Process comes first
By Scott Sumner
I often emphasize the importance of process. Thus in a recent post I criticized the Trump administration for giving advice to the Fed, which violated an “independence” norm that has developed over recent decades. (The content of the advice is less important.)
I am unmoved by people pointing to outcomes, when the process is not sound. Thus I want good judges, not liberal or conservative decisions by judges. I oppose the Electoral College, even if it ends up helping my favored party. I favor term limits, as without them it is much easier for countries to slide from democracy to authoritarianism.
Tesla recently learned the importance of process. Last month they changed the way they tested brakes on their new cars, and when news of this came out the stock immediately plunged by more than 7%, destroying billions in market value. How could this have happened? Is the brake test actually essential?
I’m in no position to offer any advice on the technical aspects of this test; it may or may not be needed. Tesla CEO Elon Musk is ten times smarter than I am, and has created some great products. But I do understand process better than Elon Musk. Let’s look at a timeline of this brake testing decision, in order to see the importance of process:
1. For many months, Tesla has been promising investors that they would soon increase the production rate on their new “Model 3”, up to 5000 cars/week. Unfortunately, they’ve consistently fallen short of production promises made back in 2017, which has frustrated both the 450,000 people who have placed $1000 deposits on the car, and also investors in Tesla stock.
2. Elon Musk recently promised that the production rate would rise to 5000/week by the end of the second quarter of this year. Because he’s a colorful and controversial figure, and because Tesla is an interesting company, he gets a lot of coverage in the business press. There were stories of him sleeping at the factory overnight, yelling at employees to move faster. Tesla’s chief engineer just resigned yesterday, one of a number of top engineers who have recently resigned. Employees report a very hectic work pace. It was all hands on deck to hit the 5000/week target. And they just barely did so in the final week of June, albeit Wall Street does not think they’ll be able to sustain this pace.
3. Then Business Insider reported that Tesla discontinued a standard brake test on June 26. Tesla responded that they still test the brakes of all new cars on the test track. Again, I’m not qualified to comment on the technical aspects of this, but it seems clear that Tesla’s decision-making process was unsound. It would be an amazing coincidence if the June 26 decision had nothing to do with Musk’s strong desire to hit the 5000 car production target that very week.
So even if Tesla is 100% correct that this test is not needed, Wall Street probably reacted rationally to this news. It may not expose quality problems with Tesla cars, but it does expose a faulty decision making process. Wall Street also understands that consumers reading these news stories are going to wonder what else is going on behind the scenes.
Very smart people often think that all that matters is the technical or scientific side of an issue, ignoring process. Similarly, very smart political analysts often focus on the outcome of political decisions, ignoring the process. If you are currently focusing on the outcome of political decisions made in Washington DC, you may be entirely missing the bigger picture.
The US recently walked away from a nuclear arms control agreement with Iran. Soon after, President Trump met with North Korean leader Kim, and soon afterwards announced that North Korea is no longer a nuclear threat. I’m not going to comment here on either of those decisions; indeed I’m probably not even qualified to comment. But when I try to understand the process involved in these two decisions, I’m reminded of a scene in the film Apocalypse Now:
Kurtz: Are my methods unsound?
Willard: I don’t see any method at all, sir.
It’s the process, stupid. We need a transparent, non-corrupt, honest, rules and norm–based political process. While a certain level of corruption in inevitable in politics, there are wide variations in the level of corruption both across countries and over time within a country such as the US.
PS. Speaking of transparency and process, our family has a $1000 deposit on a new Tesla, so I have a financial interest in Tesla getting its act together. Take that into account when considering this post. On the other hand, this post isn’t actually about Tesla, it’s about process.
PPS. Happy 4th of July to my American readers.