Tesla: electric dreams

Any environmental analysis of the strategic environment facing the automobile industry
performed over the past two decades would have identified the threat of an over-reliance on
fossil fuel powered vehicles and the opportunities for vehicles powered by alternative forms
of energy. And yet, auto companies have been slow to take up these opportunities.

Elon Musk is not the only person to argue that the inertia is the result of a lack of willingness
on the part of established companies in the industry to move away from their reliance on
fossil fuels. But Musk did something different about it. He built an auto company that only
made electric vehicles. Born in South Africa, Musk moved to Canada (where his mother was
born) when he was 18 years old. He studied at Queens University in Ontario, then
transferred to the University of Pennsylvania, where he received a degree in physics and a
degree in economics. In 1995, Musk moved to California to begin a PhD in applied physics
and materials science at Stanford University, but he left the programme after just two days to
pursue his entrepreneurial ideas. One of these ideas grew into PayPal, the electronic
payments company, and by 2002 when this was sold to eBay for US$1.5 billion in stock,
Musk became that company’s largest shareholder, owning 11.7%. The sale gave Musk the
financial clout to pursue loftier ambitions. Musk is variously described as a business
magnate, management guru, engineer and inventor and has, at various points in his career,
been all of these things simultaneously. At his three largest corporate initiatives since PayPal
– Tesla, Solar City and SpaceX (see Live Case 1-5) – he is at once co-founder, CEO or
Chairman, and Product Architect or Chief Technology Officer (CTO).

He has stated that the goals of Solar- City, Tesla and SpaceX revolve around his vision to
change the world and humanity. And his grand ambitions include reducing global warming
through sustainable energy, and reducing the risk of human extinction by making life multi-
planetary. Elon Musk was ranked the 94th wealthiest person in the world in 2017, with an
estimated net worth of $13.9 billion. In 2016, Musk was ranked 21st on Forbes’ list of the
World’s Most Powerful People.

In 2015, he starred in The Simpsons as himself (i.e. an archetypal business

revolutionary/mad scientist). Mr Burns confuses him with Henry Ford. Since the death of
Steve Jobs, Musk has become the first name that comes to mind for many people when they
think of maverick movers and shakers in the world of technology and business.

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 Tesla Motors was incorporated in July 2003 by Martin Eberhard and Marc Tarpenning. The
company was named after the maverick inventor Nikola Tesla, who had an ongoing battle
with Thomas Edison for dominance in the early years of electricity research and
commercialisation (which the more corporate-friendly Edison won), and whose original ideas
about alternating current (AV) influenced the development of Tesla vehicles. Musk partnered
with Eberhard and Tarpenning to raise funds for expansion and the commercialisation of
their first car in 2004 and joined Tesla’s Board of Directors as its Chairman. Musk took an
increasingly active role within the company and oversaw the design of an electric sports car
called the Roadster. The Roadster hit the market in 2008, the same year as the Global
Financial Crisis, and the same year that Musk assumed full leadership of the company as
CEO and Product Architect, which he retains to this day. As of the end of 2016, Musk owns
about 28.9 million Tesla shares, or 22% of the company. The Roadster was a modest
success with sales of about 2,500 vehicles to 31 coun- tries in 2008. But since then, with the
follow-up four-door Model S sedan launched in 2012 (which has become the World’s 2nd
best-selling electric vehicle), the Model X SUV and investments in new production plants and
infrastructure such as a net- work of charging stations across the US and Canada, Tesla’s
production and revenues (although not its profits) have risen steadily. Being so deeply
involved in the development of Tesla and its products has led to Musk lashing out at those
who don’t share his vision. He took the BBC television show Top Gear to court in 2008 for
“libel” and “malicious falsehood” in relation to host Jeremy Clarkson’s review of the Model S.
The courts found in Top Gear’s favour in the libel case and the falsehood claims were also
struck out, with the pre- siding judge describing Tesla’s malicious falsehood claim as
“gravely deficient”. And, in early 2013, Musk berated the New York Times across social
media for a less- than-favourable review of Tesla’s charger network. Perhaps realising the
limits of this testiness and Tesla’s maverick stance, Musk and his company have adopted
softer positions more recently, partnering with traditional auto companies Daimler and
Toyota to produce electric powertrain systems for their vehicles and Panasonic to produce
batteries. It has even teamed up with accommodation provider Airbnb to provide Tesla
chargers at their properties. And, perhaps most dramatically, Musk has recently offered to
make all of Tesla’s innovations available to any individual or organisation with good
intentions to advance his aims for the development of sustainable energy. What the future
holds for Tesla remains uncertain. Can Musk grow the company’s market share and
increase profitability? Will electric cars prove to be just a fad? Will the established auto
companies gradually nibble away at Tesla’s innovations and incorporate them into their own
business models? Will the company’s willingness to share their knowledge erode any
advantage they have? But no matter what the answers to these questions turn out to be,

