economy. Many compete directly with workers in the United States, Europe and Japan in a world bound together by lightning – fast communications. Countries that were once poor now find themselves with huge large surpluses of wealth. And the rich countries of the world, while still rich, struggle with monumental levels of debt – both private and public – and unsettling questions about whether they can compete globally”

Alpert’s thesis is that the world suffers from gross over-supply of labor, capital and productive capacity. Capital moves readily across national borders seeking higher returns – meaning productive investment opportunities. When excess productive capacity exists, businesses don’t invest in more. Excess labor, looking for work and stimulated by numerous local wars and conflicts, continues to migrate from developing world countries toward developed countries.

The circumstances that Alpert describes do exist and significantly define world economies and the businesses that drive those economies. These conditions will continue until fundamental global imbalances change. That change may be gradual, spanning years, or quite rapidly, like the economic equivalent of an earthquake.

Chguck - Juneau AKThoughtful comments and experience reports are always appreciated.

…  Chuck Harrington (Chuck@JeraSustainableDevelopment.com)

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome.

Container ship graphic licensed via www.dreamstime.com


[1] David Stockman was former President Reagan’s budget director. He now writes extensively, especially on political / economic affairs.

[2] For more on this, see “Trade, at what price?” in The Economist, April 2nd – 8th 2016 edition, page 27

[3] Dan Alpert’s The Age of Oversupply, Penguin Group (USA) LLC (2014) is offers much more on this.

 

Knowledge Workers and Tomorrow’s Jobs

President Obama, in his 2015 State of the Union address, proposed that America’s community colleges be made tuition free.[1]  With advancing technology, including on-line instruction, that seems to me to be a sensible step. But only a step. America’s education system needs a comprehensive overhaul in order to educate enough people rapidly enough to meet the rapidly changing demands of the 21st century, rather than those of the 20th.

Peter Drucker discussed this need for what he termed “knowledge workers” and provides his usual profound insight to the matter. Here is a post from a year ago that discusses Drucker’s ideas. It is well worth repeating.    — C.H.


Peter Drucker and the Knowledge Worker (from 10 January 2016)

Peter Drucker is arguably the most widely respected of the 20th century management consultants. Drucker wrote over 30 books on management, which are largely focused on human behavior. His 1999 book, Management Challenges for the 21st Century, offers a forward looking assessment of what demographics suggested would be the key problems facing manager in the early decades of the 21st century. Drucker’s concept of a knowledge worker – those whose work is focused on knowledge and its applications – is central to this book. He contrasts knowledge workers with manual workers – those whose work is essentially focused on things and the manipulation of things.

The Knowledge Worker

With his characteristic bluntness and surety, Drucker states:

“Knowledge-worker productivity is the biggest of the 21st century management challenges. In the developed countries it is their first survival requirement. In no other way can the developed countries can the developed countries hope to maintain themselves, let alone to maintain their leadership and their standards of living.”

Drucker credits Fredrick Taylor’s “scientific management” for the awesome improvements in manual worker productivity that characterizes 19th and 20th century industry and agriculture in the developed countries. According to Drucker, those increases in productivity have been the primary source of incremental wealth in the developed world.

The industrial engineering concepts that constitute “scientific management” are quite portable, so they can be quickly applied anywhere, using workers with little education or training. Developing countries have lots of people, many with rudimentary educations at best, who are willing to work for close to pre-industrial wages. Developed countries have aging populations and declining birthrates, hence much higher wage expectations.  

The bottom line is that labor intensive, repetitive manufacturing in the developed countries simply isn’t competitive in this globalized world, a few special cases excepted (at least for a while). Developed countries need sophisticated work based in knowledge, rather than in method. Economies in developed countries need knowledge workers. As Drucker puts it:

“The only possible advantage developed countries can hope to have is in the supply of people prepared, educated and trained for knowledge work. There, for another fifty years, the developed countries can expect to have substantial advantages, both in quality and quantity”.

What To Do?

There have always been knowledge workers, so much is known about knowledge work. Much can be learned about knowledge worker productivity from professional firms such as surgical practices, legal firms, architectural firms and accountancy firms. Today’s medical practices, for example, have several types of knowledge workers – specialized nurses, radiological technicians, physician’s assistants and such – that enhance the productivity of physicians, the practices’ key resource..

