What Makes Tesla Stand Out – a 17-Year Story of Challenges and Innovations?
Raised in Pretoria, South Africa, Elon Musk graduated a bachelor's degree in economics from the Wharton School and a bachelor's degree in physics from the College of Arts and Sciences.
Get to Know Elon Musk and His Legacy – Long Story Short
In 1995, Stanford University had offered him a Ph.D. program in Energy Physics/Materials Science in California. However, he turned off the glamorous opportunity, and decided to launch his first company instead: Zip2 Corporation. After the company got acquired, Musk received $22 million dollars and continued to give birth to X.com – a first of its kind financial services company that allowed customer and business transact money over the internet, which later called PayPal. And that was where e-Commerce was born and feed to grow as big as today. However, after handed PayPal for eBay with $165 million, a year later by 2003, Musk finally meets up Tesla.
How Many Industries Musk Is Interfering?
Elon Musk’s Vision: A Small Chat on Tesla and Business Strategy of An Innovator
Attending a 2020 interview at the Airforce Association, Musk did amaze many audiences with his faith in the term “company push” and an underlying message of Tesla, especially in his own world of innovation.
The story started around 2003 when General Motors (GM) – the mother of Cadillac and Chevrolet forcibly recalled all electric cars from customers, just to crush them all. At the time where big car companies were killing their electric vehicle (EV) programs, Mush had meet up with Tesla and becomes the controlling investor with his $70 million. By then nobody knows who is Tesla, with zero credibility – so, why go against the giants whose seniority is far more advanced?
Talk on this matter, Musk claims along with innovation is the act of “company push.” For example, no one was sure what is an iPad back then to answer Apple’s business survey, the company just keep on introduce the device, and everybody loves it. The same theory is applied to Tesla’s cars, according to Musk that is a business strategy of an innovator. They have to firstly introduce the foundation to customers, and as the company pushes, customer pulls, later they will have feedbacks to work on, and as incremental changes take place, it will complete the most advance version of a product. However, a more concerned problem is how to balance between “company push” vs “customer pull” to not make your company an unrealistic house? Musk said, it is about the product you are bringing to the world, if it has a value and serve humanitarian purposes then it sure deserved a hundred percent company push! Due to which belief, Tesla has survived and is growing more than ever.
Another problem on Tesla, as we mentioned it is an intellectual property – a brain child of Musk, amidst the world where clouds and servers are things that constantly under attacked, how does he protect it? Addressed on this problem, Musk claims as he had open-source his patents years ago, everybody is encouraged to go on with it, and the company is not trying to “protect their intellectual property that way.” The overreaching goal of Tesla, Musk said is to accelerate the advent of sustainable energy and the act of hiding away their patents just goes against what the company stands for. So, what is the trick here, in his way of doing business? Musk’s companies are exclusive and winning because it is innovating fast enough – the actual strategy to secure your intellectual property.
“If your rate of innovation is high, you do not need to worry about protecting the IP, the other companies will try to copy, but from what you did years ago, that’s fine!”– the speed of innovation is Musk’s secret sauce
Innovation-per-minute vs innovation-per-year, they are radically different – addressed Musk. It happens all the time when companies or organizations get bigger, they tend to get less innovative, not only on the per-person basis but a whole company in the absolute. On Musk’s vision, it is because of the flawed incentive structure, which is not there for innovation. According to Musk, it is not enough to use words to encourage innovation, the incentive structure must be aligned with that!
As we had quite a look on Musk’s portfolio as well as his temperature on doing business, let us get to know Tesla!
The Becoming of Tesla
As reported, with $70 million of total investment, Elon Musk has become a cofounder of Tesla – an electric car company founded by veteran startup exec Martin Eberhard. There is also JB Straubel who is famous for rebuilding an electric golf cart when he was only 14 years old – as Tesla’s Chief Technology Official (CTO).
