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Is Tesla’s vision changing?
IDENTITY CRISIS

Elon Musk wants a different Tesla than the one he’s built. What could go wrong?

Jean-Louis Gassée
By Jean-Louis Gassée

Editor, Monday Note

When I wrote about potential trouble for Elon Musk’s car company two weeks ago (“Tesla: The Improvisation Debt“), I missed something that was right under my nose: Musk wants a new identity for his company. This move is—choose your adjective—troubling, risky, revealing, portentous…

Ten years ago, Elon Musk outlined his vision for Tesla in “The Secret Tesla Motors Master Plan (just between you and me).” It is, in my occasionally critical view of company proclamations, exceptionally well-written. Musk opens by describing Tesla as a job “on the side”—an amusing characterization, in retrospect [as always, edits and emphasis mine]:

Background: My day job is running a space transportation company called SpaceX, but on the side I am the chairman of Tesla Motors and help formulate the business and product strategy with Martin and the rest of the team. I have also been Tesla Motor’s primary funding source from when the company was just three people and a business plan.

…and finishes with a crisp summary:

Build sports car
Use that money to build an affordable car
Use that money to build an even more affordable car
While doing above, also provide zero emission electric power generation options
Don’t tell anyone.

Ten years later, after having taken over as Tesla CEO, Musk has issued his “Master Plan, Part Deux.” Equally well-written, it starts with an edited version of the previous ending that removes the too-cute Don’t tell anyone fifth verse:

Create a low volume car, which would necessarily be expensive [the roadster]
Use that money to develop a medium volume car at a lower price [Model S]
Use that money to create an affordable, high volume car [the Model 3]
And…
Provide solar power. No kidding, this has literally been on our website for 10 years.

The sense of pride is understandable, with a good dose of “I told you so.”

Musk then outlines the four major areas of Tesla’s master plan, synopsized below.

1. Integrate energy generation and storage:

We’ll offer an integrated solar-roof-with-battery. To do this well, we need one ordering experience, one service contact, one phone app. That’s why we’re merging Solar City into Tesla.

2. Expand to cover the major forms of terrestrial transport:

Going beyond the Model 3, we’ll offer a compact SUV and a new kind of pickup truck, and then we’ll move to heavy-duty trucks and high passenger-density urban transport.

3. Autonomy:

All Tesla vehicles will have full-autonomy hardware: cameras, radar, sonar, and computing hardware. However, there will be a significant time gap before self-driving vehicles obtain worldwide regulatory approval. Once we get to the point where Autopilot is approximately 10 times safer than the US vehicle average, the beta label will be removed.

4. Sharing:

You’ll add your car to the Tesla shared fleet so it can generate income for you while you’re at work or on vacation.

The proclamation ends with a ringing recapitulation:

Create stunning solar roofs with seamlessly integrated battery storage
Expand the electric vehicle product line to address all major segments
Develop a self-driving capability that is 10X safer than manual via massive fleet learning
Enable your car to make money for you when you aren’t using it

Slick PowerPoint slides dance before our wary eyes: “Integrated,” “Synergy,” “Leverage…”

With Tesla as your all-in-one green energy source of products and services, you save the planet, become energy independent, and make money on the side Airbnb-ing your autonomous Tesla.

All this amounts to Musk now pitching a very different company. He’s changing Tesla’s identity. Yesterday, it was an electric car manufacturer that achieved global stardom on a scale stunningly out of proportion with its actual size (50,000 cars in 2015 isn’t even a drop in the worldwide, 66 million automobile bucket). Tomorrow, it will be a vertically-integrated renewable energy enterprise. Tesla will not just broaden its product line to include a small SUV and a pickup truck, followed by industrial grade semi trucks and buses; it will also become a world-class battery maker and it will sell, install, and maintain solar roofs.

What could go wrong?

You can’t change a company’s identity by fiat, even with a leader of Musk’s undisputed caliber. Cultures comprise complex systems of permissions and exhortations to emote, think, speak, and do. Some rules are external and explicit, but the most important ones live below our daily consciousness. Like taste buds or religious education, they invisibly filter the data that reaches our nervous system and shape perceptions before they emerge into our awareness. Avoiding examples in religion, we know how others’ food habits make us cringe—e.g. other cultures’ delicacies, such as brains or unmentionable organ meats.

