AAH #653 - The Tesla Revolution: Legacy OEMs Under Enormous Pressure to Change

I'll do online after hours. It brought to you by Bridgedone Tires Solutions for

your journey. Mister Darry John, how are you doing pretty good? Yeah?

Good, glad to hear that. Yeah, we got quite a show

coming up today and I've got I've got to throw one thing in a historical fact. You gotta date, all right. So, so so we're gonna

we're gonna talk a lot about Tesla today. I know, right. It

just so happens that on June twenty second, twenty twelve. Okay, today

is June twenty second for those who are watching live. Um. June twenty

second, twenty twelve was the first delivery of the Model S at the Fremont plant. Wow. And a couple of weeks before he delivered those vehicles,

Elon, who then was CEO in Chief Product Architect and as you will know now he's CEO in Techno King said quote in twenty zero six, our plan was to build an electric sports car followed by an affordable electric sedan and reduce our dependence on oil. Delivering Model US to keep part of that plan and

represents testless transition to a mass production automaker and the most compelling car company of the twenty first century. So it seems to me that he's checked the box

in terms of being a mass manufacturer, and he seems to have checked the box in terms of being most compelling. Yeah yeah, and for you having

an automaker too, possibly in this country. M so yeah. In fact,

we're going to talk a lot about that because we've got two executives from a company called Carousoft. They do tear downs and competitive benchmarking and analysis.

We've got the CEO of the company, Matthew Vacham Pill Matthew. Great to

have you on the show here. Oh, thank you, Thank you,

John. Thanks. And we've got Terry Wachowski too, who's also at the

company, a vice president theory I believe, right, do I have to right? Terrys and Carosoft all right? President? Oh yeah, all right,

So at least I was when I went on vacation. I don't know,

you know, I love having you guys on the show. And you

were on a couple of years ago before COVID and everything like that, when we were in the studio, and the company has grown so much since then.

It's extraordinary to me the growth that we've been able to see since Matthew, you were first on the show and now coming back on and some of your insights that you've you've come up with, I find I'm not just going to say fascinating, illuminating, educating. I mean I've learned so much from

you guys. And that's why I love having people like you on the show,

because I know our audience is going to learn so much from you as well. So so Matthew, give us, give us a elevator pitch of

what Carosoft does. Gast and Foremost and we formulate in two thousand and seven.

We have an engineering company and we entered the benchmarking space in twenty seventeen with a patented technology where we see these scanned vehicles to get the CAT and SAE data. And during the journey in benchmarking we have now with the EV

revolution that's happening, we're benchmarking several vehicles and more than data. Customers are

looking for knowledge and actionable results and ideas on how to improve technology and reduce costs. So that's what we do right now, tremendous focus, especially on

electrification and new technologies. Matthew, go into that CT scan because you just

said all we do the CT scan, but I mean you're essentially, in a way doing an MRI of a vehicle where you can bombard it with all kinds of energy and literally replicate it in CAD. Yes, Yes, John,

that's what we do. And dual process of reconstruction. It's the process

by which you take over ten million images both in the X and Y axis and Z axis, and then we reconstruct those images. Then we segment them

for material properties and then get the CAT and then we also tear down the vehicles and do a material analysis and every compoint so that we can model the entire se model of the vehicle. So that's what we here, That's that's

the pattern of technology that we have. Yeah, John. A couple of

weeks ago, I had an incident with one of my horses. We were

shooting the horse and he got spooked and ran into me and it's like getting hit by a silverado. And went to the doctors get my hand fixed up,

and my chest really hurt, and they did a cat scan X ray and his cat scan to see if I didn't broken bones. So they took

the cat scan and they were able to look at the image and say, well it doesn't seem to be broken. If we would have done the cat

scan, we could have engineered a new rib for me. We'd have had

the map data, we could have we could have three D printed a rib and it would have been so much better. So we take the technology and

take it to where we can actually get engineering data from the data from the visualization. So Terry, a little bit of your background too. You've got

enormous experience in the automotive industry. You were at General Motors for how long

about thirty four years? Yeah, thirty four years, and now now you're

doing this teardown and benchmarking, and you've got some real lessons here, right, I mean, you know, company the startups, and we'll use Tesla as the best example for now. We'll get into some of the others later,

but they do things differently than the way you did it in GM, right, and incredible. That's that's the biggest, the most amazing part of

the whole things. It's you know, the technology is intriguing, but the

process, the culture of the companies, the way they go about the work is staggering. Quite frankly, the speed at which they make decisions and the

speed at which they execute is really remarkable. So so Terry, give give

us a benchmark. So, so back in the day when you were at

General Motors, how long did it take from idea to execution of a vehicle?

You know, we used to back at going way back in my career.

You know, it could have been five years of a vehicle development process to take a vehicle from the studio, you know, through to production.

Of course, with Toyota and the Toylet manufacturing system, you know, with all the kais and all the synchronous systems. Work shortening that was always our

task, shortening the VDP, get it so, get it from fifty two months to forty, get it down to thirty two, and so we were always compressing. But even then, you know, it's very long. And

if you really wanted to go super fast, which is simply did it was got offline. You just got off the main line. You've got a little

skunk works going and you could do some things pretty remarkably fast. And in

a sense, you know a lot of the startups are like that. They're

just a skunk works. They just sit there and they don't they're not bobbed

down. I'll say bureaucracy. I don't mean as so much as a pejorative,

but just all the loops and hoops you have to jump through to get everybody lined up. When you look at Tesla as an example, in the

pace at which they executed some of the megacastings from the wiel three to the model why and we're megacastings to the front megacastings, they were doing those in the matter of the year's time, year's time, year's time back in the day to taking us more in a year to decide to do it, let alone to do it. So it's kind of an indication of how quickly they're

going. Matt Matthew, give us a little bit more background on the company.

