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Monday, March 20, 2017

The Model 3 Won't Ship in July (and that's OK)

TL;DR
Optimistic fans hope Tesla will ship 80,000+ Model 3 this year. Goldman Sachs, on the other hand, downgraded Tesla's stock rating due to Model 3 delivery concerns. The truth is likely between the two. Musk has given many hints to the sources of delay that will likely impact Model 3. We examine his statements and, in light of these, attempt a realistic estimate.

Full Story
Despite the popularly held belief, Tesla will not likely start to ship the Model 3 in volume in July of this year. But if you live on the west coast, you might see yours arrive this year.

There is a lot of concern about the Model 3 and when it will ship. Goldman Sachs recently downgraded Tesla's stock to sell, citing near-term challenges including the launch of the mass-market Model 3.

So when will it ship and what do we know? Tesla provided a lot of information in their earnings call on February 22, 2017. At one point, discussing production risks, Elon Musk said, "I'm just going to tell you everything I know so you can have the same model in your head that I do." Of course, Musk could never convey all that he knows in this realm in one short phone call, but it did provide a glimpse of how he views risk management.

One of the large relevant chunks of information was that Tesla has asked suppliers to deliver 1,000 parts per week starting in July. This is to be followed by 2,000 parts per week in August, then 4,000 per week in September, ramping to 5,000 per week by the end of the year. If all of these parts could be assembled and delivered with a snap of the fingers, Tesla could deliver about 90,000 cars this year. But, this assumes all the suppliers will meet this delivery expectation and those cars magically assemble and deliver themselves. So, for 2017, we'll consider this the "lightspeed" or the impossible to reach upper bound of vehicle delivery.

At a high level, there are three stages: receiving parts, assembly, and delivery. Let's look at each stage and see what obstacles Tesla must overcome in that area.

Stage 1: Receiving Parts 

Supply chain logistics is not as easy as it might seem. Tesla has to deal with dozens of suppliers. The figure below gives you an idea of what they deal with for the Model S.


Model 3 will be a simpler, but it will still depend on dozens of other companies. Tesla can only deliver at the rate of the slowest one. This is the theory of constraints. When you start looking at second and third level suppliers, the list quickly becomes thousands of suppliers. It becomes a web of dependencies. So you must have contingencies and non-correlated alternatives... It takes a lot of planning and management to keep all the parts flowing.

Tesla has told all of their Model 3 parts suppliers to start delivering parts in volume in July. Will all the suppliers be ready and deliver in July and ramp at the rate that Tesla wants them to? The simple answer is 'no'. There will be some that are late. Musk referred to this as the "Term Paper Problem" in the Q4 2016 Results Earnings Call. Here's his quote from the transcript:

We have, what I call, the term paper problem. I was a teaching assistant in college and no matter what date we set for the exam paper, when the term paper was due, there's always some number of people that are late. It's just the way it goes.

Musk goes on to explain that when you have a global supply chain, you inherit "force majeure" risk from around the world. In other words, if there is an unavoidable major disaster that impacts one or more of their suppliers, then it also impacts Tesla's ability to deliver cars. They are taking steps to minimize risk where they can but if you don't know which supplier will be impacted or what will hit them, it is hard to prepare.

At Code Conference 2016, Musk explained this in more detail:

Think of any natural disaster you could care to name—all of those things have happened to our suppliers. A factory has burnt down, there’s been an earthquake, there’s been a tsunami, there’s been massive hail, there’s been a tornado, the ship sank...

These risks don't even have to be a major event. Musk also told the story of trunk carpet that shut down the production line for a few days.

There was a shootout at the Mexican border—no kidding—that delayed trunk carpet. The Border Patrol wouldn’t give us the truck because it had bullet holes in it. We just wanted our trunk carpet... That shut down the production line for several days.

That's right, one of the most technologically advanced things you can buy today was delayed for something as simple as trunk carpet. So, if you assume at least one or more supplier will have some issue and miss the July starting date, then there is the first delay. To address this, Tesla has several options: find another supplier, make it themselves, work with the supplier to address the problem(s).

Key factors: Theory of Constraints, Term Paper Problem, Global Force Majeure.

Let's make the very optimistic assumption that all of these issues can be resolved in three weeks.

Stage 2: Production

Tesla is a manufacturing company. You might think of them as a car company, a design company, or an innovation company. Yes, they have these aspects, but if all they could make was low volume bespoke cars, like the Roadster, then (no matter how great these cars were) they could never reach their mass market goal.

Tesla learned a considerable amount about designing for manufacture with the Model S and X. These cars were designed, for the most part, without much consideration to manufacturing. They are hard to make and they have had delays and issues related to this manufacturing complexity. Tesla has brought their designers into the factory to see these issues as they come up. The designers get to talk to the people on the line and see the issues that their designs are causing. They have applied these learnings to Model 3.

The massive roof opening of the Model 3 might be a cool design feature, but it's there first to allow the robot arms access into the car's interior during manufacturing. Ease of ingress and egress will allow the arms to move faster and allow for multiple operations to occur simultaneously within the body.

Here's Musk from the Q4 2016 Results Earnings Call:
Model 3 is designed for manufacturing. It's considerably simpler than Model S or Model X. Model 3 has 1.5 kilometers of wiring. Model S has 3 kilometers of wiring. A lot of the bells and whistles that are on Model S and X are not present on Model 3. We don't have self-presenting door handles, for example, or falcon-wing doors.

For Model 3, Tesla has turned their attention to "the machine that builds the machine." Musk said that Tesla is applying the rocket equation to manufacturing. The rocket equation considers mass efficiency and rocket velocity; but in a factory, it's volumetric efficiency and the exit rate (velocity) of products. This is a novel approach to manufacturing that only a rocket engineer would conceive.

From the earning call, Musk said "I've refocused most of Tesla engineering, including design engineering into designing the factory. I think in the future, the factory will be a more important product than the car itself," and from Tesla's blog "our factories are so important that we believe they will ultimately deserve an order of magnitude more attention in engineering than what they produce."

