by Fabio Tollon
Elon Musk. Either you love him or you love to hate him. He is glorified by some as a demi-god who will lead humanity to the stars (because if it’s one thing we need is more planets to plunder) and vilified by others as a Silicon Valley hack who is as hypocritical as he is wealthy (very). When one is confronted by such contradictory and binary views the natural intuition is to take a step back and assess the available evidence. Usually this leads to a more nuanced understanding of the subject matter, often resulting in a less binary, and somewhat more coherent narrative. Usually.
The idea to write something about Musk was the result of the reality bending adventure that was Edward Niedermeyer’s Ludicrous: The Unvarnished Story of Tesla Motors.
Let us take a look at the basics. Musk is a Silicon Valley entrepreneur who made a fortune by helping to found PayPal. Using the capital gained from this venture, he invested $30 million into Tesla Motors, and became chairmen of its board of directors in 2004. He also eventually ousted the founders of the company Martin Eberhard and Marc Tarpenning. He is currently CEO of Tesla, Inc. (the name was officially changed from Tesla Motors to Tesla in 2017) and is in regular competition with human rights champion Jeff Bezos for the glamorous title of “world’s most successful hoarder of capital”. I don’t want to spend too much time on the psychology of Elon Musk, as Nathan Robinson has already done a fine job in this regard. Rather, I want to focus on how Tesla is not the market disrupting company many think it is. Here I will be concerned with the mismatch between Silicon Valley’s software driven innovation versus the kind of innovation that exists in the auto industry.
At first glance, you wouldn’t expect the auto industry to have anything in common with the companies associated with Silicon Valley. The auto industry is a slow lumbering behemoth, with established players and very little space for true disruption. This is not due to lack of trying, but rather due to the nature of the game: high barriers to entry and low margins on finished products. The high barriers to entry come from the capital requirements to get a manufacturing plant off the ground. The cost of machines, engineers, designers, and a reasonable plan to put this all together is astronomical. It is little wonder the car manufacturing industry has seen little disruption in the past 40 years, despite increasing social and economic pressure for things to change.
Second, margins on individual units are small. Even with increasing levels of decentralization, assembling a car on a massive scale is no easy process. Because car manufacturers make small margins on both their high-end and low-end offerings, most profit comes from middle-of-the-road vehicles produced in vast quantities. Part of the success of this process is multiple usability: parts which are used in low-end cars can be cheaply and quickly repurposed to serve similar functions in high-end models. This once again lowers the cost to company of each unit built and increases profitability at the margin by enabling greater levels of efficiency. The key source of profit in this industry is from cars on the lower end of the spec scale, as with low margins the key is scalability and producing cars in large quantities.
This is the auto industry as it stands, and Tesla and Musk aim to disrupt it. The problem is that their method of disruption is true to its Silicon Valley roots, which makes it especially doomed in this low margin environment.
Normal tech disruption also involves high costs initially, often in relation to the development of proprietary software. Once the software is developed though, there are high returns on this investment, and scaling up the product to get it ready for mass-market distribution does not usually involve many extra costs. Once you have a successful beta version, scaling it to a marketable product is usually not where most of the costs lie. In this kind of atmosphere it is therefore possible to justify very high initial input costs.
Applying this approach to the auto industry meant that Musk was more than willing to funnel massive amounts of money into Tesla, with the hope (expectation?) that this large investment would eventually turn into a money printing machine. In order to make this work Tesla would have to create a vehicle that was affordable, appealed to its tech savvy support base, and could be produced at scale.
Naturally, Musk’s vision for Tesla is for the company to create an affordable electronic car. This is a worthy goal and given the nature of auto industry as described above, is the right kind of approach. Unfortunately, Tesla’s pursuit of this goal has been an unmitigated disaster. The Model 3, which had a planned selling price of $35 000 (it never quite reached this mark), was meant to the car that really disrupted the modes operandi of the auto industry. It was meant to usher in a new age of mass-produced emission free vehicles. However, it has been plagued by production issues: from battery manufacturing problems to assembly line failures. This resulted in Tesla making around 3 cars per day, which was a bit less than their 5 000 a week goal (to their credit, they did eventually reach this milestone, 6 months behind schedule, in July of 2018). While this might sound impressive, it is so far from disrupting the traditional market that it might in fact be comical. Ford, for example, can produce 7 000 cars in 4 hours. While it is perhaps unfair to compare Tesla to Ford, it is worth keeping in mind these massive production capacity differences when evaluating whether Tesla really is on the verge of upending the industry. More specifically though, the issue is that Tesla has failed to generate enough product, and enough of a demand for their product, in order for the company to be a real competitor to fossil-fuel powered vehicles. This is a problem not only for Tesla but for the world.
While Tesla has attempted to sell itself as a market innovator with over-the-air software updates to its cars (especially to the Tesla Autopilot system), this approach has also failed. Tesla cars are notoriously unreliable: from issues that flow from Musk’s insistence that the Model X have falcon wing doors, to overheating issues with the computer running Model X and S’s touch screen (with almost 135 000 vehicles being recalled due to this problem alone). So Tesla is not really a market disrupter, and their Silicon Valley approach to the auto industry hasn’t done them any favours.
While Tesla and Musk have their problems (see here for a list), I have a further issue above and beyond claims of market disruption. My problem lies in framing Tesla (and Musk) as saviours from climate disaster. While it is undeniable that Tesla creates beautiful cars with wonderful performance capabilities, the real question is whether this is the right approach, in the first place, to our impending climate catastrophe?
One of Tesla’s key selling points is that electronic cars will provide emission free transportation and reduce anthropogenic global warming. But why should we immediately be drawn to thinking that the global solution lies in creating more privately owned luxury vehicles? In the United States, a country with relatively poor public transport infrastructure (compared to Europe and Asia, for example), it makes sense to appeal to private car ownership. There are many reasons why the quality of the American public transport system has declined in the last 100 years, and this can account for the high levels of private ownership in that country. In the rest of the world, and Europe and Asia specifically (and Africa has plans), there are well developed mass transit networks, and so these might in fact be the future of transportation. Mass transit is more efficient in terms of cost to consumer, environment, and society, than having your own car (albeit less convenient).
Additionally, even companies like Ford and GM (both US-based) have signalled their intent to create fleets of driverless, ride-share vehicles. These cars would be self-driving, and could be hailed on-demand, providing time and fuel-efficient transport to already-congested city centres. Ambitions like this, combined with predictions that by 2030 private car ownership in the US will drop by 80%, make Tesla’s pursuit of privately owned vehicles a strange choice not just for environmental reasons, but also from a purely competitive perspective.
Perhaps the culmination of all of hubris this is Musk’s Vegas Loop mega tunnel built by The Boring Company. The idea is to reduce above-land traffic and have a high-speed subway system in which passengers are transported in autonomous Tesla cars. Again, though, we must ask the question, why do we even want or need autonomous vehicles in such a setting? Although there are plans to couple the cars with a monorail and public bus system, it once again seems that Tesla’s pursuit of electronic vehicles is not really about changing the way we travel and reducing our carbon footprint, but rather about attempting to make money by selling an idea. Unfortunately, we need more than just ideas.