CNBC Looks at Elon Musk’s Program Portfolio & Problems at Tesla
Video Caption: Elon Musk has a lot on his to-do list. And it may be coming at the expense of his core business – Tesla.
Video Caption: Short-seller Jim Chanos, Kynikos Associates founder, shares his thoughts on Tesla, Elon Musk and the mass exodus of the company’s top executives.
51 responses to “CNBC Looks at Elon Musk’s Program Portfolio & Problems at Tesla”
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No, his core business is SpaceX. Elon Musk just took over from Martin Eberhard as CEO in 2007 to save his investment. Its been a distraction ever since and this isn’t the first time Elon Musk had to clean house. But then its hard for traditional business reporters to grasp the potential of space as an industry because of its long dominance by NASA.
Agreed, but Elon should be careful not to turn both his LA tunnel project and Tesla businesses into money pits that siphon off funds from SpaceX.
Elon’s companies are so intertwined it would be scary if Chanos is right and Tesla is headed for bankruptcy. SpaceX bought a lot of SolarCity bonds which were added to Tesla’s debt when it was acquired. Default on those and things could get pretty ugly.
I’ve attached a list of Tesla executive departures as of a month ago so you can see what Chanos is talking about. The list is out of date. The head of the autopilot effort just left. I think he’s the third one to depart in less than a year.
The lesson is that while Musk has found Gwynne, Hans and a handful of people who can provide stability at SpaceX. The story seems to be different at Tesla. The problem is compounded by the fact that a lot of the mistakes on Model 3 — excessive automation, skipping a stage where all the bugs in the assembly process are worked out — can be traced back to Elon. He probably didn’t listen to most of the people who ended up leaving.
They’re turning out cars that would never leave the factory of other companies. I read one complaint today about a Model 3 that wouldn’t reverse. The driver put it into reverse, but it went forward. This was right after he accepted delivery.
https://uploads.disquscdn.c…
Here’s the problem as I see it… Chanos is working from the position of how normal companies work .. But that is NOT how Elon’s companies have EVER worked. The typical Wall Street model doesn’t work for anything Elon is involved in.
There’s a difference between the rocket business — where technological innovation was pretty stagnant — and the fiercely competitive auto industry, where there is a lot more innovation.
The point Chanos is making is that Tesla’s innovation on EVs gave it a lead that is now eroding as a result of others entering the field. They’re not on the only EV maker on the block, and other are surpassing them in the area of autopilots, for example. So, their competitive advantage — if not completely gone — has been eroded to very little.
Meanwhile, there are well proven ways of manufacturing a car that Tesla has a hard time mastering. Companies go through pre-production periods lasting 9 months or so where they work out all the bugs on the production line before things really get rolling. Musk skipped that with the Model 3. He built an assembly line as an alien dread naught filled with robots with as few humans as possible.
Other companies had learned it’s not a good idea to skip the pre-production phase. They had learned the hard way the limits of automating the production line. Elon thought he knew better. He didn’t, and my guess is a lot of the departures were of people who tried to tell him otherwise.
The result is that Tesla is turning out a lot of lemons. These are cars with problems that would never leave other factories. The lack of attention to the humans on the assembly line and the rush to get things out the door have resulted in higher injury rates. Now Tesla’s been accused of not reporting all their injuries to make it look like the factory’s safer.
In the meantime, Tesla is saddled with enormous debt not only from its own operations but from SolarCity. It’s entirely possible Elon will find a way out of this morass. But, it’s possible Chanos is right: the company’s headed for a fall.
It’s interesting to see the contrast between how the space press treats Elon and the way many in the automotive and finance media treat him. There’s a lot more skepticism and criticism in the latter.
At the risk of pointing out the obvious, Chanos, being a short-seller, has a vested interest in talking down Tesla as much as he can. That’s how he gets paid – if he gets paid. The shorts have made runs at Tesla before with mostly unhappy results.
Tesla has had teething problems with the production of each of its models. But the Models S and X are long since sorted out and both continue to sell. Tesla is also not just a car company. It has other lines of business. If Tesla was a car-only company and the Model 3 was its only product line the case for an existential threat existing would be much stronger.