Musk has said that ultimately a Tesla factory will look nothing like any factory that has ever existed. He said it will look like an alien dreadnought. The dreadnought changes that they have made will likely pay big dividends when they want to move to 500,000+ vehicles per year, but doing something in a way that has never been done before could have a startup price to pay as they bring the alien dreadnought online for Model 3.

Key factors: New Design, Boot the Dreadnought

Let's assume these factors have a minimal delay of 2-weeks above and beyond the above delay.

Stage 3: Delivery 

Vehicle delivery is that all important final step. Even here, there can be delays. Musk told a story of a cargo ship carrying Teslas that was not allowed to dock due, ironically, to excessive smog in the port.

Tesla will avoid issues with boats by starting delivers to employees near the factory first. This allows them to easily bring the car back in to examine any failure and, if needed, make changes to the production line.

Starting with Tesla and SpaceX employees will mean that non-employee customers will have to wait for these deliveries before they move up in the queue.

Musk from Q4'16 Results call:
The initial cars, sort of Founder Series, actually go to company employees, because it's important to have a good feedback loop on the product we're making. And if there are any issues, bugs, or things that need to be addressed that we can address those before customers experience them.

After the SolarCity merger, Tesla has about 30,000 employees. SpaceX adds about another 5,000. That's 35,000 people that could be in line ahead of the first customer that does not work for Musk. How many of them have ordered a Model 3? It seems likely that at least 2,000 people that work at Tesla/SpaceX would be excited to get one of these cars.

Key factors: Employee deliveries first

This pushes the first delivery to someone outside of the company at least another week.

So When Do I Get My Car?

When pressed in the conference call the Tesla executives consistently said that the product ramp is not possible to predict. There are too many unknowns. But I see no reason for that to stop us from guessing.

We know that parts will start arriving in July. Recapping our potential delays above, there's the Term Paper Problem, Booting the Dreadnought, and Employee Deliveries. Assuming each of these are resolved quickly we could see non-employee deliveries starting in mid-August.

On the pessimistic side, if one of the items hit by the Term Paper Problem is a long lead item, this impact could be much bigger. Then, continuing on the pessimistic track, the employee deliveries could provide feedback that requires tweaks to the car and/or factory. This could further delay the non-employee deliveries until September or October.

Once the cars start shipping, there are several factors that determine your place in line.
Vehicles will go to current Tesla owners that live near the factory that reserved a car on day-one in a Tesla store. Then cars will go to people on the west coast US with the same qualifiers.

Generally, Tesla delivers cars that have a higher price tag first. This allows them to collect money for higher revenue vehicles sooner. This might not be the case for Model 3. E.g., if they are motor constrained, they may opt to deliver single motor cars before dual motor vehicles so they can deliver more cars. Similarly, if they are battery cell constrained, they may opt to deliver more units of the smaller pack vehicles rather than fewer large pack vehicles (assuming there are pack size options). This is unlikely, but possible depending on the constraints that present themselves.

Perspective

What Tesla is trying to do is very hard. They are trying to take a car that is not yet in production and deliver tens of thousands of them in less than half a year. I've seen estimates that Tesla could deliver up to 80,000 Model 3s in 2017. This is nearly impossible (not totally, but nearly). Let me put it into perspective. In 2016, Tesla had an entire year's production and they delivered about 76,000 vehicles (source). Tesla had challenges with Model X production in the first half of the year and they had short-term production challenges in Q4 with the transition to the new Autopilot hardware 2.0. So yes, Tesla has delivered ~80,000 (with production challenges), but this was for the entire year.

For another comparison, in the first 2 months of 2017, GM is only delivering about 1,000 Bolt EVs per month. Tesla wants to get to 5,000 per week.

Model 3 will have start-up pains and less than half a year of production. As we've seen with every EV that has been delivered in the last decade (Tesla's included), the production ramp has been slow. Given this, I estimate that there will only be 25,000 to 50,000 Model 3 vehicles delivered in 2017. This is far fewer than the 80,000 unit prediction that others are making and still fewer even more than the lightspeed 90,000 number would allow. I hope this is woefully low, but given all the unknowns, it seems reasonable.

These 2017 units will be primarily consumed by current Tesla owners and west coast day-one reservation holders.


In 2018, Things Turn Up To Eleven

In 2018, all these production issues should be worked out to allow Tesla to slowly turn the production volume knob up to 11. This will allow all the current reservation holders worldwide to receive their car by end of the year 2018.

Monday, March 6, 2017

Musk of Mars

Disclaimer, Disclaimer, Disclaimer: The below article makes inferences, speculations, leaps of logic, and several WAGs. This is just a blog, not PLOS ONE; please treat it as such.

It's not a stretch to say that Elon Musk is obsessed with Mars. He wants to make life multi-planetary (read populate Mars and beyond). He has even said that he wants to die on Mars, "Just not on impact." In 2002, he started SpaceX with the explicit objective for the rocket company to become the primary means to populate the red planet.

It's important that we attempt to extend life beyond Earth now. It is the first time in the four-billion-year history of Earth that it's been possible, and that window could be open for a long time - hopefully it is - or it could be open for a short time. We should err on the side of caution and do something now. ~Elon Musk

SpaceX is not Musk's only company. The other companies that Musk runs promise to make Earth a better place with renewable energy production and storage, zero emission transportation, and high-speed rail in low-pressure underground tunnels. What if these Earthly benefits are only a side-effect and not the true reason Musk funds and helms these companies? What if he has a secret plan.




All of Musk's other current companies were formed after SpaceX; or more specifically after colonizing Mars was his stated goal. These companies include Tesla Motors (2003, now Tesla Inc), SolarCity (2006, now part of Tesla Energy), and most recently The Boring Company (2016). Additionally, in 2013, Musk was the impetus behind Hyperloop. He penned the 58-page first draft* for the idea for a "fifth-mode of transport" in low-pressure tubes. Musk is not involved in any of the companies currently working on Hyperloop, but SpaceX does host a student competition twice each year that draws in over 800 students including teams from California-Berkeley, Carnegie Mellon, and MIT.

