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

 

On Globalization Immigration and Pragmatism

Globalization and its effects are simply facts of 21st century life. The pragmatist looks first at those effects that most urgently affect the pragmatist’s life and business, then seeks a pragmatic solution – a solution that can actually work for all involved.

Viewed from here in the southwestern United States, illegal immigration is one such issue needing resolution. The following, reprised from two earlier post to this blog, proposes an approach that offers a real chance for a lasting solution. The pragmatist also knows that band-aids and stop-gap measures may be necessary as a lasting solution is implemented. But the pragmatist does not confuse the temporary with the lasting.    — C.H.


A Tale of Two Borders

Benito Juarez, a five term president of Mexico in the mid-19th century, famously lamented “Poor Mexico, so far from God, so close to the United States”. Today, many in the U.S., especially here in the southwest, complain about illegal immigration from Mexico.

Finger pointing didn’t work in the 19th century, and it will not work now – in either direction. Canada is just as close to the United States as Mexico is. There are no significant immigration issues between the U.S. and Canada. The difference is the approximate economic parity between the U.S. and Canada. The solution to the illegal immigration issue lies in addressing the cause of that issue — the economic disparity between the U.S. and our neighbor to the south.

Those demographics and trends suggest that reducing the economic gap between Mexico and the U.S. / Canada is possible over the coming two or three decades. With the active support of its neighbors to the north, Mexico could build a large, globally competitive economy that exports worldwide and builds big new markets within Mexico. With a cooperative arrangement that catches the demographic tide, Mexico’s economic growth need not be at its northern neighbors’ expense.

The prize is a U.S. – Mexican border that works like the U.S. – Canadian border.

Lose the Sombrero

serape and cactusLose the sombrero, the serape and the siesta. Those old stereotypes hardly fit the modern country that Mexico is rapidly becoming. Two recent news items put this into focus:

(1) The World Business Council for Sustainable Development’s Vision 2050 report [i] projects that, in 2050 — 37 years from now — Mexico will have the fifth largest economy in the world, as measured by GDP. That’s right, #5 — behind China, the U.S., India and Brazil; but ahead of Germany, Japan and everybody else. That may shock the stereotype. However, Mexico is already #12 and growing at about 4% annually, while most of the larger economies are currently growing at considerably slower rates.[ii]

(2) Fifty years ago, the fertility rate — the number of children per woman — here in the U.S. was about 3.2, while the rate in Mexico was a whopping 6.8. That’s right, on the average, each Mexican woman had about 6.8 children. Today, the rate in the U.S. is about 2.0, while the rate for Mexican women is about 2.2. And, the projection for 2020 for the U.S. is closer to 2.1, while the Mexican rate is projected to drop below 2.0. [iii] As Mexico’s population growth rate drops, conditions exist for economic growth per person to increase sharply.

The Giant Sucking Sound

Ross Perot received 18.9% of the vote as an Independent candidate in the 1992 U.S. presidential election, a huge percentage for an Independent candidate. Perot was strongly opposed to the North American Free Trade Agreement (NAFTA). He famously warned of a “giant sucking sound” as manufacturing jobs in the U.S. went south, into Mexico. [iv] Perot lost the election and the manufacturing jobs went. But they went to China, not to Mexico. Why? Labor costs in Mexico were lower than those in the U.S., but labor costs in China were much lower yet:

capture-mexico-avg-mfg-costs

But that Was Then

As you can see, the difference between labor rates is shrinking because rates in China are increasing much faster than those in Mexico. Add to that the costs of transporting goods from China to the U.S., the logistic costs associated with long lead times from China, currency fluctuations, and the hassles involved with doing business in China. Mexico is becoming more competitive every day.

But wait… there’s more: [v]

>> Mexico graduates more engineers every year than Germany.

>> Mexico has free trade deals with 44 countries, more than any other nation.

>> Minimum wage in Shanghai and Qingdao is now higher than in Mexico City and Monterrey.

>> Mexico produces substantially more petroleum than it consumes, and Mexico’s petroleum reserves are sufficient to allow Mexico to remain energy independent for a long time. 

As a consequence of all this, five years from now, Mexico is projected to have passed China as a supplier of manufactured goods to the U.S.:

Mexico exports to the US

 

Certainly, Mexico has problems, big internal problems, that must be resolved if Mexico is to take advantage of these opportunities for economic development. The Economist referred to Mexico as “Latin American’s perennial underachiever” — if the political will to manage those problems comes to pass, as appears increasingly possible, Mexico may well lose the “perennial underachiever” tag, along with the sombrero.

