TESLA - Patterns of Success

Aktualisiert: Nov 9

How is it possible for you, for me and for any of thousands of resourceful companies to achieve a commanding and long-lasting competitive edge?


This article reflects my view of the evolution of TESLA compared to the Business Innovation Process we suggest for our customers and will derive useful consequences for the design of a sustainable growth process for any organization.

Warning ;-) : I have come to the conclusion, that TESLA is a generational company, a very rare company and I am invested in TESLA because looking forward I see a more than 20x growth within the next ten years. Please check my assumptions and let me know your thoughts. That way we may all learn from TESLA's evolution, failures and successes.

Primary sources: TESLA Impact-Report, HyperCharts, TeslaDaily, VISTEM


Let me present a short overview of a generic Business Innovation Process. When I write 'our company' I mean your company, my company, any company which wants to grow sustainably.

source: www.vistem.eu

  1. What is the purpose of existence for your company? Why would the world care?

  2. The "Value Proposition" establishes a great value your company will contribute to your customers wellbeing and success.

  3. The "Business Model" makes sure you will earn the needed money for your own exponential and sustainable growth.

  4. The "Execution Plan" establishes a credible way to create a growing sustainable business

  5. ... furthermore, you must make sure, that your company is able to evolve beyond the current limits of your current thinking.

Step I. Grand Goals

I would like to start with the first and exceedingly important question in our five-step journey along the Business Innovation Process: What is the overarching goal of your company? Why should it exist?


As of this writing (November 2020) TESLA is the most valuable car company in the world. With more than 60.000 employees it is no startup anymore. But it is growing like a startup averaging 50% per year, which it wants to continue for the next ten years. While all major car companies are writing losses and shrink, TESLA grows and is consistently and increasingly profitable.

What is going on here?


Elon Musk, CEO and dominating shareholder of TESLA, refers again and again to the mission of all his companies:

  1. Enable a growing and sustainable civilization on earth

  2. Insure humanity against an eventual global catastrophe by creating a multiplanetary civilization

You will not find anything about cars in this mission.

This is the mission, that drives the creative processes in Elon Musk's companies.

For TESLA the focus is on climate change and within this framework on reducing greenhouse gas and toxic emissions.


The objective was worded as:

The very purpose of Tesla’s existence is to accelerate the world’s transition to sustainable energy.

To achieve this goal TESLA will create an entire sustainable energy ecosystem. Energy production, storage and usage.

source: TESLA Impact-Report

The widely known car&mobility business is only a subset of this ambitious endeavor.

Very interestingly during the first ten years of its existence TESLA wanted only to kick the 'Big Boys', the other automotive companies, into action. TESLA even encouraged competitors to use its patents to accelerate their own inevitable transformation.

The small company was belittled and widely ignored

  • until BMW and other premium brands lost significant business in the US to TESLA in 2018

  • until TESLA achieved price parity with ICE vehicles (ICE..Internal Combustion Engine) in 2020

  • until TESLA was the only major automotive company with healthy balance sheet and profits during the Covid19 crisis of 2020.

Again: What is going on here?


Step II. Value Proposition

Why is there no demand problem for TESLA but a critical market contraction for its competitors? (Numbers for US, Oct 1st 2020,source: US vehicle sales 2020 )


The hypothesis behind "Value Proposition" is, that you must identify one or more great needs of your customers, which other companies cannot or will not fulfill.

Here we go ...


“Since its founding, Tesla has been focused on increasing the utility of products - making them better and more useful to our customers - while at the same time making them increasingly more affordable. Tesla fundamentally believes that you shouldn’t have to choose between price, quality, usability, and sustainability.”

This statement leads to fundamental design decisions for every TESLA product.

source: TESLA Impact-Report


Relevant reservations a consumer might have comparing TESLA products with competing ICE-age (Internal Combustion Engine) products must be addressed.