Why did he create each of these efforts?

I don't create companies for the sake of creating companies, but to get things done.   ~Elon Musk



What if, like SpaceX, each of Musk's companies had an explicit Mars mission statement. Let's look at each of his current endeavors through the red-colored lens of Mars and see what they might "get done" there.

SolarCity

A colony on Mars will need energy. As far as we know, Mars does not have deposits of oil, coal, or methane. There are no flowing rivers that can be dammed. The thin atmosphere would not power wind turbines very well.

Mars is farther from the Sun than Earth is, so solar panel energy output will be about 40% lower than it would be here. However, the panels will not have to deal with cloud cover or weeks covered in snow. These factors and the cool ambient temperature helps to make up for the increased distance from the giant fusion reactor known as the Sun. The solar panels that go to Mars will not be the same type that you put on your roof. They will be the most efficient full-spectrum panels that we can produce. One more solar consideration is that pesky dust problem. Looking all these factors, solar panels will likely be a significant energy source for a Mars colony.

The people of Mars may eventually derive their primary power from nuclear or a fuel source extracted from the soil. Even if solar is not the final primary energy source, it would be useful for excursions and as they expand into new areas, before the infrastructure for other methods is setup.

Solar panels may not be the only energy source, but they are very likely a significant energy component for this Mars colony of the future. When SolarCity's Gigafactory** facility in Buffalo is complete, they will be able to produce the necessary solar panels for Mars.

Tesla Motors (i.e., the transportation division of Tesla Inc.)

A colony on Mars will need transportation. There is no significant atmosphere on Mars, so an internal combustion engine, like the ones that power most ground transportation here on Earth, would not work on Mars without the supply of air to suck in. Just as the Lunar Rovers were battery powered electric vehicles, so too will be the vehicles for Mars excursions.

Similarly, if the colony becomes large enough that you need transportation within habitation areas, then a polluting internal combustion engine indoors is a bad idea when every liter of breathable air must be scrubbed. Without miles of atmosphere above you, running an internal combustion engine would be like running a gas car in your garage with the door closed. It's a very bad idea.

So both surface transportation and intra-hab transportation will be electrically powered on Mars. Tesla Motors will be able to make vehicles for these needs.

Tesla Energy 

Batteries will play a vital role in both energy and transportation. If you live in a solar powered world, you need energy storage. Batteries will provide nighttime energy needs such as lighting, refrigeration, and heating. Batteries will also be important to power the electric vehicles mentioned above.

Tesla's Gigafactory (eventually Gigafactories plural), will be able to produce batteries for Mars colonies. Mars colonies will eventually need to be able to produce their own supplies of things like batteries, but supplies from Earth will kickstart them.

Perhaps the surface of Mars will eventually be dotted with a matrix of solar powered, battery-based Supercharger stations. This could be our chance to actually have a single universal planetary standard for fast charging (on at least one planet).

The Boring Company 

Musk has recently started a company to dig tunnels. He has stated that his engineering team can reinvent tunnel boring and create a machine that will bore through the earth five to ten times faster than any of the massive earth boring rigs that exist today.

Would you need tunnels on Mars?

Without a significant magnetic field, like the one we have here on Earth, Mars is far more vulnerable to cosmic background radiation and highly energetic events that emanate from the sun such as solar flares, coronal mass ejections, and coronal holes.

On Mars, the easiest way to avoid solar energetic particles (SEPs) and galactic cosmic rays (GCRs) is to live underground. Five meters of soil should provide a level of protection similar to that which we enjoy on Earth.

This means that, at least initially, our Martian colony will be living underground. Natural caves might provide an initial starting point, but the colony will want to expand as the population increases with more areas to grow food, living quarters, recreation areas... Drill, baby, drill (horizontally)!

Hyperloop

Hyperloop is the idea of an ultra-high speed train in a (mostly) evacuated tube. The ~one-mile long test track on the SpaceX campus is the second largest vacuum chamber in the world (second only to the Large Hadron Collider).

In 2015, Japan's maglev train set the world record at 374 MPH. Musk hopes that Hyperloop will be able to double this speed. But it's turning out to be a very difficult problem.

The long tubes, that Hyperloop requires, makes maintaining a low-pressure environment very difficult. The tubes expand and contract with temperature changes. This means that they have to have some sort of expansion joint to avoid buckling. This makes maintaining pressure seals very difficult. One solution to this is to go underground where the temperatures are more stable. See The Boring Company above.

However, in places like California, where the earth has been known to quake, people may not be excited to travel underground.

Hyperloop is turning out to be very difficult here on Earth. Would it work on Mars?

On Mars, things are much easier for Hyperloop. Low-pressure environments are not hard to come by. And tectonically, Mars is stable. With the planet's likely solid core, Marsquakes are not something that Hyperloop riders would need to worry about above or below the surface. Although a Marsquake may have occurred in 2012.

Mars - The Puzzle Pieces Fit Better

Batteries, electric cars, & solar panels work well both, here on Earth and on Mars. These products make sense for both planets. Looking at tunnels and Hyperloops, the earthly benefit is not as clear.

Musk has said that he wants to drill tunnels to alleviate traffic. Studies have shown that adding more traffic lanes only invites more cars. This will be true if the lanes are in tunnels or on the surface. I'm sure Musk is aware of these studies. Perhaps his vision is to add far more levels and lanes than any historical road expansion, so prior studies of roadway expansions that added a lane or two to an already congested area just don't apply. On Mars, if we're living underground, the roadways could be designed from the beginning to be multi-level.

Looking at Hyperloop, there're several teardown articles and videos that discuss many of the problems of hurling people through an evacuated tube at near the speed of sound. Again, I am sure that Musk is well aware of these challenges. Hyperloop low-pressure levels are not easy to maintain (on Earth).

