Insane Mode - Hamish McKenzie

Amazon link, highlights, author’s accompanying notes

Well-researched (including interviews and conversations with many prominent/relevant people), well-written, and most importantly up-to-date, Insane Mode offers a useful, more nuanced perspective with which to view Tesla, and specifically its broader impact on the EV industry as a whole. For this reason, McKenzies’ subtitle “How Elon Musk's Tesla Sparked an Electric Revolution to End the Age of Oil” is worth including because the book focuses as much on Tesla’s impact as it does on Tesla itself.

What Insane Mode does well is that it goes beyond the mainstream coverage typical of Tesla/SpaceX/anything Musk related, which tends to focus either on the company or the man — which Wired noted in a recent (long, but very worth reading) article is to some degree because “Steve Jobs is gone; now we have Elon Musk.” [1]

McKenzie references the PayPal Mafia, the concept that many executives from PayPal went on to start their own successful ventures: (1) Musk, (2) Thiel- Palantir, (3) Hoffman- LinkedIn, and many more, and argues that to some degree there is also a Tesla Mafia:

  • Ian Wright, founder of Wrightspeed, Tesla co-founder

  • Ryan Popple, CEO of Proterra, Tesla senior finance director

  • Sterling Anderson, founder of Aurora, Tesla head of Autopilot

  • Andrew Grey, Cruise, Tesla Autopilot

  • Riccardo Biasini,

  • Bernard Tse, founder of Atieva/Lucid Motors, Tesla VP

  • Peter Rawlinson, CTO of Faraday Future, Tesla head of Model S development

  • Nick Sampson, SVP at Faraday Future, Tesla head of chassis engineering

  • ….

Though the Tesla Mafia’s impact has yet to be measured, what McKenzie also does is convince us of an ongoing EV revolution, which Tesla catalyzed. Partially this is due to (i) Musk making Tesla’s patents widely available:

“Musk defied convention by declaring that Tesla would make its patents freely available to all. He promised that the company wouldn’t initiate lawsuits against people who used Tesla’s patents without paying—even competitors (provided they used them in good faith).”

“Tesla will make its Gigafactory patents available to use free of charge, just as it does with its vehicles.”

but also (ii) the Tesla’s success in general, and (iii) changing consumer demands: EV > gasoline cars.

Tesla’s success

McKenzie writes that Tesla faced, primarily, three challenges in getting to where it is today (not to say that it is a sure success today either): (1) the fires, (2) its direct sales model, and (3) range anxiety.

  • (1) was a PR issue that was eventually resolved as people came to grips with the idea that though Tesla cars also blew up, they were still much more safe than traditional cars.

  • (2) was an interesting issue in that traditional auto dealerships are an entrenched old-age industry with special interests:

    • (i) new car dealerships account for 15% of all US sales tax revenue,

    • (ii) employ >1M Americans, and

    • (iii) rely heavily on servicing cars as a revenue source — which EVs threaten because they have fewer moving parts, implying a lower demand for servicing.

    • And in some states, including Texas, Michigan, and Connecticut, long-standing franchise laws grant dealers the exclusive right to sell new cars.

  • (3) Actually GM trademarked the term in 2010, apparently, and it’s a problem especially in colder climates (batteries don’t do so well in the cold); it’s a chicken-and-egg problem that is continually being improved by increasing EV infrastructure availability

    • Tesla offers 400KWh of free charging a year using its SuperCharger network

Tesla also had some interesting early Hail-Mary saves, including making Smart car drive trains for Daimler (and selling a 10% stake to them), a gracious loan under the Obama administration, and building power trains for Toyota (also selling a 2.5% stake and getting use of their Fremont factory). On Daimler, there’s a funny story that, after driving a Smart car from Mexico->CA, reverse-engineering it, and adding Roadster technology to it, they presented to the Daimler executives, who

“were not excited to meet some random American car start-up. Tesla’s executives started with a PowerPoint presentation that wasn’t well received, before Musk interjected to suggest going straight to a test drive. Daimler’s engineers didn’t know what he was talking about—as far as they knew, there was no electric Smart car. “We made one,” Musk told them. “It’s just outside. You want to drive it?” Soon, the Daimler emissaries were on the road in an insane-performance Smart car. “They went from being a bit grumpy,” Musk said, “to ‘Holy cow, this is awesome!’””

