Hey, I’m Steven and this is Solving The Money Problem.
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While in China recently to show off his dance moves
[3, 2, 1, go]
[music]
Elon Musk casually dropped this:
[Something that would be, I think, super cool would be to--and so we’re gonna do it.
I mean, we’re gonna try to do it.
Is to create a China design and engineering center to actually design an original car
in China for worldwide consumption.]
[I think this will be very exciting.]
[I think China has some of the best art in the world.
And--and I think it’s something that would be appreciated on a worldwide basis and I
think it should be done.
And we’re gonna do it.]
[You know, try something, just like kinda radical.
Like cybertruck.
You know?
Nobody was expecting that.
You know?]
[And that’s--and so--I think we should try and do something just like, you know, cool
and different and something the world hasn’t seen before.]
[That really moves the heart and gets you right there.]
[That’s the kind of product you want.]
[We wish there were more of those things in the world.]
[Anyway, that’s what we’re gonna do so..]
[applause]
Thanks everyone.
It’s an honor being here and it’s one of the coolest places on earth so thank you.
[applause]
Tesla China has since started advertising for positions in its design studio, indicating
Musk intends to move forward with this immediately.
This has me wondering.
What type of vehicle would Tesla design?
What makes the most sense given all the available information?
I won’t speculate on aesthetics but I will speculate more broadly about features and
function.
Tesla is systematically tackling most major segments of the auto market.
The S, 3, X, Y, Cybertruck, Roadster and Semi mean Tesla has entrants in the large sedan,
mid-size sedan, large SUV, crossover, pickup truck, sports car and freight transport categories.
Missing, is a compact car, ideal for densely populated cities, singles, and budget buyers.
Given that compacts and subcompacts make up a combined 29% of the new vehicle market,
this is a MASSIVE piece of the pie for Tesla to miss out on.
Tesla has always made safety their #1 priority.
The S, 3 and X are the 3 safest vehicles ever tested.
Small cars are inherently less safe than large cars.
This is a fact of physics.
All other things being equal, less mass in a collision means you’re coming off second
best.
This is why boxing has weight classes.
As it stands today, making a compact car would force Tesla into a situation where they’d
be producing a less-safe vehicles than they’re known for.
Why would they do this?
Well, they wouldn’t.
Wait, what?
Then why am I speculating they will?
I’m glad you asked.
See, Tesla is working on fully autonomous vehicles.
Tesla KNOWS they are close to solving full self driving.
Their baseline goal is to be at least 10x safer than a human driver.
If collisions occur far less often--and those that do are far less significant because the
full self-driving computer braked sooner, or took evasive action--then a small car is
far less of a safety issue.
You can’t be injured in an accident that doesn’t happen.
So let’s look at the reasons why I think Tesla will make a compact car and, while doing
so, will simultaneously reinvent what a vehicle is.
Before we dive in, this is PURE speculation so don’t get your panties in a twist.
Tesla has told us approximately “f**k all” about this new vehicle, so our imaginations
are all we’ve got.
City Living
A few hundreds years ago, almost everyone farmed for a living, believed in god and resolved
disputes with merciless violence.
As technology has progressed, the world’s knowledge has advanced, its population has
exploded, productivity has skyrocketed and people have moved to cities in droves.
This trend of living in densely populated urban areas continues.
Ask anyone who rents or owns an apartment in New York, Sydney, London or Hong Kong and
they will tell you space comes at an enormous premium.
Should I spend the extra half a million dollars for a bigger garage, or a bigger bedroom?
Do I want a kitchen or will I eat out for every meal?
A tiny car is perfect for city living.
Maneuvering through busy crammed streets, squeezing into car spaces too big for others,
having enough room in your garage to park your car AND store your bike AND keep your
blow up doll collection is invaluable.
Still unconvinced how important and valuable space is in a city?
Visit one of these cities and try--just TRY--to find a pickup truck.
If you do manage to find one, ask the driver where they came from.
Less Is More
The heavier an object is, the more energy is needed to move it.
You probably know this.
It’s basic physics.
So the less massive an electric vehicle is, the less energy is needed, which means a smaller
battery is needed, which not only brings the cost down dramatically (the battery is the
most expensive component in a Tesla) but physically removing some of the battery means EVEN less
mass which means EVEN more efficiency which means EVEN more battery can be removed which
means EVEN more weight is saved...bla bla.
This compounding effect is huge.
Even incremental improvements in efficiency can make an enormous difference to price and
performance.
My suspicion is that Tesla will be looking to create an ultralight, hyper efficient car.