Musk is a genius. I don't think that he has simply overlooked the things that a YouTuber has pointed out. I think he has a different, Martian endgame in mind. If you were building Hyperloop on Mars, the near vacuum comes for free. The lower gravity will even make the train levitation easier.

Mars - The Secret Plan 

Musk's real secret plan: develop technologies to be utilized on Mars. If they also make Earth a better place, great. Shhh, it's a secret. Don't tell anyone.



Here's the Mars vision: Solar panels collect energy, batteries to store the energy, electric vehicles to move about on the surface, in the hab, and for farming drones. Tunnels between sites (farms, habs, loading docks...) with Hyperloop trains to move people, equipment, and supplies. And, of course, SpaceX will take all the people and supplies to Mars. It all fits nicely.

It's important to note that Musk's companies may not be the ones to ultimately deliver these technologies to Mars. Rather the mere founding of Tesla, SolarCity and the others would help to create a worldwide market for these technologies that would then drive the industry to invest billions of dollars into R&D to create better batteries, solar panels, high-speed trains, and even tunnel boring machines. All technologies that Mars will need. If another company can do it better, faster, cheaper than Musk's, Mars (and Musk) still win.

If Mars is the real mission of all these efforts and it just happens to make life a little better on Earth along the way, that sounds good to me. Maybe I'll sell my home in 2030 and retire to Mars. 😃

Where does OpenAI fit in? I'll leave that as an exercise for the reader.



* Arguably Musk revived an old idea. See Robert Goddard's vactrain concept. 
   As a rocket-man, Goddard is someone with which Musk is familiar.

** The SolarCity Gigafactory is now called Gigafactory 2 and Tesla has announced plans for Gigafactories 3, 4, & 5.

Monday, February 20, 2017

Supercharger Hidden Grace Period

Tesla Motors recently announced their new idling fee. The fee is designed to encourage people to move along after they have charged up. Of course, electric cars don't "idle" in the same way that gas cars do.
Idling in a gas car is sitting in one place while the engine on, emitting fumes from the tailpipe. Idling in Tesla's program is sitting at a Supercharger station after your vehicle has finished charging. This blocks the charging spot, meaning that others cannot use it. As an EV driver, if you need to charge, and access to the charging equipment is blocked by a car that is not using it (EV or not), it is infuriating.

To alleviate this problem, Tesla has instituted their idling fee.

Briefly, if a car completes its charge, and the charging stations at this location are more than 50% occupied, a fee of 40 cents per minute begins to accrue. If the car is unplugged and moved within 5 minutes of completing the charge, then all fees are waived. If, however, it's idle for more than 5 minutes in an active location then the fees keep accumulating: $0.40 per minute, $24 an hour, $576 per day. This is expensive parking. The fee is meant to encourage people to move along quickly once their charging is complete.


In an earlier post, before the program details were announced, we speculated that there would be a 30 minute grace period. As you can see above, there is only a 5 minute grace period. But perhaps there are some minutes hiding here that we can uncover?

The Hidden Grace Period

That 5 minute grace period is not all of the "grace" that a Tesla driver is granted. Supercharging includes an implicit grace period. As we discussed in our recent Supercharger powered trek article, Tesla's navigation system will tell you when you have enough charge to make it to your next location. Most Supercharger locations are within 150 miles of each other. This means if you have 200 plus miles of range in your Tesla, you won't need a full charge to get to the next Supercharger (if that's where you're going). There may be times when you truly need a 100% charge, but these are rare with a long range EV.

The charging rate of Lithium batteries slows down above an 80% charge. The last 20% can take 20 to 30 minutes. This means that the time from the Charge-needed level to Fully-charged is usually not needed and it is the slowest charging rate of the battery. This time is the implicit grace period.

Kōkua: Hawaiian word for giving to benefit others

Let's look at an example:
You're driving a Tesla with 250 miles of range. You pull into a Supercharger near empty. It's 150 miles to your destination. You plug in and walk to the nearby restaurant. You take a seat in the restaurant and order a meal. Twenty-five minutes later you receive a notice on your phone, you have 170 miles of range and you can reach your destination.

The charging does not stop just because the vehicle has enough to reach the next destination. Instead, the charge only stops when the batteries have hit the user-settable full level. In this case, on a road trip, you've put this setting at or near the maximum. The notice on your phone further says 25 minutes to a full charge. At this point, if you are a conscientious person, you would go and move your car to free the spot for others. Or maybe you can see the supercharger site and see that there are free stalls available, so you finish your meal and let the vehicle charge up for another few minutes. You make it back to your car and you are on the road before the 5-minute idle countdown even starts.

In this example, the 25 minutes from 170 miles to a fully charged is the implicit grace period. Along with the explicit 5 minute grace period, this gives you a 30 minute grace period in this example.

Driving electric is not just picking another fuel source, it is joining a community. Please practice Kōkua charging, or as we've referred to it, Lagom charging.

Happy electric motoring!

Monday, February 13, 2017

Moving Grandpa in a Tesla Model X

Grants Pass, Oregon
We traveled from Portland Oregon to Grants Pass in our Tesla Model X to help my wife's grandfather move into an assisted living facility.

Grandpa spent most of his career as a parts manager for a GM dealership. He knows cars. At 94 he still has his wits about him and can tell you stories about how things have changed over the decades.

He had never seen a Tesla before.

Tesla Model X

He was impressed with the Tesla Model X. Our conversation went something like this:

  Him: How far can it go?
  Me: 257 miles on a charge.
  H: I didn't know they could go that far yet.
  H: How much can it haul?
  M: Five thousand pounds. It has a trailer hitch that we'll use for our camper this summer.
      It has so much torque, it won't even slow us down. And there is plenty of room
      for gear in the back and it has a front trunk too.
  H: How much does it cost to charge up?
  M: When we charge up at home, it's about the same as $1 per gallon gas. For trips
      like this one, it's free* on Tesla's charging network. You have one of their free
      Superchargers right here in Grants Pass.
  H: Free? Well, you can't beat that!
  H: I remember when gas was a dollar a gallon. Heck, I remember when it was seventeen cents.

