Elon Musk’s Basic Economics

Elon Musk’s Basic Economics


This video was made possible by Hover. Buy your domain before its gone for 10% off
by going to hover.com/Wendover. Imagine a $2,000 car… or a $100 laptop…
or a $70 iPhone… or imagine any product ten times cheaper than it was. Imagine the fundamental market change that
would bring. Imagine the amount of demand there would be
for that $2,000 car or $100 laptop or $70 iPhone. That’s what Elon Musk imagined 15 years
ago when he sat on a pile of $165 million dollars. Elon Musk’s businesses are all centered
around some the most basic principles of economics out there. When he starts a business, he’s not necessarily
trying to do something new, he’s trying to do something right. Musk made most of his early fortune through
his involvement with PayPal. In 1999 he founded a company called X.com
which was quickly bought by Confinity—the creators of PayPal—so when PayPal was bought
by eBay in 2002, Musk’s 11.7% ownership of the company translated to $165 million
dollars. Elon Musk has always been deeply passionate
about space exploration and, as anyone knows, public interest in space has been falling
since the Apollo era. Therefore, Musk’s plan with his newfound
fortune was to launch a rocket to mars carrying a small greenhouse that would grow plants
on the surface of the red planet. Basically, he wanted to take all his money
and put it into a big publicity stunt for space exploration. But he had a problem—it was too expensive. The cost of launches was absolutely immense
and, even when Musk tried to buy decommissioned Russian ICBM’s, he couldn’t find a way
to pull off the project, but he had discovered something. The space launch industry was ripe for disruption. Here’s Joseph, the economics expert from
Real Life Lore to explain why. “The rocket development and space-launch
companies before Space X were essentially aggregators. They bought engines and guidance systems and
all the other various components from other companies to cobble together one completed
rocket. But all the different component suppliers
also had their own component suppliers to make their product. The suppliers of the suppliers not only had
to cover their development and manufacturing costs, they had to sell their components at
a markup in order to make a profit, and then the next component manufacturer had to do
the same which means that by the time the component gets to the company assembling the
rocket, it’s expensive. Not only that, but the assembly company also
has to pay for employees that work to actually figure out how to make all of the different
pieces work together. SpaceX however, works differently. It makes 85% of the components it uses itself,
which allows it to make cheaper parts. For example, if SpaceX had bought their radios
externally they would be paying $50,000-100,000 dollars each, but since they develop them
internally they only cost $5,000 each to build, a dramatic improvement in reducing cost.” Joseph from Real Life Lore has a brand new
book which includes two fantastic chapters explaining simple economic concepts like this
that I’ll link in the description, but let’s talk Tesla. Tesla’s economic strategy is fairly similar
to SpaceX’s. Tesla themselves makes about 80% of the 5,300
parts in a Tesla car, but for the most part they don’t make these, the batteries, at
least yet. Batteries are very difficult to make at a
competitive price so very few companies do. The largest three manufacturers—Panasonic,
BYD, and LG Chem—make a combined 63% of the world’s batteries. Tesla, therefore, has historically just bought
batteries from Panasonic at a cost of about $200 per kWh. But that means that Tesla’s smallest battery
pack, the 50 kWh version, costs $10,000 dollars just in components. When you’re trying to sell a $35,000 dollar
car and make a profit, that’s a significant cost that can be reduced. Therefore, Tesla is attempting to reduce the
cost of their batteries by 30% by building their own factory in a joint-venture with
Panasonic. Their long-term goal, however, is to drop
the battery price below $100 dollars per kWh which would either double the range or halve
the price of that 50 kWh battery pack. But the vertical integration of Tesla and
SpaceX isn’t all useful. The companies basically have to learn and
perfect each step in the manufacturing process and, if one step isn’t working, no cars
get made. For example, the Tesla Model 3, the low-cost
Tesla, is built using steel instead of aluminum like the Model S and X. With this change, the manufacturer is having
troubles properly welding the vehicle bodies together and so the entire production line