The other obvious thing is that there have been plenty of people boosting this stock in order to make tons of money. The stock reached insane heights based on potential of future earning even as the company’s finances deteriorated and production problems piled up. There have been longs on Tesla that have made fortunes on it. Who’s to say they’re right and the shorts are wrong?
Tesla has had quality problems for years on its models. But, they’ve been purchased by rich people who often have multiple cars. They can afford to have their Tesla in the shop. The more you go downmarket, the better reliability has to be. You can’t have a brand new car you just took delivery of an hour ago going forward when you put it into reverse.
This is real danger to Tesla. I’m not writing the company off, but this approach to skipping production steps and turning out lousy cars in the hope that consumers (and investors) will continue to put up with this because your products are so cool is a dangerous one. Especially as the market gets more crowded with competitors whose futures are not pinned to the success of one model.
Tesla has already disrupted the luxury car market and has forced other companies to seriously look into EVs
Everything you are saying about Tesla was also said about Amazon not so long ago – and not without some justice. Amazon took a long time to generate significant profits. And, like Tesla, Amazon was competing a new business model in a crowded and venerable market space against a lot of sharp-elbowed competitors. There were attempts to short Amazon too. That turned out to be a good way to quickly become an unmarked grave on Wall Street’s Boot Hill.
The Shorts have been picking away at Tesla for a long time with no notable success. Granted, past performance is no guarantee of future results, but it’s not nothing either. Who’s to say the Shorts are wrong? Thus far, the Market seems to speak most loudly.
Every car company – except maybe Toyota – has had initial quality problems with new models, some of them much more relatively severe than what we’re seeing from Tesla. The GM X-cars and the Chrysler K-cars of yore, for example, were both first-class disasters with horrendous rework rates. Both also accounted for fractions of their sires’ total car businesses that were comparable to what the Model 3 is supposed to be for Tesla. And neither GM nor Chrysler were the relative newcomers to the business that Tesla is. Just having decades of experience in high-volume car production has been amply demonstrated to be no bulwark against screwing the pooch big-time. If you prefer a more recent example, I think GM’s electric car business would nicely suffice.
https://steveblank.com/2018…
What makes Elon a good disrupter is not necessarily what makes him good at scale.
Read the whole story. It’s really good.
I look forward to revisiting the thread this time next year when Tesla is still not bankrupt and Model 3 production issues are worked through.
The whole argument “Elon knew better” is pretty vapid. If Elon listened to “experts” (and didn’t think he knew better) neither SpaceX nor Telsa would even exist in the first place. Even Shotwell, his purported savior, says on rejecting conventional wisdom he’s right an “annoying” amount of the time.
Now, he is human and fallible just like the next guy but it isn’t like he just had to go and copy all those other successful auto manufacturing startups in the West…they all failed well before getting to Tesla level of maturity. He went from selling Paypay to successfully steering Telsla through 2008 financial crisis, where GM actually did go bankrupt, to a point where no auto startup in maybe 75 years (I’m making this number up, I really have no idea) has gotten to. So forgive me for not jumping on Joe short-sellers bandwagon just yet.
As the Ozzies say, you’re not wrong. 75 years ago was WW2. The immediate post-WW2 years and on up to 1960 were not kind to either automaking startups or established second-tier players. Preston Tucker, a successful WW2 military contractor, tried to take on the big boys with his innovative and stylish Torpedo sedan. He didn’t make it. Kaiser had a forced merger with Fraser, then the combined entity bit the dust. Nash got gobbled up. Packard went under. So did Hudson. I’m probably overlooking some others.
In the decades since, the only automotive startups aiming at mass production that got to the point of actual production and sales were Bricklin and Delorean. Neither lasted long. And neither was producing vehicles remotely as technologically intense as Tesla. The new tech, in both their cases, was pretty much limited to the skin of the vehicles. Bricklin’s bodies were all polymer with molded-in color – no paint. Deloreans were a composite-backed stainless steel – also, famously, unpainted. Nor was either company anywhere near as vertically integrated industrially as is Tesla. Neither made their own powertrains, for example.
