Modern Day Glotz’ Investment: Building the Most Valuable Company in the World

Enter Tesla…

Introduction

I recently read Poor Charlie’s Almanack: the Essential Wit and Wisdom of Charles T. Munger: by Peter D. Kaufman. My favourite talk was Talk Eleven: The Psychology of Human Misjudgement and Talk Four: Practical Thought about Practical Thought was a close second. What really piqued my interest in Talk Four was a thought exercise that Munger presents called “Glotz’ Investment problem”.

What is Glotz’ Investment Problem?

Glotz’ Investment problem is essentially this: An Investor named Glotz offers you a $2 Million in 1884 dollars investment for half of the equity in a new non-alcoholic beverage business called Coca-Cola. This business must be worth at least a trillion dollars by 2034 (150 years later) even after paying out billions of dollars in dividends. The question to be answered in the investment pitch to Glotz is: how you are going to build said business?

Munger uses this thought exercise to illustrate that Coca-Cola's path to success was obvious in retrospect. The thought experiment followed these 5 steps: 

1. Start by deciding and answering the big no-brainer questions first.

2. Use numerical fluency to ensure the economics will work.

3. “Invert, Always Invert” - think problems through forward and reverse. 

4. Think in a multidisciplinary manner, combining aspects from different fields. 

5. Really big effects, ie. lollapalooza effects, will only come from large combinations of factors

This blog

In this blog, I will explore a different yet similar question: If you were to build the most valuable company in the world, how would you do it? In short, my answer would be “Build a company like Tesla”. Now let me show you how I would pitch Glotz... 

Building the Most Valuable Company in the World

1) Big No-Brainer Questions - What to sell? 

The first question we have to answer is the big no-brainer - what are we going to sell? Short answer: Cars, Energy Products, and Robots!

Long answer: 

As the world's largest company, ultimately our mission will extend beyond selling products. We will aim to lead markets crucial to humanity's future: transportation, energy, and human labor. Our focus will be on developing transformative technologies that enhance global sustainability, forming the cornerstone of our brand identity.

Key Market Segments

1. Transportation

We will revolutionize the automotive industry with a multi-faceted lineup of products:

• Electric Vehicles (EVs): Producing the highest-performing and safest EVs on the market, displacing ICE vehicles.

• Charging Infrastructure: Building a comprehensive charging network to support our EV fleet, replacing the need for gas stations.

• Autonomous Driving: Developing Full Self-Driving (FSD) technology, an AI-driven system significantly safer than human drivers.

• Driverless Taxi Service: Combining EVs and FSD to create an autonomous taxi service that will:

  • Disrupt traditional taxi and ride-sharing services

  • Optimize driving resource allocation

  • Reduce carbon emissions

  • Lower transportation costs for consumers

2. Energy

Leveraging our expertise in battery manufacturing from the EV sector, we will expand into the energy market:

• Stationary Energy Storage: We will develop advanced storage solutions for both consumers and utilities.

• Integration with Renewable Energy: Supporting the transition to sustainable energy sources by selling solar generation products.

3. Human Labor

In our third business, we will apply our advanced manufacturing capabilities and market-leading AI expertise to an unprecedented product:

• Humanoid Robots: We will create versatile, AI-powered robots to revolutionize the labor market.

2) Numerical Literacy 

From a numbers perspective, the most valuable company in the world will need to focus on the things that will drive demand and allow for cost reductions 

Market Size 

I won’t spend much time here because these markets are extremely large. What is more important is that we are able to achieve large market shares in each:

1. Transportation - Annual automobile manufacturing revenue in 2023 was $2.56T¹, and 2023 global taxi service revenue was around $140B².

2. Energy Storage - Energy storage systems worldwide accounted for a market worth 256 billion U.S. dollars in 2023 growing at a 9% CAGR³. 

3. Human Labour - current total addressable market forecasts are around US$38B⁴ in 2035, growing greater than 50% CAGR per year currently. Even at a 1:1 human ratio, at $20K per robot (estimate at scale), with 8 billion humans on earth, this is a $160T market size…some estimates see humanoid robots greatly outnumbering humans on a 3:1 or even 4:1 ratio, especially in manufacturing settings. The opportunity here is undisputed.

Drivers of Demand 

There are two underlying factors driving the demand for our company: 

1. Climate Change requires us to both reduce emissions from fossil fuel combustion and increase our usage of renewable energy technologies

2. Inflation and Cost of Labour is forcing companies to do more with less. An aging population, low birth rates, low GDP growth, and fiscally stimulated environments will put upward pressure on wages and inflation. Companies will have to find ways to build 

Drivers of Cost Reductions

We’re going to manage costs in a few different ways 

1. Fewer parts per unit - We will minimize part per unit so as to simplify the manufacturing process and reduce costs of goods sold. We will ensure the net functionality is the same, but we will make it up in software to ensure our margins are strong.