is slowed down massively. But there’s something else unique about SpaceX
and Tesla’s production lines—they’re in the US. Now this probably seems counterintuitive—why
would you put the production lines of two companies working to make the least expensive
products on the market in one of the most expensive labor markets in the world? Almost every US company has relocated their
production lines to cheaper labor markets in Asia and Africa but Musk has always had
his in the US. Believe it or not, this isn’t a PR move. It actually makes sense for the two companies. Tesla and SpaceX’s production processes
are constantly being tweaked and optimized as the companies learn to make their products. While China might be able to build Tesla cars
at the same price by using cheaper human labor, Tesla’s US factory is just miles away from
its headquarters in Palo Alto meaning that the executive, development, and production
staff are all heavily integrated and can make changes fast. SpaceX even takes this a step further. It’s offices and manufacturing lines are
all under one roof. The Tesla factory in particular is also heavily
automatized and the US excels in production line automation with its abundance of highly
skilled workers, but just how much is Musk dropping the price on his products? The United Launch Alliance, which historically
has won most of the highly lucrative US government launch contracts, is believed to charge more
than $400 million dollars all-in for a military satellite launch while SpaceX charges about
$80 million dollars. So, SpaceX is already at a fifth of the price,
but as mentioned, Elon Musk wants that to fall to a tenth. Here’s the key for that—the fuel used
in the Falcon 9 rocket only costs about $200,000 dollars per launch—it’s practically a
non-factor in the launch price. The real cost is of the rockets themselves,
so that’s why SpaceX is making them reusable. The first stage of the rocket is now being
designed to land back on earth and be put back into service with dozens more launches. Once this system becomes reliable, it’s
believed that the cost savings will drop the launch price to $40 million dollars—a full
10 times cheaper than United Launch Alliance’s military launch price. SpaceX’s long-term goal is to get the launch
price down to about $10 million dollars per launch. While the company has already made a significant
impact on the space industry, a launch price as low as this would fundamentally change
what’s possible in space. Real space tourism would become feasible,
commercial satellites would become downright commonplace, and Space would become closer
than it’s ever been. But SpaceX does have a bit of a problem—people
aren’t really buying more rocket launches even though prices are down. It’s what’s known as a price inelastic
market. That’s the opposite of Tesla and the electric
vehicle market where lower prices lead to huge increases in sales. The problem with the space launch market is
that it is not a consumer market—normal people don’t buy rocket launches. Governments buy rocket launches and they don’t
care about price nearly as much as people since it’s not the decision makers’ money. The US Air Force, for example, decides they
need to launch a certain number of satellites each year for the national security reasons
and they’ll pay whatever it takes. But Elon Musk’s life goal is to get humanity
to Mars—that’s why SpaceX exists—and he needs money to do it. Lots of money. So, SpaceX is getting into the internet business. The company is actively developing a satellite
constellation that would provide high-speed internet to anywhere on earth. Thousands of small satellites would be put
into low earth orbit and then anyone worldwide could hook into the network using an inexpensive
ground receiver. If SpaceX got just 50 million users out of
the 7 billion in its proposed service area, this business could bring in $30 billion dollars
a year. Since SpaceX would be building and launching
the satellites themselves, costs would be dramatically lower than the competition’s. The whole commercial aspect of SpaceX essentially
exists to fund Musk’s future space exploration projects. For that reason, SpaceX is not a public company
like Tesla. Elon Musk does not want to make money with
SpaceX, he wants to get to Mars. He does not want to be beholden to shareholders
and profitability. Musk has therefore publicly said that SpaceX
will not go public until the company achieves regular flights to and from mars and thanks
to the entrepreneur’s understanding of basic economics, that might not be too far off. If you’re looking to start a company, you’ll
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100 Comments