What This Means for Smaller Manufacturers

Mexico is a big country, 11th largest in the world by population, with an average age 27.4 years (as compared to 37.1 years in the U.S. and 41.2 years in Canada). [vi] And, Mexico is right next door to the U.S. American manufacturers should remain aware of Mexico and its potential across their entire Value Chain:

>> As a Competitor: As discussed above, Mexico enjoys several competitive advantages over many other nations. Expect Mexican manufacturers to become increasingly strong competitors.

>> As a Market: Economic development requires capital goods and infrastructure – related products and services. As Mexico’s per capita GDP grows, demand for consumer products will also grow. U.S. manufacturers are just as close to Mexican markets as Mexican suppliers are to U.S. markets.

>> As a Supplier: The competitive advantages that Mexico enjoys as a competitor also apply to Mexico as a supplier, especially in comparison to Asian suppliers.

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

Photo credit: Man with Sombrero and Serape licensed through www.dreamstime.com.


[i] Here, the Vision 2050 report cites data from Goldman Sachs. Learn about Vision 2050 at the WBCSD website, www.wbcsd.org. The entire Vision 2050 document and/or a summary are available for free download in about 10 languages. There are also PowerPoint presentations and visual aids available.

[ii] Statistics from the World Fact Book, www.cia.gov

[iii] These figures, and many others in this post, are from The Economist, 24 November 2012 issue, Special Report on Mexico. Reprints of the Special Report are available at www.economist.com. In instances where figures are not footnoted in this post, refer to the Special Report.

[iv] Information on Ross Perot are from Wikipedia, www.wikipedia.com

[v] Information from The Economist, ibid

[vi] Statistics from the World Fact Book, www.cia.gov

 

 

On Trucks, Fuels and Cost

Transport and Your Value Chain

Value Chain Diagram

A manufacturer’s value chain usually begins in the natural world, where ultimate raw materials like iron ore, pulp wood or petroleum originate. The value chain then proceeds through some number of processing steps (often with branching steps and recycling loops) all the way through the final disposition of the finished product at the end of its useful life. Between each processing step, there is a transfer — usually a physical transport – of the work in process or finished product.

Heavy TruckThis post examines transfers between facilities, especially transfers using highway trucking. It is useful — and sobering – to construct a rough diagram of your Value Chain, starting with the origin of your ultimate raw materials and passing through the many steps through ultimate disposition. The distances involved can be mind boggling, and even a rough guess at the rolled costs of all of the transports involved even more so. Those costs are directly or indirectly reflected in your costs, and the ultimate customer’s cost. Clearly, the costs of trucking matter.

Transport Costs – Fuel Consumption and CO2 Emissions

Transportation represents about 27% of America’s primary energy consumption. The overwhelming majority of that energy comes from petroleum. Access to petroleum (crude oil) has been a major constraint to the American economy and a key determinant of American foreign policy for over four decades. Carbon dioxide (CO2) emissions to the atmosphere from the combustion of fuels derived from petroleum are believed to be a primary driver of climate change.

CO2 Emissions - Transportation

The chart labeled “Carbon Dioxide: Transportation” projects CO2 emissions from transportation sources through 2040. To good approximation, CO2 emissions can be taken to be proportional to petroleum–based fuels consumed.

The blue line indicates that light-duty vehicles (automobiles and small trucks) are the largest source of emissions (hence petroleum consumed). As you can see, the blue line crests around 2018, then declines rather smoothly. This projected decline is primarily attributed to improvements in vehicle fuel utilization efficiency.

The green line represents emissions (hence fuel consumption) by freight trucks – the vehicles primarily used in schlepping your raw materials and finished goods across your Value Chain. Unlike the blue line, the green line projects rather uniform annual increases into the future. This increase is largely attributed to increasing freight volumes.

Accordingly, for 2016, emissions from light vehicles are about 2½ times those from freight trucks. By 2040, that ratio drops to 1½ times. So, the relative importance of emissions (and petroleum consumption) by freight trucks increases rapidly.

Then What?