Today TESLA is providing a superior driving experience on the road and on the racetrack trouncing BMW, Porsche and others. Long distance travel is convenient and as a TESLA owner you are sitting in the safest car on earth (Active, Passive, Fire, Cyber - safety).


Above 'Passive Safety' compared with top contender Volvo. Left 'Active Safety' which is the best in class.


source: TESLA Impact-Report



Again: What is going on here?


Step III. Business Model

If you have established a heartfelt mesmerizing mission for your organization, you have to decide which value you want to create for your customers on the way to your goal and what you want as compensation in return to finance your growth ... the business model.


The business model of TESLA appeared to be risky at the start, available money was scarce and TESLA was near bankruptcy several times. Yet the plan was executed with determination and exceedingly successful and is now entering an entire new phase.

source: SpaceX

This picture represents 15 years of execution. The car pictured here is the TESLA Roadster, produced in small numbers, at a high price for a few thousand rich people. In 2018 Elon Musk sent his own roadster on an experimental journey to Mars and beyond, of course powered by his own rocket, a SpaceX Falcon Heavy.

Three major steps were planned for this crucial phase of TESLA's evolution.

  1. Design and sell a high prized, low volume sportscar to demonstrate attractivity of EVs

  2. Design and sell a premium sedan to finance the next steps (Model S & X)

  3. Design and sell a mass market car, which beats ICE and EV cars in its class regarding performance and price, BMW 3 series as a primary victim beaten by Model 3 & Y.

This completes the first evolutionary era “S3XY” (Model ‘E’ was trademarked by Ford :-( )

source: TESLA Impact-Report

At the same time preserve a high margin to create enough cash to enable fast expansion of vehicle fleet and product portfolio into all relevant vehicle categories.

As of November 2020 TESLA, has cash in excess of 14 Billion at hand. This represents more than 3 years of operating expenses.

Such a cash generation is only possible with an extremely cost-effective infrastructure and strong market capitalization.


source: HyperCharts


Again: What is going on here?

This leaves the question: How to create and execute a plan, to achieve such milestones. If you think, that creating and executing such a business model will take eternaly, you are not alone. We know this experience and created a sequence of workshops, which leads within a few weeks through the steps laid out in this article.

Need information, how to start this process? Look here

Step IV. Execution Plan

When you have created a business model, which will generate a unique great value for your customers and a similar great return for yourself, you have to build a plan which leads your company step by step to the full fruition of your business model in the market.


We return to TESLA's journey. One thing is to set goals like building a compelling sportscar without real competence in car manufacturing and then going on to mass production, the other is to do it.

The roadster was a reality check. Quality issues and delays made it a painful learning experience.

TESLA has set the goals deliberately so, they had time to enhance their manufacturing skills. In hindsight Elon Musk says, that mass production is orders of magnitudes harder than creating a compelling prototype and building some first samples. The last time TESLA was in danger of bankruptcy was in 2018, when the start of mass production of Model 3 took far more time and money than expected. Lesson: Expect hurdles, expect errors, expect stretches of time which feel like hell. Elon Musk called it 'production hell'. TESLA survived.

By the way, Elon Musk himself is paid according to the progress along the masterplan. He gets options for new shares for reaching milestones in share price, EBITDA and revenue. During the last 12 years he is over-achieving.


The image shows the operational goals he has to achieve between 2018 and 2028.

It looks entirely feasible currently, that TESLA will achieve the third tranche 2 years early in 2021.


Currently TESLA is following masterplan Version 2. This includes being the world's foremost car manufacturer in 2030, producing factories like products on the way.

This goal enforces extremely rapid development cycles and vertical integration wherever possible. During the last years TESLA integrated small but world leading companies (Grohmann, Hibar, Maxwell, ... even lithium mining and artificial intelligence (AI)) which enables them to operate in any step of their value chain with world leading quality.

