Someone is going to make a lot of money very soon. Is it going to be the fans who have invested in and talked up Tesla for years? One thing is for certain – Tesla, and founder Elon Musk, seem to have a knack for weathering the storms. Tesla can miss quarters, burn cash, and it gets a bye. Not so for GE, or even Home Depot whose stock just got crushed because of a minor seasonal top line miss caused by the weather. Ron Baron, a big Tesla investor, says he will get a 20 times return from his investment. Better get in now!
Or, is it going to be the shorts. Of course, the naysayers love it when Musk makes a misstep – indeed, Tesla is the most shorted major cap stock on the planet. The shorts list a long series of issues – Tesla can’t seem to produce the Model 3 at scale, Tesla isn’t going to raise more money this year yet the cash runs out before year end. They just pledged their Fremont, CA factory as additional collateral to their banks. Bob Lutz, the U.S. auto industry legend, contends Tesla has “nothing” to differentiate themselves. He says the whole thing is going to collapse.
Elon Musk says he doesn’t care. He wants the day traders and short termers out of the stock. He’s a born genius who can seemingly do the impossible – juggle a new electric car/power company, a rocket company, and when he’s bored the Boring company (which, despite the humdrum name, is actually making progress toward digging giant tunnels underground which will thwart traffic above it).
Let’s step back from the rumors and put our Chief Marketing Officer hats on, and look at Tesla through the lenses of Insight, Strategy, and Execution. With this disciplined look, what picture emerges?
- Insight. Tesla not only has insight, they seem outright prescient. Electric car units built seem destined to go straight up in the future for a whole variety of reasons. All the major car companies are headed that way. Consumers are ready. Tesla’s insight was to sell Teslas as “cool cars” not as “electric cars.” Electric cars are stodgy, slow, not cool except for a small slice of consumers. Tesla has been way ahead in thinking of Teslas as “high performance”, “cool” cars “for the masses.” It’s hard to argue with that Insight.
- Strategy. Again, they seem to have this right. Start with a high-end Model S that’s expensive (relatively). Use the small volume to shake out the car and learn. Next start expanding household penetration with an SUV, and finally with a mass appeal car. The mass appeal Model 3 car provides the many thousands of units needed to spread the near crazy level of capital investment needed to build an automobile.
- Execution. Here’s where the jury is out.
a. The model strategy that seems so right (with more to come like a semi-truck and a crossover), has taken longer than expected. Instead of clearly being the first mover, General Motors, BMW, Audi et. al. is now heading full tilt into the same market space. It’s a bit of a race against time for Tesla to get there. So far, the Tesla consumer is with them, with over 400,000 willing to plunk down a cool grand to reserve a Model 3 when the car was sight unseen, and the majority still hanging in there despite the production delays.
b. Scale is turning out to be hard, what Musk calls “production hell.” As smart as Tesla is – reducing the number of parts in a vehicle to make it easier to build, for one – bending metal is an experience curve industry where the companies in the business for a long time know how to do it efficiently. And Tesla has a double scale curve – not just cars, but they are making their own batteries in a new way in a brand new factory.
So what’s going to happen? Stay tuned. A venture as audacious as Tesla needs all three of what we call the “Growth Gears” – Insight, Strategy and Execution – to be successful. They seem to have the right insight and strategy. Execution is always the toughest of the three. Musk himself says if he had picked automobiles based on the success of auto startups, he never would have started this venture because most auto startups fail big time. Yet, here Tesla is, on the brink of – success – or – failure. We will soon find out.