As you mentioned Kerousoft as an engineering company, but then you decided to get into benchmarking. Why did you start the company and what was the pathway

that led you to the benchmark can get you're doing the first questioners, why did we start the company? Yeah, okay, everybody's got to do something

right. But I decided to start the company. So I worked for fear

Industry for a long time and then what happened was based in the Midwest.

My wife got a fellowship at the University of California and to do a fellowship for fully paid and I was she was the top two percent or the doctors in the United States. So we moved to California. Originally this was re

COVID two thousand and seven and they said, okay, I could work remotely.

But three months later the HR my boss got fired and the HR person changed and they said, oh no, no, no, you cannot work remotely. I sold my house, had moved and they said you are to

come back. I did this commute for every week. You got old and

then a quit. And then one of my old bosses was the CEO on

the company. He said, hey, why aren't you helped me with some

products? And that's always started an engineering project in Illinois. It was the

company is now called it's owned by Echo, and I started started the first project and it still row and that's how we got it going. How did

we enter benchmarking. So it was actually a purely a coincidence. I was

living in San Diego in the San Diego is the base of the Pacific Fleet and a lot of the ships that go out to the Middle East to come back and the jets on the aircraft carriers. They used to do non destructive

testing. So there is a big city scanra which scan explains it's in San

Diego. And then there's one year Berkeley north of Berkeley, on the other

side of the Bay and at the university. So I heard about this and

that there are scanning. And then later when we moved back to Michigan,

I started in Michigan, moved back to our parents fellowship. Well, we

twenty fifteen and fourteen we scanned steering knuckle, then we scan an engine, and then twenty sixteen we scanned the whole test likes and entered the benchmarking space.

So came in mainly with the CIT scanned like a high end product.

And then I realized very quickly that we many of the cxos did tell us like that they were inundated with data, but they were what they were looking for with insights, ideas, actions. Heye, tell us what to do.

Don't just give me data one hundred vehicles, competitive vehicles, tell me on my week or what I should do. And then we came up with

ideas to improve technology and reduce costs. And that's been the journey so far.

So in the last six years, we almost have over one hundred twenty Ormodo customers and then over hundred million in revenue. But then we have technology

centers in Europe and in the US, in Japan, in China, in India and the Middle East and so on and still expanding. So there's a

lot with the electrification. Everybody is eager to learn and learn from the best,

and the Chinese right now are doing very well. So that's kind of

the journey we've had. So in terms of this scanning versus the physical disassembly

of the vehicle, is there a balance in terms of the importance or is one more important than the other? Okay, so I think of so though

we started with the scanning, which more important is to have the whole idea of the scan data is to create the cat and the CIA and to essentially that data allows us to do the following. If you make a change,

you can see the impact on performance virtually. So that's the beauty of the

high and the scan data. It gives you cause and effect in terms of

changing a constraint. So if you have so if I gave you behind these

scan data or the tesla, why and we had a steel aluminum casting and you want to change the composition of the casting and with a different material, you could then see the impact on performance and you can also calculate the cost.

Engineering is all about design design, making the best design with the best performance for the lowest cost. So as engineers, we're always trying to optimize

that equation between design performance and cost, and that's the point of the data.

But it costs US around three million dollars to scan and develop the whole data, So we also do ted downs where that's when you know Terry joined us in twenty eighteen, is looking at ted downs, looking at the data and understanding, hey, why is something done a particular way? Now?

Why is something done particular way? And what can we do about it to

make it technologically better or lower the cost. So that's the balance between the

two. It's not only just having this data, which is very powerful,

but knowing what to do with it and why do we do what? Why

is a particular design better than the other, and all the interactions that go with it, because a lot of these designs are compromises. You cannot just

make a very good performing design because the cost would be we go through the roof Gary is sort of the right tool for the right job. If it's

a real high tech job where we really need that Cie type work and you got to do simulation and that type of thing, that's the right tool.

But if it's to look and to find some cost reduction opportunities to fortify the balance sheet, we can do that with a physical teardown, or we can do that even in math. We can just do that with designs prior to

release and do the benchmarking and cost reduction ideation. Well, let's show the

audience some of what you're talking about here, because Matthew, you were kind enough to send me a presentation that you've done. And we've got some pictures

here and yeah, here's a good one that that Sean is Shamus have thrown up here comparing the body in white mask comparison and h Terry. You know,

walk us through these pictures here, what are we looking at? What

we're looking at here is a typical you know, legacy oem um. If

you look real close you might be able to identify who it is. But

it's very typical legacy of a body in white and uh. And now when

you look over at the in this case, uh Tesla Mottel why the latest addition. And you can see just some just seismic differences in these two architectures.

The one uh typical where it's just i'd call it almost a stick build.

You know, you just bring all the pieces in the sub assemblies and you sub assemble those and then you bring those together in a body shop and and uh you know, to great painstaking work to get talentcing uh you know, accurate see build a body. Well here you can see that with the

Tesla by introducing the megacastings both the rear and then the front, and then even going even beyond that and having the battery instead of just being redundant metal, but being having the batter being structural to the body. They ultimately they're

achieving a great percentage of efficiency improvements in when you look at the body and the way as a function of mass, you know the mass of the vehicle, how much of the vehicle mass is the body, and you can see the huge reduction in the amount of mass that you have to carry around just to keep water off the electronics, if you would. So this is just

a great example of especially in an ev mass is so critically important from a parasitic loss perspective and as a function of range and a function of the cost of the batteries. To get effective range, you have to go after every

kilo and this is a great, great way to do that. I'm guessing

that one on the left as a jeep. I don't know. Somehow that

just seems I'm guessing rock I'll protect them and didn't. Okay, yes,

but it's it's a very you know, it's it's a top tier auto supplier, Cary. They're excellent. But you can see, you know, with

the with the model, why the idea of having a body of light come out of a body shop without a floor, It's like, well, that's that's kind of crazy. But when you look at it and said, well,

I have this big piece of sheet metal for a floor, and then I have an almost identical piece of sheet metal this far below it at the top of the battery, It's like, why do I need both of these?