The projections behind the chart just discussed represent the U.S. Energy Information Agency’s “Reference Case”. The “Reference Case” is based on demographic, economic and technical projections. These projections assume timely compliance with applicable laws and regulations, such as the CAFE fuel consumption requirements for light vehicles. On the other hand, the projections do not include compliance with laws and regulations not yet finalized by the time the projections were made. Nor do the projections anticipate future technical developments, apart from those incorporated into existing laws or regulations.

So, there is a lot of good news here for manufacturers:

>> The U.S. government is projecting sustained increases in freight shipment volumes in the years to 2040, entailing increasing manufacturing activity.

>> The Government has recently finalized a second phase of its CAFE regulations on fuel consumption efficiency that will reduce fuel consumption in freight trucks by about 45% by 2027, compared to 2010 figures.

>> Possible future technical innovations, such as the use of natural gas as truck fuel, hydrogen fuel cell powered vehicles or electric (or hybrid) vehicles may prove to be practical.

All in all, manufacturers may look forward to increasing freight volumes and falling per ton-mile fuel costs (with corresponding CO2 emissions reductions) in the coming years.


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.

Truck image licensed through www.dreamstime.com

Whither Sustainability?

Sustainability

Sustainability, as that term applies to manufacturing, owes its origin to Limits to Growth, [1] which was published in 1972. Limits to Growth describes a systems 3P Graphicanalysis of trends in the earth’s population, industrialization, pollution, food production and resource depletion, with projections into the future. In essence, Limits to Growth emphasized that humanity’s increasing demands for economic development are overwhelming the natural world, and that industry is the primary agent for doing so. So begins the quest for sustainable economic growth and for the technology and practices that enables economic development without destroying the natural world upon which all of us rely.

Mission Zero

In 1994, some customers were asking Interface Corporation, a manufacturer of carpet tiles, about Interface’s vision regarding the environment. Ray Anderson, founder and CEO of Interface Corporation, recognized that the usual response – that Interface was in full compliance with all applicable environmental laws – just wasn’t good enough. His response was to redirect his billion dollar company toward a goal of zero environmental impact.

“I wanted Interface, a company so oil intensive that you could think of it as an extension of the petrochemical industry, to be the first enterprise in history to be truly sustainable – to shut down its smokestacks, close off its effluent pipes, to do no harm to the environment, and to take nothing from the earth not easily renewed by the earth.” [2]

Moreover, Ray Anderson proposed to accomplish this by the year 2020, and to make a profit while doing so. Consequently, Interface established a system of yearly milestone objectives toward Anderson’s vision. Today, 20 – odd years later, Interface remains roughly on course.

Climate Take Back

However, the recent global financial crisis severely impacted the construction industry, Interface’s primary market. In 2011, Ray Anderson passed away. As a result of hard economic times and the loss of their visionary leader and founder, Interface lost some of their some of its edge. The direction continued, but the audaciousness faded.

Now, Interface is renewing its initiative by redefining what Sustainability means in industry. Interface’s new mission — Climate Take Back – builds on and goes beyond Mission Zero’s “do no harm” initiatives: Climate Take Back is proactive. Climate Take Back includes four bold commitments:

>> To bring carbon home and reverse climate change – That is, to remove carbon compounds already present in the atmosphere.

>> To create supply chains that benefit all life – That is, to insist on proactivity from entire supply chains.

>> To make factories that are like forests – That is, to create manufacturing processes and entire factories that mimic nature.

>> To transform dispersed materials into products and goodness – That is, to recover and reuse widely dispersed refuse materials on a global scale.

On 6 June 2016, Joel Makower of GreenBiz published an insightful article on Interface’s new initiatives. It is well worth reading for anyone interested in both manufacturing and sustainability, and well worth careful study for those who want to make a difference.

Here is the link:

https://www.greenbiz.com/article/inside-interfaces-bold-new-mission-achieve-climate-take-back

For Smaller Manufacturers

Interface has long been a champion of, and roll model for, Sustainability in manufacturing. The switch from “do no harm” to “make the world a better place” significantly raises the bar. Beyond that, Interface’s actions and corresponding results dramatically demonstrate the power of visionary leadership.

Chuck - Red RocksThoughtful 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. New blog posts are published weekly.


[1] Donella (“Dana”) Meadows, et al, Limits to Growth, Signet Books (1972)

[2] To learn more about Ray Anderson and Interface, Ray’s book is a good read:

Ray C. Anderson, Confessions of a Radical Industrialist, St. Martins Press (2009)

The Next Killer App – Part 2

“Killer App”?