* I know it is not free, it's included in the price of the car, but at 94, he is not in the car market and it was a nuance that I didn't think was relevant in this context.

We were there to help him move, so on the last day of our visit, we started the move. Our Model X has the 6-seat configuration. I folded the 3rd row down and moved one of the second-row seats forward. This left seating for 3. We filled up the frunk and the cargo area with his stuff. My father-in-law had a truck for the dresser and table. We were loaded.

We decided to have grandpa ride with me. At 94 years old, he's no spring chicken. He uses a walker and is prone to falling. I hopped in the car and lowered the air suspension. This would make it easier for him to step in. Then I opened the falcon wing door. He was again impressed. "Are we going to fly there?" he quipped.

He approached the car and grabbed the b-pillar for stability and we moved his walker. This allowed him to step into the car and sit in the second row. My father-in-law commented on how much easier that was than getting him into the truck had been on the previous day.

We went out to lunch. When we arrived, before opening the door, I raised the air suspension, to help get him out of the car. This was like a lift-seat helping him get his weight above his feet. I opened the falcon wing door and with him still seated, we turned him so that he was pointed out of the car. With the door up and out of the way, this was easy. We brought his walker and from his high sidesaddle position, he was easily able to stand and take the helm of his walker.

We went in and had a nice lunch.

We were not in an ADA parking spot and when we were leaving we found that another car had parked next to us. Sitting him on the other side of the vehicle was not an option since it was filled with moving boxes.

Granpa said, "You're going to have to move the car to get that [falcon wing] door open." There was plenty of room for him to fit, even with the walker, between the cars so I was sure the door had plenty of room. I clicked on the key fob and the falcon wing worked its double-hinged engineering magic and opened wide without even coming close to the other car. "What will they think of next?" he exclaimed.

We did the same simple suspension lower and raise load and unload procedure as we left lunch and when arriving at his new home. We unloaded and finished the move in job. My wife and mother-in-law arranged the furniture and knick knacks. Soon we had him moved into his new home.

Later that evening, we said our goodbyes and began our journey back north.

If you'd like to read about our drive to and from Grants Pass, you can read part 1 of the Supercharger adventure trek story here.

Monday, February 6, 2017

Did Adidas Make Tesla Change the Model 3 Logo?

Tesla three lines logo, used as an E in Tesla and a 3 in the Model 3 during 2016
According to Law360.com, Adidas has filed a notice of opposition with the U.S. Patent and Trademark Office, demanding that Tesla stop using the three horizontal lines logo.

Adidas says Tesla's logo is too similar to their three stripes logo.

The 3 parallel lines logo of Adidas
Adidas uses the 3 lines in multiple ways in their branding and marketing. They have to be protective of it. Here are another couple examples of Adidas' use of the 3 lines.


As a vital part of Adidas' brand, they are compelled to show a record of defending their trademark. This may be a case where Adidas is just tallying another record to show that they are actively defending their mark.

Tesla has recently announced that they are changing the Model 3 logo from the triple bar  to a numeral representation.

Tesla's new Model 3 mark
If Tesla kept the triple bar logo for the Model 3, they would also have to register the numerical version of the name too since this is how most people would write it most of the time.

Perhaps, Adidas only filed this action after hearing that Tesla was changing their logo. This would be an easy way to score a defensive point without any real opposition. Then again, that might be considered abuse of the PTO system.

It is not clear if Tesla changed the Model 3 logo for their own reasons, to simplify their branding, because of this action by Adidas, or another reason.

It seems unlikely that a simple cease and desist from Adidas would cause Tesla to change the logo if they wanted to keep the triple bar. Tesla is no stranger to legal battles.

This is just the latest in the tumultuous branding for Tesla's next vehicle. Model 3 started out its life as the Model E, igniting a trademark battle with Ford Motors.

Model E ⇨ Model  ⇨ Model 3  

Will Adidas continue to pursue this? Will they go after the triple bar E in the Tesla name logo next?

Monday, January 30, 2017

When Will Tesla Hit 200,000 US Sales


Will Tesla Model 3 buyers in the US get the full $7,500 tax incentive? Take a look at the data.

As of the end of 2016, Tesla has sold about 110 thousand cars to US buyers. This puts them over half way to the 200 thousand mark. The 200k mark is important because it triggers changes to the US EV incentive.

Currently, there's a $7500 US Federal tax incentive for plug-in cars with 16kWh or larger battery packs. The way the incentive is structured, it starts to phase out soon after an automaker hits 200k US sales. It appears that Tesla will be the first automaker to cross this threshold. More details of the impacts to follow.

There are about 400k people waiting for the Tesla Model 3 to ship. With about half of these orders going to the US market. This means that there are about 200k people that really want to know, one, when they will receive their Model 3 and, two, will the US EV incentive still be in full effect when their car is delivered.

So when will Tesla deliver their 200,000th car in the US? If Model 3 goes according to plan, it could be this year. Here is what Elon Musk said when asked about Model 3 deliveries.

So as a rough guess, I would say we would aim to produce 100,000 to 200,000 Model 3s in the second half of next year. That's my expectation right now.
~Elon Musk, Tesla Q1'16 Earnings Call


In the quote above, Musk is not talking only about the US market. 100,000 to 200,000 is a big range, and Musk has consistently been optimistic with delivery dates and targets.

Rather than decipher words and argue, let's look at the data. Below is Tesla's US sales data from June 2012 through the end of 2016. The projection still leaves plenty of room for argument.

Tesla Motors sales from June '12 through December '16 with projections into 2018
The trendline above is a simple mathematical guess. You can find more and less optimistic trendlines that fit the data just as well, but let's use this one for now. This line forecasts that Tesla could ship their 200,000th US vehicle in March of 2018.

It is not hard to see that if 110k cars have already been shipped, 200k people in the US are waiting, and incentive charges start happening after 200k cars, then some people may not receive the full incentive. This simple calculus does not tell the entire story. How the incentive program phases out will have a big impact on the number of people that receive the full benefit. So...

