01:10:17 · Ty Morse, Eric Jorgenson
[01:10:17] S0: I think was the number. It was, 5,000 [01:10:19] S1: a week. 5,000 a week? Okay. Yeah. 5,000 cars a week or were dead. And so that's on TVs all over the place. Like, that is... He must have said that a thousand times a day. Everybody on the team knew it. That's the bar we have to clear. And that was the result of, like, many, many calculations of, you know, what's our capital? What's our burn? How many sales that we made? Like, what's our return rate [01:10:38] S0: all that? Again, like, if conventional thinking won't fulfill the mission, then, you know, use unconventional thinking. At one point, he figures out that the max capacity at the Fremont factory is gonna be like 3,000 or 3,500 a week, and suddenly he goes, okay, what's the next thing? And they end up setting up the entire tent. [01:10:53] S1: Now he's building thousand. Yeah. [01:10:55] S0: And I I do I do find it very interesting that he immediately was like, yes, we will get fined. This is a thing that will happen. Doesn't matter. What matters is just getting... Making sure that we achieve the objective. [01:11:04] S1: Yeah. That was just his beating ticket, you know, but survival of Tesla was on the line. [01:11:09] S0: I I love Jeff Bezos' line where he says your margin is my opportunity. How does Elon operate with that philosophy?
01:11:09 · Ty Morse, Eric Jorgenson
[01:11:09] S0: I I love Jeff Bezos' line where he says your margin is my opportunity. How does Elon operate with that philosophy? [01:11:15] S1: Really, he's got a incisiveness about inefficiency that he sees in other industries. And this goes back to sort of at what level is your empathy. Like, he comes at a product from a first principles way and says, this is how effective or how cheap or how efficient a product could be, and it looks at all the different ways that an industry, maybe is acting inefficiently. [01:11:42] S0: And Same thing with the idiot index. [01:11:44] S1: Yeah. The the idiot index almost on an industry scale. Right? And so looking at aerospace, it's like, you know, these primes, which is basically act like an oligopoly who have this poor incentive system. The government's their main customer. They've got subcontractors on subcontractors on subcontractors on subcontractors. And he looks at that and says, yeah, we can do... We can make an order of magnitude improvement. Like, there's a lot of people making profit for not adding a lot of value, and we can take all of that. And, you know, his businesses don't tend to act to protect margin very often. I think he puts himself and his organizations in a place where continuing to innovate is always the main incentive. Like, you know, SpaceX as an example, they could just sit on and cash flow Falcon nine for twenty years, and it would be one of the best businesses of all time. But they were immediately plowing money back into Starship to kind of ride that next s curve up.
01:12:39 · Ty Morse, Eric Jorgenson
[01:12:39] S0: It's very interesting to me that if you think about the most extreme version of capitalism, it honestly kind of turns into a nonprofit. Like the very best businesses in the world are like a Costco, where in order to achieve the scale that they have, they're just giving away they are they're minimizing. I think they have a max margin of, like, 15% on any given product. And if you look across the entire organization, where does the profit actually come from? It's basically just their card memberships. So they make, like, a $120 per per person per year. And outside of that, they're effectively just running at a loss. [01:13:13] S1: Yeah. Bezos has a good, like, binary here, which is like there's two kinds of companies. Some exist to charge more and some exist to charge less, and we will be the latter. That's like Amazon, Walmart, Tesla, like, that is how those companies operate. Of course, you know, Louis Vuitton is the opposite. Right? Luxury brands are always like, how do we maximize margin and perceived value? And, like... But I would argue the customer value, the consumer surplus created by companies that pursue a low cost strategy are almost always higher in the long run, they become the biggest companies and the ones that generate the most equity value because they have the most customers and they do the most good in the world on the way.
01:13:13 · Eric Jorgenson, Ty Morse
[01:13:13] S1: Yeah. Bezos has a good, like, binary here, which is like there's two kinds of companies. Some exist to charge more and some exist to charge less, and we will be the latter. That's like Amazon, Walmart, Tesla, like, that is how those companies operate. Of course, you know, Louis Vuitton is the opposite. Right? Luxury brands are always like, how do we maximize margin and perceived value? And, like... But I would argue the customer value, the consumer surplus created by companies that pursue a low cost strategy are almost always higher in the long run, they become the biggest companies and the ones that generate the most equity value because they have the most customers and they do the most good in the world on the way. [01:13:53] S0: When I was interviewing Peter Beck recently from Rocket Lab, he said something that I kind of intuitively thought might be the case, which is if you don't control your ability to launch, then you're effectively operating at the whims of some other third party and like the good graces, and they could pull the plug at any given moment. And he said the only space companies that will matter in ten years are the ones that have the ability to launch rockets. [01:14:18] S1: Meaning, like, they own their own launch pads and Correct. Space.
01:14:18 · Eric Jorgenson, Ty Morse
[01:14:18] S1: Meaning, like, they own their own launch pads and Correct. Space. [01:14:21] S0: Yeah. And, like, their ability to launch. And I thought that was very interesting. I also know there's a whole bunch of startups that are... Like, we're gonna launch a whole bunch of satellites. But if Elon or Peter Beck does decide, sorry, I got to... You know, I have my own capacity. Yeah. And we can't... We, you know, we we are we are scaling launch at this insane rate, but our ability to use that launch is growing at an even faster rate, then suddenly there's really no third party providers. How do you think about that? How do you think that'll play
01:14:21 · Ty Morse, Eric Jorgenson
[01:14:21] S0: Yeah. And, like, their ability to launch. And I thought that was very interesting. I also know there's a whole bunch of startups that are... Like, we're gonna launch a whole bunch of satellites. But if Elon or Peter Beck does decide, sorry, I got to... You know, I have my own capacity. Yeah. And we can't... We, you know, we we are we are scaling launch at this insane rate, but our ability to use that launch is growing at an even faster rate, then suddenly there's really no third party providers. How do you think about that? How do you think that'll play [01:14:51] S1: out? There's an auction at the toll booth to get off the planet and whoever can afford to pay the most, like, will get off the planet first. But to their credit, SpaceX is building as much capacity as they can. I think because one, they know how to use it and two, they know volume drives cost down and cost keeps them ahead. They have a large cost advantage. And if they can do a really high volume of Starships, like, nobody else will even be able to touch them. That's also how they achieve the the mission. Right? If the mission is Mars, the mission is not near term cash flow, maximize profits. If the mission is Mars, you need a massive volume of ships, and volume comes with cost. And so, yes, you'll come up with your own use cases to fill your cargo, but you also want all the customers you get because the customers are helping to fund, you know, and fund additional production, but also fill the volume that drives incremental cost down.