On the making of the Model S, Tesla Motors’s flagship four-door sedan, the electric carmaker’s CEO and product architect Elon Reeve Musk, is reported to have said: “When we first talked about the touch-screen, the guys came back and said, ‘There’s nothing like that in the automotive supply chain. I said, ‘I know. That’s because it’s never been put in a f***ing car before’.”
For the 44-year old South African-born Canadian-American entrepreneur, engineer, inventor and investor,out-of-the-box thinking has played a big part in the irrational exuberance that seems to justify fledgling electric carmaker Tesla’s outrageous stock market valuation — currently pegged at a whopping $32 billion. Almost, as if Tesla had invented tele-portation.
Not that Musk is really way off. He’s CEO and CTO of SpaceX, and has also envisioned a conceptual high-speed transportation system known as the Hyperloop and proposed a VTOL supersonic jet aircraft with electric fan propulsion. But Tesla Motors, for now, is his flagship.
Co-founded in 2003 by Musk, Martin Eberhard, Marc Tarpenning, JB Straubel, and Ian Wright, Tesla Motors is named after electrical engineer and physicist Nikola Tesla, with the company’s first launch — the Tesla Roadster — using an AC motor descended directly from Tesla’s original 1882 design.
In the wake of the 2008 financial crisis, Musk moved into the driver’s seat and the Roadster, an electric sportscar, got under way. Tesla began delivery of its Model S sedan on June 22, 2012 and unveiled its third product, the Model X, aimed at the SUV market, on February 9, 2012. A new Model X is scheduled to begin production in early 2015.
In addition to its own cars, Tesla sells electric powertrain systems to Daimler for the Smart EV, Mercedes B-Class Electric Drive and Mercedes A Class and to Toyota for the RAV4 EV.
But, is there a credible explanation for Tesla’s outrageous valuations? The credit for taking the lead on electric cars goes to Tesla’s competitors, considering that GM rolled out its EV1 electric car in 1996 and Toyota and Nissan had a head start on hybrids.
First and foremost, the Model S is a beautiful machine, something that is a bit of a rarity in the electric car segment. More importantly, Tesla’s primary strength comes from the fact that it is able to demonstrate how the mechanical and electronic worlds are sharply converging.
For instance, Tesla plans to update many of its Model S sedans with functions that include automatic braking when the vehicle senses a pending collision, a partial autopilot system, and even a robotic parking module that will glide a car into its garage while its owner watches from a distance.
Now, while Mercedes-Benz, Audi, Acura (Honda’s high-end brand) and Infiniti (Nissan’s luxury brand) already offer cars with nearly all of these options (with the exception of robotic parking), the significant difference is that those features were built into these cars before they were purchased. What’s unique about Tesla is its ability to remotely add substantial functions to cars that it has already sold.
The autopilot safety features are available to the Model S with the hardware that started being built into cars last October. Tesla, in more ways than one, has been challenging the established principles under which the global vehicle market has been operating since the invention of the automobile more than a century ago. Hitherto, consumers were pretty much stuck with the car they purchased and, but for changes in tyres, audio systems, tuning and suspension that could improve the performance of the vehicle, radical changes such as adding safety features or getting more power out of the engine meant either expensive swapping of parts or trading up to a newer model.
Musk, and Tesla, are turning these conventions on their heads — forcing the market to look at a vehicle as an electronic device rather than a machine. “We really designed the Model S to be a very sophisticated computer on wheels,” Musk said in March 19 teleconference, while announcing software updates for the Model S. “Tesla is a software company as much as it is a hardware company. A huge part of what Tesla is, is a Silicon Valley software company. We view this the same as updating your phone or your laptop.”
With Tesla’s intervention, cars are slated to become platforms for apps that can change or improve their functions rather than having their performance frozen in place at the time of purchase. A convergence, some say, of the car and the mobile phone. The Model S electric sports sedans, including older cars, will receive the free software updates through a wireless link embedded in the cars. “Most cars don’t improve over time, but the Models S gets faster and better as time passes,” he added emphatically.
New safety functions include the car company taking advantage of a suite of sensors already installed on the vehicles to create software that will trigger the brakes if the computers believe the car is about to have a collision. It will also offer a system that alerts drivers to whether there is a vehicle in a blind spot when they want to change lanes. Tesla is testing an autopilot function that allows a driver to travel almost all the way from San Francisco to Seattle without the driver touching the wheel.
His entrepreneurial ‘Midas touch’ notwithstanding, Musk’s academic record was not exactly stellar. At age 19, he was accepted into Queen’s University in Kingston, Ontario for undergraduate study, and in 1992, after spending two years at Queen’s University, Musk transferred to the University of Pennsylvania where he eventually received a Bachelor of Science degree in Physics and a Bachelor of Science degree in Economics from Penn’s Wharton School. In 1995, age 24, Musk moved to California to begin a PhD in Applied physics at Stanford, but left the programme after a few days to pursue his entrepreneurial aspirations.
He started, in 1995, with Zip2, a web software company with his brother, Kimbal (who is now with him at Tesla). In March 1999, Musk co-founded X.com, an online financial services and e-mail payment company. One year later, the company merged with Confinity, which had a money transfer service called PayPal. The merged firm was renamed as PayPal in 2001 and a year later, in October 2002, PayPal was acquired by eBay for US$1.5 billion in stock. Of this, $165 million was the share of Musk, who, before its sale, was PayPal’s largest shareholder and owned 11.7 per cent of its shares. Tesla happened next.
For all of Tesla’s spectacular success, Musk has got a liberal share of brickbats as well. Most of the critisism focusses on how Musk and Tesla have been feeding off the US government’s tax credits and rebates on electric vehicle. For instance, $ 7,500 is the direct taxpayer rebate to each US buyer of Tesla’s Model S cars. There are stories about how Tesla landed an ex-Toyota factory in California for almost free, via a “string of fortunate turns” that allowed the company to float its IPO a few weeks later. Critics argue that Tesla’s stock market value of $32 billion is nothing but a modest fraction of the discounted value of its expected future subsidies.
Musk’s SpaceX enterprise — aimed at sharply slashing the cost of earth orbit in future space endeavors by delivering a cheap, reusable heavy-lift vehicle — also builds in an implicit assumption that the US Government would buy more of its space services from competitive private contractors such as Musk rather than try to produce them in-house by NASA.
But there aren’t too many counters to the increasingly held view that Musk is among the new breed of great entrepreneurial success stories of our times. Whether Musk and Tesla better Steve Jobs and Apple, only time will tell.