Elon Musk and Tesla are if nothing else bold on steroids. The only man and his firm in about 50 years to truly launch a new car brand with powerful loyalty, accelerating scaling and products the generally wow with their beauty, performance and quality and soon affordability. Oh, and they are electric, literally.
The recent news that Tesla’s new 3 coupled with other orders put’s Tesla at over 300,000 cars with $1000 deposits for $300 million in the bank and another $13 billion in potential revenue seems incredible. Electric cars will indeed take over! It’s only a matter of a few years! Their leverage is incredible now. They are finally a success! The Big Three are in trouble now!
Well, maybe. It’s not as simple as the millennial, clean and green and digital, soft handed pundits would like it to appear. The Big Three know that. The Luxury makers know that. Most investors (clearly not all) now, after a lot of huge mistakes, know that. In fact, anyone who runs or works in manufacturing for a manufacturing company knows that. Also, all EV’s combined do not even approach 0.2% of all cars on the road today or even 10% of all cars made a year.
So what’s the truth, the stark reality, the real story? What can a startup learn from this or anyone running a business or even a government for that matter?
Get realistic, get holistic, get practical.
Adaption, Adaptive Innovation mandates a practical, holistic, through approach to delivering not simply breakthrough innovations, but really any product on a vast scale under hoped for geometric, accelerating volumes. If you are not in tune with the world, it’s trend trajectories and how they see, use and live with products, you are destined to fail. If you are in tune, well, the riches and satisfaction that await will amaze.
The stark realities for Tesla’s new big move? Well, first, meeting volumes it seems clearly not prepared for and by historical standard, despite increasing plant capacity, it likely will miss big time. You see, those guys with the cash don’t like companies taking orders for products that they cannot deliver in the claimed timeframe that could be obsolesced by other products in that time.
Forget my thought there – let’s look at another’s opinion from…from Douglas McIntyre a few days ago in his article for 24/7 Wall St. entitled “If Tesla Can’t Deliver 15,000 Cars in a Quarter, How Can It Hit 300,000?”:
“Tesla Motors Inc. management said it delivered 14,820 vehicles in the first quarter of 2016, and it plans to deliver 80,000 to 90,000 new vehicles for the full year. It has delivered at the low end of forecasts for some time, which calls into question how it can possibly reach its goals to build and deliver the nearly 300,000 Model 3 cars that are on order. Odds are high that it can’t.
Among the comments about deliveries in the first quarter:
The root causes of the parts shortages were: Tesla’s hubris in adding far too much new technology to the Model X in version 1, insufficient supplier capability validation, and Tesla not having broad enough internal capability to manufacture the parts in-house. The parts in question were only half a dozen out of more than 8,000 unique parts, nonetheless missing even one part means a car cannot be delivered. Tesla is addressing all three root causes to ensure that these mistakes are not repeated with the Model 3 launch.”
The UK’s The Week put things this, citing Elon Musk himself:
“Chief executive Elon Musk has already taken to Twitter to say his company has some head-scratching to do if every pre-order translates into a full sale – the scale of demand for the Model 3 is more than twice as large as the total number of cars the company has sold in its history.
Tesla’s factory in Fremont, California, has the capacity to produce 500,000 vehicles a year, but its Nevada “gigafactory” won’t be running at full capacity until 2020. The Drive adds that Tesla “has had a history of falling short on expectations, at least when it comes to getting product out of the factory door”. Only this week, the company said its own “hubris” had resulted in frustrating delays for its Model X SUV.”
You cannot make bold promises repeatedly that you cannot keep. Even more, why do that? Pure marketing? Brand building? If you fail, that failure may sting for a long time. Your investors suffer, buying on a high hit by an inevitable low. You actually in the end lose credibility- not just with investors, but with buyers, suppliers, employees and on and on. Just look at Solar City spiraling down. Elon? It’s actually not his money. He levered his equity a long time ago. It’s other’s people’s money all of the way.
For a new company, still an infant in it’s industry, it’s very easy to think you have lot all under control and that execution will be smooth and easy. Now I’m saying Elon is an idiot – he knows that this stuff will happen but I doubt he expected 6 parts to derail his production.
The first lesson? The stark reality for most other startups, and even eventually Elon, is that the greatest ideas, inventions and finally products don’t often fail because of said products – they fail or miss big targets from poor execution where the right people for the right jobs with the right experience to know what you don’t know what you don’t that you don’t know.
