How Tesla defined a new era for the global auto industry

FRANKFURT / BEIJING / DETROIT (Reuters) – Tesla Inc’s (TSLA.O) The rapid rise to become the world’s most valuable automaker could usher in a new era for the global auto industry, defined by a Silicon Valley approach to software that is surpassing old-school manufacturing insights. .

Tesla’s rise caught many investors by surprise. But the executives of Daimler AG (DAIGn.DE), the parent company of Mercedes-Benz, had a close-up view as of 2009 of how Tesla and CEO Elon Musk were taking a new approach to building vehicles that defied the established system.

Named after the man who invented the modern car 134 years ago, Daimler bought a Tesla stake of nearly 10% in May 2009 in a deal that provided a $ 50 million lifeline for the difficult start-up. .

That investment gave Mercedes engineers an inside look at how Musk was willing to roll out less-than-perfect technology, and then repeatedly upgrade it, using smartphone-style wireless updates, paying little attention to early cost-effectiveness.

Mercedes engineers helped Tesla develop its Model S luxury sedan in exchange for access to Tesla’s partially hand-assembled battery packs, but in 2014 Daimler decided to sell its stake amid doubts that Tesla’s approach could industrialize at scale.

Tesla would continue to pioneer new approaches to manufacturing, software design, and electronic architecture that enable it to introduce innovations faster than its rivals, leaving analysts to make comparisons with Apple (AAPL.O)

Three people directly involved with the Mercedes side of the collaboration said the brief partnership highlighted the collision of old and new engineering cultures: Germany’s obsession with safety and long-term control, which rewarded evolution, and focus Silicon Valley automaker pilot who embraced radicalism. quick thinking and innovation.

“Elon Musk has been walking on the edge of a razor blade in terms of the aggression with which he pushes some technologies,” said a former Mercedes engineer who worked at the association.

By contrast, Mercedes and other established automakers are still not comfortable with launching a new technology, such as partially automated driving, without years of testing.

Tesla did not respond to requests for comment.

Investors favor the Tesla model, in an industry that is undergoing fundamental and rapid change despite the US automaker facing an avalanche of competing electric vehicles from established automakers for years to come.

They are putting their money to Musk and his company, despite the fact that only Mercedes-Benz sold 935,089 cars in the first half of 2020, dwarfing the 179,050 delivered by Tesla in the same period.

Today, Tesla is worth almost $ 304.6 billion, more than six times Daimler’s 41.5 billion euro market capitalization ($ 47.7 billion). See GRAPH: tmsnrt.rs/3fRM9Yu

PLACE TWO CULTURES

Daimler and Tesla began collaborating after Mercedes engineers, who were developing a second-generation electric smart car, bought a Tesla Roadster. They were impressed by the way Tesla packed the batteries, so he arranged a visit to Silicon Valley to meet Musk in January 2009 and ordered 1,000 battery packs.

The collaboration expanded. At a joint press conference at the Mercedes-Benz museum in Stuttgart in May 2009, Tesla said the partnership “would speed up production of our Tesla Model S and ensure it is a superlative vehicle.”

For its part, Mercedes wanted to use Tesla batteries to power an electric version of its compact Mercedes-Benz B-Class. The Tesla Model S would hit the road in 2012. An electric B-Class hit the showrooms two years later.

Despite having batteries supplied by Tesla, the Mercedes had a shorter operating range after Daimler’s engineers configured the Class B more conservatively to address their concerns about long-term battery degradation and the risk of Overheating, a second Daimler staff member who worked on the joint projects told Reuters.

German engineers discovered that Tesla engineers had not conducted long-term stress tests on their battery. “We had to design our own stress testing program,” said Daimler’s second engineer.

Before production of a new car begins, Daimler’s engineers specify a “Lastenheft,” a blueprint that sets the properties of each component for suppliers. No significant changes can be made once the design is frozen.

“This is also how you can ensure that we will be profitable during mass production. Tesla was not so concerned about this aspect, ”said the second Daimler source.

Daimler’s engineers suggested that the Model S’s basses needed reinforcement to prevent road debris from piercing a battery, Daimler’s first engineer said.

To ease safety concerns, after a series of battery fires, Tesla raised the ride height of its vehicles, using an over-the-air upgrade, and a few months later, in March 2014, said it would add a bottom Triple Shield the new Model S cars and offered to modernize the existing cars.

Musk was able to quickly make adjustments thanks to Tesla’s ability to spend more cash during development.

“At Mercedes you can make such adjustments every three years at best,” said the engineer.

The Model S, a four-door electric sedan, sold more than the flagship Mercedes-Benz S-Class in the United States in May 2013, and topped S-Class deliveries worldwide in 2017.

MUSCO: INNOVATE OR GO

Musk’s relentless focus on innovation explains, in part, why he has disrupted the traditional automotive world. In an interview here at the 2020 Air War Symposium, posted on YouTube, he was asked about the importance of innovation among his employees.

“We certainly need those who do advanced engineering to be innovative,” Musk said. “The incentive structure is configured … in such a way that innovation is rewarded. Making mistakes along the way does not carry a huge penalty. But not trying to innovate at all … carries a huge penalty. You will be fired.

Established automakers are catching up with Tesla, designing their own dedicated electric car and software operating systems.

Mercedes will launch its EQS next year: a four-door limousine built on a dedicated platform for electric vehicles, with an operating range of 700 km. A new version of the Mercedes S-Class will be launched this year, which will have hybrid and combustion powertrains and semi-autonomous driver assistance systems.

From an investor perspective, traditional players face billions of dollars in restructuring costs as they transform product lines and factories away from internal combustion technology.

“No one will give an OEM (established automaker) a five-year window to say … you can totally restructure your business, and I’m going to buy and finance this trip,” said Mark Wakefield, co-leader of practice. automotive and industrial in the consultancy AlixPartners.

However, startups get investor time to learn, make mistakes and grow, he added.

Investors are betting on Tesla’s ability to expand manufacturing just when they ever backed Toyota Motor Corp (7203.T), which defined the last era of the automotive industry with its dominance of efficient, highly efficient, high-quality production.

Toyota surpassed the market capitalization of former industry leader General Motors (GM.N) in 1996, though it wasn’t until 2008 that it sold more vehicles than its Detroit rival.

The Japanese giant also cultivated ties with Tesla, and the American startup helped him design an electrified RAV4 compact sports utility vehicle under a 2010 deal.

Toyota was impressed by the speed with which Tesla devised the new design, but ultimately decided that Tesla’s methods were not suitable for mass production by a leading manufacturer when quality and durability standards were applied for Toyota, two company experts familiar with the association said. .

Toyota said the joint project involved cooperation in the development of electric cars, parts and production systems.

“Toyota accomplished what the project set out to accomplish and ended in October 2014 after Tesla delivered approximately 2,500 electric powertrain systems over three years” for an electrified RAV4 crossover SUV, a spokeswoman said.

Both Toyota and Daimler’s collaboration were agreed before the Volkswagen (VOWG_p.DE) Emission cheating scandal in 2015, sparking a global regulatory backlash and forcing automakers to increase investments in electric cars.

“That was all before dieselgate, which changed the economics of electric and combustion automobiles,” said a senior manager at Daimler. “Tesla has a clue. See if they can expand. ”