Is Tesla’s Open Source Initiative a Glimpse into Manufacturing Models of the Future?

TechDrive Guest Post by Dele Atanda:

 

Dele Atanda is an entrepreneur, best selling author and digital strategist.  He previously delivered market leading digital solutions for FTSE 10 and Fortune 100 Plcs including Diageo and BAT, national motorsport and urban marketing initiatives for Pirelli Tires, BP Castrol, Panoz Auto and Saleen and was founder and principal of Team X Motorsports.   

Atanda currently runs a digital startup, Digittteria developing personal data management applications and a small volume classic car remanufacturer, SpyderKraft building aluminum replicas of classic Spyders. Follow Him on Twitter: @DeleAtanda

The success of the Open Source approach to software development has been well recognised for many years now with poster boys of success including Linux, Apache, Google’s Android and many other technologies.  The Open Source way calls for a more decentralized approach to development compared to traditional methods and promotes open and license free access to a product’s designs, blueprints and intellectual property with the aim of enabling and accelerating greater innovation.  It is an offspring of the broader Open Collaboration philosophy, which promotes collaborative, goal-orientated and loosely coordinated participation in developing Intellectual Property, which is then made available to a wide community of contributors and non-contributors alike.  Though the Open Collaboration and Open Source movements became popularized with the arrival of the internet addressing its urgent need to rapidly redesign its core source code, the practice of sharing technology license-free predates the internet considerably and interestingly enough was most notably first implemented at industrial scale within the automotive industry.Tesla_logo

 

In 1911 the Motor Vehicle Manufacturers Association (MVMA) led by Henry Ford was formed to implement a cross-licensing agreement between all US auto manufacturers, enabling them to develop technology protected by patents that they could share openly with each other without any exchange of money.  The move followed Henry Ford’s victory in a high-profile battle with George B. Seldan over patents held by Seldan for a two-cycle engine which Ford claimed Seldan was using to monopolize the industry and stifle innovation.  The MVMA was formed to enable innovation to flourish in a manner that would benefit all US car manufacturers collectively.

When rapid innovation is required to grow an emerging sector that would otherwise be impossible or slow to achieve with a controlled, centralized licensing framework, liberating IP ownership, decentralizing and distributing it out to the edges is a smart and proven method for enabling innovation and facilitating adoption, enterprise and investment.  This in itself is nothing new and as such while news of Tesla making its technology Open Source has been applauded by many it has also been greeted by some with cynicism.  Several articles have proposed that Elon Musk’s motivation is the pending threat from the arrival of hydrogen powered vehicles in 2015 (being led by Toyota who recently cancelled their lithium ion battery partnership with Tesla) as a viable alternative to hydrocarbon (gas) powered vehicles, as opposed to the more altruistic reason of taking the battle of zero emission vehicles to the doorsteps of the gas powered vehicle producing giants as cited by Musk in his announcement.

Indeed even Musk himself lays out a clear and cogent argument as to how Tesla can generate $5.5Bn in operating profit by 2020 through selling 100,000 Tesla cars, 400,000 battery packs to non-Tesla car manufacturers and by operating 500 superchargers to mostly non Tesla vehicles.  Clearly Musk believes that making Tesla’s technology available to a wider user base is not only good for the environment but it is also good for his business.

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Most experts agree that a sustainable alternative to gas powered cars is more likely to come from a portfolio of alternatively fueled cars as opposed to a single alternative solution whether electric or hydrogen powered.  In fairness to Musk in his blog post announcing his intention to Open Source Tesla’s technology he states “Electric car programs (or programs for any vehicle that doesn’t burn hydrocarbons) at the major manufacturers are small to non-existent, constituting an average of far less than 1% of their total vehicle sales.” He later adds “Our true competition is not the small trickle of non-Tesla electric cars being produced, but rather the enormous flood of gasoline cars pouring out of the world’s factories every day.” It would seem fair to think that he would also see hydrogen car manufacturers as allies in the war against hydrocarbon vehicle production even if they did compete with his electric vehicle technology.  The two are not necessarily mutually exclusive.

I believe that Tesla’s declared direction and intention is a truly innovative step change for the automotive industry as a whole and gives us a glimpse of the framework of a progressive car manufacturer in the twenty-first century.  However, this change is not as much about Tesla Open Sourcing their IP and making it available to other manufacturers as it is about them delivering a fundamentally new operating model for a twenty-first century automotive manufacturer.  While this change is perhaps more evolutionary than revolutionary it is, I believe critical to the industry’s longer-term success.