Teslas are also very desirable vehicles, quite famously one of the best drives on the market, which helps justify the price difference. If you see them on the road you can see how responsive they are, and once you get used to it it’s easy to see that being downright addicting compared to ICE vehicles
Although I don’t own a Tesla, I have many hours of driving Model S under my belt. They are great driving cars to be sure.
Yeah I am afraid to test drive one because I am not in a situation where it makes sense to own one, might be able to afford it, but I don’t have my own place so I wouldn’t have a place to charge it overnight.
Chanos could be wrong. Elon might well find his way out of the mess he created for himself at Tesla.
This is a pretty insightful piece looking at Musk’s strengths and weaknesses, and the challenges faced by visionary founders who must transition from disruption to scale. It’s worth a read.
https://steveblank.com/2018…
Counterpoint: GM went bankrupt in 2008 and Tesla did not.
Another counterpoint: Paypal was bought by Ebay, from the crazy incompetent visionary, and has languished ever since without any innovation or improvement.
You know, Steve Jobs was a really awful CEO and person for that matter early on. He was, in fact, the prototypical visionary who couldn’t make the transition to building a large company, made many missteps, was fired before starting Next which is not a commercial success. Oh, and he had side projects including Pixar. But that wasn’t the end of the story because Jobs was so f’ing relentless it didn’t matter. He did finally find a groove to contain his startup spirit and manage a large company reasonably well. Anyone playing trivial category games where x person is a visionary and not a good manager is oversimplifying reality and complex personalities in a truly astonishing way.
Musk has specifically said he would stay on as CEO though the Model 3 and gigafactory roll out because he didn’t want to put anyone else through, what he knew, was a dicey transition. The point of dynamic CEO trying to break the mold in an industry is not to never dig your own hole, it is the persistence to work out of them, when they eventually occur.
Elon is known to be very dedicated to making his companies succeed, his big risk in 2008 is testimate to that splitting the last of his money between Tesla and SpaceX…
What people are missing, and why just hiring industry car manufacturing people to replicate a GM factory won’t work, is what Musk is trying to build is much higher performance in the long run. His plan is to vastly increase the output from a single factory to reduce the overhead per car. That requires heavy automation, no way around it.
Yes, early on he has pushed to automation too far, too quick and had to back off. But will circle back relentlessly to get there, once output stabilizes. Nothing in his plan violates physics just too many balls in the air at the same time to get it ironed out in time.
Here is Dan Rasky talking about new innovation under-performing at first, then passing the traditional players:
https://youtu.be/g3gzwMJWa5w
Just the gigafactory was a huge project, let alone Model 3 line back in Fremont. But with persistence, clear eyed evaluation of what’s working and what is not a path forward will be perused. He is even more relentless than Jobs, and way more analytical.
Ok, if he’s trying to reduce the cost to build a car, why did he buy a plant in an area with one of the highest costs of living in the US?
He didn’t build the factory, it was already there and got a deal on distressed plant in his backyard. Read the history.
Maybe I should have written “built-out”. Still it doesn’t matter. The cost of labor in the Silicon Valley is much higher than most other places in the US. Workers who have to live in their cars because they can’t make enough to afford housing is not good. I’m not saying I’ve seen reports on that specifically relating to Tesla, but it is becoming more common in the area generally. I would certainly be looking for a job somewhere else at that point.
Yes, but Musk is in California and so is all the software and electronics talent he needs. If you’ve read up on Musk he likes dense beehive type facility where there is a lot of business functions close together. Also, if you’ve been around there Fremont isn’t exactly Palo Alto. The auto workers aren’t making software developer salaries (or even on that scale). Yes, they will make more than South Carolina but then again over time the factory is suppose to be highly automated to limit labor inputs.
Many factors go into site selection (The NUMMI plant was too good to pass up). In any case because labor is expensive, is exactly why you want to maximize the plant output.
Palo Alto is 15 miles away (25 if you take the long way) from Fremont. I know the area well and it takes a long drive to get to a town with reasonable housing prices and traffic is horrible.
