Author: Rob Tracinski
Elon Musk just unveiled part two of his “master plan” for Tesla, but somehow instead of seeming ambitious and visionary, it seems a bit delusional. The most immediate and practical parts of the new plan consist of doing what others are also doing, like working on electric buses. But Musk also doubles down on his existing approach to self-driving technology, rather than retrenching and trying to fix it.
It is Musk’s standard approach to always play the part of the futuristic visionary, but it’s worth taking a look at how the problems with Autopilot, including the recent death of Tesla driver who was relying on it, could prevent Musk from moving on to the next steps of his master plan.
First, we have to understand Tesla’s overall position. It is a small automobile startup that has rocketed to an enormous market capitalization. Its stock price indicates that it’s worth about $33 billion, half as much as General Motors—at the moment a little more than half—despite the fact that it made about 50,000 cars last year, while GM makes about 10 million. Yet Elon Musk has been flogging even higher valuations, projecting that in ten years, Tesla could be worth as much as Apple, about ten times its current value and considerably larger than the other big automakers.
This hype is actually a necessary part of Tesla’s business model, because it’s what allows the company to raiseendless rounds of new capital to make up for the fact that they it is constantly losing money.
So it seems relevant to ask what Tesla could possibly be doing that justifies these enormous expectations for its present and future value?
Well, it’s not that Tesla makes a really good car, because by itself, that would make them just a niche, boutique semi-luxury car maker—equivalent to just one division of one of the big automakers, like GM’s Cadillac, which currently sells about five time as many cars as Tesla.
It’s not that Tesla is making an electric car, because many other automakers do that, too. The difference is that the others dabble in electric cars as a sideline to a much larger operation, knowing that if or when electric cars finally catch on with the public, they have the expertise to scale up production to much larger numbers.
And that’s the big advantage traditional automakers have over Tesla. They know how to make and deliver cars. They know how to build giant new factories and start producing millions of cars in a new model line. Tesla, by contrast, has disdained gaining that traditional expertise and is having big problems both in scaling up its automobile production, and in achieving the kind of quality control necessary to keep warranty and maintenance costs reasonable and to ensure that its cars have adequate resale value.
Elon Musk also wants to merge his auto company with his solar power company and battery storage units. But that doesn’t really give his auto division an advantage. Electricity is electricity, and you can plug any electric vehicle into your solar panels.
So what does that leave Tesla with?
Last year, the argument circulating in favor of Tesla was that its real competitive advantage was its lead in self-driving technology. Tesla has taken a different, more aggressive, more daring approach compared to other automakers. It based its system on standard camera technology rather than much more expensive laser-based lidar systems used by companies like Google. And it rolled out self-driving technology earlier and on a much larger scale. Instead of spending years testing the technology in a small fleet of experimental vehicles, Tesla provided it to their entire customer base, offering wireless automatic updates as they improved the software. In effect, they were doing a live beta test on America’s roadways, and the theory was that this would give them the advantage of Big Data. Being able to assess the results of autopilot working in tens of thousands of cars already on the road would allow them to improve their system faster than anyone else, beating everyone in the race to sell the first fully autonomous vehicle.
We can now see how that’s working out, and it’s not looking like such a smart plan. And the danger was known and predicted. When you take away some or most of the functions of driving but not all of them, you can’t just tell people to be ready to take over in an instant. The human brain doesn’t work that way; it requires new stimulation and when not constantly needed for a task, it will naturally tune itself out.
Which is precisely why nobody else took the same approach as Tesla. Every other automaker is used to dealing with a critical press and skeptical (if not outright hostile) regulators. They have learned to move cautiously and make safety a higher priority. In scorning that caution, it looks like Tesla has moved forward too fast.
That’s why the Autopilot problem is a really hard blow to Tesla. It calls into question the one area where they could expect to have a really strong competitive advantage. If it forces them to slow down on self-driving technology, or even start over from the drawing board—there have been sightings of a Tesla test car fitted with lidar—then they lose that advantage.
Meanwhile, Tesla also risks losing a lot of public sympathy. That’s important, because spectacularly good press—even a deferential press—is the biggest competitive advantage Tesla actually has. That, plus being able to cash in ongenerous government subsidies. But if the good press disappears, the subsidies may follow.
Lose that advantage, and eventually you have a small, money-losing niche automaker that can no longer keep itself alive by constantly pulling giant wads of cash out of the capital markets.
Elon Musk’s dilemma is that the very thing that makes Tesla seem so promising—the conceit of bringing a Silicon Valley start-up mentality to the staid world of heavy industry—is what just might destroy it. Musk employs a lot of standard Silicon Valley tropes. There are the insanely ambitious, visionary statements about how you’re going to transform the entire world, without a lot of detail on how you’re actually get from here to there. There are the exaggerated claims meant to impress investors and competitors and intimidate them into staying out of your market niche. There is the fast release of an early, buggy product in order to mark out the field as your own and show everyone you’re moving ahead faster. And there’s the combative, impatient dismissal of criticism and skepticism.
Hey, it worked for Steve Jobs, right? Then again, nobody ever died because their iPod crashed.
We all love a visionary billionaire who is rushing headlong into the future. (Indeed, that sort of thing is the basic remit of this website.) But sometimes the visionaries crash along the way, and the future ends up coming from somewhere that seems more sedate and cautious—which may get us there slower, but will do it more surely.
Which is to say that the big automakers’ master plans may end up being more important than Tesla’s for the future of autonomous vehicles.
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