Jon McNeill: The Algorithm Behind Tesla and SpaceX, Why Automation Should Come Last, and Setting Unrealistic Goals

Jon McNeill (0:01)

We almost went bankrupt because we didn't have the cash flow that we had predicted coming off of Model 3 And the only way we saved ourselves was to go back to the manual process. We literally built a tent in the factory outside and produced cars by hand, first 100 a week, then 500 a week, et cetera, until we could actually build an automated line that reflected reality. When we looked back on that and said, look, we almost killed the company, what would we do differently?

You've got to perfect the process before you automate, otherwise you just might bury yourself. In that case, we almost did.

Nicolai Tangen (0:48)

Hi everyone. I'm Nicolai Tangen, the CEO of the Norwegian Sovereign Wealth Fund. Today, I'm in really good company with Jon McNeill.

Now, Jon spent three years reporting directly to Elon Musk as President of Tesla, then was Chief Operating Officer of Lyft, and now he builds companies at DVX Ventures. Lots of people have worked for Elon, but Jon actually wrote a book about how to do things, the algorithms, which basically lays out how Musk used to build Tesla and SpaceX. Today, we are going to go through this point by point, so that you also can sort out your business and make it a huge success. Jon, big thank you for coming on here.

Jon McNeill (1:26)

It's an honor to be on with you, Nicolai.

Nicolai Tangen (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?

Jon McNeill (1:39)

I think the simplest example is you start to question everything.

Because oftentimes, people who have been in a business or looking at a problem for a long time, have not questioned the base assumptions. One of the first steps we took towards innovation at Tesla was to 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.

Nicolai Tangen (2:10)

Give me some examples, some of the stuff that you questioned.

Jon McNeill (2:13)

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 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, etc. So the first question that I assumption was or 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. Makes life really hard.

So I went to the team and I said, hey, look, I think we could make our lives a lot easier. I could remove a lot of clicks from the process. 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. 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.

Nicolai Tangen (3:44)

And then the head of supply chain said, not a bad thing.

Jon McNeill (3:47)

Exactly.

Nicolai Tangen (3:47)

Why is it so difficult for people to break rules, to change rules?

Jon McNeill (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.