And Tesla’s early innovation was using high-energy density batteries instead of fuel cells, which in prototypes, involved just sticking as many batteries together as possible.

Consumer demands

The story of Tesla and EVs is like the horse-car transition. Gasoline cars no longer make sense.

  • They’re inefficient:

    • “If you took the energy in a gallon of gas and used it to spin a turbine, you’d get enough electricity to drive an electric car 110 miles.”

  • They’re not sexy:

    • “Some people are going to miss the sound of a roaring engine… just like people used to miss the sound of horse hooves clippity-clopping down the street.” — both quotes from early Tesla CEO Martin Eberhard, now chief scientist at SF Motors

  • And the future of cars (and all products) is software (which allows over-the-air improvements):

    • “For a hundred years, automobiles have been a mechanical engineering industry. Now, there is the shift to software” Dragos Maciuca, director of Ford’s Palo Alto research and innovation center

    • “Autonomy may come even earlier than electric. There’s a faster revolution in autonomous driving software than there is in battery technology.” Li Xiang, founder of Che He Jia

    • Tesla was able to update software in the Model S to raise ground clearance when driving at high speeds in order to to reduce the chances of fires from battery-pack punctures

And Tesla is well-poised to capture this new market because (i) narrative (and popularity despite having never spent a single $ on marketing):

“Musk has characterized his companies as moral missions as much as businesses. He didn’t start Tesla or SpaceX to make money, he has said, but because he believed the world needed them. The future for humans on Earth would be terrible if we didn’t switch to sustainable energy, and without electric cars, the peril from climate change would be unimaginable. His goal to colonize Mars is also motivated in part by a moral impulse.”

And (ii) vertical integration:

“If you own the “full stack,” you have holistic control of the system. In this way, philosophically and strategically, Tesla bears more in common with Apple than it does with GM or Toyota. Just like Apple, Tesla wants to control the whole experience around its business, from the design of its battery packs, to the making of the software, to the manufacturing of vehicles, the building of components, the management of infrastructure, and the sale of its products through its website and retail stores.”

A lot of which has to do with the Gigafactory (see Wired post from earlier too, but it can house 93 747 airplanes) and battery cost-economics, which is worth going into:

  • in 2013, Tesla cost per kilowatt-hour of the battery pack somewhere between $210 and $300

  • Analysts have found that electric cars will reach cost parity with equivalent gasoline cars when battery cell prices hit $100 per kilowatt-hour.

  • It took just 15 years for the cost of laptop battery cells to drop from $2,000 to $250 per kilowatt-hour, an improvement rate of 14% per year. From 2010-2016, that rate increased to 16% per year.

    • Improvement may be accelerating: in 2017, the price of a lithium-ion battery pack was 24% lower than the year before.

  • Tesla CTO hoping to hit the “ballpark” of $100 per kilowatt-hour by the end of the decade.

  • Just by following the 16 percent per year cost improvement that the world saw between 2010-2016, a conservative estimate, battery prices will fall to $100 per kilowatt-hour by 2023

  • GM has predicted that its lithium-ion cell costs will hit $100 per kilowatt-hour by 2021.

McKenzie goes into the consequences of this for the oil industry, referencing former Saudi oil minister Sheikh Yamani’s famous 2000 comments that "Thirty years from now there will be a huge amount of oil - and no buyers. Oil will be left in the ground. The Stone Age came to an end, not because we had a lack of stones, and the oil age will come to an end not because we have a lack of oil." McKenzie also goes into some depth explaining the historical importance of salt, using it as an analogue for oil today.

