Tesla: The Way Forward In 5 Steps

Tesla’s recent drama reminds us of one thing: technological disruption is a theoretical paradigm, not a management playbook. Yes, the company’s products are disruptive to the established light vehicle industry in all the best ways: fun, fast, attractive and efficient (if certainly not cheap). At the same time, the management of the company that produces them is erratic, thin-skinned, sloppy with important facts, and has trouble delivering on important promises.

With the decision to remain public, announced late Friday, the Tesla saga enters the darkest part of the classic “Hero’s Journey” story telling template.The earlier phases, where the protagonist starts on his/her path and accumulates helpers and knowledge, are over. Now comes the final conflict, where the hero (the company, not Elon Musk), must overcome one final challenge in order to succeed.

In order to accomplish that, Tesla needs to do 5 things:

1) Reform the board. Too many of the directors have close ties to Musk. Only one has automotive experience, and it relates to an aftermarket part company rather than manufacturing. Investor confidence would improve with more truly independent directors and at least one genuine auto industry executive.

2) Add real operating management. There is no magic in running an automotive plant at volume; scores of US plants (and many more around the world) build +240,000 vehicles a year at very low defect rates. Hire a Ford/Toyota/Honda plant manager and their team and give them the task of fixing the Fremont facility.

3) Shift operational control away from Elon Musk, possibly with an outside car company investment. Tesla has made every rookie mistake in its efforts to scale production. It thought robotics were the answer (Cadillac made the same mistake at their Hamtramck facility in the 1980s). Then it thought enough end-of-production line rework could solve things (Mercedes tried that in the 1980s, but discovered the Toyota Production Process worked much better). We doubt the “power through” model now in place will work much better; it goes against everything we’ve learned touring assembly plants throughout our career.

One gesture that would go a long way to showing Tesla was serious about fixing its problems: Elon Musk could sell a piece of his ownership to an established car company, who would also get a board seat. The symbolism would be clear for all to see.

4) Mend fences with sources of capital. Regardless of whether or not Musk really had “funding secured” for his go-private transaction, the company’s waffling looks horrible to the outside world. Capital goes where it feels it will be well treated. Even if Tesla can ramp up production, become cash flow positive, and fund its 2019 convertible bond maturity, there is still the next recession to consider. Unless that arrives after 2025, Tesla will not have enough of a cash buffer to see it through to the other side. It will need capital, and the best time to line that up is before you need it.

5) Improve employee morale. According to employer-rating website Glassdoor, only 58% of Tesla employees would currently recommend the company to a friend as a potential employer. That compares to Facebook at 91% and Google at 89%. Even Ford is higher at 77% and GM is at 72%. And Amazon, whose Glassdoor reviews include warehouse workers (an epically tough job), has a friend recommendation score of 73%. Tesla needs to fix employee morale, and quickly.

Bottom line: This isn’t about whether Tesla’s stock rises or falls, but something more important. The goal of this exercise is show the connection between “disruption” with “execution”. For that, there is no better case study than Tesla. It reminds us that great ideas and fantastic products still need a team of process-driven individuals to deliver them. Without that factor, the disruption either dies or shifts to more competent hands.