And the truth is you don't. If you do it right now,

you may have to increase and did increase the battery cover in order to be structural. But on net, you know, over a fourteen percent reduction or

efficiency improvement. So I've got to ask, So, Matthew, you made

the point that you know you could design something that that's quite wonderful, but you can't make it because it's too expensive. And you know, when I

look at the legacy OEM, I'm wondering to what extent is it designed and engineered that way because the tools they happen to have in a factory are capable of doing it that way and not capable of doing it the way the Tesla does. I think I think it goes back to I think Gary, it's

not so much important manufacturing and the competency. I think it goes back to

what Terry asked, which is very subtle, and is did we design it to first principles and to ask the question why do you have a flaw on the body in weight? And why do you have a top power on the

battery and there's like ten millimeters of space between the two, why do you need to So it's the first principle's design thinking there and what's anybody important is to realize and we Terry alluded to that earlier. The speed at which Tesla

moves and the way they are structured. So even in Fremont. What we

hear in spoken test several Tesla people is design and manufacturing is very integrated.

As manufacturing in the plant. Design is very close by, so the ability

to talk to each other and say hey, why and make those changes.

Traditional legacy OEMs have these big silos and they have processes, these processes over the last fifty It's like in any industry rate and if you go to Michael Porter or Clayton Christians and goes back to as an industry mature, commoditization happens.

When commoditization happens, organization gets very structured and very process oriented. What

you see with Tesla is they are able to innovate. They do. They

have processes, but they're able to innovate and do more than kais and they're able to do these pew revolutionary changes, which speaks to the culture of the organization. That is the critical thing. It's allowing the freedom to think and

innywate. But as in a traditional illam like Terry said, you know it'll

take you one year to even make a decision, I would go further and even ask question, as in certain organizations in the world that we work with, if you came up with such an idea, you could even be fired.

We run into that all the time. There are certain engineers are scared

to suggest because he said, if you broke the specification of the Golden Rules and that organization, you could be fired. Hey, Matthew, go back

to first principles a bit. I know a lot of our audience is familiar

with first principles the concept, but there's probably people watching that are not familiar with the concept, and it's a really key one. So just simply explain

what you mean by that. So first principles is to look at the physics

of the design and to understand what you have done and why you have done it, and what does the bare basic that you need to do to make it is functional. So give you an example if you could. I don't

know whether you have a picture of the hoses or the wires or any goals.

It's to challenge the existing requirements. Ask we could if you could go

further down to like the hoses are, or say, for example here this is a good example. If you look at the model X on the left,

which is legacy designed with domain controllers all over the place, the ECUs and then if you go to the best in class, which is right now is tres Low. Why where they put two body control modules on the left

and try to centralize all the functions. It's asking why do we need different

controllers for powertrain and body and steering and so on. Why can't we integrate

this into one box and and make it technologically more advanced and drive more functionality, which in turn means lower cost and so on. So the so those

are looking at things from first principles and saying, and if you take this further, is hey, how do we you have power and signal distribution happening?

Is it a way I can take power out separately and run signal wirelessly or run it on internet? So these are all the things because technology is

changing all along and we have to go back and check, okay, is it a better way today than yesterday? Now this is a good example,

and I think Terry here, would you like to explain this from first principles?

I think, well, you know again, and your question is really good one because you know, we've we've we've come up with processes and manufacturings, you know, layouts and things over the last hundred years, and so you kind of do get in a groove in this case. Uh, you

know, in an internal combustion engine, you are exploding gasoline in a cylinder and we're harvesting and the power from that. Well, there's a lot of

rejected heat in that, and so they get really hot and it would ruin the machine. So we have to cool them. But the cooling gets so

hot that it'll boil, and so we have to pressurize it so that it won't boil. That's why your dad told you don't take the radiator cap off

when it's hot. It was good advice. Don't do that. It's pressure.

Well, we've typically have the industry has been centered around about a twenty one psi pressurization to have a good, solid, robust cooling system. Well,

then when you look in the evolution to EBS, you notice that many people maintain a twenty one psi system because they've always engineered cooling systems at twenty one psi. But from a first principle's perspective, we're not burning gasoline.

We're just harvesting some energy. We start in the battery and we're bleeding it

off forward and it just never gets that hot. It doesn't get hot enough

to get to that kind of elevated cooling. And so you don't need a

twenty one psi system. A five psi system is plenty, which means now

the material that you make your hoses of, the thickness of them, the mass of them, the cost of them, how they are connected, all those things start to get affected by the first principles of hey, what does this thing really need to do? And so some are you know, adopted

the first principles and just went went off and did this. Others maintain their

legacy their history and will slowly be evolving into this. But there can be

ten dollars of cost. It can be five times that depending on the complexity

of your cooling system. So we're not talking, you know, small amounts

of money. Here's there's a lot associated to the earlier question with the body.