  1. machaineà says:

    Wow. So much "economics" hot air and billionaire-worshiping in one place. Can the "success bias" go any higher?

  2. udmbfck x says:

    Here is someone who understands Musk's purpose in life and how he is doing it. Religious, Marxists, Neo-Nazis, KKK, Progressives, etc WILL HATE THIS…

  3. Paully Peanuts says:

    As a welder i do not understand how welding steel is giving them fits, but they say aluminum is easier to weld. My experience says the opposite is true. Id rather weld steel ANY day over aluminum. Aluminum is way to soft and melts very quickly. I dont like TIG. But whatever thats just a novice welders take lol

  4. A Liberdade vai cantar! says:

    I disagree that musk dont want to make money, i think he wants to make money to go to mars.

  5. Toan Maid says:

    Musk on 2008 : need funds..

    NASA: Ima help this guys career…

  6. Arman Mahapatra says:

    what would be humanity without musk

  7. ᖴᖇᗩᑕᎢᗩし Gaming says:

    More like Elonomics

  8. Caleb Walker says:

    Elon is a gift to humanity

  9. Zavy says:

    Elon is a forward minded thinker

  10. happy I care says:

    Elooooon

  11. happy I care says:

    And Tesla is the best car ever

  12. happy I care says:

    😍😍😍😍😍😍😘😘

  13. Darren Greene says:

    He's the hero we need but don't deserve.

  14. Jimmy Draws says:

    Define "makes 85% of the components".

  15. Christoph Michelbach says:

    I'm pressing F so hard right now.

  16. Nicholas Lennox says:

    Nice seeing real life lore in a wendover video

  17. Swolejin says:

    Not just governments buy launches but tens maybe hundreds of companies do. Google, satellite TV, satellite internet, etc

  18. My Stupid Opinion says:

    In Elon we Musk ✊

  19. Shini Kyokai says:

    another reason SpaceX manufactures everything inside the United States is that rockets are considered advanced weaponry by the United States government so it's forbidden for them to hire anybody from overseas or build them there.

  20. Zafras Frozen says:

    I dunno who is cooler Elon Musk or Keanu Reeves.

  21. Luke Work says:

    Elon Mars

  22. Luke Work says:

    I'm calling my friend Kim

  23. NICEFINENEWROBOT says:

    50 million users
    30 billion $ per year
    = 3000 $ per 5 users per year
    = 600 $ per user per year
    = 50 $ per month
    man we'll have to wait till it's 5 $

  24. Cig1 says:

    B.S. by all means, both from a technical and organisational perspective! They're far from new or disruptive in their orga or prod, just leveraged and overvalued whilst burning cash

  25. Kun Lin says:

    Great great fucking video, so well researched 👏

  26. Jack Prosper says:

    Only issue with putting so many sats into low orbit is the risk of accidentally creating a shrapnel debris field, especially through a chain reaction. It could set us back hundreds of years in space navigation if our rockets lose the ability to leave the atmosphere without getting blendered by flying metal.

  27. G says:

    It basically R&D driven economics, rather than outsourcing expertise and charge you $$$ for it.

  28. George Cowsert says:

    Elon Musk is the man that everyone aspires to be, and I love that. His mere existence proves that not only will smart and ethical business always be successful, but can also be incredibly profitable in a world where big businesses try their damndest to generate as much profit out as possible.

    I just wish more businesses took notes from the guy. Currently big businesses are debating whether or not to side with the Chinese government's tyranny just because it nets them slightly more profit. Such a business practice can only lead to distain for such companies and thus their eventual collapse.
    However, moral companies are safe from that kind of situation because they don't do anything to generate legitimate outrage, and thus are safe from boycotts and protests.

  29. Charles Ford Jr says:

    I say we invest now.

  30. david abe says:

    Elon economics = Make Government cover his business losses with your tax dollars. Then brag you don't take a paycheck so people like you.

  31. gloverelaxis says:

    Elon Musk is a parasite and autocrat who profits by paying his thousands of workers less than their labour earns for his companies. No-one elected Musk, and all of the achievements of the companies he owns are wrongly attributed to him, instead of the combined efforts of thousands of experts. All billionaires are bastards; Musk especially so.