We already know Tesla’s battery AND powertrain technology is years ahead of everyone else.
This means Tesla will be able to undercut competitors or price, and outdo them on range.
Tesla’s battery costs are lower AND their battery performance is better.
I mean, how do you even compete with that?
A Tesla compact car would be far cheaper to run than anything comparable.
Unless someone has a major battery breakthrough and it’s not Tesla themselves.
Small Car, Huge Market
As I mentioned, compact and subcompact vehicles make up 29% of the new car market.
Nearly ONE THIRD of the 90 million vehicles sold annually are compact.
This is a stupidly large market and with safety concerns addressed by full self driving, Tesla
would be insane not to go after a big slice of it.
What's interesting here is that, not only does entering the compact car market expand
Tesla’s potential pool of buyers by tens of millions but such a car would be dramatically
cheaper to produce (and therefore buy) than any other Tesla on the market.
My guess would be in the $20,000.
Just for fun, let’s imagine what could happen if Tesla sold a $25,000 car in the compact
market.
Capturing just 1% of this market, which is 300,000 units a year, would bring in $7,500,000,000
in revenue.
Or maybe they take 5% of the market which is 1,500,000 units a year or $37,500,000,000
in revenue, far more than the entire Tesla business did in 2018.
The potential is enormous.
From an investor’s point of view, this gets me very excited.
Robo Taxi Fleet
Now here’s the kicker, and it ties into the last point.
When Tesla solves full self driving and owners can add their vehicles to the fleet of robo
taxis to make them money any time of day or night, the dynamic of car ownership is flipped
on its head.
Now, instead of a car being a depreciating asset that costs you money, it could be an
appreciating asset that makes you money.
Imagine a $25,000 car that earns you $10,000/yr in robo taxi fares.
In 3 years, it’s paid for itself entirely.
This is enormous and will make car ownership possible for millions of people who previously
couldn’t afford to own.
The second reason I bring up the robo taxi fleet is regarding the design of the vehicle
itself.
What a car is changes entirely when it can drive itself safely from point A to B.
Everything can be reimagined.
I believe Tesla wants to create a new type of vehicle, completely re-thought.
There is no driver so there’s no need to have eyes on the road.
Infotainment becomes the primary feature and we know how great Tesla is at software.
The possibilities are endless.
Perhaps seating configurations that allow for sleep in transit will be implemented.
This could be a boon for escorts and put love hotels out of business.
When what was once unproductive “driving time” is newly liberated as productive time,
everything changes.
Imagine starting your work day the moment you begin your commute.
Or now having the time to meditate, work on your novel, catch up on Netflix, get frisky
in the back seat, own noobs, or watch your favourite YouTube channel, all while your
car drives itself.
Maybe Tesla will find ways to seat 6+ people for high density compact transit, or go even
smaller.
Who knows.
The only thing I’m confident of, is that Tesla will be designing this new vehicle with
the robo taxi fleet in mind.
Tesla knows they’re on the cusp of solving full self-driving.
It would be unquestionably moronic NOT to be designing this new vehicle with autonomy
in mind.
Will it definitely be a compact car?
No.
Does it make sense?
Yes.
Otherwise Tesla is missing out on a third of the new vehicle market.
This goes against their mission of accelerating the world’s transition to sustainable transport.
Will it look like other Tesla’s?
Unlikely.
Musk has hinted that this will be a novel design.
Plus, I mean, Cybertruck.
What does a ‘Tesla’ even look like?
At the end of the day, I’m happy to be wrong but based on the information at hand, I’m
confident in speculating that the vehicle Tesla designs in China for worldwide consumption
will:
* Be cheap * Compact
* Hyper efficient * And feature a revolutionary design -- a
complete re-imagining of what a vehicle is.
The first mass-market car designed with fully autonomous driving as a given
I don’t know what it will look like.
I don’t know what it will cost.
But I do know, if Tesla makes a compact vehicle, they’re going to turn on a multi-billion-dollar
revenue stream that could eat the lunch of automakers the world over and reinvent what
a car is.
Dominating a single vehicle category would be awesome.
But Tesla appears to be systematically going after them every single one of them.
My only question is, how many vehicle categories will Tesla dominate and how many will they
merely participate in?
I’m Steven Mark Ryan, this is Solving The Money Problem and I love you all.
Thanks so much for watching.
Let me know your thoughts in the comments below.
Do you think Tesla will make a compact car or something else?
What features do you imagine it will or won’t have?
How much would it sell for?
Would you buy one?
How would you design a compact car?
And of course, if you have any ideas for future videos, let me know.
I read ALL your comments.
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