“Killer App” is a computer industry term. It refers to the software that creates the value that makes people buy the hardware – lots of hardware. In this post, I use “killer app” rather loosely, to mean a whole genre of software that breathes life into new hardware platforms.

The Next Killer App – Part 1 reprised the idea of an electro – mechanical continuum in equipment design. As design emphasis moves past electric to electronic, software becomes increasingly important, such that the equipment increasingly becomes a means by which the software creates value. That’s why I think that the next killer app will be will be electric automobiles, and the value that sells them will lie in safety, convenience, comfort, efficiency and entertainment.

 Electric Vehicles: Why?

The global vehicle industry has been evolving rather slowly since about the year 1900. The rate of evolution has accelerated in the last few decades, such that today’s vehicles powered by internal combustion engines are remarkable machines by almost any measure. Today, however, there is a convergence of technical and social factors that make electric vehicles much more desirable – so much so that electric vehicles may well become our vehicles of choice over the next few decades. Here are a few of those “technical and social factors”:

>> There are persistent concerns with importing and burning huge quantities of petroleum every year. These concerns include a pernicious deficit in America’s international balance of trade figures and accumulating levels of atmospheric pollutants from combustion.

>> Highway safety figures have improved significantly over the years, even while the number of miles driven has increased. Still, 32,675 people died in vehicle accidents on American roads in 2014. Compare that to commercial airline figures, which are consistently near zero, never mind travelling 500+ miles an hour, six miles straight up.

1903 Studebaker Electric

Thomas Edison in 1903 Studebaker Electric Automobile

>> Battery and electric drive technology has improved dramatically, especially over the last decade or so, vastly improving an idea – electric automobiles – that is as old as the automobile industry itself. (Mrs. Henry Ford is said to have owned an electric car).

Fifty years ago, a newspaper ad for a used car might read something like “1956 Dodge 4 door sedan, 48,000 miles, excellent condition, R&H” The “R&H” meant radio and heater, which were extra cost options. Since then, add automatic transmissions, air conditioning, power steering, seat belts, fuel injection, stereo entertainment systems, GPS and more. The long term trend in the features that people want badly enough to pay for is clear enough.

Tesla Leads a Revolution

Tesla Motors, of course, is current leader in electric vehicles. Their cars define the current state of the art. But Tesla isn’t just about spiffy new cars. Tesla has stated that their intention is to lead a revolution – a revolution in how we think about transportation. Tesla recognizes that it needs to create an electric vehicle industry for electric vehicles to become more than a side show in the very large global vehicle circus.[1]  To that end, Tesla opened its considerable cache of patents, license and royalty free, to any firm that seriously attempts to build electric vehicles.

Tesla Model SFurther, Tesla hasn’t shied from confronting the external barriers to the general acceptability of electric vehicles. For example, Tesla continues to construct what is already an impressive number of electric vehicle recharging locations in the U.S. and elsewhere. Also, in July of this year, Tesla will hold the Grand Opening of a huge gigafactory which will produce the vast number of lithium ion batteries that Tesla expects to require (on the hurry-up).

The Business Model Continuum

The 360,000+ orders Tesla booked in a few weeks for their new Model 3 confirmed that demand for vehicles like Tesla’s does indeed exist. That’s good, because over a dozen serious prospective mass market electric vehicle manufacturers have already emerged globally. At least initially, there appears to be a continuum in the approaches these firms take toward electric vehicles. On one extreme, some existing global vehicle manufacturers seem to regard electric vehicles as a line extension, as hybrid vehicles are. I call this the Detroit view, although Nissan may prove to be the best example. Toward the other extreme, Tesla represents what I call the San Jose view, where the vehicle is viewed as a conduit for technology that provides new value in transportation.

Here are some examples:

>> Faraday Future has broken ground for a $1 billion manufacturing facility near Las Vegas where “we are eager to start production of the vehicles of the future that will embrace the increasingly intrinsic relationship between technology and mobility.” Like Tesla, Faraday Future is headquartered in Silicon Valley (physically and in mindset). Their initial products are expected to be high performance premium vehicles. Any firm that invests a billion dollars in a grass roots manufacturing facility is worth taking seriously. The firm is reported to be closely linked to the Chinese equivalent of Net Flix.[2]

>> There have been strong rumors of a coming electric vehicle from Apple (yes, that Apple). Apple has spent about $5 billion in additional R&D from 2013 to 2015, which, along with a $1 billion investment in a Chinese ride sharing service, suggests that Apple has a strong interest in shared mobility, expressed through shared, rather than owned vehicles. Driverless vehicles might well provide a new vessel for Apple software functionality, as Apple’s iPhone provides a vessel for personal communications software technology. It is interesting that Apple does not manufacture iPhones, or anything else that I know of. It is reasonable to suppose that an Apple car will be designed by Apple but built by somebody else.