Company cultures have similar systems of taste buds that shape their macro, or perhaps more dangerously, everyday micro-decisions—invisible small turns that sometimes lead to a crash. For example, how do we explain how companies led by supremely intelligent management teams miss the obvious, such as the advent of Android? I’m of course referring to Nokia, Blackberry, and Microsoft.

The Tesla that improvised the well-loved Model S clearly understood its audience, as acknowledged by the 375,000 reservations at $1,000 each for the next generation Model 3. Does that same Tesla team understand semi truck drivers, city bus managers, and roof-top installers? To use another example, imagine the most successful personal computing changing its stripes and getting into the electric car business

Then there are the technical challenges. In “Tesla: The Improvisation Debt,” we explored the daunting task of moving from 50,000 vehicles in 2015 to ten times that volume in 2018, during which time traditional automakers will rush in to provide competitive offerings.

Now add the requirement that these cars “just work,” all the time, everywhere, and that they will let you “sleep, read, or do anything else en route to your destination”—it’s daunting. To his credit, Musk doesn’t sugarcoat the issue…

We expect that worldwide regulatory approval will require something on the order of 6 billion miles (10 billion km). Current fleet learning is happening at just over 3 million miles (5 million km) per day.

…but he doesn’t tell us why, when, and how Tesla will have better technology than its competitors. In Palo Alto where I live, we often see the latest version of the tiny Google pod, with a Lidar device on the roof.

I’ve seen a pod make its way through dangerous configurations, such as the unprotected left turn onto always-busy Alma Street across four lanes of two-way traffic.

It’s a turn I go out of my way to avoid, not trusting my fellow drivers—or myself—but the pod has no trouble.

Perhaps Tesla will come up with better technology than Google and all of the other Asian, American, and European companies that are working on self-driving hardware and software. The company just announced it will substantially improve its navigation via a new 8.0 software update. Among other features, it refers to “fleet learning,” meaning it captures user data when in autopilot.

Finally, we have a challenge I failed to mention last week: competition from China.

Absent from many discussions of Tesla and other electric vehicle (EV) makers are two facts: China is the largest producer of both EVs and batteries. On a Krill Klip blogspot titled “China Electric Car Sales Up 188%: Warren Buffett’s BYD Dominates Lithium Race,” we find a summary of EV sales in China for the first seven months of 2016.

The clear champion is BYD, whose five models total 53,000 cars. Tesla sold 15,000 and 14,000 vehicles in the first two quarters of 2016. That’s 35,000 when extrapolated to seven months, which means BYD can now claim to be the world’s largest EV maker, about 50% larger than Tesla.

The Chinese car market is the largest in the world: 21 million cars in 2015 vs. 7.7 million in the US. Also, the Chinese government is adopting stricter clean air rules. Both facts help explain BYD’s impressive numbers. But a fact remains: BYD looks like a serious competitor, a threat that certainly isn’t lost on Elon Musk. Is this what has led him to edit his company’s DNA, changing it from an EV company into a Green Energy products and services business?

(As Wikipedia explains, BYD captured more than half of the world’s mobile-phone battery market in the decade after its founding, and became the largest Chinese manufacturer of all types of rechargeable batteries. In 2008, Warren Buffett bought a 10% stake in BYD and, more recently, Samsung seems to have expressed an interest in making an investment in the company. BYD isn’t going away.)

At this point, I’m not sure which one of these three challenges is the most difficult.

But if I have to pick one, I’ll take SOE, the “strategy of everything”—that is, trying to do too many things, and fighting too many wars on too many fronts.

I greatly admire Elon Musk and enjoy driving our Tesla. I hope he’ll once again prove doubters wrong.

*  *  *

PS: I’ve avoided the cash incineration cloud that hovers over Tesla, but doesn’t seems to worry investors too much. The company’s market value ($24.5 billion) still is high when compare to Ford’s ($48 billion), and GM’s ($46 billion).

Musk, the always fearless leader, doesn’t want to rely on Wall Street’s passivity, and recently asked his troops to redouble their efforts in cutting costs and meeting production numbers for the current quarter, ending his missive with a resounding cri de guerre:

It would be awesome to throw a pie in the face of all naysayers on Wall Street who keep insisting that Tesla will always be a money loser!

This post originally appeared at Monday Note.