The biggest barriers to entry to the automotive industry are regulation, capital intensiveness and the challenge of developing a scalable business model that enables a new entrant to address the first two challenges profitably.  The massive costs involved in developing vehicles and components that meet regulatory requirements means that tens and hundreds of thousands of vehicles need to be produced to make compliant manufacturing financially viable. The only alternative is to sell small volumes of cars at astronomically high prices to a super elite client base, which in itself is highly competitive, and no small feat.  The result is that vehicle production is now viable to an increasingly small number of global manufacturers that are forever driven to consolidate to achieve the economies of scale needed to maintain viability and growth.  This ultimately leads to slow innovation, a lack of competition and minimum incremental change.  As an example we see that before Tesla came along it was generally accepted that producing electric vehicles profitably at industrial scale was impossible. Even with Elon Musk’s considerable personal wealth of over $9Bn, keeping Tesla afloat remains a significant challenge that has brought him close to bankruptcy on several occasions.Bilder f¸r Wikipedia

By far the biggest hurdle to starting a car company is maintaining regulatory compliance. Small changes in regulations can put small volume manufacturers out of business overnight.  It is for this reason that there are no real small volume manufacturers left in the US (except perhaps Panoz and Saleen) and very few elsewhere around the world.  This is not to say that regulation is not needed.  Safety and emission standards are obviously imperative without which the environmental damage and death toll from car accidents would be considerably higher than they are today.  While some pragmatic concessions for small volume manufacturers such as the recent bill passed for replica car production make sense, what is needed generally is not a reduction in regulation but a new and more sustainable way of manufacturing compliant vehicles in smaller volumes.  This I believe is the potential step change at the heart of Tesla’s Open Source approach.  It’s not that they intend to release their IP but that they are gearing up to operate as a platform for other vehicle manufacturers.  By producing components, systems and infrastructure that other manufacturers can access and buy from them they are not only able to reduce the costs of such components (by over 30% in some cases) but they are also able to support an ecosystem of third party manufacturers, bolstering innovation, invention and entrepreneurialism.  The future for major car manufacturers has got to involve providing platforms and systems to independent small volume manufacturers if we are to going to see the level of innovation the industry needs to evolve.  As Tesla have shown this does not necessarily have to be driven by altruistic reasons as it makes good business sense in of itself.  We can see an example of this model working well in the field of motor sport.  For example in Formula 1 there are currently three engine suppliers:  Mercedes, Renault and Ferrari.  These manufacturers supply all eleven teams that compete in the series.  They still compete head to head with the independent teams and each other but are able to not only distribute the considerable costs of developing Formula 1 engines in this way but also keep independent outfits like Williams, Force India, Sauber, Caterham, etc in the sport which ultimately benefits the series as a whole.

One could look at the Volkswagen Group’s revolutionary MQB chassis system in a similar way.  VW have brilliantly managed to deploy the same core chassis as the basis for all models within the entire VW, Audi, Skoda and Seat range of vehicles.  The MQB chassis has also been used in small Polo based SUVs as well as large seven seater ones and VW Touaregs.  However the one vehicle VW were not able to launch with this platform was a small two-seater, mid-engine sports car concept called Blue Sport first shown at the Frankfurt Motor Show in 2003.  Though the car was technically viable and successful in tests, VW are reported to have been unable to make the business case for the vehicle work.  One has to wonder if VW took the platform supplier approach proposed here, building the Blue Sport and also making this highly desirable chassis configuration available to third parties as a regulation compliant, off-the-shelf component, might the business case look considerably more attractive?tesla-model-x-platform-ani

If the automotive manufacturing majors of the day are going to survive the sea changes coming to the industry over the next decade they are going to have to adopt new ways of thinking and operating.  This is going to call for much more collaboration and co-development with a new crop of entrepreneurs and small volume manufacturers in both the automotive and digital industries as a whole.  This will not only call for the sharing of IP and technology but will also require a new operating framework that enables major manufacturers to produce regulatory compliant components to an ecosystem of smaller producers that can innovate and adapt quickly and flexibly to market needs.  As 3D printing and the maker movement matures and the demand for personalisation and true mass customization grows this need will become increasingly acute. If manufacturers do not evolve to accommodate this demand in a decentralized manner they will not be able to foster the innovation and agility required to survive and thrive.

By open sourcing their technology and gearing themselves up to supply power packs and charging stations to other manufacturers Tesla may well have given us a first glimpse of what such a manufacturer might look like and how they might operate. Let’s hope the majors are paying attention.