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 there can be no doubt that Musk has done his best to shake up the automobile industry and
point it in a new direction.

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 06/02/2017 'Milestone' for Tesla as it reports surprise profit

By Adam Samson in New York and Richard Waters in San Francisco, Source: FT.com

Tesla Motors on Wednesday unexpectedly posted its first quarterly profit since 2013,
sending the electric carmaker's shares racing higher. The rare profit comes ahead of an
expected spending binge as the company moves ahead with the development of its first
mass-market vehicle, the Model 3, and followed a concerted internal effort by the Tesla to
show that it can shake off its money-losing ways. The company founded and led by Elon
Musk said it logged net income of $21.9m in the three months ending in September, from a
loss of $229.9m in the same period in 2015. Revenues soared 145 per cent to $2.3bn.
Adjusting for certain items, profits of 71 cents a share far exceeded Wall Street expectations
of a 54 cent loss.

Mr Musk had set his sights on achieving a quarterly profit to try to dispel lingering questions
on Wall Street about whether his company would ever make a sustained profit. In an internal
email in August obtained by Bloomberg, he called on Tesla employees to redouble efforts to
cut costs as this would be the last chance for the company to prove its profit potential to Wall
Street before the costs of the Model 3 set in. The results "reflect strong company-wide
execution in many areas", Mr Musk said of the earnings. The results reflected success in
holding down operating costs and reflected an increase in gross margins to 27.7 per cent
from 21.6 per cent in the preceding quarter.

Tesla also reaffirmed its plans to deliver 50,000 vehicles in the second half of 2016. The
delivery figures have helped to quiet concerns over the carmaker's ability to ramp up
production, particularly after it ran into issues attempting to accelerate manufacturing of its
Model X sports-utility vehicle. Finally, Tesla has achieved a milestone that investors long
awaited - a profitable quarter and a surprise one at that.

It appears the company focused intently on ensuring production targets were met while
keeping costs in check," said Michelle Krebs, senior analyst at Autotrader. The coming
quarter will see a jump in capital investment, with Tesla forecasting $1.8bn in spending for
the year as a whole after only $759m in the first nine months. This was still below the level
Wall Street had expected, after the company brought forward its plans to reach production of
500,000 a year by 2018. Mr Musk said Tesla's expected spending would dispel normal auto
industry expectations that "to have a step change in capacity, you need a step change in
capital. That's just not true." California-based Tesla last week disclosed plans to make all of
its cars capable of fully autonomous driving by the end of next year, a plan that could put the
carmaker well ahead of rivals in the what is expected to be a growing area for the industry.

However, the company's ambitions have been dented by safety issues, including the death
of a Tesla owner in a crash in the US earlier this year who had control of the vehicle, but was
using what the company calls "Autopilot mode".

Mr Musk rejected criticisms of his company's approach to self-driving technology, and

added: "There are obviously sceptics out there. I suggest they do not bet against us." Tesla
is also working to buy Solar-City, the solar electricity company of which Mr Musk is
chairman.

Today, Tesla continues to grow internationally as indicated in the Video.

Seminar Task:
In groups of four, discuss the following aspects of Tesla’s offerings and strategy.

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 1. What do you think might account for the slow development of electric cars as an
alternative to petrol-driven autos?

2. How would you describe Tesla’s strategy – emergent, planned, disruptive?

3. What are the advantages/disadvantages of an individual such as Elon Musk having

so much financial, managerial and creative control of a company?

4. How has Tesla considered its stakeholders in developing its strategy?

5. What are some of Tesla’s strengths and weaknesses?

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