Elon Musk rolled out his second “master plan” this week—it involves integrating home energy production with electricity storage, making electric pickup trucks, achieving autonomous driving, and enabling car sharing. Now, as I’ve noted, Musk has been a brilliant innovator of not just technologies but also business models. The Musk-industrial complex—SpaceX, Tesla, and SolarCity—has put real, functioning products into the world and inspired competitors. And with this bold plan, he’s remaking himself in the mold of Steve Jobs—ultra-nimble, visionary, disruptive, multitasking.
But Musk is acting as if he has already achieved the first master plan he laid out 10 years ago—make a really expensive electric car, then a somewhat expensive electric car, then a cheap electric car in large quantities. He hasn’t yet. And for the next few years, unless he wants to blow Tesla’s future—and $32.95 billion market capitalization—Musk needs to behave less like the most visionary businessman of our current age and more like the most visionary businessman of 100 years ago. Musk should be taking his cues from Henry Ford—an obsessive, detail-oriented engineer who focused single-mindedly on perfecting the production at scale of a democratic automobile.
Tesla is facing a unique opportunity in the next three years. As I’ve noted, electric and plug-in cars are still a miniscule part of overall car sales in the U.S. But they’re growing rapidly, and electrification is poised to explode. Virtually every automaker in the world—Audi, Volkswagen, Chevrolet—has plans for introducing electric and electrified vehicles. (The website HybridCars.com is charting these developments in real time.)
The world’s automakers are responding to the gauntlet thrown down by Tesla. But they’re also responding to, and anticipating, incentives and regulations that will change the structure of global markets. In the U.S., incentives for electric cars are generous. In Norway, a small market, plug-ins are about 25 percent of new car sales thanks to the preferential tax treatment of environmentally sensitive vehicles. Germany is bringing Teutonic will and engineering to bear as it attempts to iron emissions and fossil fuels out of its massive economy. The German government and automakers based there have just launched a $1.4 billion initiative aimed at encouraging German drivers to buy several hundred thousand electric vehicles in coming years. In China, the world’s largest car market, officials are trying to combat smog by encouraging the purchase of electric cars. In the first half of 2016, some 170,000 plug-in cars were sold in China.
Electric cars may not become standard at any point in the near future. But the market for them is likely to grow quite rapidly. And that means the company that can build an appealing, functional electric car at the right price point—a modern-day Ford Model T—can own a big chunk of the market and make a ton of money selling them.
Tesla had both a head start and a golden opportunity. It’s been building all-electric vehicles for nearly a decade and has no problem selling the ones it builds. It is constructing a factory that can produce a key component—battery cells—in massive quantities. And, most importantly, the company has taken about 400,000 reservations for the $35,000 Model 3, which it plans to roll out next year.
The Model 3 could turn out be the electric Model T—the first mass-produced global electric car. If Tesla delivers on its promise, in a few years there will be several hundred thousand on the road, each functioning as a rolling advertisement for the product.
But it’s not at all clear that Tesla will be able to deliver on those promises. It’s really hard—and expensive—to scale up auto manufacturing. In the past decade, Tesla has repeatedly encountered difficulty ramping up to its promised levels of production in a timely fashion. And Tesla only has a matter of months to get it right. In the coming year, Tesla will have to figure out how to boost production capacity rapidly (last year, it delivered about 50,000 cars), hire workers to put them together, purchase supplies, and be sure as hell that the cars that roll off its assembly line work properly on the road at all times. (The fatal crash of a Tesla driving on autopilot has brought a lot of negative attention to the company.) You can’t unleash 100,000 cars onto the market and then recall them a few months later.
This is a higher-risk endeavor than the pricey, limited-batch sports cars Tesla has produced to date (which is exactly how Henry Ford started). The market was very forgiving of Tesla’s earlier missed deadlines—rich enthusiasts had put down large deposits and were willing to wait to get their status symbols. But it’s likely to be different with the Model 3. In two or three years, if Tesla is unable to make and deliver functional cars, many of the buyers will simply walk away; the reservation was only $1,000, and it’s refundable. And in the meantime, dozens of other models will be rolling out—the all-electric Chevy Bolt, the next generation of all-electric Nissan Leafs, a bunch of plug-in hybrids and all-electric cars from BMW, Porsche, and others. It’s possible one of these other companies might crack the code on electric cars.
So what does Henry Ford have to do with this? Ford started his professional life as the manufacturer of expensive sports cars that were toys for the rich. But he thought he could make more money, build a bigger company, and have more influence by democratizing the car. The Model T, first introduced in 1908, was the vehicle for this master plan. Ford focused for years, intently, on automating the manufacturing process, devising and tinkering with assembly lines endlessly, and being a general pain in the ass to his employees, fellow executives, and stockholders. He wasn’t starting other companies, or proposing new business models, or adding bells and whistles to the existing Ford products. He was figuring out how to use gravity and electricity to take costs out of the operation, ensure sufficient levels of standardization and quality, and make a car that people could afford in an hour.
Of course, throughputs of assembly lines and the price of tires are less sexy and fun than rockets, reimagining the electricity grid, and transforming the idea of what a car is. But if Tesla blows the Model 3, it won’t have the resources or license to pursue the whiz-bang stuff in Musk’s new master plan. If Musk’s effort to build a Model T results in an Edsel, the company won’t have much of a future.