Well 72% of US demand (2017) for petroleum is used in transportation, and a demand displacement of 2M bopd or 2% (which US consumes 20% of global demand) is estimated to enough to cause a 50% price crash. Clearly EV is a big threat to the oil industry, and McKenzie goes a little conspiratorial here referencing the Koch brothers and internet smear campaigns against Elon Musk.

Though the SolarCity acquisition caused all sorts of headaches for Musk, solar is definitely part of his vision of the future:

“With the combination of solar panels and good batteries, it is possible to transition the whole world from fossil fuels to sustainable energy, Musk has calculated. He shows us the math. A picture of the Tesla Powerpack appears on-screen. It’s a white metal box that looks like a sumo wrestler’s coffin. It contains a tall stack of Tesla-made battery packs. All we need is two billion of these Powerpacks and we could do away with fossil fuels altogether. Two billion, Musk contends, isn’t all that many. That’s about the number of cars and trucks on the road—and those fleets get refreshed every couple of decades. “This is actually within the power of humanity to do,” Musk says with subdued insistence.”

But Tesla’s success isn’t guaranteed, the fact it has gotten as far as it has — as an upstart in the automotive industry — is inspiring and motivating other startups to join in the EV revolution.

Other car companies

Musk doesn’t mind them, as evidenced by the moral mission he attaches to Tesla and the opening of patents.

McKenzie peppers Insane Mode with interviews with executives at upcoming Chinese EV startups, explaining in some depth the story of Jia Yueting, founder of Leshi/, but his closing chapter is on Carsten Breitfield, CEO of Byton. What’s remarkable is that Breitfield was previously at BMW for 20 years and head of the i8 program. He also brought his entire i8 team with him to Byton, people from “traditional automakers that wanted to try something new,” i.e. work for a fast-moving, well-funded Chinese company. And China? Because of

“the emergence of an entrepreneurial culture. Hordes of people in their late twenties, full of optimism and brimming with entrepreneurial passion, were starting companies. But more importantly, the political framework was right. “It’s the best in the world,” Breitfeld said matter-of-factly. The market is large, the middle class is on the rise, and the government is committed to supporting new-energy vehicles.””

Chinese car companies:

“As well as Nio and Byton, the list of car start-ups funded by Chinese Internet companies also includes Xiaopeng, whose investors include Alibaba, Foxconn, and Russian billionaire Yuri Milner; Sokon, which acquired Martin Eberhard’s battery start-up Inevit and named him chief innovation officer at its US subsidiary, SF Motors; WM Motor, started by a former executive at Volvo’s Chinese parent company, Geely; Singulato Motors, started by a former Qihoo 360 executive; and a joint effort between Alibaba and the state-owned Shanghai Automotive Industry Corporation (SAIC). Established car companies such as CH-Auto and Changan Automobile are also making electric vehicles.”

And Western car companies:

  • Volvo has announced plans to sell only electric or hybrid cars from 2019 onward. BMW will produce an electric version of its bestselling 3 Series . . . sometime around 2020.

  • Daimler is spending $10.8 billion to make at least ten electric models available by 2022.

  • VW has said it will invest nearly $12 billion with Chinese partners by 2025 in developing electric cars for China.

  • Ford said it will invest $4.5 billion by 2020 to develop thirteen electric vehicles, including a new SUV with three hundred miles of range, and a hybrid version of the F-150 pickup truck, the bestselling vehicle

Back to Tesla

McKenzie writes about the difficulties (Internet) Chinese-funded but Western-run car companies are having in reconciling their management styles, which ties in closely with the more fundamental differences between the internet and auto industries:

“Marrying a technology industry mind-set with the traditional mind-set of the auto industry will continue to be tough, not just for incumbents such as BMW, GM, and Ford but also for newcomers such as Che He Jia, Singulato Motors, and Nio. Tech people want to move fast and be bold. Auto people want to move deliberately and according to a tried-and-tested playbook.”

And maybe here, only here does Tesla have a (first-mover?) advantage:

“Only Tesla has proven an ability to take a Silicon Valley approach to automaking and turn it into a moneymaking enterprise—and even then, it has much to prove when it comes to long-term sustainability.”