>> There was a recent ad in the Phoenix newspaper for a Manager for Google’s driverless car operations in the Phoenix area. Google’s cute driverless vehicles are being widely road tested (more than 1.5 million self driving miles to date).[3] Google has been working on self driving cars since 2009, so now has a lot of experience with the necessary software. It seems likely that Google will partner with established automakers to provide self driving technology, rather than building their own vehicles.

>> The June 2016 issue of Fast Company magazine lists Mark Fields as #13 in its ranking of the 100 most creative people in business in 2016. Mark Fields is the President and CEO of Ford. Fast Company is not the sort of publication that normally associates “creative” with Detroit executives. The brief Fast Company listing notes that Ford has been conducting extensive road testing on driverless vehicles. Fields is quoting as wanting driverless technology for mass market vehicles that is “true to (Ford’s) brand”.

Incidentally, Ford recently announced a coming electric version of the mid-sized Ford Fusion model, featuring a 200 mile range. Sounds like a line extension to me. So, maybe Ford is still closer to Detroit than to Silicon Valley.

For Smaller Manufacturers

The automotive industry is obviously in a state of transition, perhaps disruptive transition. A lot of new competition is coming on several fronts. In situations like this, existing supplier relations are at risk. Bad, if you are an incumbent supplier. Not so bad if you have been on the outside, looking in. Better yet, there is room for new faces and new ideas as the distance between Detroit and Silicon Valley diminishes.

Chuck - VancouverThoughtful 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. New blog posts are published weekly. 


[1] How big is that “very large global vehicle circus”? Statista reports over 72 million vehicles sold in 2015, while projecting 100 million for 2020! http://www.statista.com/statistics/200002/international-car-sales-since-1990/

[2] For more on Faraday Future, see www.ff.com

[3] Google offers a video on its driverless prototypes at: https://www.google.com/selfdrivingcar/

 

 

Henry and Elon

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:

Model Year 1909 – 1910 1910 – 1911 1911 – 1912 1912 – 1913 1913 – 1914
Production 18,664 34,528 78,440 168,220 248,307
Cumulative

Production

18,664 53,192 131,632 299,852 548,159

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.

Chuck ReadingThoughtful comments are always welcome.

…  Chuck Harrington

(Chuck@JeraSustainableDevelopment.com)

P.S: Contact me when your organization is serious about thriving in the 21st century … CH

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. New blog posts are published weekly.

Image of 1910 Model T Ford is from creative commons via Wikipedia

Figures on Ford Model T production are from My Life and Work, an autobiography of Henry Ford.

Toward Proactive Management – Demographics & Trends

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 financers, 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

(Chuck@JeraSustainableDevelopment.com)

 

P.S: Contact me when your organization is serious about surviving and thriving in the 21st century … CH

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. New blog posts are published weekly.

Toward Proactive Management – Technology

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 focuses on Technology and two of the change drivers it generates:

Technology and Manufacturing

Dreamstime - Crystal BallTechnical innovations, evolutionary as well as revolutionary, can drive change in every aspect of manufacturing; including materials choices, product design techniques, transportation options, process technology, staffing requirements, back office capabilities, even marketing and financing options. Technological innovations can be disrupt entire industries. Technical innovation also often provides the single best response to challenges to your firm’s competitive posture.

Sunshine and Negawatts

As this post was being written, Peabody Energy Corporation filed for bankruptcy. Peabody, America’s largest coal producer, joins a growing parade of coal producer bankruptcies. “Fracking”, an innovative Technical development, led to the availability of large amounts of low cost natural gas here in the United States. Climate change, a Sustainability – induced concern, has led to an increasing stream of expensive regulatory requirements that coal fired electrical power plants must meet. A substantial decrease in China’s economic growth rate, hence China’s coal requirements (a Globalization – induced phenomenon), triggered a sharp decrease in global coal prices.