You know, one thing that we talked about at cares off his industrial anthropology. You look at this, this tear down enough, I can draw

the company's orchchart. You look at the product. You can tell how they're

organized, and you can tell something about their vehicle development process. What comes

first and what comes second. You can just tell by looking at the product

when you look at the tesla and the floor. They integrated the floor the

structural battery typically, and it's compared to the traditional Why does the traditional one have a floor, Because it's a body and the body group engineers. And

when the body group engineers you a body, by gosh, you don't have a floor. You know it. You will be in case, you will

be safe. They'll do silo drop, they'll do crush, they'll do all

torsion, they'll do all kinds of things. There's your body. And if

you get a battery designed by a battery group, believe me, it's Freddie Kilowatt lives in there and he's not getting out. Man. We got in

secured and it's safe and you know it's going to work well. So those

are two very different groups and they do their work down their own work streams, and then somebody comes in at body drop and marries them together. Integration

is the key to efficiency, and integration is hard work because you have to get people who can work across their boundaries and across their traditional limits. And

the beauty is in the integration. And then the more you can do that,

the more efficient. If you don't integrate well, your design won't be

well integrated and it won't be very efficient. And this is the age of

efficiency, so it's critical. So, Matthew, how do legacy automakers deal

with this? They're organized in silos. I mean, the whole company is

organized in different You've got designed, you got engineering, you got manufacturing, you got procurement, and so on and so forth. But even if you

look inside the engineering department, just what Terry's talking about. You got power

train, you got Jassie, you got suspension, you got body blah blah blah blah blah. Matthew, can the legacies even come up with this total

system's approach to engineer the way they're doing it now? And can they even

change to have an organizational structure that allows them to do that? Okay?

So I think I think before we look at the engineering organization or look at you know, the silos and powertrain and so on, John, there are certain fundamental questions if we have asked, we're going to ask. Okay.

So, a company or an organization is a bunch of people. The leader

and all human beings at the end of the day. The first step to

understand is he does the leadership of the company see a reason to change.

Because without understanding that reason to change, we can talk about this a lot.

Nothing's going to change. So the first step is to recognize point number

one that the environment is changing. Okay, point number two, because the

environment is changing, there is a threat to my survival both short and long term. You know, there are basic humans all. I'll give you two

examples, very good examples that I think to contrast the situation. You had

companies like Nokia didn't change with the environment, or BlackBerry. But then you

have a company like Microsoft, which Bill Gates in the nineties said, you know, Microsoft is date and I will not work on the Internet and Internet is outdated. In one fine day in the night, late nineties, he

came and said, stop all projects and you work on the Internet. And

if you look at technology companies, Microsoft is one of the companies which was a relic in the seventies. You never expected deck Son. Everything has dyed.

Microsoft is reinvented itself all the time with each leadership Gates handed out to Bomber or Bomber handed or Nadela. They reinvented themselves as a as a cloud

company today. And now if you see it back in the race with chat

GPT. Okay, So the point is they recognize the environment is changing.

They see a verst of this revival. And if you see that, then

you can go in and talk about driving. It's ultimately a leadership and a

cultural issue. And before we even talk about the silos and engineering, are

you integrating from a marketing perspective with manufacturing, with engineering with a product supported song? So just look at that body, which is a casting. I'm

sure there are discussions in Tesla. It said, hey, if you have

a casting, you can't fix it in an accident. And somebody said,

okay, if I'm going to save one hundred and thirty five kilos and maybe eight hundred dollars on each vehicle, and let's say we make a million vehicles, that's eight hundred millions that we saved. Yes, you may have saving

out of the one million vehicles, maybe fifty thousand vehicles crash and out of that maybe five percent you'll change the casting, which could be a twenty thou so two thousand, two thousand final vehicles, and you may have to spend say twenty thousand dollars, which is around fifty millions. So here you save

eight hundred million. Here you say fifty thousand, and the decision was made,

which was good for the company, looking at marketing, sales, manufacturing, engineering, everything, So that Terry talked about integration, looking at the integration of the organization. What's good for the company and not just one particular

group drives these good, very very holistic decisions. And that drives the same

thing of breaking down these silos. Where the example of the body and the

battery, the breakdown breaking down the silos within power train and the body group.

So these are the changes. You know, it's more a cultural issue

than just a technical issue because a lot of the engineers who are a Tesla or Lucid or West Coast there are engineers from traditional wams anyway, So the technical background is still the same. It's not the people DESILO magically smarter.

It's just that they're more open to these to a different way of working in a different process. The system allows it. But one of the things I

wonder about is that if John or I were to talk to any executive at any of the OEMs, traditional OEMs, and we're to say to them, you know, is change important? Is your company at risk? Are you

moving ahead? At light speed. They would answer, you know, we're

on it, we're taking care of it, we're making change, we're you know, doing all the right things. Yet from what your documentation seems to

indicate, that's really not happening. Well, the fear of change, the

fear for survival is different than one different oms. I have the privilege of

meeting with several cxos. Some are really really scared and see the change.

You know, privately they will say, hey, I'm scared of the future, and they take decisive action. Some I don't think I even understand the

seriousness of the problem. If you're facing the industry is truly in an upheval,

especially in the next two to three years, especially with Tesla's plans to go to twenty million units. So it all depends on the individual. And

then so there's leadership. So in addition, you have the entire middle management

who has to accept this change. So do they feel the same pressure as

the leadership, Are they exposed to it? Can they move as fast?

So if you're somebody in the body group who has always done forboding welding and sorting stampings and roboding welding and so on, and you're like three years from retirement. Do you want to go and understand now how to build fastings?

Okay? So these are all the fears within with people in an organization.

It's change. Change is difficult changes carry, and that's what it's all about.

