Incumbents rarely disrupt themselves, leaving themselves vulnerable to blank-sheet-of-paper thinkers like Tesla’s Elon Musk who built the car he wanted to drive. Center director Jeffrey Cole explains.

By Jeffrey Cole

Tesla doesn’t need to change its corporate name. It is not necessary to obfuscate the identity of its signature product, protect its tone-deaf CEO from public and government scrutiny, or suppress the way its products affect the health and well-being of its users.

The more sunshine it lets in, the more impressive the Tesla story becomes. Fifteen years ago, Chris Paine released a little-seen but award-winning documentary, Who Killed the Electric Car. The premise of the film was that the wide acceptance of the electric car would have been the most important development in automobile manufacturing since Henry Ford introduced the Model T, which is when private transportation began to replace public transportation for many Americans.

The electric car meant lower costs for fuel and maintenance, more reliable vehicles, and zero emissions just as demonstrating concern about the environment and climate change became mission critical to all companies—regardless of whether that commitment was genuine.

Instead of lauding the movement to electric, Paine’s film pointed fingers at the manufacturers, oil companies, and local and national governments for conspiratorial efforts to make sure a popular electric car never reached the streets. It was a sad story, and one of the few conspiracy theories that rang true.

Remarkably, within six years of the film, there was a stylish, well-made, and attractive electric car available. Starting at $70,000 and rising to six figures, it was not for the masses. But it demonstrated what could be done. Nine-years later in 2021, that sedan, the Tesla S, is still a state-of-the art vehicle, although it is finally about to meet some serious competition.

Tesla’s identity, like those of all the trillion-dollar tech companies, is tied up with the image of its founder. For the next hundred years, business schools will debate whether this is good or bad for the company.

Microsoft, Apple, Google, Facebook…and now Tesla

No founder since Henry Ford himself (his name is the company) is as associated with what he created as Steve Jobs is with Apple (even though Steve Wozniak was also in the garage). Although Paul Allen and Steve Ballmer were in the Harvard dorm room when the company was born, Microsoft will forever be linked to Bill Gates. Amazon is the story of Jeff Bezos creating a transformational company that forever changed shopping and commerce. In the process Bezos also became the richest individual in the world, until last week when Elon Musk and Tesla reset that yardstick as well.

At Google, although somewhat less known, the story of Larry Page and Sergei Brin creating Google in another garage became part of the search engine giant’s mystique. Mark Zuckerberg, in another dorm room at Harvard, became the face of Facebook. Now that is not working out so well.

Elon Musk at Tesla is the most visible leader and early executive of a giant corporation (he is not the founder) since Steve Jobs.

A few days ago, in a conversation with Robyn Denholm, the Chair of Tesla, I asked about the advantages and disadvantages of having a CEO who is a household name, instantly recognizable to millions of people. Without any hesitation, she talked about the inspirational role Musk plays as Tesla’s leader—attracting the best engineers and managerial talent to the company, almost (my words) like an evangelist.

Why incumbents rarely win

The genius of Musk was in seeing the Tesla vehicles not as cars but as computers on wheels. He led the re-imagining of transportation. Not being tied to the automotive companies, and having earned his reputation and fortune at PayPal, which disrupted the traditional banks and credit card companies, Musk could take a blank sheet of paper approach to rethinking what a car could be.

It has been clear for a generation or more that incumbents rarely disrupt their industries. True radical change comes from a new player without baggage or ties to established ways of doing business.

Wal-Mart should have been the online commerce giant, not Amazon. The taxi industry should have disrupted itself instead of Uber and Lyft. The recording industry should have done the same, not Apple and Spotify. There never should have been a Netflix. Instead, the disruption should have come from the movie studios or Blockbuster. And, at the beginning of the pandemic, when millions needed to work and learn from home, the leadership should have come from Microsoft Teams and Cisco’s WebEx. Instead, an upstart, Zoom, became a verb that defined videoconferencing.