  32. yossi kagan says:

    Watching this right aster Tesla bought a battery company 😂

  33. BigFoot Too says:

    More and More space JUNK, not good

  34. Rose Flanigan says:

    Elon Musk: Let's get to Mars since we've already fucked over our own planet. Oh man, it's too expensive? Well, let's disrupt the market and invariably put hundreds of thousands of people out of work in the end. lol.

  35. lass1234 says:

    Nice cross over with RealLife Lore !

  36. Epistemophilos says:

    "Governments don't care about cost so much because it's not the decision maker's money". In fact, they don't care about quality either because it's not for their own consumption. That's why government needs to be as small as possible.

  37. Sampurna blogs says:

    https://youtu.be/pWQZ50q8EIg
    Follow for more 🌺

  38. lordeisschrank says:

    eh…. this video is in dire need of an update

    also…. there was no need "to learn how to make cars", there are millions of books on the issue, production has been perfected by Toyota literally 30 years ago.

  39. JR Kipling says:

    Waiting for this Jewish con artist to announce its all been a fraud

  40. tailfox97 says:

    “Normal people don’t buy rocket launches”

    Welp, I don’t want to be normal anymore

  41. Rose White says:

    Usks care are too expensive to compete with Audi, VW, Honda and Toyota which is why we see so few of them in UK.
    Besides, who wants a 70's look when sharp SUVs are the way to go.?

  42. ~ Bright Romeo ~ says:

    Yeah, I'm sure he does not care about profit. Also, shameless advertising at the end of the video.

  43. semiLive sixstring strumist says:

    He is a set up fake. This Person is only here to make you think wrong and to carry the lies of Govt. deeper into the minds of people that believe without investigation. The car in space? How does the tires stay inflated? How does the paint stay on without burning or freezing off? Its a lie people.

  44. semiLive sixstring strumist says:

    All he does is shoot rockets into the ocean.

  45. semiLive sixstring strumist says:

    They have been saying that the moon will have hotels and people will go to space for YEARS! It will never happen people! It can't happen. Its a FRAUD that we good people pay for. Nasa ia a fraud. More and more investigating people are seeing it.

  46. James Lin says:

    They don't care about price more than the people because it's not the decision maker's money. That is so sad.

  47. EnthrallingBass140 says:

    Metal

  48. lovguru23 says:

    "space x is getting into the internet bussniess"
    bro, just build crypto currency miners.

  49. JollyJuice says:

    Visionary entrepreneurship

    It's… Beautiful.

  50. F. Teixeira says:

    Musk should be the only billionaire allowed. Other billionaires can fuck off and give all their fortunes if they are not going to to great things with it.

  51. Rod Schmidt says:

    He wanted to put HALF his money into the Mars greenhouse project. (not "all")

  52. Henry Carmichael says:

    It's really cool to see this advanced American manufacturing.

  53. Bill Gates.got.ripped says:

    get an education wendover … start with micro / macro economics. Then make a video on Economics.

  54. Johnathan Turner says:

    John Cena’s basic Thuganomics

  55. Ken Royall says:

    Musk builds in the US in order to convince politicians and the public that his ventures are worth subsidizing. It’s PR. Once those subsidies dry up he will move production elsewhere. It’s already happening.

    Bill Gates already tried a satellite internet company called Teledesic. It failed.

  56. howTo E-KkattYT says:

    electric cars are also bad for the environment because of mining the metals for wiring and batteries and they still get shipped with not so carbon efficient ships

  57. Smgntion M says:

    is there an update to this?

    I think the SpaceX observations are a tad bit off … corporations buy launches too – satellites don't last forever … they care about lower prices

  58. Lone Wolf says:

    Musk has massive balls to be doing what he does… a lot of people with way more money and political influence arent doing what he does i think primarily because they lack his interest and implication

  59. TheXuism says:

    tesla build the biggest factory in China now , what do you think of that ?

  60. Captain America says:

    This video is a 10 minute 22 second commercial for bullshit in a brown paper bag.

  61. Tora Hibiki says:

    Elon Musk
    2017: we going to mars by 2020 yall!

