In the USA cars are a necessity. The country developed during an oil glut, so most of the support facilities for citizen are spread out, only accessible by road. It is safe to say cars won’t be cancelled any time soon, unless you live in a city designed by/for pedestrians.
Car making is a complex process, it requires so many elements it boggles the mind, especially when you are new on the scene and operating with todays technological context. Robotics, AI, insane magnets, control compute. Entire factories are modelled and simulated. This is the technodream.
Then comes manufacturing reality. Reality is way harder than any plan or simulation. Things have no inherent consistency, structure or desire to follow usefull patterns, like they do in our imagination. If you source a robot arm from anyone you have to check if it has no defects, if it is exactly the size you asked for, the weight you expected etc. before you put it into your robot.
If you make it yourself you have to design a process that has sensors that always work, always give the correct reading, always give an actualy live reading (instead of repeating an old one) etc. You have to check everything all the time until you see consistent results, at which point you can relent. Its like wringing the water out of a piece of cloth to create a reliable mechanism to produce a thing. And the cloth never gets dry.
Tesla and other car makers run impressive factories, enormous collections of machines and parts and workers that have to bridge gaps in the proces, that have to quality control and catch errors, that repair the robots and machines and that help imagine better ways to do the same or new things. If you own such capital (in the correct sense which is means of production) you are under pressure to pay for it from banks. You can not let it sit idle the bank expects a return from its financing, shareholders expect a return from what you used their (initial) money for.
Even if the machine works perfectly as an owner you know it is because you have been running around making sure it does. If it stops for a day the financial repercussions are already serious. Its like logistics where if say a checkpoint is closed trucks pile up. If your car factory does not churn out and deliver the car and gets the money for it, that money can’t be send to the materials and parts suppliers to start making another car at the other end. The assembly of a car can be obstructed somewhere mid way if you discover a bolt you use to screw parts together is not of the quality you ordered, someone skirted the specs on the metal.
So what about people, the workers. It turns out they can obstruct too. The US is different from France in Europe which is not a random example. France is known for its many many worker unions and readiness to strike. If you check there is almost always some strike going on in France. The workers know they have a lot of power. Where Britain had the Manga Carta which increased worker power, France had the French revolution which defined it as a republic of freedom, brotherhood, equality (Pretty funny it definitely still has royalty haunting the pre-revolutionairy architecture but that’s an aside, I don’t know anyone that can top french arrogance 😉 ).
The US has many small unions in many industries, chapters, and they can result in pretty surprising salaries. For example a crane driver on the bigcontainer port Pier 400 in LA made 150k in 2005 (the year I learned about it) and for that money he has at least 50% time off (called blow). Why? Because a strike of a crane driver is very expensive because the entire container port process from ship to truck grinds to a halt. This is all fair the french would say, because you work in a process that generates a lot of cash. If you are essential you are adding way more significant value than the actualy work you do would make people suspect. Egality.
So the United Auto Workers decided they where not getting their fair share. They went on strike for more than a month. You can argue it wasn’t that difficult to bear by General Motors, who cares if you have to wait another month for your car. But of course a lot of the factories are under pressure to generate return on their investment. Unused capital means you bleed money. The final deal turns out to be super advantageous, the UAW ‘won’ wage in creases for some up to 115%, 20% more salary for most at least. People that where kept in different circles of hell in order to underpay and be able to ditch them easily are now fast tracked into being permanent employees. Its Christmass for the UAW and they didn’t even had to work for it!
To anyone making cars in factories without unions this is heart attack material, especially if your working with fresh investments. This brings me to the situation Tesla finds itself in. The shares of the company dropped 23% in the last weeks due to the CEO Elon Musk announcing it is holding the horses on building a new factory in Mexico. All while progess on Optimus, a fully authonomous AI enable android seems to progressing at a fair pace. Elon Musk justifies the caution by pointing out people have to be able to afford his cars at lease prices, which depend on interest rates, which have risen in the last years to curb inflation.
This is all a bit strange to me. Tesla is a the top of its game and interest rates are actually set to stabilize or come down. The money required to pay of a model 3 has not risen but dropped. You can say cost of goods and services have risen in general (so the budget of the average consumer to pay a car lease has shrunk) but I don’t think thats the actual story here. It does make sense to hold capital investments when you forsee consumer weakness, but Tesla has enough room in Texas to expand production, more incrementally as well. Greenfield development of a factory means 2 years of monthly cost before the first car comes out, it is a major investment.
But I don’t think that is what is going on. I think Elon saw what happened with the UAW and the damage it did (which has yet to materialize). Even though Tesla does not have unionized workers they may now all feel they are not payed enough compared to the workers at GM, Stellantis ea. This may in time result in wage increase demands and even unionization. Then the factory gets taken over by the workers. This is fair if the pay is abusive, but you can also compare it to a restaurant that suddenly gets highjacked by the waiters and waitresses. They did not take the risk of building it and are not in charge of making it all make financial sense. Today with highly modelled process you can wonder how much workers add to the mix intellectually if at all. On the other side you can wonder if you want to give a man or woman a super repetitive job in a noisy environment. Some jobs should definitely be banned.
But lets backtrack a bit : Tesla is a robotics company. This I think is the best way to view make sense of what Elon thinks (but not says). It makes ‘Roadbots’ (word invented by me), we know as cars, factory bots, manufacturing processes, control systems, simulation software, AI chips and software as well as the necessary power storage and supply systems. Software is part of it too. It is now also building an android called Optimus. Optimus is supposed to be a humanoid with full manual dexterity, bipedal mobility, self contained power and intelligence that can safely perform a variety of tasks. Tesla is pretty far in achieving this already judging by the demos. What is Elon thinking? Simple : Tesla will replace its workers with versions of Optimus.
You don’t need a full fledged bipedal robot in all situations, you can suspend it from a 2d actuator (like a 3d printing head). It also does not need to be super fast if it works at a constant reliable speed or you have two or more working the same job. Mind you robotic actuators can operate at speeds where you can’t see what’s happening anymore. The factory in Mexico is put on hold not because of the macro economic circumstances, but because there is no reason to build a factory in mexico, there is no need for cheap labor if you use Optimus.
The introduction of the android to replace the worker at Tesla can be a slow gradual process, because of the availability of a variety of tasks which all have to be reasonably light and doable by a human. Once you have an android that can stand and move around and visually identify and manipulate objects, you have building blocks for ‘sentient’ automation that is so versatile it has been dreamed of by people for centuries maybe even millenia. Indefeatable human superhero’s picking up dropped bolts without fail 24/7/365. Manufacturing automation is being revolutionized as we speak and Tesla has all the incentives to use itself as a testing ground of its own products.
I think we will hear about introduction of Optimus in Tesla Austin soon. I think we should expect margins on production to increase due to the shedding of workers. I think this process can accelerate in the next 3 years to where most of the final production is done by Optimus varieties. Mind you Tesla builds the control unit and power source itself. So drop in android control units are made, and can be upgraded as new chip tech and AI insights come along.
Much rather than Elon possibly being owned by the new insights into his life and the macro circumstances I think he backed out of unnecessary complexity in Mexico (which also is a diplomatic gesture where Biden seems to be oblivious of Tesla’s contributions) to focus on optimizing his Gatling Gun vision of car production (they shoot out of the machine at an alarming rate). Of course other manufacturers are thinking the same thing. This is not just bullish for $tsla, but for the world. This is the dawn of the Roboeconomy.