Paine’s film showed the path to an electric car (or anything clean and fuel efficient) would never come from the incumbent automotive companies. It required an entirely new player designing the industry from a blank sheet of paper.

This was Musk’s genius. At the same time, he was using that same genius in two other industries: solar energy and space exploration. It’s easy to think of him as the Thomas Edison of the 21st century (although Edison never designed anything unless he was sure there was a commercial market for it—Musk is not that practical!).

Musk not only disrupted how cars were made, he also transformed how he sold them. He never spent a penny on advertising. He also sold directly to customers, bypassing the traditional dealer networks used by other automakers that is part of their baggage.

Musk’s stratospheric success

The tech industry is full of stratospheric records, and Tesla is operating at record levels.

At the beginning of 2016, Tesla’s market cap was $25 billion. Within five years it became the world’s sixth largest company with a market cap of $1.12 trillion, higher than many countries. It is larger than all the other automotive companies combined, and many of those companies are over 100 years old, which may be part of their problem.

Near the end of 2016, Tesla’s stock price was $47 per share. Slightly less than five years later, at the time of writing this column, it is at $1,114. Most analysist think it will keep growing for the foreseeable future.

While the flagship S sedan showed that an electric car could be stylish (unlike the funny looking electrics and hybrids that came before), it was expensive. Musk’s strategy was for his wealthy customers to pay a premium to be the first to drive electric with the S. The profits from that would subsidize a less expensive people’s car, the Model 3 promised to begin at $35,000.

The genius of Musk was in seeing the Tesla vehicles not as cars but as computers on wheels. He led the re-imagining of transportation. Not being tied to the automotive companies, and having earned his reputation and fortune at PayPal, which disrupted the traditional banks and credit card companies, Musk could take a blank sheet of paper approach to rethinking what a car could be.

As the face of Tesla, Musk tends to over promise on delivery dates and when advanced features (auto-driving) will be available. He uses his customers, whose actions behind the wheel are all recorded, as his testers for new features and for quality control.

While he overpromises on timing, Musk has the smarts to under promise on quality: it’s always better than you expect.

Because it was developed after the S, the far less expensive Model 3 has better technology. The Model 3 has already sold over a million cars. In many countries, the Model 3 is the best-selling vehicle of any kind.

With a blank sheet of paper, no baggage, no ties to established manufacturers or oil companies, and with Musk’s uncanny ability to know what customers want by designing what he himself wants, Tesla has become the most important transportation company on the planet. Today, the path to electric vehicles is clear. All manufactures are offering, or will soon offer, EVs. Many have already announced eventual moves to make and sell only EVs, as have many countries.

Until Tesla, there had not been the successful introduction of a new automotive company in generations. GM tried and failed with Saturn, as did DeLorean and many others with significant backing. Tesla showed that the barriers to entry were not sealed—you just needed to think differently and not be tied to old ways.

In the process, Musk has become the wealthiest man on earth. With one extraordinary burst of growth last week (as Hertz ordered 100,000 Teslas to fill its depleted fleet) Musk soared ahead of Jeff Bezos’s wealth by close to $100 billion. Although the numbers and ranking change far faster than they ever did (Bill Gates was the richest man in the world for over 30 years), Musk’s wealth sits at close to $300 billion.

Money doesn’t seem to be what Musk is after. He recently sold all his mansions and lives in a trailer in Texas). While he enjoys his fame, that doesn’t appear to be his driving force. He is the only tech giant and company leader ever to host Saturday Night Live. Unlike Jeff Bezos he didn’t want to jump on his rockets—the new toys of the ultra-wealthy!

Musk — with all his quirks, outbursts (he had to promise to cut back on Tweeting), and weirdness — seems to be motivated by an inner drive to improve the world and to have a good time in the process.

The contrast to Zuckerberg at Facebook, particularly over the last few weeks, couldn’t be greater.
____________

 

Jeffrey Cole is the founder and director of The Center for the Digital Future at USC Annenberg.

 

 

See all columns from the center.

November 3, 2021