Build sports car
Use that money to build an affordable car
While doing above, also provide zero emission electric power generation options
This was the short version of the master plan that Elon Musk posted on Tesla’s website on August 2, 2006.
The intention of the master plan was to illustrate how seemingly separate and independent actions/objectives were all necessary for initiating the development of a “sustainable energy economy”.
Why is this important in 2017?
Well, I was in Kazakhstan in June to speak at the Astana Economic Forum. “New Energy — New Economy” was the main theme of the event.
During the Forum, speakers from all over the world discussed topics in the areas of sustainable economic growth, international trade and infrastructureand innovations and “green economy”.
The EXPO 2017, which is also taking place in Astana, further spurs debates on “Future Energy”. Increased public concern regarding the environment, the depletion of fossil fuels and the impact of global climate change has compelled governments, NGOs and companies into taking action.
The debate mainly focuses on how new and renewable sources of energy (e.g., hydro, wind, solar) are currently replacing fossil fuels and how this process must be accelerated.
This raises a relevant, but often neglected question:
How should we organize and finance “new energy” in the new economy?
This question is difficult to answer. It is clear that the financing of new energy technologies and projects is extremely challenging in a world that so far has been dominated by old energy technologies, policies and companies.
And here is where Tesla (and Elon Musk) comes in.
Why Tesla (and Elon Musk)?
This is a valid question. Apparently, investors, strategists and analysts don’t agree on Tesla. Some view it as a tremendous investment opportunity. They refer to the return on investment you would have made if you had invested in Tesla at its initial public offering on June 29, 2010. Assuming you still had the shares on June 29, 2017, you would have had an RoI of 2,022%.
Others find the increase in Tesla’s stock price alarming. They warn of a potential Tesla Bubble looming, as there appears to be a disconnect between its huge “market capitalization” and “market realities”. For instance, Tesladelivered only 76,000 cars in 2016, had a relatively low revenue (compared to other car companies) of US$7 billion and, perhaps most worrisome, had “again” a significant net loss (of US$ 0.8 billion in 2016).
The disconnect has led to two reactions. First, investors express their concerns and try to prevent the bursting of the bubble by urging Tesla to change its governance structures and practices. In particular, they insisted that two new independent directors were added to Tesla’s board of directors.
Second, investors started to bet against Tesla’s stock. It is currently one of the most heavily shorted on Wall Street.
Recently, this strategy started to pay off due to a wave of negativity surrounding Tesla. For instance, the stock slumped when delivery numbers missed expectations (due to the inability to produce enough 100 kWh battery packs) and the Tesla Model S was only rated “acceptable” in a vehicle safety test.
The fear of increasing and fiercer competition (after Volvo announced that it will focus on electric vehicles and stop developing diesel engines in May 2017) added to investor pessimism.
This is surprising. Elon Musk’s company has a competitive brand as electric vehicles replace gas-powered ones over the next decade or so.
Even Volvo’s CEO Hakan Samuelsson acknowledges Tesla’s achievement in creating demand for all-electric vehicles (despite many being against it: most obviously dealers — less maintenance — and car manufacturers that made significant investments in improving diesel and other combustion engines):
“We have to recognize that Tesla has managed to offer such a car for which people are lining up.”
Yet, Tesla’s biggest innovation isn’t the production of electric vehicles, but its success in building and cultivating an “open and inclusive ecosystem” around consumers, investors, competitors, suppliers, innovators and other stakeholders.
In making this claim, I don’t want to argue that Tesla deserves a market cap of more than eight times its revenue. But its open and inclusive ecosystem can explain why investors that have held the stock short since the beginning of 2017 have lost more than US$ 3 billion after six months (according to financial analytics company S3 Partners).
The key takeaway from this? Companies that operate in the sustainable energy economy cannot be understood by using Wall Street’s traditional investment models, strategies and tactics.
So, What Can We Learn From Tesla (and Elon Musk)?
Elon Musk was right when he responded to the concerns of pessimistic investors on Twitter with the following message:
The tweet received approximately 1500 likes and 382 retweets. The 133 responses clearly showed the anti-corporate sentiment and varied from the disadvantages of appointing “independent”, but “uncreative” board members to warnings against “short-term” investors’ interest.
Investors should realize that Tesla isn’t a traditional, closed and hierarchical car manufacturing company. This became again clear on July 18, 2017 when it announced in a company blog post that they added two independent directors to its board: Linda Johnson Rice and James Rupert Murdoch. These directors have no experience in the car manufacturing industry.
As mentioned, Tesla is an open and inclusive ecosystem. Tesla doesn’t follow the “generally accepted corporate rules of doing business”. And this is probably the most important and revolutionary change that Teslaintroduced in the new economy.
What does this mean?
A Technology Sharing Platform
“We believe that Tesla, other companies making electric cars, and the world would all benefit from a common, rapidly-evolving technology platform”
This was written by Elon Musk in a blog post on June 12, 2014. What it basically meant was that Tesla made its patents available to its competitors. Elon Musk believed that sharing its technology would strengthen rather than diminish Tesla’s competitive position.