As of 2005, their initial project kicked off which is to build a high-performance sports car called Tesla Roadster, for a few reasons: to shed the existing blame around electric vehicle as a slow one, to have fewer car that need to be produced, to collect profit as sports cars have higher margins and finally because high-end buyers are less price-sensitive. However, for this first operation Tesla signs a contract with British sports car maker Lotus to use its Elise chassis as a base.
After all, Musk finally has the car of his own at its debut party in Santa Monica, tagged $100 grand. Everybody was stunned by the two-seater sports car, yet the audience could not notice Roadster had many issues that needed to be fixed and this has eventually led to a delay far from Tesla’s planned delivery date of Summer 2007.
Tesla Faces Challenges and The Dark Year
The company dark days comes after its introducing of the first Roadster, trapped with many underlying manufacture problem Musk finally realized he has looked at this industry wrongly. Automakers now focused on core competencies like financing, engine design, sales and marketing, and final assembly – getting the hundreds of individual car parts, like windshield wiper blades or door handles, was actually outsourced.
Lotus was supposed to make it easy for Tesla to get its cars more completed – to focus on the EV aspect. Instead, Tesla turns out to be a detail freak to focus on many domain outsides its part of the job. Along with making the car nicer, it customizes every single individual parts. Musk might have forgotten massive cost overruns for small, individual parts were a major factor in the demise of earlier upstart car house DeLorean.
At this moment, where Tesla was weakening, Musk had spent his last $55 million on the company, and be its CEO. He cut 25% of the workforce, took a $465 million loan from the U.S. Department of Energy and formed a strategic partnership with Daimler AG, which bought a 10% stake of Tesla for $50 million.
Interesting story behind the share acquisition of Mercedes’s parent company Daimler, it all started after Mercedes engineers, who were developing a second-generation electric Smart car, bought a Tesla Roadster. And right away arranged a visit to Silicon Valley for a meeting with Musk in the early 2019, as they were really impressed by the way Tesla has packed its batteries.
The collaboration expanded. At a joint press conference in the Mercedes-Benz museum in Stuttgart in May 2009, Tesla said the partnership would "accelerate bringing our Tesla Model S to production and ensure that it is a superlative vehicle".
For its part, Mercedes wanted to use Tesla's batteries to power an electric version of its compact Mercedes-Benz B-Class. In exchange, Mercedes engineers helped Tesla develop its Model S luxury sedan.
However, in 2014 Daimler decided to sell their stake amid doubts on whether Tesla's approach could be industrialized at scale. That investment gave Mercedes engineers an inside view of how Musk was willing to launch technology that was not perfect, and then repeatedly upgrade it, using smartphone-style over-the-air updates, who is, especially, paying little regard to early profitability.
In brief, 2008 at the threshold of bankruptcy has taught Musk and his team a real lesson on car manufacturing. Which later direct his vision further than just electric vehicles itself, but rather the whole production – Musk aims at. Yet, we will get to that later. Let us first look at the astounding rise of Tesla!
The Rocketing Rise of Tesla – 7 Years to Pass Ford in Value
Walk out of adversity, by 2010 has made it to be the first American car maker to go public after Ford in 1956. It was quite of a successful IPO though as the company secured around $226 million in capital, which has showed the public’s faith in this “vehicle of the future”. The fact that Tesla’s stock soared 41% in its debut has taken Musk’s gas-free revolution to another level.
After an energetic capital fuel, the company now is ready for its big leap. However, after the first fall Tesla had learnt to make a more economically plan – to apply the “economy of scale” strategy. First, Tesla sells a low volume sports car, which would necessarily be expensive, secondly, it uses that money to build a more affordable car – a car for the masses and finally targets other consumer segments, other transport segment like its Semi Struck, especially integrate energy generation and storage in home.
