General Motors held its anticipated EV Day earlier this month. For the first time, the Company put a number behind its investment in electric vehicles committing to spending $20 billion through 2025. Even if GM didn’t explicitly state the obvious, their commitment to go “all in” on EV’s is a direct reaction to the pressure that Tesla is exerting on legacy automakers.
As CNBC’s Global Automotive Reporter Michael Wayland explains:
“The investment is GM’s hardest push yet to convince skeptics, particularly on Wall Street, that the more than 110-year-old automaker can compete against Tesla as the auto industry pivots to all-electric vehicles.”
GM’s announcement goes on to highlight plans for an all-electric vehicle fleet with performance specifications that compare favorably to Tesla’s Model 3.
“GM said that its new all-electric vehicles will be capable of 400 miles or more, charge more than 100 miles in 10 minutes and accelerate from zero to 60 mph in as low as three seconds,” CNBC continued. “The performance specifications are all in line or better than Tesla’s current vehicles.”
While GM’s commitment to EV’s is impressive and may very well produce renewed growth, it fails to recognize that Tesla’s secret to its successful disruption of the automotive industry isn’t producing vehicles with superior performance specifications (although that certainly helps). Rather, it’s a mindset and philosophy that challenges the fundamental structural elements of the auto industry itself known as first principles thinking.
The concept of thinking from a first principles perspective is an ancient philosophical tradition tracing its roots to the greek philosopher Aristotle. By definition “A first principle is a basic proposition or assumption that cannot be deduced from any other proposition or assumption.”
First principles thinking doesn’t just apply to auto manufacturing. It is both incredibly powerful and broadly applicable to many fields. For example, a first principles-based approach enabled recent advancements in materials science that will allow computers to continue to advance at an exponential rate. “[These scientists] performed theoretical analysis and first principles calculations to unravel the mechanisms of what their co-authors saw in experiments.”
In a similar vein, every decision Tesla makes is evaluated through a first principles lens. The company does this in order to challenge every possible constraint to its goal of producing affordable electric cars.
For example, Tesla filed a patent for an innovative wire harness design which will further enable the automated assembly of Teslas, lowering the production cost and therefore allowing the company to profitably sell its cars at a lower price. This wiring architecture “enables more robot automation in the manufacturing process and uses fewer materials for its upcoming cars like Model Y and Tesla Pickup truck.”
While this innovation is impressive in its own right, a careful reading between the lines suggests a more fundamental precedent being challenged. While most automakers rely on a vast network of suppliers and sub-suppliers to provide specialized components, Tesla has realized that such a specialized supply chain actually prevents their goal of perfecting the “machine that builds the machine”.
Elon Musk’s relentless focus on applying first principles thinking was highlighted in a leaked email during the Model 3 production ramp where Musk notes: “how many contractor companies are interwoven throughout Tesla… like a Russian nesting doll of contractor, subcontractor, sub-subcontractor, etc. before you finally find someone doing actual work. This means a lot of middle-managers adding cost but not doing anything obviously useful. Also, many contracts are essentially open time & materials, not fixed price and duration, which creates an incentive to turn molehills into mountains, as they never want to end the money train.”
Musk’s proposed solution is to mandate that all managers use first principles to justify which suppliers and contractors merit a continued partnership, requesting that any manager wishing to approve a large scale purchase “make sure [to] have a detailed, first principles understanding of the supplier quote, including every line item of parts & labor”.
Tesla continues to innovate the design and manufacturing processes for their cars using first principles. Seemingly every week there’s another example of a new patent or concept that eliminates a constraint that traditional automakers have considered insurmountable, including everything from materials science breakthroughs to novel implementations of encryption standards like AES.
It’s also no surprise that Musk applies first principles thinking to his other ventures. This mindset is the same philosophy that inspired SpaceX to design a reusable rocket once they fully understood the constituent costs of designing and launching a rocket, and it’s the same philosophy that inspired the creation of the Boring company. As Musk says: “Boil things down to fundamental truths… and then reason up from there.”
All of these innovations and initiatives have one thing in common: they abstracted the problem (i.e. perceived structural costs, a hard to automate assembly, etc.) and then created a unique solution at a more general level of abstraction.
Yet for some reason, critics and competitors of Tesla fail to recognize how fundamental first principles thinking is to Tesla’s success. By breaking a problem down into constituent elements and challenging any assumptions that aren’t based on these elements, Tesla is able to focus on the function required to meet a goal without being limited by any existing conventions of form. Thus, first principles thinking is essentially a philosophical approach that necessarily removes the cognitive biases that are implicit in traditional design thinking. It allows Tesla to genuinely accomplish the cliche “outside the box thinking” that teachers and managers are always requesting but so often fail to achieve.
Elon Musk believes the only constraints to innovation should be those which are truly elemental such as the limitations of science and the laws of physics. Conventional supply chain structures, distribution partnerships, and management traditional don’t factor into Tesla’s decision making. As long as the legacy automakers continue to respond to Tesla’s threat by producing cars with better features, rather than by challenging their increasingly outdated business models, they will remain to catch Elon Musk.