The economics don’t change based on what Elon likes or where he wants to live. While it can be more convenient for him to have a plant in Fremont, the cost to be there is not on par with the rest of the automotive industry’s costs. I don’t buy into the “we have to be there because that’s where the talent is” argument. I know lots of people that have and do live in the area and hate it. They only live there because that’s where the jobs are they want. They would much rather be someplace else where they would keep more of their paycheck and live in a home rather than a shoe box.
If Tesla had hinted at locating a plant in the Detroit area, the traditional car manufacturing zone, they may have been given a very sweet deal on land, buildings, tax abatements, etc. That would have meant being closer to experienced feed-in suppliers and shops better equipped to handle all of the rework they have now. Design and research could be kept in the SV/Bay Area, but the mundane large scale manufacturing end could be someplace less costly. Yes, yes, the Gigafactory would have to be closer too. The other bonus of being in “car country” is access to automotive workers with experience. Sod the programmers in SV, Tesla needs people that have built cars before and managers with time on the Line.
You should notice that eTailers build their big fulfillment centers out of town but next to interstate highways and train tracks rather than in the middle of large cities. Even when they are close to large cities, they build in the worst part of town that affords good access for trucks and trains. It’s the same principles at work. They are trying to keep their cost of operations down as much as possible. If they are the only major employer in the area, they can dictate wages better. They can also get away with paying low wages if the cost of living is low. If they can get land for free and big tax deals, that’s even better. It’s not a big deal to be 2-4 hours out of town to save a shipload of money. The packages are delivered the next day and customers are happy.
I give more credence to Chanos as his forecasting is based on financial data and not emotion. His predictions are backed up by others in the industry. Munro and Associates is completing a tear down report on the Model 3 and has some mixed reviews. They praise the battery pack, suspension and compares some of the electronics to the quality one would expect to find in a F-35 fighter aircraft. He goes on to warn other manufacturers to get their electronics up to the same spec or get left behind. Sandy Munro comments that the “dinosaur tech” aspects of the car, specifically the body-in-white, is sloppy, poor quality and far too heavy. His team could easily tell that assemblers didn’t receive enough training by things like sound dampening being glued in with the wrong side out on one side of the car and correctly on the other. Gap tolerances, trim line up, rattles and other noise is very far below the spec other manufacturers would allow to pass.
All of this doesn’t bode well for the Semi that is promised to enter production next year from a factory that hasn’t been identified and shipping to customer that have already made substantial deposits. Big trucks are put under big mechanical loads. The drive train is useless if the frame is broken or the steering is bent. The non-tech, non-drive train part of the truck is just as important. The time line has all of the appearances of Elon skipping the testing and qualification phase yet again. Mercedes is currently testing pre-production trucks of various types for release in the next few years when they are de-bugged and ready for customers. Cummins, the diesel engine maker, has an all electric power plant/drive train prototyped to offer to truck builders. The Nicola One is available and the self-funded Thor ET could be picked up by a major manufacturer. All of the big manufacturers have the advantage of being able to work from an array of tooled parts so they don’t have to create every knob and handle from scratch. Peterbuilt, for example, could delete the diesel engine and integrate an electric drive train and be able to field a fleet of test trucks in less than a year. I wouldn’t be surprised if several truck manufacturers are already doing this for models aimed at the short haul market.
I watched the review, all stuff that can be fixed in once these manufacturering glitches are worked through. And many have been fixed.
If you think making an all electric semi is just dropping a motor in where the diesel was, you really don’t have a clue. And nothing in the Model 3 issues represents structural problems with the chassis, mostly fit and finish issues.
I think you missed the point entirely (again). It’s far more cheeky for Elon to think he can design and build an entire truck better than anybody else with years of real experience. Tesla is at a distinct disadvantage. You should also note that I give an estimate of a year for a real truck manufacturer to integrate an electric power train into an existing platform. I would have been off base if I had put the estimate at one month. And yes, I’ve worked on an EV pickup conversion and know what it takes.
https://techcrunch.com/2018…
“Our automation strategy is key to this and we are as committed to it as ever.”