    2019, Also elon musk: ok guys, who wants engineered cat girls?

  62. Covesting Coin - Best Copytrading Exchange Token says:

    A God amongst men: Elon Musk

  63. computerjantje says:

    thumbs down for in-video advertisement

  64. o0mpALoompA Man says:

    Isn't undercutting other companies like that possibly bad.

  65. Sander Luís says:

    Buy domains? dam

  66. Ben Gursky says:

    Ain't nobody on Elon's Level, fuqqin nobody even close

  67. Angel says:

    elon musk is cool

  68. Andrea says:

    Why space agencies didn't do the same? I doubt they just neglected this very simple fact. Also it would be better in terms of national security to reduce the supply chain… Anyway chapeau to Space X

  69. drsupremo88 says:

    When the second voice came in hahhahahahaha

  70. drsupremo88 says:

    Fukn yahoodies lol

  71. Zane Hu says:

    Chinese can build a Tesla 30-40% cheaper, the claim by the author was wrong.

  72. Marten Dekker says:

    2:40 * prices are not "cheaper" or "expensive." You don't buy prices.
    Parts / things / services are cheaper or expensive.
    Prices are low, or higher.

  73. Gene Girard says:

    This is the first production by you guys that has been more opinion than fact. Moreover, everything you cover has been covered before. For a huge number of reasons, "Occupy Earth!" Is the only reasonable outcome. Nevertheless, I remain a devoted Elon Musk fan.

  74. Didar Korkembay says:

    Equality sign at 4:17 is backward
    , fix it

  75. B J says:

    Elon Musk is the modern day Howard Hughes.

  76. H Xen says:

    Between Elon's IQ and that of AOC and their respective understanding of economics, if they had a child together, then their kid would be of average intelligence with an average understanding of economics. He really needs to inform that woefully uninformed woman.

  77. Brian Emerson says:

    Well, this just sounds like we could cut out another middle man. Just have NASA build their own factories and plants and such, and build the rockets themselves. Research would go even faster, since new research ideas would be directly applied to new mission ideas, workers in the factories would be government employees and therefore not have to worry about Musk's union-busting, and all new tech would be immediately available for public use, rather than locked behind patents.

  78. jaysper says:

    Musk is so completely full of it.

  79. tanay manerikar says:

    What about the initial r&d prices which are gigantic . Why aren't they factored in?

  80. thepetyo says:

    I still don't understand why should anyone go to Mars.

  81. Kirmie44 says:

    #yanggang2020

  82. Sean says:

    Automated not automatized

  83. Joeltravels says:

    Would love a follow up on this video !

  84. MaFd0n says:

    Summary: build a communistic company which is almost entirely self-dependant, make sure you don't enter the free market until you can own it all. The irony of American logic.

  85. Chris Daly says:

    God Bless Musk and Canadian Economics! Muskonomics? (Oh, sure, when I do it, it's lame, because I don't owe a life debt to a million 12 year old wannabees, sheesh), no one chants my stupid neologisms…Anyway, brilliant! A company that doesn't need "Horiztonal or vertical integration," because it actually builds it's own products! XD

    I worked at a warehouse that receives, inspects and stores parts for a factory I worked at…I mean, why doesn't the factory build, receive, and store the parts itself? Increased costs of the finished product; we just assemble it…STUPID.

  86. Chris Daly says:

    I work for a company now that "RENTS" a fleet of delivery trucks, RENTS! By now, whatever it paid in rentals and repairs, for the 10 trucks it owns, could have been purchased by themselves. Eventually, you begin to overpay, you always do, it's how the business model was constructed. It goes from "loss" to "profit profit profit profit profit."

    Why not just buy their own trucks, and send them to a prof. to be repaired, or hire a 3rd party mechanic? Since they don't own so many that they'd actually need a full-time mechanic for them? Eh? DUMB.