2. Loyal, Agile Workforce - since we will “Build the machine, that builds the machine” we will be able to avoid organized labour because we’ve attracted the brightest minds and compensated them very well. Working for a manufacturing company like ours will be a “white collar job” and won’t be dangerous like manufacturing has been historically. 

3. Vertically Integrated - we will minimize the amount of suppliers we have for our products. This will allow us to control costs and maximize flexibility and customization, making our margins better.

4. Technological Advancement - as we progress, Moore’s Law demonstrates that our COGS will consistently fall, improving our margins over time. 

3) Invert, always invert

To build the most valuable company in the world, we must also think through problems both forward and reverse. When we invert, the questions that come to mind are 1) How do we maintain an economic and technical moat? And how do we ensure that we remain competitive in the market? 

There are two ways to ensure that the moat is as deep and wide as possible: 1) through superior economics and 2) the fastest pace of technological innovation of any company on the planet.

Economic Moat

The logistics and distribution strategy will be relatively simple.  It will be based on 4 pillars:

• Manufacturing Scale: We will set up our manufacturing sites in the most strategic locations around the world: United States, China, and Germany. Our manufacturing facilities will also be the largest and most advanced technologically in the world, achieving highest production output and lowest cost per unit economics. We will maximize the use of robotics and automation and avoiding unionized labor, further driving down variable costs.

• Limited Models - We will not release new models of products every single year like our competitors as this unnecessarily drives up costs. We will look to improve the manufacturing efficiency and quality of our models, making performance improvements over time. We will release refreshed versions of our existing models every 4-8 years.

• Direct Sales -  Selling our products online directly to the customer will allow us to not have dealerships, so as to avoid both the transactional costs that eat into margins and decision-making slowness related to having to rely on intermediaries. 

• Prefabricated and easy to install products. We will aim to make products as simple and intuitive as possible. Some examples include i) the modular Powerwall design ii) the plug-and-play nature of the Megapack for direct connection to high voltage transmission, and iii) the pre-assembly of our Superchargers.   

4) Technological Moat and Innovative Leadership - Tesla's Multidisciplinary Approach

Building a Deep and Wide Technological Moat - Manufacturing Excellence

At the heart of our company will be an unparalleled manufacturing capability:

• "Build the Machine that Builds the Machine": We will implement innovative production methods that outpace traditional manufacturing in speed, scale, and profitability.

• Vertical Integration: We will design and build many components in-house due to the cutting-edge nature of our products.

• Scientific Expertise: We will develop a deep scientific knowledge to continually push technological boundaries.

To establish a formidable technological moat, the world's most valuable company will consistently produce innovative products that not only create but also lead their respective markets while maintaining high profitability.

Given the rapid pace of technological change amongst our competitors, maintaining an advantage through patents alone will be insufficient. Instead, the company will embrace competition by open-sourcing most of its technological innovations. While some competitors will imitate these methods, the company’s relentless pursuit of innovation and profitable scale will enable continuous investment in new technologies, further widening its lead.

Some Notable Examples of Tesla's Technological Innovations:

1. Manufacturing Advancements 

   • Gigacasting: Entire vehicle frames cast to enhance strength and safety while reducing costs

   • Optimus Robot: Designing motors and actuators from scratch due to lack of suitable off-the-shelf parts

2. AI Advancements:

   • Full Self-Driving (FSD): Adoption of an all-vision approach to reduce costs

   • Cortex AI Training Supercluster

   • Custom hardware design for FSD (Hardware 5)

   • DOJO Supercomputer

3. Cybertruck Innovations:

   • 48-volt vehicle architecture

   • Steer-by-wire technology

   • Exoskeleton frame design with a stainless steel body

The Role of the CEO in Driving Innovation

The CEO will serve as the primary catalyst for the pace of innovation. To build the world's most valuable company, the CEO must embody three key characteristics:

1. Be a Visionary.

2. Be Hardcore.

3. Be engineering-minded with an unconventional, multidisciplinary approach.

As the saying goes in the startup world, "The culture of a company is the direct reflection of the founder's personality."

Visionary Leadership

The visionary CEO will bold and audacious in outlining the company's master plan. A couple examples of their dedication to the mission include:

• Willingness to invest their entire net worth to save the company from bankruptcy

• Foregoing salary in favor of an equity-based compensation package, because they believe in the mission.

Hardcore Dedication

The CEO will demonstrate unwavering commitment, characterized by:

• Maximizing efforts towards the mission

• Operating with relentless speed and urgency

• Employing occasionally brazen and controversial methods

• Ignoring noise and naysayers

• Freely sharing opinions on social media, regardless of potential repercussions

Some examples will include:

• Sleeping on the factory floor during production challenges

• Implementing "demon mode" work intensity

• Simultaneously leading multiple market-leading companies

• Being outspoken on political issues via social media

Unconventional Approach

The CEO will employ an engineering mindset to drive unconventional approaches and exceptional results by:

• Following a first principles approach

• Challenging assumptions and breaking conventions

These approaches may seem radical initially but become obvious in retrospect. Examples include:

• Developing vision-only autonomous vehicle systems

• Building the world's largest real-world AI compute capabilities

• Introducing revolutionary products like Tesla Semi, Cybertruck, and Cybertaxi

• Implementing the most advanced manufacturing capabilities in the industry

5) Tesla's Lollapalooza Effects Across Business Lines

The combination of diverse business lines will create powerful synergies, resulting in what Charlie Munger would call "lollapalooza effects." These effects will propel the company forward by leveraging strengths across different sectors to create multiplicative advantages.

