Tesla – The Business Model: Vision and Management

Part 1 of a multi-part series.

Elon Musk: The man and his vision

There is no disputing that Elon Musk is a visionary and there is also no disputing that bringing a new car technology to market is something that very few have accomplished. In fact, the last durable entry in the U.S was Chrysler Motors in 1922. Credit where due.

Musk is on a mission to save mankind from itself and it can’t go unnoticed that he’s sees the possibility of a Malthusian world which can only be salvaged with a Julian Simon solution.  It’s big, bold and beautiful.

Still, that vision has some distance to go to become reality and the representations that Musk makes – about both the future and his proposed products – require a leap of faith in the evolution of technology.

Tyler Cowen thinks that Musk might be “bootstrapping” his vision of the future to today’s reality. Think of that like the golfer who makes his game by “envisioning where the ball will go” before swinging his club. It’s Zen. It’s Steve Jobs. There’s something to be said for that and, I rather imagine, nothing truly great happens without that ability.

Thus, I suggest that Elon has the potential for greatness. I will also suggest he already sees himself as great and, as often happens, that could be his undoing.

Innovation v Management Skills

There’s a wonderful combination of skill sets in Musk; part inventor, part innovator, part idea thief, and not the least, part evangelical preacher. Still, if we look at his big ideas – EVs for the masses, reusable rockets, the Hyperloop and it’s per-requisite technology earth boring – how can one argue he’s not, at a minimum, a marvelous innovator.

Often, however, being an innovative genius doesn’t come with the requisite skill set to take good ideas and turn them into great businesses. Since the Tesla Model 3 is often mentioned as “the next iPhone” (which I’ll address later) let’s use Steve Jobs as a analog.

Yes, Kemosabe

Jobs, as we recall, was fired from Apple in 1985. He was ousted after the disappointing launch of the Mac but primarily because he was an overbearing boss who treated his team poorly and expected too much from them. This was his greatest business lesson.

Of course Jobs made it back to Apple in 1996 and became CEO 1997. Apple continued to limp along but in 1998 Jobs met Tim Cook and hired him as SVP of World Operations.

When Apple launched its next truly innovative product in 2001, the iPod, it was Cook who sourced the supply chain helping to decide what components and assembly processes should be outsourced. Jobs was the vision and Cook made it happen. And that happened again with the iPhone, and the iPad. The rest, as we say, is history.The question is, then, does Elon Musk get a Tim Cook and, if he does, will he let him operate?

Management Structure

Unlike most management structures, Tesla’s is unusually horizontal and it’s very difficult to tell what real hierarchies exist.

The company’s website only lists 3 executives:

Elon Musk – Chairman, Product Architect and CEO

JB Strauble – Chief Technology Officer

Deepak Ahuja – Chief Financial Officer

This seems especially odd to me from the vantage point of investor relations. Most public companies have long lists with accompanying bios of their top talent to showcase the depth of management.

Going outside of company information there is a little more information about executive personnel but no information on chain-of-command that I could find. What’s striking to me is little we know about auto industry experience in the ranks. For example, in the above link I could only find one executive, Gilbert Passin, with auto manufacturing experience.

There is also a dearth of executive hiring announcements over time. In May of 2016 there was a lot of fanfare in the hiring of former VW executive Peter Hochholdinger as its vice president of vehicle production. This looks to me like a great hire but since coming on board he has been fairly invisible to the public.

It is quite noticeable (at least to me) the lack of manufacturing engineers that can be identified in public documents. I see a lot of electrical engineers – which makes sense form a design standpoint. From my perspective, I see a lack of talent of people who know how to build machines to that build machines. Maybe they’re there. There’s no way to know.

And there also seems to be a lack of substantial product managers who organize each business line in a single portfolio. for example I find one executive for supply chain management instead of one for each business line. Again, who knows?

Turbulence at the Top of House

There has been a somewhat alarming list of executives that have left Tesla in the last 18 months – in the wake of the Model 3 announcement. Most of the departees have had little to say publically about either working for Tesla or their reasons for leaving. Below is a list of talent that decided to look for greener pastures:

2017 Departures

Diarmuid O’Connell – VP of Business Development -Sept.

Kurt Kelty – Dir Battery Technology – July

Peter Rive – Head of Solar Roof – July (8 months with Tesla)

Lyndon Rive – Head of Sales & Service, Tesla Energy – June

Chris Lattner – VP, Autopilot software – June (lasted just 6 months)

Arnnon Geshuri – VP Human Resources – May

Jennifer Kim – Director, HR for Engineering – May

Jason Wheeler – CFO – April (lasted just 15 months)

Mark Lipscomb – VP Human Resources – March (reported to Geshuri)

Satish Jeyachandran – Dir- Hardware Engineering – March

Notable 2016 departures:

Mateo Jaramillo – VP Energy Storage

Sterling Anderson – VP Autopilot programs

Michael Zanoni – VP Finance and Worldwide Controller (returned to Amazon)

Ricardo Reyes – VP Global Communications (lasted 18 months)

James Chen – VP Regulatory Affairs and Deputy General Counsel

Greg Reichow – VP Production

Josh Ensign – VP Manufacturing

Rich Heley – VP Products and Programs

I’m not sure what to make of this for sure. I can speculate a few possibilities:

  1. Life’s too short. The prospects of (as Musk called it) manufacturing Hell portended a couple of years of neglecting a personal life away from family and friends
  2. Lack of managerial agency. The inability to make and implement even small decisions without going to the top.
  3. Lack of respect/recognition
  4. Unfit for the job in the first place
  5. Abusive and demanding management style (the primary reason Steve Jobs was ousted from Apple.)

Of course this is all speculation and Tesla’s highly opaque communications will probably keep it that way. But if I had to guess I would say a combination of #2, #3, and #5.

I say this because Musk considers himself the smartest guy in the room. One of his management practices is to personally interview almost all new hires except low level functionaries.

Musk is famous for sleeping in his various manufacturing plants as well. One could argue that this demonstrates how vested he is in his company’s success. One could argue as well that it’s a sign of micro-management that impedes his executives from growing and delivers a superfluous amount of second guessing that staunches manager’s personal sense of organizational agency.

The best I can glean from all of this is that Elon Musk requires that he control nearly every decision and has yet to learn how to let his people either succeed or fail on their own. As the company grows this will be increasing problem if he doesn’t change.

Maybe he gets past this. Maybe he finds his Tim Cook to act as his COO and he then chills out. But my take-away is that he doesn’t trust his hires to do what he hired them to. Think about the non-disparagement clauses he insists separated employees sign before getting severance.

Of course, I could be wrong. I’m often wrong.

But I’m also not alone – even with some ardent admirers.

In the Part 2 of this series I will break down Tesla’s business lines, the competitive backdrop of each. I’ll also look at resource allocation between business lines. There’s a lot more to come after that.

 

 

 

 

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