Quick Thoughts: Tesla – Green Performance with No Compromises

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–          Elon Musk expects TSLA to leapfrog the $2T auto industry by offering electric vehicles without performance compromises and radically revamped sales and customer service experiences.

–          TSLA’s strategy – starting with the high performance segment, investing in a charging infrastructure, building leading expertise in key EV technologies – is well aligned to its goal.

–          TSLA’s culture supports its strategy – industry best skills in EV technology, top notch engineering talent, a bold managerial style, and a deeply felt mission of industry change.

–          The big auto makers are tied to their ingrained strategies –TSLA has the attackers advantage and the skills and resources to back it up. The valuation is high, but the opportunity is huge

Elon Musk dreams BIG. After starting and cashing out of two successful software start-ups, Musk was an early investor in Tesla Motors, taking control of the company in 2004 and stepping in as CEO in early 2007. His goal for Tesla is to exploit a paradigm shift from gasoline powered cars to electric, and in the process revolutionize the nearly $2T global automotive industry with Tesla as the leader. Musk’s vision hews to the dictates of the global ecological movement to sharply reduce the use of fossil fuels, but insists on delivering zero emissions without compromising the driving experience of the vehicle. Tesla also aims to completely transform the distribution system for automobiles, eliminating independent dealers as part of the process. Musk is open and vocal about Tesla’s agenda, offering extraordinary detail about its strategy.

Tesla is pursuing a tiered strategy, initially courting the high end market of influencers and early adopters first to build excitement and brand while also financing innovation around the technology. Tesla’s $70K Model S released in 2012 is widely considered to be the first electric vehicle capable of replacing a gas powered car given its performance, range, and styling. Over time, as technology costs decrease and as production constraints are resolved, Musk eventually wants to offer more affordable mass market vehicles. To remove a key obstacle for would-be customers, Tesla has invested in a network of Supercharger stations, where Tesla owners can fully charge their batteries in less than an hour, or even, swap out their spent batteries for new, fully charged ones, thus extending the range of a single trip within the US indefinitely. I see Tesla’s overarching approach of seeding the market for electric vehicles and proving its own concept with the high end Model S as well suited to the early days of a market that could prove to be huge.

Skills: Deep understanding over all aspects of EV design and manufacturing, an advantage over traditional automakers given its sole focus is the electric car. The company built its expertise over a decade of trial by fire making many mistakes and teetered on the edge of insolvency in 2008-09. Tesla will bring battery development and production in-house with the launch of its Giga-factory. It has a strong commitment to customer service and is unlikely to compromise this with its young sales and marketing organization. While automotive manufacturing is an operationally complex business, Musk recognizes the company is in process of learning and building its skill sets.

Style: Management style is extremely bold, demanding, aggressive, and hands on. The company is all about taking risks, and those that can’t deliver are canned. Musk is known to put in long days when at Tesla’s factory in Freemont and maintains an office on the production floor. While not the best orator with an unpolished speaking style, he tends to come off as genuine. He is known to comment almost immediately on issues and controversies thoughtfully and in great detail. He is also aggressive and very public when sparring with incumbent industry stakeholders set in old ways, e.g. auto dealers and the Pentagon.

Staff: Not as high paying as major TMT firms, but very competitive with Detroit and foreign automakers. Free food limited to cereal and fountain soda, employees bring their own lunch and water bottles. Engineering is where the cool people go, tend to be much younger and less experienced than at other industrials. Unlike TMT companies, relies on a significant number of blue collar employees in manufacturing and product service. Morale is generally higher in the sales organization than on the shop floor. Worker unionization remains a risk to the business.

Shared Values: Tesla is laser focused on changing consumer perceptions of electric vehicle technology and driving adoption. It is extremely customer centric and deploys its “Rangers” quickly in case of incidents with its vehicles. Suppliers are critical to maintaining production levels and are engaged. Engineers and designers are committed to innovation and driving costs lower. Traditional dealership models are inefficient, have conflicts of interest, and are unlikely to proselytize the benefits of EVs. Above all, the company’s values are centered around Musk’s vision to replace fossil fueled vehicles with electric.

Tesla is an exciting company executing on a bold vision to change the way humans travel in personal vehicles. The nearly $2T global automotive market sells some 83.1M vehicles annually, while Tesla just reached a 25K annual unit production run rate. Its piece of the pie is small relative to the market dominated by 100 year old companies and long standing distribution channels. Elon Musk’s charisma is well suited to driving his vision at Tesla, though the company faces risks around growing pains as the business becomes more complex with scale. While the obstacles are still daunting, I see Tesla as fundamentally positioned to succeed in its disruptive vision.

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