Electric Vehicles (EVs)

1. Self-Reinforcing Business Model

   • Charging Network + Electric Vehicles + Full Self-Driving (FSD) = CyberCab Business

   • This ecosystem creates a virtuous cycle: more EVs drive demand for charging, more charging stations increase EV adoption, and FSD enables a revolutionary taxi service.

2. Performance Leadership

   • Highest Performing Vehicles in multiple aspects:

     • Safety: Advanced structural engineering and active safety systems

     • Range: Industry-leading battery technology

     • Speed: Cutting-edge electric powertrains

     • Comfort: Innovative interior design and features

3. Supercharger Network Dominance

   • Best charging network in terms of reliability, speed, and coverage

   • Creates a significant barrier to entry for competitors

4. Manufacturing Prowess

   • Most profitable manufacturing scale in the automotive industry

   • Innovations like Gigafactories and Gigacasting drive efficiency and cost reduction

Energy

• Synergy with EV Business

  • Battery technology developed for EVs scales to stationary storage

  • Grid-scale energy storage complements and enables further EV adoption

• Vertical Integration

  • Raw Materials Sourcing + Battery Manufacturing Expertise + Production Scale = Competitive Energy Storage Business

  • Control over the entire value chain from raw materials to finished products

Robotics (Optimus)

• Leveraging Cross-Sector Expertise

  • Manufacturing Scale + Self-Driving AI Compute Infrastructure + AI Expertise = Optimus

  • The robotics business benefits from advancements in AI, materials, and manufacturing developed for EVs and energy storage

Lollapalooza Effects Across Sectors

1. Technological Cross-Pollination

   • Advancements in one area (e.g., AI for self-driving) benefit other areas (e.g., robotics, energy management)

2. Shared Infrastructure

   • High-performance computing developed for FSD aids in energy grid optimization and robotics control

3. Brand Synergy

   • Success in one sector (e.g., EVs) builds trust and opens doors in others (e.g., energy storage for homeowners)

4. Talent Flywheel

   • Cutting-edge work across multiple sectors attracts top talent, further accelerating innovation

5. Data Network Effects

   • Data gathered from EVs, energy systems, and robots create a virtuous cycle of improvement across all product lines

6. Financial Leverage

   • Profits from mature sectors (EVs) can fund R&D in emerging sectors (robotics)

7. Supply Chain Optimization

   • Shared components and materials across business lines increase bargaining power with suppliers and improve economies of scale

By leveraging these interconnected strengths, the most valuable company in the world will create a sum greater than its parts. The lollapalooza effects stemming from the synergies between EVs, energy, and robotics will provide a unique and powerful position in the market, proving difficult to catch.

Avoiding what we don’t want

To build the most valuable company in the world, there are things that we’ll also want to avoid and mitigate the effects from. Being successful doesn’t come without its own set of problems…

CEO Controversy 

The CEO's distinctive personality will inevitably expose the company to periodic challenges. His propensity for being overly vocal on social media will tarnish the brand's reputation, alienating potential customers. Moreover, as the company approaches becoming the world's most valuable, its CEO will likely become the wealthiest person globally, inviting unwanted scrutiny from anti-capitalist groups.

This immense wealth may occasionally distract the CEO, tempting him to pursue personal side projects that take time away from him driving the company's primary mission. His driven, almost maniacal personality, will come across as self-righteous and outspoken. However, these traits are arguably necessary side effects of the type of leader required to build the world's most valuable company.

While these factors may create short-term turbulence for the company, they are likely to be transient. Over time, the company's continued focus on releasing market-leading, profitable products that push technological boundaries will likely overshadow these temporary setbacks.

Regulatory Risks (and Opportunity) 

By operating in some of the largest most important industries, the most valuable company in the world will certainly face some regulatory hurdles. Many of these will be unknown given the uncharted territory the company will operate in, but this also presents an opportunity to become the standard. We’ve seen this happen with NACS adoption amongst a majority of automotive OEMs, but time will tell with FSD, Cybercab, and Optimus. 

Summary 

In my opinion, the only thing holding Tesla back from becoming the world's most valuable company is the public perception of Elon Musk. Paradoxically, Musk himself is also the key driver that will propel Tesla to this coveted position. This presents a fascinating juxtaposition: the cognitive dissonance created by these two seemingly contradictory truths is often too much for most people to reconcile, challenging their conviction in Tesla. Therein lies the alpha in this investment thesis—the ability to recognize and embrace this paradox may well be the key to unlocking extraordinary value.

---