At Tesla's 2020 Battery Day, Elon Musk unveiled his plans for a Tesla owned and operated lithium battery cathode plant.
If you don't know what that means, here's a brief explainer: electric vehicles run on lithium-ion batteries. The positive end of the battery is called a "cathode". Tesla's cathodes require a combination of lithium, nickel, and manganese.
Tesla used to import all their battery cells from Panasonic, in Japan. Before Panasonic, the raw metals went through a crazy supply chain. It looks something like: Mine metals (China, Australia, Finland, South America) -> Process metals into usable chemcial compounds (China) -> Turn metals and compounds into battery cell (Japan) -> Combine a bunch of battery cells into the cars battery pack (US)
So, if you're a piece of lithium mined in Australia, you're shipped across the globe to China, then to Japan, and finally across the globe again to the US. From a business perspective, every step of this journey adds costs for shipping, storage, value added taxes, and import duties. And, at every step, each middlemen takes their profits.
Experienced in doubting the status quo, Elon looked at this and thought, "things shouldn't be this complicated". And, having a good track record with this kind of hunch, he and a team of engineers took a look at how cathodes are made. After studying the science behind cathodes, they confirmed Elon's hypothesis. The world was, in fact, making cathode production much more complex and expensive than it needed to be.
Once the problem was apparent, the solution could came naturally. He probably asked himself, "If I wanted to build a cathode from first principles, how would I do it?" In answering this question, Tesla found a whole stage of the conventional cathode production process that could be skipped. They also found ways to save water, eliminate waste, and still reduce costs by 76%. AND they discovered a new, simpler way of lithium extraction, the first step of the cathode process, that's 30% cheaper than the conventional method.
At first, this was hard for me to believe. I thought he was exaggerating to investors. I had questions. "How could the established lithium mining experts could have missed this? How could the cathode experts not missed this? Isn't free market competition supposed to drive these companies to constantly innovate?"
If you have the same questions, there's a great book, Inadequate Equilibria, that explores these issues, answering a more general question:
Suppose... that someone thinks they can easily build a much better and more profitable social network than Facebook, or easily come up with a new treatment for a widespread medical condition. Should they question whatever clever reasoning led them to that conclusion, in the same way that most smart individuals should question any clever reasoning that causes them to think AAPL stock is underpriced? Should they question whether they can “beat the market” in these areas, or whether they can even spot major in-principle improvements to the status quo? How “efficient,” or adequate, should we expect civilization to be at various tasks?
The author answers the question by showing how economic incentives will often cause society to miss easy and obvious solutions. But, if reading a book called "Inadequate Equilibria" is not a tempting weekend activity, you can also gain some insight by contemplating the wheeled suitcase.
Wheels have been around for thousands of years. The idea of a personal suitcase has been around since ~1800. But the Wheeled Suitcase, a suitcase with wheels stuck to it, took another 170 YEARS to hit the market. They've only been around since 1970. I can't tell you exactly why it took so long, but, clearly, things that seem obvious in retrospect are often not obvious at the time. From this, we can deduce that there is still a lot of low hanging fruit yet to be plucked.
Back to Tesla. After redesigning the lithium extraction and cathode production process, they drew up plans to build a lithium mine, processing plant, and cathode factory, right next to their lithium-ion "gigafactory" in Nevada. By colocating all the steps in the process, they skip the shipping, storage, value added taxes, import duties, and middleman profits. Also, they don't need to hire and train procurement specialists, supply chain managers, and supply chain manager managers to keep track of risk, inventory, logistics, and all the complex contracts necessary to run a international, inter-company, supply chain. Companies will often outsource mining operations to where labor is cheapest, rather than to the nearest supply of raw materials. But because Tesla improved on the lithium extraction process itself in such a dramatic way, they could keep jobs in their own country, and integrate the mine and the factory, and still save money. I have no doubt that, once the mine is under their operation, they'll find ways to improve upon mining as well, which will more than cover any cost savings from outsourcing labor-arbitrage.
I love stories like these, because I'm the opposite of Elon. I never question my environment. When I first learned web development, I, like many people, struggled to get CSS to do the simplest of things, like centering a div. And, after every JavaScript change, I'd pray before refreshing my browser because it so rarely did what I wanted it to do.
While struggling, I would only think, "Wow, programming is hard. Making websites is frustrating."
Not once did I ask, "why is it hard? Does it have to be hard? Is there an easier way? A better language? Is a language even necessary? What is programming, even?"
These questions were far outside the scope of my goal: building a simple website for my class project. And that's fair. Sometimes you're tasked with a job, you have three weeks to get it done, and there's no time for re-inventing web development. But, if you're in the business of innovation, you must make time for these questions.
Sridhar says part of the inspiration for Pali came from his pre-Zoho contract job, where he fixed bugs in big C codebases, full time. He'd spend hours squinting at obtruse stack traces in gdb, only to find the root cause was trivial. For example, a local variable that had been instantiated but never assigned, causing random values to fill in the blank.
If it were me in that job, I would've thought, "debugging is frustrating, but I must suffer for this paycheck." But Sridhar started to think, "Why are these simple issues so time-consuming to debug? How did these bugs happen in the first place? Are they avoidable?" and in the process of answering these questions, he built a vision for a better programming language.
Introspecting, I find that the biggest blocker to this kind of thinking is a lack of confidence in yourself, and an overconfidence in the status quo. Who am I to question CSS, used by billions of websites? The people that wrote it know way more than I do. I'm sure they have goo reasons for doing what they did. And what am I gonna do about it anyway? I can barely center a div!
It feels safe to submit to perceived experts, but all great products starts with asking questions. We all have a hunch that things could be better. The trick is fo follow up, trust your thoughts.
Steve Jobs summed it up:
"When you grow up you tend to get told that the world is the way it is and your life is just to live your life inside the world. Try not to bash into the walls too much. Try to have a nice family life, have fun, save a little money. That's a very limited life. Life can be much broader once you discover one simple fact: Everything around you that you call life was made up by people that were no smarter than you. And you can change it, you can influence it… Once you learn that, you'll never be the same again."