How Tesla Defined a New Era for the Global Auto Industry

FRANKFURT / BEIJING / DETROIT (Reuters) – Tesla Inc.TSLA.O) The rapid rise to become the world’s most valuable carmaker could mark the beginning of a new era for the global auto industry, defined by Silicon Valley’s approach to software that overtakes old-school manufacturing Used to be.

FILE PHOTO: Elon Musk, CEO of Tesla Inc. danced on stage during a delivery event for Tesla China-made Model 3 cars on 7 January 2020 in Shanghai, China. REUTERS / Aly Song / File Photo

Tesla’s ascent surprised many investors. But Daimler AG officials (DAIGn.DE), The parent company of Mercedes-Benz, had a close-up view in 2009 that Tesla and its chief executive Elon Musk were taking a new approach to manufacturing vehicles that challenged the installed system.

Daimler, who named the man who invented the modern car 134 years ago, bought a 10% Tesla stake in May 2009, providing a lifeline of $ 50 million for struggling start-ups.

That investment gave Mercedes engineers an inside-out view of how Musk was prepared to launch technology that wasn’t quite right, and then repeatedly upgrade it, using smartphone style, with regards to initial gains While paying less.

Mercedes engineers helped develop its Model S luxury sedan in exchange for Tesla’s access to partially hand-assembled battery packs, but in 2014 Daimler decided to sell its stake, which has led to skepticism of Tesla’s approach Could be industrialized on a large scale.

Tesla will go on to pursue new approaches in manufacturing, software and electronic architecture, enabling it to introduce innovations faster than rivals, enabling analysts to compare themselves 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: the German obsession with long-term safety and control, which rewarded growth, and the Silicon Valley Carmacker’s experimental approach Embraced radical thinking and rapid innovation.

A former Mercedes engineer said that Alon Musk, who worked during the partnership, has started to walk on the edge of the Razorlade in terms of aggression.

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

Tesla did not respond to requests for comment.

Investors are in favor of the Tesla model, an industry undergoing fundamental and dizzying changes, even as American carmakers will face an onslaught of competing electric vehicles from established automakers over the course of the next few years.

They are spending their money on Musk and his company, even though 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 $ 304.6 billion, six times more than Daimler’s market capitalization of 41.5 billion euros ($ 47.7 billion). See GRAPHIC:

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

Collaboration expanded. At a joint press conference at the Mercedes-Benz Museum in Stuttgart in May 2009, Tesla stated that the partnership would “accelerate production to our Tesla Model S and ensure that it is a luxurious vehicle”.

For its part, Mercedes wanted to use Tesla’s batteries to power the electric version of its compact Mercedes-Benz B-Class. The Tesla Model S will hit the road in 2012. An electric B-class arrived in the showroom after two years.

Despite Tesla supplying batteries, Mercedes had a shorter operating range, after which Daimler engineers introduced the B-Class to address their concerns about prolonged battery erosion and greater heat exposure. , A second Daimler staffer who worked on joint projects told Reuters.

German engineers found that Tesla’s engineers had not carried out long-term stress tests on its batteries. “We had to create our own stress testing program,” said the Daimler engineer.

Before starting production of a new car, Daimler engineers specify “lastneft” – drawing out the attributes of each component for suppliers. Significant changes cannot be made after the design freezes.

“This is the way you can guarantee that we will be profitable during mass production. Tesla was not concerned about this aspect, ”another Daimler source said.

Daimler engineers suggested that the Model S’s underbody needed to be reinforced to prevent road debris from battery packs, the first Daimler engineer said.

After a series of battery fires, Tesla increased the ride height of its vehicles, using an over-the-air update, to remove doubts about safety and security, and a few months later, In March 2014, it would add a triple underbody to shield new Model S cars and offered to retake existing cars.

Musk was able to adjust quickly thanks to Tesla’s potential through more cash during development.

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

The Model S, a four-door electric sedan, will go to the United States in May 2013 to outsell the flagship Mercedes-Benz S-Class, and will provide S-Class delivery globally by 2017.

Music: go in or out

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

Musk said, “We definitely need people who are innovative to do advanced engineering.” The incentive structure is set up… as if innovation is rewarded. Making mistakes along the way is not a big punishment. But brand new to trying to fail … comes with a big penalty. You will be fired ”

Established automakers are playing catch-up to Tesla, designing their own software operating systems and dedicated electric cars.

Mercedes will release its EQS next year – a four-door limousine built on a dedicated electric vehicle platform with an operational range of 700 km. A new version of the Mercedes S-Class, which will feature combustion and hybrid powertrains and semi-autonomous driver assistance systems, is due this year.

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

Mark Wakefield co-leader Mark Wakefield said, “No one can give a five-year window to an OEM (established automaker) to say that you can stop your business altogether, and I’m going to buy it Have been. ” Automotive and Industries consulting firms practice at AlixPartners.

He said that start-ups get time to learn from investors, make mistakes and grow.

Investors are betting on Tesla’s ability to scale manufacturing, as they supported Toyota Motor Corp (7203.T), Which defined the last era of the auto industry with its mastery of highly efficient, high quality lean production.

Toyota overtook the market capitalization of former industry leader General Motors (GM.N) In 1996, although it was not until 2008 that it sold more vehicles than its Detroit rival.

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

Toyota was impressed by the speed with which Tesla came up with the new design, but eventually decided that Tesla’s methods were not suitable for mass production by a main manufacturer, when Toyota’s standards for product quality and durability Was implemented, the two company insiders said from the partnership.

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

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A spokeswoman said what Toyota did to achieve the project, and it ended in October 2014 after Tesla delivered a 2,500 electric powertrain system in about three years.

Prior to Volkswagen both Toyota and Daimler had agreed to cooperate (VOWG_p.DE) In 2015 the emissions-cheating scandal, which prompted a global regulatory backlash and forced car manufacturers to invest in electric cars.

“It was all before Dieselgate, which changed the economics of electric and combustion-driven cars,” said a senior Daimler manager. “Tesla has a lead. Let’s see if they can grow up. ”

Reporting by Edward Taylor, Nori Shirozu and Joe White; Additional reporting by Paul Linnert; Edited by Joe White and Praveen Char

Our standard:Thomson Reuters Trust Theory.