TESLA even produced their own AI-Chip to control their cars beating the performance of competitors NVIDIA and INTEL twenty times over. What you see here is, that they do not compete anymore with the car companies, but with their suppliers, because these suppliers of legacy car makers could not perform as needed. source: TESLA Impact-Report When the seats for the cars where not delivered at needed quality, TESLA insourced the production, when MobileEye did not supply the needed AI system for TESLA's cars, TESLA expanded their own software and chip design capacity to insource this function.

Why is this possible?

Elon Musk often acts as a teacher in chief. He reiterates principles, paradigms which make TESLA strong in his eyes. Integrating thousands of employees every year needs a strong cultural core.

What makes TESLA tick?

After more than 15 years at the helm he has a team of extremely capable top managers who embrace TESLA's values.


source: SpaceX

Elon Musk emphasizes again and again certain thinking processes and habits, he wants to encourage:

  • We are here to save the planet! Our company has to do its part!

  • To reach this goal, rely on ‘First Principles’ = physics and logic, not hearsay from others. "This is impossible" is no valid statement.

  • Shape the organization so, that the boundaries do never hinder sharing and cooperation. The common goal dominates. (He was actually able to trace product design errors to organizational design errors)

  • The best part is ‘No Part’, the best process is ‘No Process’. Eliminate, what is not contributing to the goal.

  • Speed is of the essence. Being much faster than the competition is not enough. We are too slow to save the planet. Accelerate!

  • Buy from the faster and better supplier, over-assign resources to accelerate projects. Consider speed over cost.

  • The whole product is your baby, even if you work on a small part. Your part must work! … and look around where you can help.

I hear behind the words of Elon Musk one major issue: Our constraint is, the capacity to think clearly. Our constraint is engineers and managers, who aim high, see reality as it is, go to first principles and avoid wishful thinking.

In the current job-market the best tend to ask for a job at one of Elon Musk's companies. Whatever you will do there, it will be at the leading edge.


What makes your (future) company tick?


And here we are in 2020 in the starting months of TESLA's next major phase.

As you have seen above, financials look good. Cash is no issue anymore. This is a major step in any master plan, which must be accomplished. It took TESLA more than 15 years to reach this milestone.


After the Covid-19 crisis vehicle deliveries rebounded in Q3 2020 making a record delivery of 500.000 for 2020 possible. The newest car, Model Y (green), contributed nicely.

Since three factories are currently being built, my estimate for 2021 is above 1.000.000 vehicles. This would be an increase of 100% year over year.

source: HyperCharts

Around 180.000 deliveries in Q4 2020 should finish the year 2020 with records in all economic categories.

Looks fine so far. What will the future bring?


Step V. New Markets, Next Generation Products

In the fifth part of our business transformation process we look at the options for future abilities, services and products which will contribute further to the set goals of your company.


Currently TESLA has a fine competitive advantage and is growing faster than any other car manufacturer.

Elon Musk is communicating much about TESLA's numerous competitive edges. The intention here is not so much marketing for TESLA's products, but to attract the best people all around the world to the company. As discussed before: The constraint is the capacity of clear thinking. Design centers in Berlin, Shanghai and Bangaluru are planned.


Following areas of ability are in my opinion instrumental for even faster growth during TESLA's next development steps


Software, Artificial Intelligence

TESLA becomes more and more a software company with adjacent production. Full Self Driving (FSD Beta was rolled out in October 2020), Autobidder, their own proprietary ERP-System, ... Software becomes the dominant part of physical products. TESLA cars get better, faster, gain range by frequent updates over the air without physical changes. Software becomes a high margin component of every product or service.


Vertical Integration

TESLA drives vertical integration (InSourcing) to a fully new level. 2020 they enter Lithium mining, TESLA is designing their own alloys for casting car frames, they build their own tools, products are sold online, no dealers whatsoever, ...


Building the machine which builds the machine

Executing projects and building factories faster and in better quality than any other company. Elon Musk: "Building the machine, which builds the machine, which builds the machine, ..." Look at the difference between the layout of the first TESLA plant for Model 3 in Fremont/California and the 'Machine' built in Shanghai in 2019.


