Streetwise Professor

July 6, 2018

Tesla Will Become a Real Car Company When Elon Becomes a Real Boy

Filed under: Economics — cpirrong @ 6:51 pm

Last week Tesla achieved Elon Musk’s stated milestone of building 5000 Model 3’s in a week.  After an initial burst of enthusiasm which saw the stock price jump upwards, the market was unimpressed: the stock turned down on the day, and is now down $41.3 since 29 June (that’s almost 12 percent).

The company only hit the target (well, in actual fact it missed by a few hours) by making  extreme–and I mean extreme–efforts.  Putting a new assembly line in a tent.  Cannibalizing spare parts.  Cutting production on higher margin Model S vehicles.  Jettisoning quality tests.  Dragooning people into overtime without warning contrary to previous company policy.

Thus, the market’s reaction is not surprising.  Tesla didn’t prove that it could meet a production target under normal conditions: it proved absolutely that it couldn’t.  That is, it proved exactly the opposite of what Musk had intended.

After the “achievement,” Elon Musk tweeted that Tesla had proved that it was finally a real car company.  No, it hadn’t: a normal car company would never been in the situation of behaving like some Soviet enterprise in the 1930s rushing and cutting corners to meet The Plan, lest everyone wind up in The Gulag.

Which is perhaps an especially apt analogy, given Elon’s behavior during this period, and the cult of personality that he has cultivated.

When Musk tweeted about “a real car company” the thought that came to mind was Pinocchio, who wanted to be a real boy.  Given Elon’s propensity to stretch the truth–well, lie, actually–in a way that would shame Pinocchio, that’s an apt analogy too.

There will no doubt be a serious hangover as a result of the rush to meet Musk’s self-imposed target.  Labor relations at Tesla were already poor–they are no doubt awful now.  The company also has had serious build quality and service issues.  I shudder to think of the build quality of the cars thrown together in that last minute frenzy.  Musk’s already crumbling credibility has taken a hit.

For the last, Elon has no one to blame but himself.  His repeated failures to achieve any of the lofty predictions he has made  (failures that would have brought the SEC down on pretty much anyone else) meant that failure to meet the 5000 cars or bust pledge would have been devastating.  So Elon had to pull out all the stops, even though by doing so he in fact revealed the emptiness of his boastful prediction, and could well have produced 5000 busted cars.

For Tesla to become a real car company, Elon will have to become a real boy–or at least a real CEO, rather than a cult leader impersonating a CEO.  Alas, I doubt that will happen, because of one difference between Elon and Pinocchio: Pinocchio realized he wasn’t real, but I don’t think Elon has the same self-awareness.

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6 Comments »

  1. Reminds me of Mao’s China replanting from multiple fields to one to report record yield on that particular field. A.k.a. working the Stakhanov way. The slight problem with communist production methods is it might be difficult for Musk to build a GULAG in America to sustain them.

    Comment by Ivan — July 7, 2018 @ 3:50 am

  2. “behaving like some Soviet enterprise in the 1930s rushing and cutting corners to meet The Plan”

    30s?

    Still in early 90s. Never buy anything manufactured in first week of month – none of the parts will have arrived. Never buy anything made in last week of month – screws will be hammered in to meet plan.

    We actually did buy two cars out there (Umm, Moskvitch copies of the Renault 4 van) and the first thing our experienced drivers did was disassemble them both, down to parts of gear boxes, to check that all was there. Then reassemble.

    Comment by Tim Worstall — July 7, 2018 @ 5:53 am

  3. Read up on Vern Raeburn and the Eclipse Jet. Same story of thinking they’re smarter than the collective wisdom of an entire industry. Eclipse just didn’t have the advantage of government subsidies for small personal jets.

    Comment by The Pilot — July 7, 2018 @ 12:47 pm

  4. @SWP…I read SeekingAlpha every day. Usually excellent, detailed analysis written about every traded company. After the analysis, there are comments. For instance, AAPL is subject of a few articles, there are from 8 to 23 comments, GOOG, same story. C, same story. GBTC is pretty controversial, one article has 138 comments, but most article have many fewer comments, in the single digits.
    The there is Tesla. Hundreds of comments on each of many articles. Lotta vitriol. If you navigate to those article, a warning: those articles are sinkholes of time.

    Comment by Richard Whitney — July 7, 2018 @ 1:27 pm

  5. And now his shameless self-aggrandizement involving a “submarine” and the trapped children in Thailand. That was so blatant. It disgusts me when people use disasters to promote themselves instead.

    Comment by Daniel Rust — July 10, 2018 @ 4:18 pm

  6. @Daniel–I agree. He MacGyvers something over the weekend and tests it in a swimming pool and grabs attention from people who were actually working on a practical solution. I am sure he was cynical, too–he had to know there was zero chance his magical submarine would even be considered, let alone used. But that didn’t stop him.

    Perhaps he overreached, however. He’s received far more blowback on this than he has for his other crack-brained schemes. He reacted to the criticism with typically bad grace. He is not used to be questioned or criticized, and does not handle it well. He may also be failing to recognize that he can no longer expect virtually unanimous praise. If so, his magic could evaporate quickly.

    Comment by cpirrong — July 10, 2018 @ 9:06 pm

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