What historical figure should Tesla CEO Elon Musk be compared with? Should it be circus promoter P.T. Barnum, a man whose name is synonymous with hucksterism and shell game dazzle? Or should it be Steve Jobs, tech genius and business visionary?
My colleague Jeremy Cato says it should be Barnum. I say Jobs. Here's why.
Until Tesla came along, electric cars were little more than glorified golf carts. Most were lacklustre conversions of gas-powered cars, with poor performance, wonky design and limited range.
Tesla changed the game. It released its first car (the Lotus-based Roadster) in 2008. Four years later, Tesla produced the Model S, a stunning machine that went on to win multiple car of the year honours – an unheard-of feat for an upstart company competing against car industry giants.
Creating a world-beating car on your second try is like taking up a new sport and winning the Olympics the next week. And it demonstrates the underlying value of Tesla as a company.
Like Jobs did at Apple, Musk and his company have built a better mousetrap using readily available parts. Apple didn't invent the graphical user interface or the digital music player, but it combined them in a magical new way, and transformed Apple into the world's most valuable brand.
Musk and Tesla have followed a similar path. The electric induction motor, the lithium-ion battery and digital automotive control systems already existed, but Tesla used them in a new and unexpected way – and created a car that left legacy auto makers in the dust.
Cato dismisses Tesla as a stock scam. In his view, the company is grossly overvalued, and he contends that any major manufacturer could destroy Tesla in short order by building a competing vehicle. Tesla, he scoffs, lacks the experience and deep institutional knowledge that define the Big Players. As Cato has said in the past, making a car is different than making an iPhone.
He's wrong.
Gone are the days of vertically integrated manufacturing, when Henry Ford set up his gigantic River Rouge factory near Detroit. At River Rouge, trains and ships delivered raw materials like steel, wood, and rubber to the factory gates, and finished cars rolled out the other end. River Rouge was filled with forges, saws, welding machine and smelting pots – this was a place that built a car from start to finish.
Today's manufacturers don't build their own parts. Instead, thousands of components and sub-assemblies flow in from suppliers around the globe, and are assembled into finished machines. The real value of a modern manufacturing operation is the engineering and design departments that underpin it, and the software that animates it. That's what Apple is based on. So is Airbus, which subcontracts the majority of the components in its planes.
Consumers are willing to pay for superior products and brilliant design. And Tesla is more like Apple than a traditional car company. To Cato, a Silicon Valley approach to the car business is a liability and, in an a recent post, he cited Reagan-era finance pundit David Stockman, who dismisses Tesla as "a crony capitalist con job."
Con job? Tesla has created a car with an EPA-rated range of more than 400 kilometres, and superlative ratings from the U.S.| National Highway Traffic Safety Administration, Consumer Reports and countless other impartial players. It has also built a fast-growing network of high-speed charging stations that demonstrate a genuine alternative to fossil fuels. Above all else, Tesla has created a powerful brand – a 2014 nationwide survey showed that the Model S was the Most-Loved Vehicle in America, and Morgan Stanley has called Tesla "the world's most important car company."
Like any great innovator, Tesla capitalizes on the efforts of those who came before. GM, for example, tried making a pure electric vehicle long before Tesla did. The GM car, known as the EV-1, was produced for only three years, from 1996 until 1999, and was leased to drivers who were used as marketing guinea pigs. GM killed the EV-1 because it thought its appeal was limited to environmental activists and tech geeks.
In those days, GM was still the car industry's thousand-pound gorilla. Its profits were based on large, gas-powered vehicles. When it dismissed the electric car as an unsellable science project, it spoke volumes to the industry.
Cato and others have decried the consumer incentives that governments give to Tesla buyer as subsidies for "yuppie toys." But wait a minute – those purchase incentives are available to the buyer of any electric vehicle, not just Tesla. But Tesla is the one that everyone talks about, because it's the king of the EV hill.
If there's anything we should have learned over the past decade and a half, it's the power of disruption. In 1998, the founders of Google were working out of a garage in Menlo Park, Calif., and Yellow Pages ruled the world of search. Today?
Tesla has used the Silicon Valley marketing model. Build a premium product and get it into the hands of wealthy and influential early adopters, who evangelize your product. Sales increase, and profits are used to develop products for a larger market. As volume rises, costs fall.
It all starts with the better mousetrap, which is harder to make than you'd think. But Tesla has. That's why Elon Musk is Steve Jobs, not P.T. Barnum. See you at the supercharger station.
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