Hey there, Terry, hold that thought one second. We gotta take

a quick commercial break ready here, we'll be back in fifteen seconds. Hold

that thought. We're gonna come up through it again. I gotta pay the

bills. How do you breach? Don't entire stop shorter on what roads?

Is there hydrotrack technology, But you don't have to know how the science works, just where the brain is. What really matters is they're breached. Owe,

thank you, Bridge though, we're back and Kerry pick it on up again. Well, if Matthew is square on, I really liked the answer.

I would just add to it if I could a little bit. Number

one is you show me how you measure me, and I'll show you how I'm and behave. Okay, So we have instilled metrics and measures of how

we run the business today, and those are typically built around optimizing your particular domain. But you may win in your domain. And lewis at the enterprise

because you didn't make a better trade off. And so yeah, your part

or your system may be the lowest cost possible, but had you done in another way and maybe actually taken a little bit of cost on on net, you could have a much bigger cost reduction for the vehicle. So we have

to look fundamentally even just how we set up our organizations and how we measure ourselves with respect to you know, our performance. The other thing. And

there's a little bit of a cliche, but I've learned it. I believe

it's quite true, actually more so than just a cliche. But especially as

we transition to EBS. You know, there's a lot to learn, absolutely,

but I am convinced there's a lot to unlearn. And when you've been

doing this for thirty years in your career, it's not easy to unlearn that.

This is our process, this is my validation scheme, this is what my suppliers capabilities are, this is what we've done for the last seventy five years. Now you want me to just throw all that away and go in

a totally new direction, And that's tough. But these companies they have to

they have to learn, and they have to unlearn and they have to do it fast. Here we got a picture from your presentation, Sean, if

you can bring up that crosscar beam. I think it was page twelve,

because I think this gets right to what you're talking about there, Terry, So talk us through these. This is the structural beam inside of the instrument

panel runs from one side of the car to the other. You take it

from there. Yeah, that's exactly what it is. The crosscar beam is

as important part. It's it goes between the A pillars. The entire instrument

panel is mounted to it, the steering system, all the crash countermeasures, everything attaches to it. It is a very difficult part to design from a

GD and T perspective. What's that it's the geometric tolerancing and dimensions. It's

to make sure it fits. And you know they imagine the whole I P

and all the pieces that come together. They have to line up beautifully,

right. The craftsmanship is important and these are usually stampings and weldments, and

they wanted to start so it's a tough thing to design well. Some of

the nvs, the new EV companies in this case, Pestl in particular, came forward with a very simple cross card beam. It was a hydroformed aluminum

tube with co injected plastic bracketry and as you can see, a substantial reduction in overall mass of the part, and so it's much easier for the operator, it's lighter, less parasitic loss. For all the good reasons to do

this, But when some of the legacy engineers saw it in physical they picked it up. There it is, and their reaction was, and I don't

mean to be demeaning, but it was a little bit surprising. They simply

looked at you and said, this won't work. But it's a little bit

stunning because you say, well, we bought the car and we drove it here it seemed to work, and it gets a five star crash rating.

What do you mean it won't work? And then they go on to you

know, spund, well, we have requirements. We have dynamic bending requirements,

modal analysis requirements that say it's it's bending frequencies have to be above a certain target that isn't and so it won't work. It doesn't fit my specifications.

But what they failed to realize is that those specifications were driven by the fact that you mounted a V six engine or a four cylinder engine sideways that dynamically shake, and in order to protect the passenger and the drivers from this unwanted noise of vibration, we came up with those modal separations and pet and smithsmatches and torque access mounting and all these schemes to make it nice and smooth and quiet. But this is a n ev It doesn't shake. It hums

like a sewing machine. That requirement is no longer germane. And so to

say the design won't work because it doesn't mean a requirement that doesn't pertain.

That's first principles. You're you're bringing some specifications onto a design that's not necessary.

In manufacturing, we say over production is one of the eight forms of waste, and engineering engineering to requirements that are over and above what's necessary to satisfy the requirements is a form of waste. And you know that's a lot

that CARESOT does is look for waste and identify ways that they can call that waste out and be more efficient in their design, lower cost. And that's

what you mean by legacies have got to unlearn so many things. That's corrects.

So what I wonder about those is Terry and Matthew m This goes to a point you're talking about sounds like permission that leadership has to give to people.

So presumably Terry, that there are reams and reams of documents that are engineer requirements, and if you're an engineer, you've got to stick to those things because that's what it says. So from what you're saying, with the

example of the crosscar beam having characteristics that are no longer required, no longer relevant, somebody has to be the one who says, we're going to throw those papers away. We're going to throw it all away, and we're going

to do it differently. We're gonna go to first principles. So at what

point in leadership who makes that decision? I'm sure that the you know,

the the engineer who's you know, given the assignment. He can't do that

or she can't do that. There's got to be somebody higher up, typically

can't and almost always won't. We're engineers. We engineer to requirements. Weren't

just engineer because it's fun and there are requirements. There are specifications, and

there's constraints, and we engineer within those constraints to our requirements. And we

bring forward to design the works. Engineers are risk adverse by our very nature,

and in the auto industry especially because the failure mode effect of us doing something wrong can be devastating. You do something wrong, it can lead to

fatality, it can lead to an illegal product that campaigns warranty quality. You

just don't make mistakes, and so our processes are built to protect us from that, to harden that. We have factors of safety, and we have

validation schemes, especially because we have we learned a lesson. Oh we had

a big problem, and so we hardened our process, we hardened our design.

We'll never have that problem again. We continue to layer design. Oftentimes

that problem is gone, doesn't even exist, but the countermeasure stays, you know. So, so the processes that we engineer to are very rigorous.

