Speed + simplicity = cash 

Readers of this newsletter will note my near-endless fascination with incremental improvements to Tesla’s battery manufacturing process—a subject I started writing about in 2018. My core thesis: through a combination of vertical integration and technological and manufacturing efficiencies, Tesla could create a highly scalable (and immensely profitable) EV business. The cash flow from the EV business would then go on to leverage other directional bets on energy storage and distribution, artificial intelligence, and much more.

The crux of this idea, however, centers on necessary improvements to the manufacturing process that will allow for greater cash flow per unit of production—a subject highlighted this week in an excellent video by Jordan Giesige’s The Limiting Factor.

In our Q3 Letter last year, we wrote about how we look for businesses that accumulate marginal gains at scale to reap long-term rewards. Giesige’s breakdown of Tesla’s approach to battery manufacturing is a good example of this theory put into practice. It’s my view that we’re still in the very early innings of growth, and key structural manufacturing and process improvements made today will have immense cash flow (and earnings) implications over the next several years. 

“For such large and complex hardware, the factories that build that hardware need to be both faster to build per unit of capacity—and lower cost per unit of capacity. I say per unit of capacity because it’s not just about building factories faster and cheaper, it’s about increasing the throughput of those factories by making the product itself easier to manufacture. Giga castings are a perfect example of that and have eliminated two-thirds of the robots in Tesla’s body shops.”

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Bridging the disconnect between Washington and Silicon Valley

Katherine Boyle is a former reporter who now works as an investor at Andreessen Horowitz. This week, she spoke with Patrick O’Shaughnessy about her concept of investing in “American Dynamism.” It’s a wide-ranging conversation that hits on the disconnect between DC and Silicon Valley, funding “hard tech” problems, and confronting societal problems—like the lack of housing—through venture capital.

“Some critics of the tech industry believe that software only touches the digital world and that we’re wasting valuable talent ignoring the physical,” she wrote earlier this year introducing the concept of American Dynamism. “But these critics are missing this current movement to the physical sector and the interplay between hardware and software: some of the most disruptive companies are remaking the physical world with software at their core. 

“So the way that we define American dynamism is we’re actively investing in companies that support the national interest. So that’s everything from your classical government companies, aerospace defense, national security, where there are procurement requirements, requirements from the government that are put out to work with various private companies. But it’s also things that aren’t working directly with government, it’s housing and education, highly regulated industries, where these are important to the goods that touch all Americans. And most of the progress that is going to come in these sectors are going to come from technological improvements, not from policy improvements, in our opinion. And so the American dynamism in practice, it’s a broad practice, but it’s the issues that are touching and facing all Americans and the belief that technology is going to be what solves a lot of these core issues—and not policy.”

A few more links I enjoyed: 

A Conversation with Josh Wolfe: Macro, Mentors, Motivation – via The Manual
“The best entrepreneurs we see are the ones who are so obsessed to prove other people wrong who don’t think this is possible. That to me feels honest. It feels petty, but it’s real. We’re all changing the world, every second. It feels dishonest. I have found that the best entrepreneurs are just psychotically obsessed with some hard technical problems and they feel like they’ve discovered something and they see the prize at the end of the rainbow. With a little bit of money or time or more talent they will get the status and the fame and the acclaim on having done the thing. That to me feels like a much more honest, social primate human pursuit than signaling virtuously, oh I just want to save the world.”
Blue Ocean Thinking: Time To Build – via Michael Olenick
“Now is the time to start and fund new businesses, not revert to small niches that aim to out-compete in red oceans. Build new and different things focused on blue oceans that make competition irrelevant. Whether it’s the next Google, Microsoft, Apple, or the Wii, Wawa, or Marvel Studios find those painpoints and create solutions that solve them… Investors are scared, markets are fragile, and lots of businesses formed in the past few years are doomed. History tells us that is exactly the right time to invest and build and not be boxed in by the status quo.”

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