Relentless…
Tesla’s cars are OK. They have lots of problems that need to be worked out and should have been worked out before they were shipping to customers. That’s not the issue. The company behind the cars and it’s finances are the issue. Also as Doug stated above, all of Musk’s companies are financially tied together so if one fails, it will severely impact the others. Solar City should have been written off. The debt that Tesla assumed when they absorbed them is a huge boat anchor and it generates less revenue every quarter that goes by. It would have been a hit to Elon, but not as big of a problem as it is now that it’s had a chance to fester.
I expect that Tesla is going to close up within the next 12 months or there will be a very big shake up of management that sees Elon leaving the company to be replaced by a team that can control costs and get product out the door in quantity and with sufficient quality. Tesla needs a full time CEO that’s focused on making that one company profitable and not doing eleventeen other things.
While Tesla paid off loans it received from the DOE, it has loans from SpaceX of money that SpaceX has borrowed from the US government. Tesla paying off it’s government loans early was a wizard PR move, but it only removed government money a step away. This can be a problem for SpaceX if Tesla goes under or defaults on payments. It might not be so much of a problem that SpaceX will fall, but they might have to raise funds quickly to meet their own obligations without those payments from Tesla.
I disagree. Tesla is one of the only car manufacturers who is trying desperately to build fully electric cars is mass quantities. The other manufacturers are largely content to put out limited quantities of electric vehicles simply to take advantage of tax breaks. In fact, Tesla is producing electric cars in a high enough quantity that it will lose the tax breaks on the cars it sells long before other manufacturers.
Tesla vehicles losing the Federal Tax credit in the US effectively adds $7.500 to the cost in comparison to the competition. For a $100,000+ S or X, that’s not a big deal. For the Model 3, it’s huge.
The Bolt is a great little earner for GM. They don’t make money on that car itself, but the way the game is set up, it gives GM the ability to sell high profit margin trucks and SUVs without having to buy carbon credits from a company such as Tesla. As it appears that Ford won’t be getting into the EV market in the US, Tesla will still have a customer to sell carbon credits to.
The Toyota Prius wasn’t a big mover for years. Now, you can’t toss a chuck of concrete from an overpass without hitting several in California.
There is even a thriving aftermarket for rebuilt Toyota hybrid battery packs. Why pay Toyota $4k for a new pack when you can get a rebuilt pack for $1k?
Gas is creeping up close to $3 a gallon where I live. If it gets back to $4 a gallon, people are going to be looking for fuel efficient vehicles again. Demand for these vehicles will soar.
In California, gas can be as much as $3.85/gallon. I know of one gas statio Hwy 395 where it’s probably much higher. Crude has been creeping up over the last couple of months every so slowly.
Thing with Musk’s companies, as a whole, is that they follow the business model of silicon valley tech companies, the model is prone to periods of struggle but if you get through them it results in very fast profit growth.
Software is easier to fix. It’s cheaper to develop. It’s cheaper to sell on an individual basis. It typically isn’t something individuals need loans to afford.
Aside from carpel tunnel and diminished eyesight, you don’t have the same physical risks that come to autoworkers working mandatory over time on a vehicle that still in development on an assembly line that hasn’t been properly laid out for them ergonomically or safety wise.
Then there’s the safety concerns of defective automobiles on the road. One report from a new Model 3 owner picking up his car, driving it home, and then putting it into reverse only to have it move forward.
Musk tried to disrupt auto manufacturing and it’s run into a stone wall because he took a lot of deposits, over promised on delivery, and apparently ignored a lot of people who warned him about what not to do on an assembly line.
The physical vehicles are pretty stable in design and the minor changes are actually in line with what other car manufacturers do when a small issue is found that can be corrected easily, production line changing is only until they figure out what works, the biggest “beta” part of their vehicles is Autopilot.
According to Munro and Associates, Tesla is doing very poorly on the core body-in-white which is one of the reasons they have problems with fit.
Which is an issue being addressed and mainly apparent in the earlier M3s
As for running into a wall not really bumps sure, but looking at production rates, they are actually mostly past the rough spots
Can you like to articles with real objective data on how Teslas are supposedly more defective than the average car? Consumer reports? Some other study on reliably and repair costs?
For your one model 3 owner with a reverse problem I have 4 anecdotes from people who say it’s the most perfect and delightful car they’ve ever owned.
https://www.consumerreports…
I personally take Consumer Reports reviews of automobiles with a huge grain of salt.