The million dollar question that you just asked us who owns those and who has the authority to change them? And what has to happen is they have to

be involved. You have to in through this benchmarking. You say, listen,

they're engineering to different requirements than us, and it either they're doing something wrong and they're going to have a big problem. Good, let them have

a problem or we're out to lunch on this. This is you know,

we're behind. We need to be changing those and so that's that that's what

they need to do. That's where their efficiency gains can come from. Oftentimes,

Matthew, this gets back to what you were talking about of culture at a company so important, and Sean hold On leave this slight up because I want to get to that in a second. But Matthew, really what I'm

getting out of this is it's going to be almost impossible for a legacy automaker to make these kind of changes unless they set up a totally separate group just to eat like a startup within a legacy company. I'd love to get you

know, some of your thoughts along those lines. How do you change culture?

And you know, if you had a decade or so, maybe you could do some sort of transition. But the wolf is at the door right

now. So what in our experience with oms, if the leadership understands the

needs to change, things move quite quickly. And so a lot of the

legacy automakers have a challenge on the answer. So before I answer your question,

we have to look at the environment. How do they fund these ev

investments because of development that needs to be done as batteries plans, as new plans to be built. You have to get that out of your life business

you need to generate the cash and so on. So there are different approaches.

Some companies are doing it so recognizing the need to change it to move fast. That's point number one. Okay, you start seeing the organization and

all those things, is how to get it done? But first why should

we get it done? And how soon should we get it done? Those

are the fundamental questions too that the leadership needs to answer. And once you

do that, then there are different models. So if you look at Ford,

Ford has decided to go with model Y and Ford Blue, Breno is going to amp here and Horse and so on. Different approaches and also leadership.

For example and Ford, Jim Foley has done an amazing job of being a Doug Field in whose X texts X Apple and Swan and so forth, who really imbibes the sort of thinking of the ev world and Swan. So

that's a very good example of you know, a different way of thinking and so on. So with another two years you should see some great changes in

Ford on the model side because of Dougs leadership, so because he's just been there a year or so. So that's one way. The other way,

some of the oms are doing that in an integrated fashion. And sowan of

the vehicles we have seen, you know, we don't, Terry, what do you think all the vehicles with a benchmark, none is as the revolutionary and radical as Tesla, so far from a legacy automaker, be fair, Yeah, I LuSE it is a very good, very excellent technical vehicle.

But the Tesla net definitely. And when you look at their projections with the

manufacturing approach that they're that they're broke, broaching on absolutely by by a quantum Yeah, but clear, I mean I'm the legacy automakers, I don't I've not seen a vehicle that is no louse it. So we should see the

effects of sales from Ford, one of the big You could see that with Model, and you could see that now Reno is going the Ampier way and so on and so forth. So so which is the right answer. The

time will tell. But definitely, as we have shown with examples, developing

a NEV is about learning that we're unlearning learning. It's a different way of

thinking, more like a tech company and taking risks, moving fast and swan and before so in another two three years you know the answers and these things which time will tell. But it is a challenge job. Yeah, I'd

say the old cliche that the best organizational structure is the next one. That's

typically the way we look at it. But you know, at the end

of the day, it comes down act to leadership. You can structure yourself

every way and there'll be benefits in the in the new way, and there'll be some shortcomings of it, but it's a matter of leadership. And I

think one of the interesting things in Matthew you can expound on it is and a lot of the new startups, the top leadership, the senior leadership are extremely technically competent people. They're not simply great business of minds and financiers,

but technically, I mean, listen to General let's talk about a battery cooling system and you're going to school. It's really amazing. So I think there's

you know, from a leadership perspective, and having that kind activity or product and the leading technology is pretty critical. Y Sean, let's go back to

that that slide I said to hold up because you know, I love we're dumping all around here, right, But you guys have got such great findings in your presentations. Matthew, what are we looking at here? What's the

importance of having On the right hand side you see OEM two and the sort of notch into the trunk area the rear end of the vehicle. Okay,

so what you see on the left is a traditional cemi, which where the your floor and everything is a body body panel. Its stamped and it's relded

together or wadically relded, and so on and so forth. So on the

right you see the tesla um or why with the open rear and casting.

Now you have the new ET five zero nine. You have what was going

to it several announced this think going to a rear casting or real and front casting. So what this does is if you're if you're on the manufacturing floor,

this is what's called the golden zone. So if you could walk in

and if you had to assemble pots be the sun roof for the rear seat or even the both the carpet and everything inside the vehicle, you can walk in and do it, whereas on the left you have to jump in and out of the car, or you need some sort of a robot or some sort of fixture to bring the pots in and swan. So the integration that

we see in Tesla between manufacturing and engineering is huge. So that's the message

here. And the question for Legacy OEMs is you do you have do you

have an organization that encourages that sort of interactions ending and integration, And that's the critical piece. So coming back, you know some of these newer newer

where the Legacy williams our separate organization, say, and martell Y where's a lot of the people if you see in Madelia or even in Ampire or from other companies and Mardlly for example, there's a lot of good talent. They

are used to this sort of way are working. So you know, in

a year or two we should see some great results from Mordell leg with this sort of thinking and approach. So no, no, I know John doesn't

doesn't cott into this, but I'm gonna say it anyway. So the JD

Power IQs study came up today, Okay, and they announced the results today.

Now I remembered years ago and Terry Yo maybe recall something like this.

I was in the Kansas City Assembly Plant. There was a Malibu and it

was completely covered with post it notes with little things written on it, and it was all about JD Power results. And they you know, it's every

bringing the plant had to look at them, see what's going on. Okay,

So here's my point about the IQs. So Dodge came in first,

they studying. They came in first. First, they had one hundred and

forty problems per one hundred opportunities for problems. Okay. The industry average is

one ninety two, so less it's better. Tesla is at two fifty seven.