For manufacturing firms that intend to become and remain Sustainable, significant changes in organizational practices and organizational structure will be needed. This means new and innovative business models. Obviously, doing all of this will require study, careful thought and even more careful implementation. There isn’t any real alternative to embracing the change. Start by reading (or re-reading) Peter Drucker’s Management Challenges for the 21st Century !

Chuck - Austrian AlpsThoughtful comments and experience reports are always appreciated.

…  Chuck Harrington (Chuck@JeraSustainableDevelopment.com)

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are always welcome.


[1] For more on my thoughts on President Obama’s proposal, see: http://jerasustainabledevelopment.com/2015/01/24/tomorrows-talent/

 

Idiocy Squared?

15 January 2017

Yesterday (14 January 2017), I watched SpaceX launch a cluster of ten communications satellites into precise orbits, while returning the launch vehicle to an autonomous barge in the Pacific Ocean. I’ve been following rocket launches since I saw the first Vanguard rocket self destruct on its launch pad in December, 1957, to the chagrin of the entire nation.[1] Yep, I’m a technology buff. Technology fascinates, amazes and delights me. Maybe that’s why I became an engineer.  — C.H.


Elon Musk and the Vision Thing

Elon Musk is an interesting man. He envisions the future. Then he acts on that vision in a systematic (and courageous) manner. Actually, he goes beyond “systematic” – he insists on thinking from first principles,[2] rather than on starting with the present art. At the same time, he remains focused on his vision, to the consternation of many.

This post focuses on two of Musk’s businesses – SpaceX and Tesla — and examines the visions they embody, with examples of initiatives in place to realize those visions.

SpaceX’s Vision:

SpaceX designs, manufactures and launches advanced rockets and spacecraft. The company was founded in 2002 to revolutionize space technology, with the ultimate goal of enabling people to live on other planets.

That’s right – Musk’s vision for SpaceX is nothing less than colonizing Mars.[3] The purpose of SpaceX’s commercial launch program is to fund the development of the technology necessary to do so. That technology is complex and its development will be enormously expensive. Keep in mind that SpaceX is already doing things that only governments have done before (and some that nobody has done before). Also remember that the Apollo program that sent astronauts to visit moon – but not live on the moon – was, at its peak, consuming about 4% of the entire federal budget!

Here is some of the technology currently under development:

>> Advanced rockets and spacecraft: The Falcon rocket and the Dragon spacecraft are both original designs, developed from first principles as steps on the way to Mars.[4]

>> Reusable launch vehicles: Yesterday’s SpaceX launch vehicle was safely landed, joining launch vehicles from about a half dozen earlier SpaceX launches. The objective is to reuse them. Reusable launch vehicles are the key to sharply reduced costs. Imagine the cost of an airline ticket if the airplane could only be used once. Look for a SpaceX launch using a previously used rocket within this year.

>> The Falcon Heavy: With three times the lift capacity of the current Falcon 9, the Falcon Heavy is scheduled to test launch this year. Trips to Mars will require massive lifts into orbit.

>> The Raptor engine: SpaceX has test – fired a new rocket engine that will burn liquid methane instead of kerosene. Liquid methane will provide considerably more thrust per unit of mass than does kerosene. Methane is also available on Mars, so methane refueling on Mars could facilitate return trips!


Tesla’s Vision:[5]

The point of all this was, and remains, accelerating the advent of sustainable energy, so that we can imagine far into the future and life is still good. That’s what “sustainable” means. It’s not some silly, hippy thing — it matters for everyone.

So, Tesla is about accelerating the advent of sustainable energy. Wind energy, solar energy and hydroelectric energy are all potentially Sustainable, but none of these are directly applicable to vehicles. However, if the vehicle is powered by electricity, all of them are applicable. So, Tesla makes electric vehicles. Tesla also recognizes that it cannot, of itself, make enough electric vehicles to make electric vehicles the world’s standard. There are many constraints to doing that.

Here are a few of them:

>> Vehicle performance: Drivers expect electric vehicles to perform at least as well as petroleum fueled vehicles. Hence Tesla’s emphasis on acceleration, comfort, handling, safety and related matters.

>> Style: Drivers like cool, classy, functional cars. Tesla vehicles turn heads.