Here's how the incentive phases out: In the quarter following the 200,000th sale, Tesla will report that they have delivered the 200,000th vehicle. In the quarter following that, the incentive will be cut in half, dropping it to $3,750. Six months later it then drops again to $1,875 for the six more months. After that, it's done. Figure 2 below will show this graphically.

March is the last month of the first quarter. Noting how the Federal incentive program works, you'd want to ship your 200,000th vehicle early in a quarter, rather than late in a quarter. Timing this delivery is not cheating or illegal, it's just smart. It's like the difference between tax planning and tax evasion. The former is smart and everyone should do it, the latter is illegal. Scheduling the 200,000th delivery for early in a quarter allows more people to receive the full Federal incentive; it's the right thing to do for customers.

So if Tesla really is on-track to deliver their 200,000th vehicle in March of 2018 as the trendline above projects, then they would likely reduce US shipments that month, sending a few more cars to Europe and Canada for example, and then deliver the milestone car in April instead. If they do, the below table explains how the incentive would progress.

US Federal EV Tax Incentive Phase Out
The above scenario allows Tesla to deliver Model 3s (and Model S and X) until September 30th, 2018 with full Federal incentives intact. If you are buying a Tesla, then this date for the Federal EV incentive to reduce is far more important than when the 200,000th car was shipping. This is the date that you really need to know so you can take delivery on, or before, September 30th, 2018. When Model 3 starts shipping we'll have a much clearer picture of the timeline and we'll publish an update to this story.

Wrap-up 

Tesla is likely to deliver their 200,000th vehicle in the first half of 2018. This will trigger the Federal EV incentive to begin its one-year phase-out. This should ensure that all US Model 3 reservation holders as of today will receive some level Federal incentive with the vast majority receiving the full $7500.

Monday, January 23, 2017

We Have The Wrong Vehicle Efficiency Incentives

Summary:  Vehicle fuel efficiency has not significantly increased since the 1980s. The current CAFE system puts the onus on automakers and therefore has been resisted (successfully) by the auto industry. A feebate program based on vehicle efficiency would nudge consumers toward efficient vehicles, creating a market demand for higher MPGe vehicles. Automakers will follow consumers and fulfill the market demand. Feebates mechanics are explained and a structure for one is purposed.

Full Story:
Soon after Donald Trump became President-elect Trump, the automakers appealed to him and his transition team to ease fuel economy requirements.
The current US regulations have a fleet average requirement of 54.5 MPG by 2025. This is known as the Corporate Average Fuel Economy (CAFE) standard. Most vehicles sold today are significantly below 54.5 MPG mark, so to meet this goal the automakers are forced to add more electric vehicles (EV) to their product offerings. These EVs would be used to offset the sales of their gas-guzzling SUVs and pickup trucks.

The automakers argue that there is no demand for electric cars. They claim this makes it impossible for them to meet the CAFE goals. Perhaps a specious claim by the automakers, but they try to sell vehicles that are profitable and in-demand. So the incentive program's goal should be to create demand for efficient vehicles.


A system that appeals to market incentives, rather than regulatory hurdles, is far more likely to be successful.



Encourage Buyers, Not Automakers

The current system puts the burden on the automakers. This guarantees that they are going to fight against it (other than the few electric-only car companies). We need a better system than CAFE. The automakers are a politically powerful group. If you try to force their hand with regulations, you get what we have today, resistance and little to no change. We need a system that creates and encourages the uptake of high MPG and electric vehicles by consumers. If a significant number of customers are demanding efficient vehicles then the automakers will be racing to win that market, rather than fighting against the government policies and delaying progress.

We need a system that encourages people to buy efficient vehicles, not one that punishes automakers for not selling them.

The automakers that don't move to meet this demand will have sales shortfalls and will either adjust course or cease to exist. Companies understand and are willing to spend money on customer acquisition costs. This is very different than spending money on compliance; different in that it will actually receive internal funding.

If there's a significant market demand for plug-in cars, automakers can spend their money designing vehicles to fill the need rather than paying lawyers to fight Washington D.C.

So how could you encourage people to demand higher MPG vehicles?

The simple answer is higher gasoline taxes/prices. This would be effective and it may have some place, but it is a regressive burden in that it punishes those who cannot afford to buy a new car and I cannot recommend it as a primary solution. I think the better answer is to modify the new vehicle purchase behaviors.

I apologize in advance, this is going to be a bit of a wonk-walk. It is hard to discuss policy details without, well, getting into policy wonk details.


Let's Try Feebates

If you want to make EVs and high mileage cars attractive, you have to make them affordable. Today, the average fuel economy for passenger vehicles on US roads is about 26 MPG. Efficiency ratings have stagnated in this zone since the 1980s and this is far below the EPA's Corporate Average Fuel Economy (CAFE) target of 54.5 MPG. A feebate system might help.

The idea of a feebate is simple. There are fees on things that you want to discourage (low MPG vehicles in this case) and rebates on things that you want to encourage. This method is a nudge on the market forces. With this method, the government is not picking technology winners and losers. Instead, it is setting goals and leaving the door open to innovation and market forces to achieve or even exceed these goals.

A feebate is a simple nudge; market forces take it from there.

Part 1 - The Fee

For this feebate thought experiment, let's say there is a tax on any passenger vehicle that's below the target (54.5 MPG). You can call it the energy security tax or gas guzzler tax.

Since most vehicles sold today (about 99%) would fall into the less than 54.5 MPG category, even a small fee would collect a large pool of money. Let's try some numbers and see how it might work out:
In this example, the amount of the tax is 0.1% (one tenth of one percent) for each 1 MPG that the vehicle is rated below the target. So an 18 MPG car would pay a 3.7% tax.