Technology

TESLA uses and develops the best batteries for usage in very different industrial areas. Batteries last for 10 years without much degradation, are taken back and used for 20 years in storage facilities and are recycled after several decades of service. Better margins and better for the environment. And much more efficient long living designs are already scaling up in all factories. TESLA: "We believe the notion that a sustainable future is not economically feasible is no longer valid."


Insurance

In 2019 TESLA created an insurance branch. Since TESLA cars are the safest vehicles, TESLA can provide cheaper plans to car owners and earn much more money than other insurance companies. TESLA is already in the house building business (Solar Roof) and may expand beyond car insurance. This branch may contribute hundreds of billions per year of high margin business in 2030.


Energy production, storage and delivery TESLA plans, that TESLA-Energy will be bigger than the car-business within ten years. If executed well, TESLA (Automotive+Energy) will grow into a 2 Trillion $ revenue company with a valuation beyond 3 Trillion $.

To the left you see my projection for vehicle deliveries, if the growth plan of TESLA for the next ten years can be realized (40% per year). Such a projection can easily go wrong by 2 years in both directions. The energy business is planned to grow much faster to an even bigger dimension. source: Franz Nowak


For the private sector TESLA produces SolarRoofs which completely replace normal roofs and produce energy from sunlight. This energy is stored in PowerWall and charges a TESLA vehicle. More and more features for houses can be delivered by TESLA. A whole TESLA ecosystem for homeowners is growing every year.


On the industrial and grid side TESLA produces PowerPack and MegaPack. This container size storage unit can be combined to assemblies beyond several Gigawatt hours of capacity.

source: TESLA Impact-Report

  • $50 million Savings achieved by the Hornsdale Project during its first year of operation.

  • <1 Second: The amount of time it takes for a Powerpack to respond to sudden changes on the grid due to a disruption — this has been seen in action at Hornsdale Power Reserve, helping solve South Australia’s chronic power outages.

  • The installation paid for itself in a little more than a year.

TESLA provides the software Autobidder as a service and earns money by taking a part of the savings. Autobidder analyses the power grid fluctuations and provides power when the price is high and stores power when power is cheap. That way households and industrial customers can earn money using their storage facility and environmentally friendly energy production.

Two gas powered power plants in Hornsdale county could be closed, because they were too expensive and too slow.

Since October 2020 TESLA is an energy provider in the UK. Thanks to the superior control of house electricity by TESLA's Autobidder-software customers in the UK get the lowest energy cost available and can earn money on top, selling excess energy at optimal times automatically determined and executed by Autobidder. TESLA earns money as provider of the service.

Result: The stability issue for green energy is solved and fossil fuel as source of power becomes uncompetitive.


Conclusion


TESLA has had an extra-ordinary run. But luck aside: What is applicable to mere humans (which actually all TESLA employees are) and to the current situation of any company?


Eli Goldratt had a specific perspective of luck: "Luck is good preparation meeting reality"

Or, the same sentiment expressed from a completely different angle by Deepak Chopra: "Lucky coincidence is a well-prepared mind moving through life lighthearted and carefree, knowing all is well"


My hypothesis is, that any company, which has already a viable business, can plan the process and execute the transformation to sustainable and accelerated growth.


What would I like to learn from TESLA for my own company?

  1. My company needs a strong purpose, anchored in the needs of humanity, the planet and beyond

  2. A well-defined set of values and habits is strengthened again and again by owners and top management.

  3. A set of products and services is defined to bring great value to customers in the direction of the purpose which cannot be copied easily by competitors.

  4. The business model defines how we will make good money from fulfilling the needs of our customers and that way finance continuous exponential improvement.

  5. A Master Plan defines a credible way to reach intermediate goals and later meet great expectations.

  6. Executing along this plan, learning from each step, learning from each failure, learning from each success, more and more talented people will join the journey and expand our opportunities beyond current expectations.

What is your take?


Need information, how to start this process? Look at our offer at VISTEM & Business Innovation

 
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