This article was about the Model S. After six years, one would expect the quality to have improved. The October 2017 article says that the improved quality showed *promise* for the Model 3. That’s not a guarantee.
Instead of learning from the previous models, Elon decided to build an “alien dreadnaught” assembly line for the Model 3. He put in too many robots and had too few people to program them. He hired too few workers. Didn’t take time to work out the bugs in the assembly line the way other automakers do.
So here are a few stories I found with a quick search on Google. Enjoy!
https://carbuzz.com/feature…
https://www.cheatsheet.com/…
https://www.consumeraffairs…
https://www.greencarreports…
https://www.vehiclehistory….
“Electric vehicles are inherently less complicated than gasoline- or hybrid-powered alternatives, and the Model 3 should be the least complicated Tesla yet,”
The drive trains are simpler, but Tesla has added so many widgets and gizmos that the cars on a whole are far more complicated.
The article states the “estimated” reliability of the Model 3 is good based on the Model S. That’s a pretty big stretch to span with a company that only has built 2 models of cars and none in mass quantities.
Keep in mind that if BFR is successful, then most of the projects at Mojave are as outdated as Old Space. Who would pay $250,000 to fly on VG if they are able to go to orbit in style in a BFR for $33,000? And why would anyone want Birdzillia or Virgin One when you could launch cargo in any orbit you want with the BFR for $40/lb? Mojave will disappear as will ULA and other primitive systems. Its the Clermont and Stephenson’s rocket all over again.
One of these days we are going to figure out who pays you for these comments.
BFR is a BFR and is going to need Big Forking Payloads to make it worthwhile to build and launch. The premise behind Orbital’s Pegasus, Stratolaunch’s TBA rocket (other than Pegasus) and the Virgin One is to use the smallest vehicle possible and launch it from the most advantageous point that gets a payload into the orbit desired. Commercial opportunities for the BFR for payloads that can’t fit on a F9H or other heavy lift vehicle will be far and few between. That doesn’t fit with the statement of $40/lb estimate you are making. If it isn’t being made and launched on a regular basis, keeping a trained staff around is going to be difficult. Even more so for SpaceX where they turn over the rank and file very frequently. The same argument against the Senate Launch System.
If Elon wants to go to Mars, he can liquidate all of his holdings and go, but he has yet to propose a Mars venture that has any ROI. That’s about the only trip the BFR might be useful for. Even then it might not be the best fit.
Search YouTube. I came across a video of a Model 3 where the display didn’t light up just in passing. Seeing as how everything is controlled through that touchscreen, having it not work is a big issue. Tesla has had lots of touch screen issues in the S and X as well.
Here’s an article originally published in Harvard Business Review that sums up a lot of concerns about Musk and Tesla. The author’s thesis is that the very things that make Musk good at disrupting industries are not the same skills needed for manufacturing to scale.They’ve resulted in Tesla squandering its competitive advantages.
Read the whole thing. It’s really good.
https://steveblank.com/2018…
Exactly. That whole section at the end beginning with Days of Futures Past for Tesla really hits the nail on the head. Here’s another key passage:
Yet, as Durant’s story typifies, one of the challenges for visionary
founders is that they often have a hard time staying focused on the
present when the company needs to transition into relentless execution
and scale. Just as Durant had multiple interests, Musk is not only
Tesla’s CEO and Product Architect, overseeing all product development,
engineering, and design. At SpaceX (his rocket company) he’s CEO and
lead designer overseeing the development and manufacturing of advanced
rockets and spacecraft. He’s also the founder at The Boring Company (the
tunneling company) and co-founder and chairman of OpenAI. And a founder
of Neuralink a brain-computer interface startup.
All of these companies are doing groundbreaking innovations but even
Musk only has 24 hours in a day and 7 days in a week. Others have noted
that diving in and out of your current passion makes you a dilettante,
not a CEO.
The earnings call today was cuckoo. Elon cut off two analysts, refusing the answer their questions, and then spent half an hour giving an interview to a fanboy. People are wondering if this is his Jeff Skilling moment.