Let's look at how this example fee rate would apply to last year's top-selling US vehicles. According to Kelly Blue Book's 2016 best seller countdown, they are:

#     
Vehicle 
MPG
Example Fee
10 2016 Honda CRV 29          
2.5%
9 2016 Nissan Altima 31 2.4%
8 2016 Toyota RAV4 26 2.9%
7 2016 Honda Accord 27 2.8%
6 2016 Toyota Corolla     31 2.4%
5 2016 Honda Civic 35 2.0%
4 2016 Toyota Camry 28 2.7%
3 2016 Ram Truck 20           3.5%
2 2016 Chevrolet Silverado    19 3.6%
1 2016 Ford F-Series 20 3.5%

The top selling cars (#10 - #4 on the list) would all have a fee of about 2.5%. The target of 54.5 MPG is an aggressive goal (as it should be). At 52 MPG, even a Toyota Prius would have a small fee of 0.3%. A target of 54.5 clearly encourages something beyond hybrid vehicles.

The top 3 selling vehicles in the US (again according to Kelly's countdown) are all trucks. As top sellers, there are more of these on the roads than any of the above cars. However, since these trucks have a lower MPG rating than the above cars, they will pay about 1% more than the cars.

According to the WSJ, automakers sold 17.5 million cars and light trucks in the U.S. in 2015. In that year Americans spent about $570 billion on these new rides. If the above fee structure were in place for these sales, then about $15 billion would have been raised.

Part 2 - The Rebate

The fees collected in this feebate program would be used as incentives (or rebates) for vehicles that get over 125% of the target, or 68 MPG. These vehicles could be battery electric, plug-in hybrid, fuel cell, compressed air, Thorium (j/k), or any new drivetrain or fuel system that could be imagined and designed to met the 125% (68 MPG) value and was safe for use on US roadways.

We need a system that sets goals and lets innovation find the path.

The amount of the rebate would be determined in such a way that it was revenue neutral with the fees collected. Today, with only one percent of new vehicle sales exceeding the 54.5MPG goal, there would be significant funds to pile on to those vehicles.

From the fees above, this program would have ~$15B to spend on incentives. Looking at 2016 sales, about 150,000 plug-in vehicles (BEV & PHEV) were sold last year. Simply applying $15B to 150,000 cars would yield $100,000 rebate incentives available for each plug-in car sold. That is a crazy amount. It would be easy to sell plug-in cars if you could give away Teslas. As fun as that would be, it's not realistic. It does, however, give you an idea of how (especially early on) this method could jumpstart the market. So how could we really use the funds?

These funds could be used to continue the $7500 federal incentive that is in place today (simply changing it from a kWh based system to an MPGe-based qualifier) or the program could be improved. If we're overhauling the system, let's improve it. Here's what I propose for the new High-Efficiency Vehicle Incentive (HEVI). (Let me know if you can come up with a better backronym)

Here's how the new incentive would work:

New Incentive: Point-of-Sale 
The incentive should be a point-of-sale incentive. The system that we have in place today requires you to file your tax return before you see the incentive dollars. This means that it does not help reduce your car payment and, depending on that time of year you buy, it might be more than a year before you see the money back in your bank account. Most people cannot have $7500 missing from their bank account for months.

New Incentive: No Income Requirement
The current federal EV incentive requires you to have a taxable income to receive the benefit. This is a problem because it excludes retirees. The workaround to the current system is to lease the vehicle (allowing the lessor to take the credit) and then the lessee buys out the lease. If the point of the program is to put efficient cars on the roadways, there is no reason to exclude retirees from the program (especially when there is a loophole). Keeping it simple and inclusive is a better method.

The other reason to not have an income restriction on HEVI is that it is funded differently than the current program. The current federal program effectively allows you to take the incentive out of your own tax payment. If you owed the taxman $17,500 then you only have to pay $10,000. This feebate program, on the other hand, collects revenue from fees. So, on the rebate-side there is no need for an income requirement, just as there is no such income requirement on the fee-side.

New Incentive: No Income Restriction
Similar to the case for including the retirees is the argument to keep high-income earners in the program. The air doesn't care about your income level. Another efficient vehicle on the road, regardless of who is behind the wheel, is a good thing.

There's no reason to exclude retirees or the well-heeled, the point is to meet the goal and they can both help us get there.

There is, however, an understandable concern that this program would be used to charge taxes to people buying Corollas, Civics, & CRVs to then use it to supplement people that are buying Teslas or plug-in Porsches. We'll limit this in the next section. 

New Incentive: Avoiding Pitfalls - Golf Carts and Supercars
There have been many incentive programs in various forms in various states and countries. There are two primary ways in which these programs can be abused: One, excessive payment for cheap vehicles making them free or nearly free and, two, excessive payment on very expensive vehicles that do little to advance the program's goals.

Let's look at each case. If the program has a fixed dollar amount incentive (such as $10,000), then a very cheap vehicle that meets the stated requirements could be nearly or completely free. Some electric golf carts have taken (excessive) advantage of state EV incentives in the past that were written with sloppy requirements that unintentionally allowed them to be included.

To curb these "Golf Cart" abuses, two things are needed:

First, the policy rules need to restrict the incentives to only roadworthy, crash tested, vehicles.

Second, the incentive would need to consider both the vehicle's cost and its contribution to the program's goals. This is handled via a restrict of the incentive to 30% of the vehicle's cost. By restricting the program to only pay for a percentage of the vehicle, this prevents excessive payment on any vehicle. Under this clause, if someone buys a $10,000 vehicle, they would only qualify for up to a $3,000 incentive. This program is not intended to 'give-away' vehicles, only to accelerate their adoption. An incentive that is too large creates a market bubble which will eventually burst and that is bad for long term growth.

That concludes closing the low-priced loophole. On the end of the spectrum is the high-priced loophole.

Just as the dollar based programs can be abused on the low-end, a purely percentage based program can be abused on the high-end. Here the abuse happens when the incentive structure pays someone buying an expensive car far more money than the car's contribution to the program's goals.