This idea is not as far-fetched as it first sounds. Tesla wanted to ensure that everybody will drive an electric car in the near future. This will only increase the demand for electricity. And, this is what creates a gigantic opportunity, according to the American mutual fund manager and investor, Ron Baron.
Think about it. The electrical grid isn’t growing. There aren’t many new power plants being built these days. To solve the ever-increasing demand for electrical power, Tesla can use its experience and resources in (solar) energy generation and storage to reinvent the electrical grid. Referring to Tesla’smega-battery factory, Ron Baron predicts that Tesla’s batteries become a network that allows utility companies to deal with the high demand for electricity.
This sharing platform idea is the key thought in Tesla’s business model. The ultimate objective is that the owners of the self-driving and autonomous cars will share their vehicles with Tesla when not using them, enabling the cars to ferry other passengers.
Executives are Entrepreneurs
To meet the challenges associated with inventing and assembling the products and services of the future, Tesla allows (and encourages) its executives to retain their entrepreneurial spirit.
Most of the executives are involved in other companies or have several side projects. For instance, JB Straubel, Tesla co-founder and current CTO, and Andrew Stevenson, Head of Special Projects are behind Redwood Materials, a material recycling startup.
Elon Musk is, besides CEO and Chairman of Tesla, also a Founder, CEO, CTO, Chairman or investor involved in SpaceX, OpenAI, the Boring Companyand other ventures.
The key thought here is that Tesla isn’t characterized by a “stable” organization in which activities are coordinated and controlled by managers who derive their authority from their place within a hierarchical order. Nor is the focus on short-term financial returns.
Rather, Tesla is organized as a constantly evolving autonomous ecosystem that has multiple interacting stakeholders with distinct identities, knowledge and expertise — including executives, other employees and startups. Everyone in this ecosystem is expected to be both more open, more inclusive and more entrepreneurial.
Crucial to this new openness and inclusiveness is the form and content of corporate communication. The heavily manufactured and mediated communication techniques and strategies associated with traditional “corporates” are replaced by a radically different approach. In fact, this new approach to communication is absolutely crucial in building a sustainable ecosystem.
“New Economy” Platforms
To involve its consumers and other stakeholders, Tesla doesn’t make use of heavily “produced” or fabricated marketing and investor relations statements. For instance, it only spent US$ 6 on advertisements per vehicle sold, which is by far the lowest in the industry.
According to Scot Galloway, Professor of Marketing at NYU/Stern School of Business, Tesla figured out that the medium PR and “new economy” platforms can create a new proximity to stakeholders.
Think of the announcement of the Tesla Model 3, the Powerwall 2 and the Solar Roof on YouTube. Besides the large number of views generated, these announcements are surrounded with suspense, resulting in an unprecedented impact and “buzz” around new products.
The effect? People are queuing outside the Tesla stores to order the new model 3 without having seen or driven it.
What is even more remarkable is Elon Musk’s handling of Twitter. He has more than 10.3 million followers.
Leveraging the Power of Twitter
Elon Musk goes way beyond what most “social media active” CEOs (and there aren’t that many) do on Twitter.
Certainly, his tweets contain “company information and links”, “personal opinions”, announcements of “current and new products”, “references to customers (and their stories and experiences)”, “management initiatives”, “information about strategy and performance” and “external validation, such as awards and outstanding reviews”.
But he does so much more than this.
Here are just some of the techniques that Musk uses:
(1) He enters into an unmediated dialogue with everyone interested in him and his ideas and products. Musk speaks directly with his audience. It is non-hierarchical communication and his words are not mediated by lawyers, PR advisors or other marketing “experts”.
(2) He responds authentically and in a spontaneous, human style that is, at times, emotional and willing to reveal weakness and insecurity, as well as appreciation. What we see is what we get. A personal genuineness is prioritized over projecting a choreographed — and oftentimes artificial — corporate image.
(3) He is willing to use social media as a platform to make promises and other commitments. For example, fixing South Australia’s power crisis.
(4) He uses social media to project a vision of both Tesla’s future, but also a lifestyle vision for the future. In this way, social media is absolutely central to the style of leadership that Musk employs.
Skeptics might (and often do) suggest that this is all simply an act and that using social media is a way to avoid the accountability of more traditional avenues of corporate communication. But this view is wrong.
Crucially — and this is (5) — Musk calls upon the “wisdom of the crowd” to have his tweets checked and validated.
The social media “crowd” constantly and relentlessly checking for contradictions and inconsistencies. And if such problems are uncovered, they will call him out on it. In this respect, the accountability of such an approach far exceeds that of traditional corporate communication, which generally occurs within a closed community of experts, many of whom have a vested interest in not checking or revealing inconsistencies or mistakes.
So, how should we organize and finance “new energy” in the new economy?
To attract interest and accelerate the development of a sustainable energy economy, it is necessary to build and cultivate an open ecosystem around “new energy” projects and innovations. Sharing, entrepreneurship and a human and open style of communication are absolutely crucial components of this ecosystem.
As with Tesla, it will create a broader community around “new energy” that integrates and engages a diverse range of actors.
Musk understands that traditional business models and strategies simply won’t cut it in the new economy. He understands that the only way to succeed in building a sustainable energy economy is to embrace this new approach to leadership.