Tesla cut online car orders from 300,000 configurations to two

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 1:28

   Now, step one. Question every requirement. Tell us about it. What are some of the simplest examples of things you need to question? I think the simplest example is you start to question everything. And because oftentimes people who have been in a business or looking at a problem for a long time have not questioned the base assumptions. And so one of the first steps that we took towards innovation at Tesla was look for those places that hadn't been touched in a long time by interrogation or questioning and really start to question them. Because when you start to question these assumptions, many of them fall by the wayside as unproven. Give me some examples, some of the stuff that you questioned. Yeah. So we were trying to sell 100,000 euro cars online for the first time. Anybody had done this in 2016. And every person that's in e-commerce

2. 2:24

   knows that the more clicks you have, the less conversion you have to the actual sale. We had 64 clicks when we started out. And you could design anything on the Tesla. You could pick your colors, your materials, your front motor, your rear motor, whether you wanted ludicrous, et cetera. So the first assumption that I questioned was, do we need a true build-to-order system? And it turned out that when you quantified that, we had over 300,000 different combinations that we were trying to build as a first-stage manufacturer. It makes life really hard.

3. 3:01

   So I went to the team and I said, hey, look, I think we could make our lives a lot easier. I I think we could sell more cars if we could kind of just coalesce around the data. And what the data says is people really buy two cars from us. They buy a performance car or they buy a long range car. So how about we just have two models? We'll let people choose the colors for sure. But then we'll be able to manufacture to scale and we'll be able to size our supply chain to scale.

4. 3:29

   I had been at the company about a month when I brought this to the rest of the team. And I sort of was ducking for cover as I presented it. And the head of manufacturing looked up and he said, do you know what this would do to me? And I said, no. He said, you would make my life 10x easier. And then the head of supply chain said- Not a bad thing. Exactly. Why is it so difficult for people to break rules and change rules?

5. 3:51

   I think number one, humans are natural complicators, not simplifiers. You know, Mark Twain had the famous line, I would have written you a shorter letter if I would have taken the time. It takes work to simplify and very smart people, very bright people tend to complicate rather than simplify. And so questioning assumptions is the first step to simplification and a lot of people avoid that and don't do it. And we just tried to build the muscle memory in ourselves and to the organization. First step is simplify, simplify, simplify. And the first step to that is question the assumptions that are put in front of you. Was there some things that people thought were untouchable, which you also touched? We touched auto financing. So it's one of the worst parts of the customer journey, but it's also one of the most complex parts. And around the world,

6. 4:42

   an auto lease or auto loan document is about 12 pages long with dozens and dozens of paragraphs. So one day I questioned our lawyer and I said, why do we need these 12-page documents? How many of these paragraphs of the requirement of law or regulation? He said, that's a great question. Nobody's asked that before. Let me come back to you. He came back and said, precisely none. And I said, are you kidding me? None of these are the requirement of law or regulation? He said, John, it's worse. We have all the case law in place to back us up. If somebody doesn't make a payment on a car, we can go get the car. That's inscribed in case law around the world.

7. 5:20

   we don't really even need this most of this document and so i said can we have a one page or one paragraph agreement then i'm agreeing to pay this much for the car at this interest rate over this term and here's my monthly payment he said we can so how do you tell how do you tell so how do you tell a dumb rule from a rule that makes sense uh rules that make sense are in our world a requirement of safety of law or physics and those are kind of immutable so if there's an assumption based on those it's a good one everything else is uh in the dumb category until