  87. Chris Daly says:

    OH GOD I HATE THIS VIDEO "DING" – "Production is slowed down massively," production speed is not a real constraint/factor here, we'll run out of customers, eventually, and the trend hasn't really caught yet, they can wait, it'll be fine. Biggest pitfall of a company, overproduction. I work at a company that sells and produces tarp, it's hit the point where it's storing for inventory based on supposed/projected sales, eventually, their warehouse is going to fill, if demand doesn't meet production, which halts production….which means wasted labor time for employees, or wasted hours of facility ownership (land taxes, probably cheap though, low impact), employees that get laid off, etc.; eventually, despite all the pool liner and curtains we make, they'll fill up in stores…there is a maximum amount of product necessary to be produced; and once you do, you're sitting on nothing, basically, as far as "money" is concerned, and your employees become a burden, a useless cost, but you need them, to train new employees and operate machinery in the meantime…right? It's gonna get complicated.

  88. Chris Daly says:

    Yay, Econ 110! Price Elasticity! Inelastic vs. Elastic, (like rubber, flexible), inelastic markets are not shown to change their demand regardless of price variances; in this case, arguably, utilization of Musks service should increase, as others decrease, ignoring company loyalty, faith in the "newbie/kickstart company," (gotta give 'em a shot to prove themselves, eh Launch Commander?); exceeept one problem, chances are at this time, most satellites companies or businesses need, are likely already in orbit, "late to the game," but still viable, satellites de-orbit eventually, even with corrections they will run out of fuel to escape earths gravity, and they have to crash land them in the ocean or the desert somewhere, lest they hit a city and manage to set it ablaze somehow, or destroy homes (scary, huh? fire will rain from the sky >_<); whereas elastic markets change demand with price, especially for consumable goods (goods that are used quickly, food, cosmetics, clothing; things with a limited lifespan or supply); markets like bluetooth speakers, for example, actually abuse this principle, with "brand loyalty" and "quality assumptions," charging higher markup for say, the "Beats Pill" as opposed to other brands; the desire is greater for a product with good quality and long battery life and features, so they charge a higher price, forcing consumers to pony-up the pocket change for a worthwhile product, "the best," as opposed to some comparable alternatives, check out the selection at WalMart, which are smaller, have shorter battery life, quieter (one speaker versus two); and the spec sheets are never useful; 8 hours versus 12 hours battery life, $100 price difference? Extra speaker even? I bet that thing costs you $5 total; at what volume? Max volume, medium volume? What's the decibel range? How loud can it go? It's so confusing, it isn't informative.

  89. terence w says:

    More of Elon's goals will get materialized faster if Andrew Yang become's the President

  90. R J says:

    Tesla stock going to $1000 easily in less than 9 months

  91. Richard Chen says:

    8:20 wait a min… I don't think China would be happy about that

  92. TubersAndPotatoes says:

    Well, let's hope that China doesn't steal Musk's technology and claims it has always been their property since ancient times.

  93. David Chavez says:

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  94. sheepthehack says:

    $2000 dollar car??? I think he may have missed the fucking mark a little.. I tried buying a TESLA for 2000 dollars.. they told me they would call the police.. I think ELON needs to get down here and sort the mix up out.. ???? anyone????

  95. Shounak Khodke says:

    Real life lore? The Toyota Corolla guy? Is that you?

  96. thingslookingatthings eyebomb says:

    Imagine how many people he could feed with that money

  97. IsarEdits says:

    you have to make a follow up video <3

  98. CLP says:

    If vertical integration were the way to make everything cheaper, everyone would be doing it. With vertical integration you create multiple points of failure that can sink your entire business and tie up billions of dollars in fixed cost infrastructure that you still have to pay for even if demand for your finished product drops.

  99. San Jacobs says:

    >Video about economics
    >Starts off by saying prices affect demand
    The price of a product is defined by the intersection point of supply x demand. Price literally can't change demand by definition.

  100. San Jacobs says:

    0:17 "Ten times cheaper" isn't a thing. 50$ multiplied by -10 (which is what ten times cheaper means) would be -500$.
    You might be looking for 1/10th as expensive. That would be 50$ / 10 = 5$.

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