So, changes associated with Technology, Sustainability and Globalization have combined to disrupt the coal production industry. However, coal still provides about a third of America’s electricity. The remainder of America’s coal fired power plants face an accelerated, but hopefully orderly retirement schedule. Natural gas fired plants will likely be the first choice for replacement electrical generation capacity in the near term. But “fracking”, hence natural gas, has its own Sustainability concerns.

Almost all of America’s vast fleet of electric power generating facilities will be replaced over the next several decades. Natural gas fired facilities will likely be first choice, at least initially, for large scale facilities. Natural gas, however, isn’t the only real, practical possibility. There are other increasingly viable options, especially photovoltaic solar energy and “negawatts”.

PV Solar

Photovoltaic (PV) solar energy means arrays of solar panels on rooftops or elsewhere. PV solar installations can be of sizes comparable in electricity generation capacity with utility – scale power plants, or as small as a desk calculator. PV solar needs no fuel, except sunshine. It is also passive, requiring little maintenance human attention. The cost build and operate a new utility scale PV solar power generation facility is already close to that of a coal or natural gas fired facility, and dropping fast.

On the other hand, PV solar generation capacity is only available when the sun is shining. From the point of view of an electric power utility, demand for electric power varies continually, 24/7. The utility needs to react to changes in demand as they occur. The utility needs access to sufficient immediately available generation capacity to meet demand, regardless of the weather or the time of day.

The answer to PV solar’s capacity availability issue lies in energy storage technology. Storage in innovative batteries is already being used by utilities and by end users to balance the sunshine to power demand. Tesla, the electric car manufacturer, was amazed at the demand for their new line of batteries introduced last year. Speaking of Tesla, if electric cars do become as ubiquitous as pre-sales of Tesla’s new Model 3 suggests, it may well be practical to create of a “cloud” of electric power storage capacity in interconnected automobile batteries, similar to the “cloud” of digital data storage that exists in interconnected file servers.

Batteries aren’t the only possibility. Electric power can be stored for later use by pumping water uphill while the sun shines and recovering that energy by releasing the water through turbines when power demand requires. Compressed air storage devices work similarly. The list of possibilities goes on.

“Negawatts”

“Negawatts” is a tongue-in-cheek term referring to electric power not supplied because the need for that power has been eliminated. Quick example: a 60 watt incandescent light bulb can be replaced by an LED bulb that draws only 11 watts. Bingo – 60 minus 11 equals 49 “negawatts” of electric energy that doesn’t need to be generated.

AEO 2015 Fig 19There are a lot of “negawatt” opportunities, from high tech innovations like LED light bulbs, to high efficiency motors and compressors, to better insulation and building design. As it turns out, the cost of “negawatts” often compares favorably to the cost of building and operating the electric generation capacity it doesn’t need. As you can from the chart labeled “Figure 19“, the Energy Information Agency (a U.S. government agency) projects that energy consumed to produce a (constant) dollar of GDP declines by half from 2013 to 2040! That’s the power of “negawatts”!


This post mentions only a few of many new technologies now emerging in the manufacturing world. 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 at ReneThoughtful comments and experience reports are always appreciated.

…  Chuck Harrington

(Chuck@JeraSustainableDevelopment.com)

P.S: Contact me when your organization is serious about surviving and thriving in the 21st century … CH

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. New blog posts are published weekly.

Images: Globe and Chart – Dreamstime.com; “Figure 19” – Annual Energy Outlook 2015

Toward Proactive Management – Sustainability

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 focuses on Sustainability and two of the change drivers it generates:

Sustainability and Manufacturing

3P GraphicIt is not always clear what “Sustainability” really means in a given context. For manufacturing managers, “Sustainability” refers to a greatly expanded scope of concern – a scope of concern that encompasses an entire value chain. As the diagram to the right indicates, manufacturing lies between the natural world, where your raw materials are ultimately sourced, and humanity (which includes your employees, your customers and your customers’ customers). Here in the 21st century, it is necessary to be constantly aware of your firm’s interactions with the natural world and with humanity (with all of humanity’s foibles) in order to remain “sustainable” – meaning “capable of continuing to exist”. Manufacturing’s scope of concern certainly does not start and end at the loading dock.


Global Warming > Climate Change

Climate Change is currently Sustainability’s primary issue. In essence, the assertion is that substantial and dangerous changes to the earth’s climate are in the process of taking place, due to a warming trend in the Earth’s atmosphere (i.e. Global Warming). The warming trend is mainly due to increasing carbon dioxide concentration in the Earth’s atmosphere, mainly due to combustion of carbon based fuels.