The right supply chain and manufacturing executives would likely have never let this happen. The Big Three have their failings but also know what it takes to launch most cars in the millions with the right capacity without key issues.
The other to be seen Tesla lesson building on this? Release a product at ever accelerating volumes without quality issues. The first two Teslas had some serious issues, but in smaller volumes where issues could be contained and the “we are early” thing could be passed with some ease and expectation. Putting out 300,000 cars on the road in less than two years without a hitch? Imagine just one major recall of a highly complex vehicle few are trained to repair – globally – and the impact could be massive on Tesla’s stakeholders. I’m a Tesla fan, but this one is the big one if these cars actually get delivered to scale and time.
The second lesson? It’s actually the first again – Too many products fail or miss big targets from poor execution where the right people for the right jobs with the right experience to know what you don’t know what you don’t that you don’t know.
The big guys – not just automakers, but the P&G’s, the Boeings, the Pfizers – know the cost of failure can be massive and brand damaging or even destroying. Know can be perfect. Will Tesla handle quality at a one or two order of magnitude scale leap with ease or fits and starts? Quality is the big one many startups fail at gloriously. From the packaging, to how it’s really used to who’s really making the product and it it’s parts, too often the assumption is “we’ll be just fine”.
There are other things Tesla may be counting on that have nothing to do with scaling and production but that consumers may be counting on. What about the power station? At 300,000 cars – globally again, maybe 50/50 in the US and the rest of the world, where are those coming from and what will they cost? How are the purchases distributed? Is this controlled? Targeted to where the charging grid will be best or even exist? Will a standard emerge for charging at rates that exceed a three course dinner time? Level three and level four chargers are the fastest with Tesla’s leading use of Superchargers. Currently, only Teslas can use the Tesla Supercharger network. Superchargers are installed widely across the US (and Europe) at about 75 to 100 miles per 30 minutes. Tesla’s ever expanding Supercharger network could creates one large competitive advantage, but if it’s not faster and fast enough, again, irritation may grow for those used to a five minute fill-up, hybrid or not.
Even potentially worse for the Tesla Model 3 – charging may not be free as for their other two vehicles as cited UK’s The Week:
Another issue picked up by Motley Fool is whether access to Tesla’s supercharging network will be free and offered as standard to Model 3 customers. At last week’s reveal, Musk said that “all Model 3s will come with supercharging standard”, but Tesla later told the site: “We haven’t specified (and aren’t right now) whether supercharging will be free.”
Edmunds.com points out another minor consumer hitch may be the expiring and volume limited $7500 electric vehicle tax credit, which also tapers down after a manufacturer has produced 200,000 electric cars. If that’s not renewed, will orders be cancelled? Counting on congress, presidents, state governments and elections is not sound policy more often than not.
Lesson Three – it’s again lesson one again – Too many products fail or miss big targets from poor execution where the right people for the right jobs with the right experience to know what you don’t know what you don’t that you don’t know.
If you produce a product that cannot be used or used optimally, again, brand damage and trust may be hurt. For me, I’m not so concerned about Tesla volume production as the time and cost it will take to truly have an improved, widely available, 100 miles every 5-minutes type of charger. Once one gets past the passionate early adopters, these charging and financing issues start to become far more important to long term, large scale adoption to reach a positive cash flow, profitable Tesla.
Lesson Four – it’s not lesson one this time – it’s that the cash faucet won’t go on forever. Tesla may indeed have great products, – amazing ones – but if they cannot hit a profitable financial position on the product with scale and quality, investors will walk away sad and frustrated. Right now, Tesla stock (TSLA) is generally at it’s highs but at a seemingly crazy valuation, it’s not likely to go higher. If it goes way down as expectations – that stark reality – may be not so rosy, well, then that ugly takeover or asset buying thing happens and Tesla as we know it could be lost forever. I’m hoping that does not happen, but anyone into big breakthrough in any industry knows that deals are deals, but the big boys are always hopeful a great product is produced by a failing firm that they can acquire on the cheap with most of the bugs worked or out. I’ve seen a few dozen times personally and it’s sad for so many involved. The technology lives on and indeed can take over the industry, the world – but without those who made it possible to begin with.
Execution, a solid team and a truly holistic, total view to a product and the world it’s in. That’s the key to adaption, to true success for the truly big breakthroughs.
Here’s to Tesla making it – and staying Tesla all the way.