Okay. So it seems to me that unlike a legacy automaker, and

this is whether it's going to be Ford and Model E or whatever General Motors comes out with, or Renault or anybody else, that Tesla gets a pass for some of the things that don't go right. The others are not going

to get that pass, you know. I mean, even even if it's

the same problem. You know, it's it's like the old thing about when

you know, before the Tesla plant was a Tesla plant, it was the Numi plant where they were building. They were building Chevies and Corollas on the

same line, and the Corolla was thought to be fantastic and the Chevy was and they were the same car. So you know, again Toyota got the

pass, Chevy didn't get the pass. I'd say that right now, Tesla

gets a pass, no one else gets a pass. So I mean,

how do we explain this this you know, bad showing in the in the IQs study. Yeah, you know back when at one time, I was

the global vice president of quality for GM, so I lived this part of my pay was predicated on how we did on such independent surveys. Uh.

In fact, we drove to where we were number one back in back in the day, So extremely important focus. I think, Um, I think

it's a bit of an achilles c O four for some of the startups.

UH, fit and finish isn't all isn't competitive in certain areas. But I'd

put it to you this way. You know, it's taken people a hundred

years to figure out how to fit put a door in a hole so that it fits well and there's no wind noise and there's no water leak and the sound quality enclosing and all these things. There's a lot of you know,

institutional knowledge on how to build a car that the startups don't have. They

don't have decades and decades of having iterated through that and making better and better and better. So that's their learning curve. They don't come in as a

center of all wisdom and knowledge. There's stuff that they have to learn how

to do that and they will continue to do and they have continued to do that. So how they get a pass I don't know. You've got a

beta group for owners. You know, you've got people who love the product

and are willing to overlook some of those things. And how long could they

get away with that? The market would tell you know, I'll tell you

this. The traditional OEMs look at it and they scoff at it. They

just say it's you know, it's not very good until you look at the numbers that you posted John on a recent financial analysis that you did on the companies, and looks like they're doing Darren good. So it's it's an area

of continue improvement and growth in I believe one time Elon says something about I can build one of anything, but the hardest thing I've ever done in my life is value in production. And I believe that wholeheartedly. It is really

hard to make one a minute and make them perfect. So so Gary gam

just give you a little different point of view. Pakay, yeah, so

yeah, So the IQ score from JD Power, of course it's a good metalor But you know, at the same time, of contrast, that Tesla is the best selling vehicle just recently the world, okay, even beating the Corolla. So the Tesla buyer for them is the IQ score most important to

the fact that the technology in the vehicle is continuously improving. You know,

if you want quality, you don't want to change many things, okay, And that's part of the tour a system, right you limit your number of changes so that you can get the quality up and so on, so that you're look at it from the minds of the customers saying yes, is do the customer customers today? Are they looking for change and more innovation and so

on and so forth. And if that's what that's what Tesla is known for,

they're willing to give up on some of these other elements. Okay.

So I'll just give you two contrary and views. My wife definitely like the

IQs vehicle, but my son always wants he started driving recently and he's always wanting to try new technology things, so I don't think he would care about the IQ score one bit. Okay, So it all depends on the consumers,

and so the rules of the game of teams. So what was important

before is not important today, and that's what's happening, and are recalling the legacy that's the question. Yeah, that's a really good point. I mean,

Jentypower's counting things gone wrong, but then there's the thing's gone right, and you know it's up to the consumer to decide, you know, does does the good out outweigh the bad? But I don't want to get caught

up in in debating jty power, I qus. I'd like to get back

to what we're talking about here. Um Sean, I don't know if you

get that battery structure. I think it was page eleven, if you can

bring that up, because I got a question for both Matthew and Terry on this one. And that's when, Uh, Matthew, you had pointed this

out. When you cheer apowt the Tesla pack, you find this uh pink

foam inside, which you say, is uh SpaceX material? What's that all

about? And then I got a follow up question on on it as well,

I recommend the Terry answer this question. Okay, go ahead. I

would recommend Elon Musk answered this question. This is Uh. You can see

the battery pack with the top having been literally ripped off, which it's not easy to disassemble these batteries. Is quite a chatter. But once you do,

and you see that it's absolutely totally filled every uh you know, void at all. It is filled with this this foam. And we understand that

the foam is a structural foam that they actually use in the SpaceX craft.

It is it sets up like concrete, but it weighs like dust. Is

quite remarkable. And in order to get these cells apart, because we wanted

to eventually mark this and tear this thing down to the very cells, down to the chemistry, uh, it was incredibly difficult to get this foam out.

We tried chemical attacks, we tried dry ice shot painting, we tried everything to get it apart, and uh, you just work away at it.

So what they've done is by doing this, you know, they made a very structural pack. You push on one side, it's coming out the

other side. It is just extremely structurally tight. The reason they did that

is somewhat speculative. Did they do it for structure, Did they do it

because they had thermal issues? Is uh? And will it remain there,

that's to be seen. I don't know that it will always be there.

If it was as a countermeasure to another problem that they would get added in another way, they'll they'll be doing that. One thing about Tesla guist is

to stay up to speed on their on their designs is to tear one down about every six months, because I guarantee you it'll be different and there's always something new, something learning. And Matthew had mentioned, you know legacy oium's

enemy is or change is as an enemy to quality, change is a threat.

Well, they just they don't accept that. They just change as soon

as they think they can implement something that's better and you know, do their due diligence to make sure that it doesn't cause problems. And that's what we

saw. So so this was a new learning. When we tour the last

one down it was there. We'll see if it stays, but pretty incredible.

