drive me to the moon
It’s obvious that the world’s richest man, Elon Musk, not only loves to disrupt but loves to tell us all about it. Consequently, his recent $3bn investment in Twitter on the grounds of securing ‘free-speech’ shouldn’t have come as any great surprise. By the same token, perhaps we should have anticipated his subsequent slaughtering of Twitter, on Twitter: that they should remove all their ads and completely redefine its business model; that they should change their name by dropping the ‘w’; and that, as the company is “dying”, should convert its San Francisco HQ into a homeless shelter and refuge. Undeniably unpredictable, the question that this raises in my mind is how exactly has he managed, reputedly single-handedly, to transform the automobile industry and, in the process, create the most valuable car-maker in the world, Tesla?
As it transpires, Elon Musk wasn’t the founder. Having sold an early e-book venture in the late 90s, business partners Martin Eberhard and Marc Tarpenning embarked on developing a high performance electric car idea named appropriately after the inventor of alternating current (AC), Nikola Tesla. In 2003, surprisingly the year after SpaceX was founded, this became Tesla Motors, a vehicle searching for excessive amounts of venture capital. Worryingly most investors gave it a wide berth until Mr Musk bucked the trend and chipped-in $6.3m to become Chairman. An introverted, geeky, bookish South African young man, Elon Musk had earlier founded two digital businesses, Zip2 and X.com, which ultimately became PayPal and eventually netted him $165m.
Unlike previous electric vehicles (EVs), Tesla’s ground-breaking innovation was to use lithium-ion batteries of the sort found in everyone’s laptop. These battery packs would give its first model, the Roadster, an unprecedented, enviable range and power: 0-60mph in less than four seconds and 250 miles on a single charge. Unveiled to great fanfare in 2006, the first one hundred cars were ‘sold’ to the great & good of Californian society including Governor Arnold Schwarzenegger and George Clooney. Sadly, production couldn’t match the hype and two years later only thirty cars had actually been built and delivered, and the company was teetering on the verge of bankruptcy. Google was circling like a hungry vulture. Sacking a quarter of its staff temporarily eased the cash flow situation but it wasn’t until the US government allocated a $465m clean energy loan and Daimler AG acquired a 10% stake, that the company became both more stable and efficient in its production.
With money sloshing around its coffers, Tesla now became even more ambitious. Producing a hundred-grand sports car was only the first step. The next was to launch the Model S, a prestigious luxury vehicle competing with Beemers and Mercs, and the third strand, a relatively bog-standard ‘people’s car’, the Model 3, priced to the 2017 tune of £35,000. The imminent Cybertruck and new F1-fast Roadster are the next pieces of the puzzle. Moving into a scale of production it had not previously experienced necessitated the purchase of a vast former General Motors/Toyota plant but it was the development of its own supply chain that was to prove radical.
Tesla has developed its own supply chain: it has custom-built its own electric engines, battery packs, its own self-driving technology and even its own glass windscreens. It does not advertise or use an existing dealer network. In 2016, it opened a ‘gigafactory’ making next-generation battery packs and the company now not only has a car-charging US network but a solar power arm, SolarCity, which ultimately will feed the grid. All of this has enabled Tesla to successfully increase production from 120,000 cars in 2017 to 500,000 in 2020 and from making a $1bn loss in 2018 to recording a $330m profit in the third quarter of the year alone.
It’s impossible to predict what the future holds for Tesla but, with huge factories in the US and China as well as one in the pipeline in Germany, it looks set to dominate the EV space for the foreseeable. Mind, having said that, all major car companies are now rapidly scaling up their relevant operations and associated tech offerings, and Toyota, with eight million units worldwide, remain well ahead in terms of overall scale of production. Notwithstanding its $500bn valuation, Tesla undoubtedly faces stiff competition in the years ahead and the mercurial Musk will remain a controversial and somewhat divisive figure.