>> Range: Drivers expect electric cars not to strand them. That requires that vehicles have a range between fueling that compares their current vehicles, and that refueling be available almost anyplace. That’s why Tesla cars have 250 – 300 mile range between recharging, and why Tesla is so intent on building recharging facilities worldwide. Tesla is not waiting for somebody else to do it for them.

>> Batteries: Over 15 million new cars were sold in the U.S. in 2016, and several times that many worldwide. For electric vehicles to become a substantial portion of those numbers, a ready, reliable source for suitable batteries is necessary. That’s why Tesla is building a giga-factory – the largest factory in the world – to produce the batteries. Again, Tesla isn’t waiting for somebody else to do it for them.

>> Update 1/19/2017 : Tesla just announced that it will increase its investment in the giga-factory by $350 million in order to manufacture electric motors and drive trains for Tesla automobiles. Yet again, it appears that Tesla sees a need to produces hundreds of thousands of 200 – 400 horsepower motors that meet their requirements, rather than wait for somebody else to do it for them.

>> Price: In order to sell enough vehicles to even begin to make a difference, Tesla has to produce vehicles that sell at mass market price points. Hence the coming Tesla Model 3.

>> Production Technology: In order to meet drivers’ expectations at a mass market price while generating a reasonable profit, Tesla is re-inventing vehicle production technology from first principles. It will be interesting to see just how the Model 3 is produced.

>> Marketing and sales: Tesla regards the existing authorized dealer model of vehicle sales as inefficient. Instead, Tesla wants to use Amazon – style sales methods. Not surprisingly, existing dealerships are resisting fiercely.

>> Self-driving vehicles: In 2015, there were 35,092 people killed in traffic accidents in the U.S. alone.[6] Tesla believes that self driving technology can reduce that figure by at least a factor of ten. Accordingly, all Tesla vehicles produced right now come equipped with the necessary equipment to do this. As self driving technology becomes more commonplace (and traffic regulations change), insurance costs most drop sharply, not to mention the reduction in human suffering. This technology addresses the human side of triple bottom line Sustainability, as electric power addresses the environmental side.

>> Critical mass of vehicles: To make a real difference, electric vehicles have to become a significant fraction of the world’s fleet of vehicles. Tesla cannot even hope to produce anything close to the number of vehicles needed to do that. That’s why Tesla made its large body of patents available without charge to all manufacturers that want to produce electric vehicles.


Elon Musk says that starting an automobile company in the U.S. is “idiotic”, and that starting an electric vehicle company is “idiocy squared”. Chuck says that if Tesla is idiocy squared, then SpaceX is exponentially so. But I like the way Elon Musk thinks. He reminds me of Henry Ford. The world needs people like them — people whose vision and actions transcend accepted bounds. Musk may be idiotic, but I do own some Tesla stock.

Chuck - Red RocksThoughtful comments and experience reports are invited and appreciated.

…  Chuck Harrington (Chuck@JeraSustainableDevelopment.com)

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome.


[1] For those who were not around in 1957, the U.S. and the U.S.S.R. were heavily engaged in the Cold War. The U.S.S.R. shocked the U.S. by launching the Sputnik 1 satellite in October 1957. The clear implication was that the U.S.S.R. was ahead of the U.S. in rocket technology, hence had an important military advantage. Catching up with the Soviets was so important that the Vanguard launch attempt was televised live.

[2] Nobel Prize winner Daniel Kahneman explains thinking from first principles and why it is so uncommon in his bestselling book, Thinking, Fast and Slow, Farriar, Straus and Giroux, New York (2011)

[3] For more and SpaceX and for a presentation on the Mars project, see SpaceX’s website at https://www.spacex.com

[4] In contrast, the Atlas V launch vehicle, which is used to compete with SpaceX for commercial launch business, is the latest in a series of Atlas rockets that began in 1957. The original Atlas was, in turn, a descendent of the German V-2 rocket from World War Two.

[5] For more on Tesla and on Elon Musk’s vision for Tesla, see: https://www.tesla.com/blog/master-plan-part-deux

[6] Traffic fatalities figure from: https://en.wikipedia.org/wiki/List_of_motor_vehicle_deaths_in_U.S._by_year