That certain common atmospheric gases, including carbon dioxide, can have a “greenhouse” effect that can raise atmospheric temperature is well established fact. That the carbon dioxide concentration in the Earth’s atmosphere has increased in recent times is a matter of recorded measurement. And humanity does burn one heck of a lot of carbon based fuel every year.

However, the Earth’s atmosphere is a large and complex system. Complex systems are prone to respond to changes in inputs or changes in conditions in surprising non-linear ways. Adding humanity’s participation adds another major element of indeterminacy. Consequently, predicting future responses of a large, complex system to changes such as an increase in greenhouse gas concentration over time measured in decades is challenging at best, if not a fool’s errand.

Repeated polls by reputable organizations like the Pew Charitable Trusts and the Gallup organization suggest that only about 50% of Americans believe that human caused climate change actually exists. The latest available Gallup poll, for example, holds that while 69% of Americans polled agreed that 2015 was an abnormally warm year, only 49% believed the cause of that warmth to be human-generated. [1]

The Pragmatic View

So, views on human induced global warming – hence climate change – are polarized. But, for a manufacturer, it really doesn’t matter which side you favor.

Why? Three quick reasons:

>> A continuing stream of increasing governmental regulations is coming, like it or not. The CAFE standards for decreasing vehicle fuel consumption and President Obama’s Clean Power Plan, which limits carbon emissions from electrical generating facilities are just a two of a growing crowd.

>> Actions to cut power usage across your firm’s value chain are simply good business, regardless of your views on Climate Change.

>> Actions that reduce atmospheric emissions respect both human well-being and the natural world that we all depend on.

Materials Utilization Efficiency

There are three primary approaches to improving materials utilization efficiency:

Recycle Moibus>> Recovering and reusing waste materials – Recycling, in its many forms, is the first thing that comes to mind: recycling of waste streams generated in the manufacturing process itself (recycled in-house or by others) and general recycling by third parties in the resources recovery industry (recycling of packaging materials, for example).

>> Improving production processes – Reducing waste in any guise, including materials waste, is a primary area for continuous improvement projects, especially by using Lean Manufacturing and Six Sigma techniques.

>> Designing (or redesigning) your products – Product design now encompasses your entire value chain. Product design starts with sourcing materials, continues through materials sensitive manufacturing processes, design for product performance, design for durability and ultimately design for end of product life reuse or disposition.

The key to all three of these is attention to your entire value chain, including waste in transportation at each step along the value chain. [2]


These are only two of many fundamental changes already occurring in response to Sustainability. 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 - California CoastThoughtful comments and experience reports are always appreciated.

…  Chuck Harrington

(Chuck@JeraSustainableDevelopment.com)

P.S: Contact me when your organization is serious about surviving and thriving in the 21st century … CH

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. New blog posts are published weekly.


[1] http://www.gallup.com/poll/190319/americans-believe-2015-record-warm-split-why.aspx?g_source=CATEGORY_CLIMATE_CHANGE&g_medium=topic&g_campaign=tiles

[2] For more on materials utilization efficiency, see Embracing the Circular Economy, a recent post to this blog available at: http://jerasustainabledevelopment.com/2016/03/21/embracing-the-circular-economy/

 

Toward Proactive Management – Globalization

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 post series of posts examines a few especially significant change drivers in each of the four categories. This post focuses on Globalization and a two of the change drivers it generates:

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. Consumers everywhere benefit from the lowest prices available anywhere in the world.

But it isn’t all good. Employees in some nations suffer is 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 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. [1]

Since even small manufacturers have international value chains, with suppliers and / or customers someplace between raw materials sources and product end users, disruptions in the international trade system very likely affect your business, for better or worse.

Migration, People and Capital

In 2013, author and investment banker Dan Alpert 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 early1990s 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, has begun to migrate from developing world countries toward developed countries. [2]

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.

For smaller manufacturers, the answer lies in innovation and in picking one’s spots. There are opportunities to be found in cheap capital and available labor. And innovative production capacity is never in over-supply.


These are only two of many fundamental changes already occurring in response to Globalization. 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 - Austrian AlpsThoughtful comments and experience reports are always appreciated.

…  Chuck Harrington

(Chuck@JeraSustainableDevelopment.com)

P.S: Contact me when your organization is serious about surviving and thriving in the 21st century … CH

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. New blog posts are published weekly.


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

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