He must be the most expressive Fortune 500 CEO, not shy of taking a challenge on Twitter, swift to purposeful charitable actions (that touches him), dares big things and not afraid of failure (?). No wonder people like him. Did I mention he is cool? But what does all that mean for Tesla? We’re not looking at SpaceX or The Boring Company for now. Just Tesla; is it a product genius or a trial version business?
Disclaimer: I have not and do not work for Elon Musk or any of his business offsprings. This is not meant to insult or make fun of Telsa. I do respect Elon Musk and what he does. This is a perspective piece meant to probe the minds of interested people in the tech world.
An hedge fund manager, Jim Chanos, said on TV one day as I was watching that Elon Musk won’t be CEO of Tesla by 2020. I am not a “fan” of Elon Musk but at the same time I don’t dislike him. So I listened to the point of the hedge fund manager. The man spoke from the perspective of pragmatic business, the ol' fashioned way. I kind of bond with that though. He said Tesla has not made profit. He said every time, they keep postponing it. He said something like this, ‘5 years ago, they said Tesla will start making money in 3 years. The 3 years came along and then they said they have to wait another 2 years’. He went on to say something like this, ‘when the due time comes again, it will be postponed’. Then he went in this direction, ‘eventually, investors will be tired of not making profit’. This move, he believes, will get Elon fired.
What exactly is Elon doing not making profit? Initially, I had forgotten about writing this, but then an incident happened recently. Tesla had to lay off some staff, (in my view) to become more efficient. And then Elon had to say that it is not about making profits. He says because Tesla (the renewed Tesla under his leadership) has not made profit so far, so it is clearly not of optimum priority. And there I was thinking, ‘what does this guy have against making profits?’ I mean, profit is not prioritized. So what then is Tesla? A company or a charity? My guess is that it is neither. Let’s just call it Elon’s brain child.
The edge that Tesla claims over other automobile companies is that it is a fully electric auto company. Honestly, it was a big dare when Elon went into it. What Tesla claims to be is the future of the automobile industry. But after these years, we must ask ourselves, is that future coming or nah?
One thing I have learnt so far in life is that the future is not predicted, rather it is made. You can predict what you want, but if one of the major players decides to make something different happen and plays well, you can only watch helplessly from the sidelines as the wish of the player plays out, unless you are a player yourself. Robots have been predicted since the 1960s to be a big part of the future. This is 2018 and we are still awaiting robots to go mainstream. What we have that’s mainstream is smartphone and incidentally there wasn’t any strong direct prediction for that. The future is what we make, not what we think.
So, electric vehicles. Tesla was branded around this. They were seen to be the leader. Now, every automobile company is racing for supremacy in electric cars. In fact, it is said that some traditional car companies now have their electric car section bigger than Tesla. So, where they’ve branded themselves as the leaders, they now have bigger competitors. Plus, those companies are making profits. Maybe it’s not coming from their electric car section, but overall, it’s a good sign. “But Tesla still have the brand”. Yes, Tesla does but eventually reality will swallow up crafted social image.
Let’s look at another dimension of the future. The electric car is not the shining light of the future anymore. Now, everybody is excited about self-driving cars. Tesla is in on this too, but a clear brand distinction doesn’t merge Tesla with this idea. Everybody seems to be in on self-driving cars, even Google and Uber. So, the excitement over electric cars isn’t what it used to be. I know someone is thinking, “what about the environment”? The next 30 years, we’re still going to be having meetings and discussions in the world about it. Everybody wants to get rid of the fumes as long as it doesn’t stop the flow of money to them. Many don’t like Trump because he opted out of that “environmental friendly” accord. But look how sincere those who ought to lead the charge have been. I’ve lost count of how many companies that was caught falsifying data to keep up with the emission standards. And those were those who were caught. Certainly, some were not caught (or perhaps, many). Elon should be credited for just limiting himself to electric. But honestly, Tesla should be making profit or …
I can’t say for certain that the Elon ouster or resignation will not happen in 2020. Like I said, the future is made, not predicted (because there are active players). But something has to change if something radical will happen. Eventually, what the numbers say will win. Tesla's investors have been awesome so far for their calm. Maybe they are living off profits from elsewhere. We’ll see how stretched their patience can be. Jim Chanos, the hedge fund manager, mentioned something in that interview I saw. Elon mentioned something futuristic on his Twitter account, and Jim traced the timing to the release of the quarterly earnings report. Jim says it’s just something to distract people from the report.
So, it seems Elon is getting people prepared for a future that will always be in the future.
However, this piece will not be complete without the honorable mention of flamethrowers. Or maybe I should call it by its revised name, Not-a-flamethrower. It met with a lot of success in sales. Can this model be leveraged to deliver profits to Tesla? Maybe. Maybe not. But let me tell you what I saw. Elon has fans. He is very likable. Tesla has fans. It is ideological. One problem Tesla seems to have is that many people who want it, can’t afford it. While Elon tries as much as possible to keep the price at the barest minimum, it is still yet to have a breakthrough on that area.
Why did the flamethrower do so well? It is cool. Elon made it. It’s something Elon’s fans can easily buy. Can’t these characteristics be taken to the car? Not exactly. Electric will remain expensive for the foreseeable future. “What about those who can afford the car?” Here is where things get tricky. In the upper class neighborhood, there are not so many Elon fans. There was once a comparison of a Bugatti and Tesla Roadster. The Tesla was significantly ahead in a number of areas. The Bugatti was about twice the price of the Roadster but in the comments, 70% of the people opted for the Bugatti. Why? It’s because if you want to buy an high end car, it’s better to make it as high as it can get. The price of Tesla’s high end is too low and the price of the ordinary is helplessly high.
What options does Tesla have? First, make friends in the upper class neighborhood. As good as the marketing strategy of Tesla is, it has to be directed to what will bring the big sales in. This option cannot be applied alone, otherwise the original fans will feel betrayed.
So, option number 2; create a luxury brand car of Tesla. Something that will catch the eye of the upper class neighborhood. Detach it from the Tesla brand. Change the overall look and feel, make it dope and then, crazy expensive.
Option number 3; create more non-car products. Create more household products consistent with the Tesla philosophy. Transition to manufacturing from just automobile. Create more things Tesla fans can buy. Things college kids can buy, things high school kids can own and get a sense of connection to Elon and his ideas. It doesn’t have to be something immensely useful (Not-a-flamethrower has proved this).
Option number 4; acquire some innovative startups with impressive sales and sales prospects and then scale them up. So, Elon becomes a kind of lead dreamer in a house of dreamers. The success of these acquisitions can help Tesla get a balance in sales reports and there will be lesser and lesser pressure on Tesla car-making section to make profits.
Option 5; decentralize and go full crypto. Of course, Elon will have to learn a lot to head in this direction. The concept here is that you will only be able to buy a Tesla car for Tesla tokens. And the value of the Tesla tokens (with USD) will change with time. This means people will have an option to either to sell their Tesla tokens at a higher price or use it to buy a Tesla car. Plus, anyone who has cash who wants to buy Tesla will first have to buy Tesla tokens. It will be a hit coin! They will have massive initial problems with regulators though.
Finally, Tesla going into obscurity is not good for anyone. Even Jim Chanos hopes to see a change, his bet is based on the fact that there will be none. Honestly, the way Tesla is currently headed is not so promising. The future they are currently preparing for is quite far and may not even arrive. I hope one of these options (or a variant of it) appeals to Tesla and Elon. Cheers!
P.S. Elon, if you are reading this, there’s more creativity in the details. Wouldn’t mind a conversation, even if just for the thrill of it ☺
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