Consider two cars, both have an EPA rating of 106MPGe. One costs $1M, the other costs $35,000. These two cars contribute equally to the program's goal, so they should be awarded equally based on their contribution, rather than based upon their price tag. Let's consider the million dollar supercar (which happens to meet the program goals). If this vehicle received a full 30% incentive, this would be an incentive payment of $300,000. This is a lot of money to reduce the emissions from just one vehicle; a vehicle which is likely to spend most of its life in a display garage. Let's put a reasonable maximum dollar limit of $10,000 here to prevent this excessive payment.


New Incentive: How Much?
The above two items, when taken together, start to define how the incentive should be structured. The incentive has to have a percentage restriction to prevent the free golf cart and it must have a dollar limit to prevent the supercar overpayment case. Let's use 30% and $10,000 for these values as we did in the above examples.

Feebates can be structured with a hardline, with fees on one side and rebates on the other. Or they can be structured as three tiers. The lowest tier is the discouraged behaviors. This is where the fees are collected. Then there is an unaffected center zone (no fees or rebates). This is an area that does not significantly help nor detract from the goals. The final tier is the encouraged behavior. This is the zone that receives incentives.

I find that two-tiered systems tend to make people do just enough to avoid the fee, but not much to pursue the incentive. The three-tier system has a middle tier where no incentives are paid. This allows the incentives to be bigger and more attractive in the third tier, thereby drawing people more toward the encouraged behavior end of the spectrum.

Three tier feebate structure, via http://feebates.blogspot.com

In our example, the red zone is all vehicles below the target 54.5 MPG rating. The yellow zone is vehicles that are 100% to <125% of the target (54.5 to 68 MPG). The green zone is 125%+ of the target (69+ MPG). Further, the incentive in the green zone scales from the $5,000 at the bottom of the green zone to $10,000 at 150% of the target (82 MPG) and higher. This will be shown clearly in the vehicle chart below.

New Incentive: Not Restricted to 200,000 Vehicles
This existing federal incentive has restrictions on the number of vehicles from each manufacturer that qualify for the incentive. Just as the existing program unnecessarily excludes retirees, here it will unnecessarily exclude the automakers that are doing the most to meet the goal. Again, the air does not care if this is the first high efficient vehicle from this manufacturer or the one millionth.

Rather than restricting the incentive by automaker (as today's incentive does), the new program (HEVI) adjusts the fees, rebates, and targets annually to best meet the program's goals.

New Incentive: Program Adjusts Every Year
Each year, the program would consider the balance of the funds brought in from fees and those spent on incentives. The fees, rebates, and targets would then be adjusted to keep the program revenue neutral. To avoid market swings, none of these should be changed by more than 10% in any year.

New Incentive: Fade Out
In 2036, or whenever this program is no longer needed, it should have a slow fade out or sunset period where the fees are lowered 15% each year until they are zero. The incentives would follow the reduced funding and similarly be slowly reduced.

New Incentive: Example
Let's look at an example of HEVI applied to some upcoming high mileage vehicles.

According to www.fueleconomy.gov, here are the top rated fuel sippers of 2017:

   Vehicle 
MPG
Rebate*
   2017 Hyundai Ioniq Electric   136          
$10,000
   2017 BMW i3 BEV (60)124
$10,000
   2017 Chevrolet Bolt119
$10,000
   2017 BMW i3 BEV (90)118
$10,000
   2017 Fiat 500e112
$10,000
   2017 Mitsubishi i-MiEV112
$10,000
   2017 Nissan Leaf112
$10,000
   2017 Kia Soul Electric105          
$10,000
   2017 BMW i3 REX      88
$8647
   2017 Mercedes-Benz B250e  84
$7912
      * This is not considering the retail price. The incentive cannot exceed 30%.

The above list has some notable absentees such as Tesla and the Toyota Prius Prime. This may be because these vehicles are yet to be added as it is still early in the year.

What about Trucks?


The top three selling vehicles of 2016 on Kelly's list were trucks. Not surprisingly, there were no trucks on the "Top Fuel Sippers" list. This means that under this feebate, nearly all trucks would be paying a fee. Note that I said nearly. There is at least one company making trucks that would qualify for the rebate portion of this program. That company is Via Motors.

Via makes plug-in hybrid electric trucks. In practice, Via's trucks are not all that different from the Chevy Volt; they have a ~40-mile electric range, then a gas generator runs to keep the vehicle propelled. Having a built-in generator means that this truck can power work tools as well as haul them.

Another company, Cincinnati-based Workhorse Inc., has begun development of a full-size plug-in electric pickup truck for delivery in 2018. The Workhorse vehicle is also planned to be a plug-in hybrid although with 80 miles of electric range before the range extender kicks in.

Last on our plug-in truck list is Tesla. In the company’s Master Plan Part Deux the electric carmaker revealed plans to make a heavy-duty electric truck. There is no public production date yet for Tesla's truck so it is likely at least 3 years away.

If these trucks come to market, their torque and towing performance will exceed anything currently in their class. Their uptake could be accelerated by the right incentives. Perhaps the $10,000 limit could be raised to $15,000 for trucks until this important market segment has developed.

Sidebar: Aftermarket Hybrid Kits

People don't buy new cars every year. If you want the fuel economy to improve quickly, you'll need methods to update the vehicles that are already on the road. These aftermarket kits that improve the fuel economy are called "upfit" kits.

A Boston company called XL Hybrids installs hybrid kits onto existing truck and van fleet vehicles (class 2b vans up to class 6 trucks). The hybrid system improves fuel consumption by 20% and the upcoming plug-in hybrid will perform even better.

How to fund and incentivize these kits is a topic for another day.

Conclusion

Despite lofty goals, the average efficiency of cars and trucks on the roads today has not improved significantly since the 1980s. New technologies are emerging in plug-in hybrid and battery electric vehicles that promise to allow a leap in vehicle efficiency. As new technologies, it's not surprising that they initially have a higher price tag than the incumbents. A feebate program can both raise funds and encourage market forces to spur interest in higher efficiency products. This would allow the technologies to move through this early development stage and into mass market adoption.