Published on August 2nd, 2018 | by Zachary Shahan0
August 2nd, 2018 by Zachary Shahan
There’s a lot of big news to share and discuss from Tesla’s second quarter shareholder letter and conference call. We’ll be covering what we consider to be the most important data points and stories in the coming hours and days — including answers to the questions I was able to shuttle CEO Elon Musk’s way. (Listen to the call if you haven’t yet.)
However, to kick off the coverage, I wanted to address a somewhat vague concept that has been a top issue of contention for a decade or so. It seems to be the breaking line on whether thoughtful, honest people think Tesla is doing well or doing poorly.
The topic is execution. My personal opinion is that thoughtful, honest people who think Tesla is executing poorly are simply missing some context, or perhaps just missing some optimism. To try to help bring more perspective to this topic and perhaps bump them over into the optimist category, I’m using some takeaways from yesterday’s Tesla shareholder letter and conference call as well as pickings from much deeper in the past.
Going way back, this has been discussed many times, but it bears repeating that creating a car company and breaking into the auto industry was an idea with an insanely low chance of success. The fact that Elon Musk, JB Straubel, and the rest of the Tesla team actually got the company off the ground is an example of amazing execution by itself.
The first car, the first Tesla Roadster, was not exactly done in the best way — as Elon explained a year or two ago at a shareholder meeting. They didn’t really know what they were getting into. But they got the car out nonetheless and many owners loved it — and still love it. With little relevant experience, Tesla figured out how to make an electric sports car and took the auto industry by storm — a small storm, but a storm. That was execution.
The next step was the Model S. Tesla had to go from those early, small-scale roots to fully designing a mass-production electric car. That was a monumental step forward. As Elon noted, they were just trying to make a car that drove. The Model S had a few issues early on, but it also got raving reviews from around the world and broke multiple records. That’s execution.
Also worth remembering: Initial Model S demand estimates from Tesla were 20,000 cars a year. Demand is now at about 50,000 cars a year. The estimate for the next vehicle (the Model X) was 10,000–15,000 units per year. Demand for the X is also around 50,000 units per year. That’s a testament to execution.
The Model X, by the way, is a vehicle many experts claimed was impossible to build. Even if Tesla could build it, other experts claimed it could never be profitable. Hmm. Well, Tesla executed.
The next big effort was the Model 3, with some help from a “Gigafactory.” Again, the usual suspects* and some new ones came out with full confidence that the Model 3 couldn’t be produced, that it wouldn’t be produced, that Tesla certainly couldn’t mass produce it, and most of all, that Tesla couldn’t make money on the car. As production got rolling, Elon Musk warned of potential “production hell,” but it seems he had no idea how hellish this hell would end up being in the coming year.
Finally, at long last, the critics could cheer that they were right, that Tesla couldn’t achieve its goals. (How that is something someone can cheer is a little beyond me, but then again, this is not a psychology blog.) Tesla struggled to get to a few hundred cars a month, then to a few thousand cars a month, and then to a few thousand cars a week. You know the story. This gave a lot of critics and a growing TSLA short interest the fuel (pun intended) that it needed to try to pull Tesla down, to malign Elon, to claim that, “See, all along I knew Tesla couldn’t execute. Elon can’t execute and should step down. At the least, Tesla change the management structure so that he can be fired.” Yes, that’s right, all that execution from years past was a fluke and we finally saw Elon for the useless, lying, self-centered fraud that he is. … Whoops, Elon & Tesla pushed through — Tesla executed.
Perhaps Elon got a few bruises along the way, but he showed yet again why he is invaluable as the head of Tesla. Who else would have pulled off yet another “impossible” feat.
You can claim that Tesla would have had smoother sailing at any point along the way if someone else was guiding the ship. That’s much easier to claim from the safety of your couch than from the head offices and factories of Tesla. Even if certain people would have been superb at specific points in time, who else would have executed, executed, executed, and executed as described above?
One of Elon’s top talents, in my opinion, has been his ability to vet, hire, and empower top-notch employees. He has had amazing people leading team after team after team, and when some of those amazing people leave, he pulls in more amazing people and seemingly guides their expertise via his own Renaissance man approach to the business. This is a skill that I think largely goes underacknowleged but is perhaps one of his most important keys to success. He learns enough about core aspects of the company to be able to hire good people, oversee what they do, and step in where necessary. He pushes and empowers his executives enough to get shit done. In the end, that means that Tesla executes.
Another aspect of his leadership that I think goes underappreciated is his understanding and leadership on the finances. Remember that he received a Bachelor of Science degree in economics from the University of Pennsylvania’s Wharton School of Business. For sure, Deepak Ahuja is a wizard. Nonetheless, it seems that Elon understands the financial matters better than the Wall Street analysts that critique him, and it seems that he is the one at the end of the quarter who makes the big decisions regarding how Tesla will handle its finances. To understand both the finances and the technical side of the business so well is impressive, but it is presumably also why Tesla has executed superbly year after year — Elon knows how to balance the two in order to stay afloat and maximize product innovation and output.
On the conference call yesterday, Elon announced that Tesla was about to show a profit and that it would do so quarter after quarter. The company had $2.2 billion cash on hand at the end of Q2 and that will rise in Q3 and Q4. The company will largely fund future growth with product revenue.
Who expected Tesla to succeed with the Roadster, the Model S, the Model X, the Model 3, and various energy products in between? Who somehow witnessed all of that happen yet decided that Tesla couldn’t execute and Elon couldn’t deliver? Who genuinely thought despite year after year of wicked, insane success that Elon wasn’t the dude to run the show? Sure, he didn’t do so perfectly. Sure, Elon sometimes didn’t take good advice — and he has, surprisingly, had the humility to admit as much on several occasions. But if you somehow couldn’t see the execution Tesla has been carrying out over the past decade, I hope Tesla’s newfound financial security and profitability will help you add a little optimism to your life.
Humility in the face of Tesla’s proven ability to execute could also be helpful. That should aid you in avoiding future claims that Elon Musk can’t guide Tesla to another success, and it also just makes life more pleasant.