Yeah, look, I think it's a mistake on their part. From

one standpoint, recycling, I was at a recycling plant earlier this month, and oh, they were complaining about how hard it is to rip these battery packs out of the car itself, and then to rip the battery pack apart, and then to get down to the cells. It's a real headache for

them. So I think Tesla and all the others are doing a great job

of designing for assembly, but not designing for disassembly. But that's just me

on my soapbox for one second year. What I want you guys to talk

about is how they do design changes on the fly. I mean, this

is very bolton in the auto industry, right thou shalt not make design changes on the fly. And it all hearkens back to the Toyota production system.

You freeze specs a year before job one. That way everybody he's on the

same page. You get your quality right and you don't introduce any design changes.

Plus there's a major problem until two years after job one. That way

you can make sure that you keep your quality top notch. But Tesla is

able to do these design changes on the fly. It runs into some problems

sometimes, but more often than not they get it right. How is it

because they've got a software defined car? Is it because they can test this

out with digital twins. Matthew, what would you your advice be to the

to the legacies, How do they keep up with this company that's changing so quickly. Well, well, a couple of things, John and you allerted

to it. One is they're they're always looking for technologically better ways to do

things. Which so for example, if you look at this phone here of

mine, um, it's it's a it's legends rates, it's a phone, it's an email device, it's a camera, it's a compass, it's a GPS, it's so many things. So, oh, Tesla is continuously looking

at it from a technology standpoint, and there is an update from Apple this week. You know it happened overnight, Vota updates and so on. So

change is part of the system and that's cultural mindset. It's a technology device.

You need to continuously keep updating it. So how do they enable it?

What we have heard is one is they do a lot more virtual simulation than legacy OEMs. We have had a retired text experts work with us,

and they rely a lot more on the digital virtual models and legacy OEMs do.

So they say, okay, here's the model. It works in the

virtual model. Now build the car like the model, not the other way

around. That's one example. A second example, A second A second point

to think about is from a capital perspective. Whenever there's a change, they

look at the change. We've spoken to a few Tesla people. They say,

hey, there's a new idea. If you had an old idea and

you made an investment of a million dollars, that is some cost. Now

if you come back and say, okay, I have a better idea which will save me more money and better performance for this lower cost, Now let's go look at it. So that is to change a less and the old

rules are different because they'll think like a tech company. They don't think like

an automotive company. And change is good good, change is good, and

that's kind of the mindset. So it's a it's a shift in mindset.

I like Terry talked about the cross car beam. It's a shift in mindset.

I'm not dealing with a forty huts frequency that I had to meet here.

This is just a mode of that hums. It's all about the mindset

and if you're open to change, you will change. Because nobody, nobody

talks about Toto or the legacy wims anymore. Everybody talks about Tesla and the

startups, so it's it's a different mindset because they change and they're innovating constantly.

So that's why we talk about that. So how is it that a

legacy car company doesn't just simply catch up to Tesla but actually leap fraud Tesla?

Okay, So it's a very a very very important questions. So let's

look at the legacy companies, sorry, the new companies. So if you

take Tesla, the leader is a technologist Lucid the leader is Peter Roles.

And who's a technology is If you go talk to Peter and I've spoken to him, if you get him started to talk about his Sapphire motor, he will not stop. He's just so passionate and excited. From the same thing

with j If you meet a me so passionate, you talk to Hey Shaopong the head of Shaupong, internet entrepreneur Bin Lee Neo by the head. These

are all our customers. They're spoken to them. They're very, very passionate

about technology. If the rules of the game are that technology leaves, how

can an NBA or a business person or somebody else win because technology is a game changes so and so on and so forth. So now, of course,

a lot of CEOs like say talk about you know, when I talk to several CEOs and legacy oms, they're very very focused on technology. They're

bringing technologies in from the from Silicon Valley and so on. That's very very

positive because that's what legacy automakers need to do to you know, leap frog into this new area. Will they truly be able to leap frog the legacy

OEM and the startups? I don't know, because the advantage is the legacy

OEMs AE hundred years, one hundred years. What are the advantage of legacy

one hundred years of history, one hundred years of experience and being a big company. But for a startup, for a company like Tesla, capital is

not an issue. So what competitive advantages do you have? You have to

evaluate it. You know, it's not your question saying legacy versus startups is

Hey, what specific competitive advantages do you have? It makes you feel that

you could leap frog and beat Tesla. So it's mainly the end live the

best man or or miss bush Wind. That's that's that's that's what I would

say it's really good. Hey, look we're at the top of the hour

here, a little beyond even we're gonna have to wrap it up. But

you guys, this has been fascinating and and I've got a whole list of things here that I wanted to get to and we didn't get to them all.

So we're gonna have to have you back because your findings and especially your insight. You know, Matthew, I think you've nailed it. You can

collect all kinds of data and present it, but you guys go beyond that.

You talk about, you know, new organizational structures, you talk about new kinds of leadership, you talk about cultural change, and you're providing solutions, you're providing knowledge, you're providing, you know, a guide path as to what companies have to do. So I find that just terrific and I

hate that we're going to have to cut this off now, but this will be continued. Look forward to it. Look absolutely always a pleasure. Thanks

Joys, Okay, thank you, thanks for hosting us, Johnny, thank you, Yeah, you're beat, and thanks for everybody who has tuned in.

Thank you. Autoline After Hours is brought to you by Bridgetone Tires solutions

for your journey. If you like this program, I would like to learn

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AAH #653 - The Tesla Revolution: Legacy OEMs Under Enormous Pressure to Change

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