With a market capital of $2.3 billion, Tesla announced its first model Roadster will be officially dropped, instead the two luxury Model S and Model X will be in charge, however, this time the company will take over from scratch – literally start everything from a clean sheet. Yet, not so long by 2012, Model S hit the road priced $57,400. The car is a success as it gained all kinds of accolades along with the sale volume of more than 250,000 units in September 2018, whose leading market is the U.S. market. However, beside the amazing result, Tesla has to face another serious problem to continue its expansion plan.
The Lithium-ion battery is too expensive to be practical in the mass market from where the company must make a bet-the-farm decision to bring it mainstream. And as far as we know Elon Musk – he wants the attention, he is feed on risks, for that reason the birth of Gigafactory took place – an ambition to bring economies of scale to the battery industry. With this first-of-its-kind factory Tesla expected to produce enough batteries for 500,000 electric vehicles per year by 2018, with the cost of lithium-batter to be reduced by 30%.
To continue the story, from 2014 and beyond is the consecutive years where Tesla keep winning in many aspects in a the most rocketing pace, we have ever seen in the automobile industry. As of 2014, Model S has semi-autonomous driving and parking capabilities, Tesla’s supercharge network grow up to 221 stations worldwide. By 2015, Tesla Model X released with the fancy wing priced from $80,000, at the same time comes the power wall as a major step toward Tesla’s goal of integrating energy generation and storage in the home.
Finally comes the car for the masses – Tesla Model 3 priced from $35,000 which quickly received a positive answer from the public as it collected about 500,00 pre-orders. And as of 2017, The Consumer Reports names Tesla the top American car brand, as Gigafactory begins battery call production and the brand introduce its first Semi Truck which is three times faster than a diesel. From where when you look back it has been seven straight years of speedily innovation, the hard work finally pays off as Tesla glamorously surpass Ford with the value of $52.4 billion on the public market.
Briefly, the company has walk out of its Dark Age and now in strong position to propose the grand scheme of the “sustainable future.”
Quick Look at Tesla’s Ambitions for The Future
With the mission to accelerate the world’s transition to sustainable energy, Tesla is finding ways to integrate electric vehicles, batteries, energy generation and storage solutions all together. “The competitive strength of Tesla long-term is not going to be the car. It’s going to be the factory” – claimed Musk. Which can be translated that he wants to “perfect the machine that builds the machine.”
We do not know if Tesla is overpromising, but till now it has gone so far since the first very idea. With the lithium-ion battery farm in South Australia, Gigafactory 1, Gigafactory 2, the company is completing its empire from production to product. Even though we know how fast things escalated in hands of Elon Musk, yet nothing is for sure until it happens.
Some Insights from Tesla to Apply to Your Startup?
#1: Understand the context the business fits into
Because Tesla’s industry is weak, Musk has beef up the industry as he is giving his business its best chance to grow beyond and success in the long-term. From this, small-business owners should notice sometimes the best strategy is not to improve operations but to market to a new clientele. Race strong in the long run!
#2: In-house staff is not the only resources
The sharing economy means that there are thousands of resources for small businesses to slightly outsource on an hourly basis, including: web designers, IT programmers, or even sales resources. By putting the company’s patents out there, Tesla is doing the exact thing. Which movement has both announced “All right, everyone. Show us what you’ve got.” and invited the best engineers as well as innovators from around the globe to apply its technologies and help the whole industry grow.
In brief, launching a business requires needle-like focus on making the business work. On the other hand, scaling up requires the entrepreneur to step back to consider the big picture.
The Bottom Lines
Tesla did not invent the electric vehicle what it did invent was a successful business model for bringing radical electric cars to the market. The company’s pioneering strategy, which includes control over all sales and service, is one of the reasons its stock has soared since its initial public offering.
On a more macro level, competition in the automotive market is the key for economic development, as it brings projects and employment opportunities to communities and is highly influenced by technology. In role of the leading company, Tesla has managed to attract people, and especially the competition, towards electric vehicles and renewable energy markets. Which has conveniently resulted in ton of opportunities for economic developers in the automotive industry as well as the renewable energy markets.
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