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The Dangers of Trying To Reinvent An Industry, And A Few Notes on Tesla

Posted by on | May 10, 2018 | Comments Off

I am often critical of Elon Musk and Tesla, and will be again later in this post, but I wanted to start by sympathizing with Tesla’s plight.  As you may know, Tesla set out not only to produce a leading electric car (which it did) but also to reinvent automobile manufacturing (which it is struggling to do).  One of the hard parts about reinventing an industry is being correct as to what parts to throw out and what parts to keep.  Musk, I think, didn’t want to be captive to a lot of traditional auto industry thinking, something anyone who has spent any time at GM would sympathize with.  But it turns out that in addition to all the obsolete assumptions and not-invented-here syndrome and resistance to change and static culture in the industry, there is also a lot of valuable accumulated knowledge about how to build a reliable car efficiently.  In Tesla’s attempt to disrupt the industry by throwing out all the former, it may have ignored too much of the latter, and now it is having a really hard time ramping up reliable, quality production.  Musk even recently admitted it may have gone overboard on factory automation.

I don’t agree with all the conclusions, but I thought this was an interesting article on Tesla vs. Toyota production practices and the industry lessons Tesla may have been too quick to ignore.  One quote I liked, “Machines are good for repetitive things… but they can’t improve their own efficiency or the quality of their work.”  I sympathize with Musk on this one.  You CAN”T upend an industry by copying everything it does — you have to go off in a different direction, at least on some things.  It may be that Musk eschewed the wrong bits of industry practice, but this is an understandable mistake.

What is not understandable is Musk’s lack of transparency, his self-dealing, his wild and unfulfilled promises, and his unprofessional behavior.  Some notes:

  • A few months ago, at the Tesla truck launch, I wrote:

But Tesla needs to stay hot. California is considering new vehicle subsidy laws that are hand-crafted to pour money mainly into Tesla’s pocket. Cash is burning fast, and Musk is going to have to go back to the capital markets again, likely before the end of the year. So out came Musk yesterday to yell SQUIRREL!

Tesla’s main current problem is that they cannot seem to get up to volume production of their main new offering, the Model 3. The factory appears to be in disarray and out of production and inventory space. They can’t produce enough batteries yet for the cars they are already making. So what does Musk do? Announce two entirely new vehicle platforms for tiny niche markets.

I saw the truck launch as a cynical ploy to distract from Tesla’s operating problems and perhaps to get a bit of financing in the form of customer deposits (a growing percentage of Tesla’s available cash is from customer advance deposits).  There was no way it could do anyting with this truck, given its operating problems and lack of capital.  It seems that I was on target, because not even 6 months later Tesla has tired of pretending the truck is going anywhere.  After Telsa did not even mention the semi in their earnings conference call, Musk said in answer to a question:

I actually don’t know how many reservations we have for the Semi. About 2,000? Okay. I mean, we haven’t really tried to sell the Semi. It’s not like there’s like an ongoing sales effort, so sales – orders for Semi are like opportunistic, really companies approaching us. Yeah, it’s not something we really think about much.

  • Elon Musk proved himself on the same conference call to be a spoiled brat who has spent too much of his time having people kiss his feet and compare him to Tony Stark.

One week ago, Elon Musk entered the history books for his unprecedented, petulant handling of “boring, boneheaded” questions from two sellside analysts, who merely wanted more details about the company chronic cash/rollout issues.  And no phrase captures Musk’s descent better than “These questions are so dry. They’re killing me.”  That’s what Musk told RBC analyst Joseph Spak in response to a question about Model 3 reservations.

My older readers will know that my dad was President of Exxon from the early 70′s (a few weeks before the Arab oil embargo) until the late 1980′s.  In that job he never had to do analyst calls, but he did about 15 annual shareholders meetings.  I don’t know how they run today but in those days any shareholder with a question or a rant could line up and fire away.  Every person with a legitimate beef, every vocal person who hated oil companies and were pissed off about oil prices, every conspiracy theorist convinced Exxon was secretly formulating chemtrail material or whatever, and every outright crazy would buy one share of stock and show up to have their moment on stage.  My dad probably fantasized about how awesome it would be to just get asked dry financial questions about cash flow.  And through all the nuts and crazy questions and outright accusations that he was the most evil person on the planet, dad kept his cool and never once lost it.

If you asked him about it, he likely would not have talked about it.  Dad — who grew up dirt poor with polio in rural Depression Iowa — was from that  generation that really did not talk about their personal adversity much and certainly did not compete for victim status.  He probably would just have joked that the loonies at the shareholder meeting were nothing compared to Congress.  My favorite story was that Scoop Jackson once called him to testify in the Senate twice in 6 months or so.  The first time, just before the embargo, he was trying to save the Alaska pipeline project and Jackson accused Exxon of being greedy and trying to produce more oil than was needed.  The second time was just after the embargo, and Jackson accused Exxon of being greedy and hiding oil offshore in tankers to make sure the world had less oil than it needed.

Through all of this, the only time I ever saw him really mad was when Johnny Carson made a joke about killing the president of Exxon (he asked his audience to raise their hands if they thought they would actually get convicted for killing the president of Exxon) and over the next several days our family received hundreds of death threats.  These had to be treated fairly credibly at the time because terrorists were frequently attacking, kidnapping, and bombing oil company executives and their families.  We had friends whose housekeeper’s hand was blown off by a letter bomb, and I was not able to travel outside of the country for many years for fear of kidnapping.  (For Firefly fans, if you remember the scene of Mal always cutting his apples because he feared bombs in them from a old war experience, you might recognize how, to this day, I still open packages slowly and carefully.

This is a long way of saying that Elon Musk needs to grow the hell up.

 The Dangers of Trying To Reinvent An Industry, And A Few Notes on Tesla  The Dangers of Trying To Reinvent An Industry, And A Few Notes on Tesla  The Dangers of Trying To Reinvent An Industry, And A Few Notes on Tesla

 The Dangers of Trying To Reinvent An Industry, And A Few Notes on Tesla

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