I know a Tesla mechanic and he really likes his job. He used to work for BMW, and said it had a truly toxic culture (not one that sounded very traditionally German) and the rats (i.e. other mechanics) were fleeing from a sinking ship. A former BMW maintenance manager was poached by Tesla, and he knew who the good guys were at BMW, and so was given the task of poaching them too.
Which really make you think.
One thing Tesla has is that anyone who can create a new car company from scratch will maintain a permanent advantage over all established car companies, in that it won’t be saddled with all those tremendous pension liabilities to former workers, and established super-powerful unions. Musk certainly has an incentive to get as far ahead on the automation curve as possible to avoid ever having to deal with those problems at anything like the magnitude of burden all the other companies must carry.
That makes it very hard for any established company to eat his lunch by copying simple and widely available tech, while also making it hard for any other new company to overcome the barrier to entry, especially if future subsidies are likely to be less generous than what Musk got to help him get started. That means there is a special, one-time opportunity to pick up this particular $100 bill off the sidewalk. He picked it up.
I admit I didn’t give this particular advantage enough consideration before, and now it seems to help account for Tesla’s unique ability to capitalize on electric cars with big batteries, which, after all, anyone can make. But his timing means that he’s the only one that can make them both with the most generous subsidies and before amassing manufacturing-era labor liabilities and before sclerosis infects his company.
It’s not necessarily regulatory arbitrage as it is also a kind of legacy sclerosis arbitrage. Indeed, this was and remains a considerably portion of the competitive advantage of East Asian automakers in the US market. All else being equal, the Big Three had to make an extra few thousand dollars per vehicle to pay for their liabilities. Tesla gets to start from scratch with a clean slate. That just having a clean slate is such a huge advantage these days is revealing in itself. Combined with ludicrously generous crony subsidies, it makes a strong case for his special, inimitable position.
Furthermore, in addition to not being saddled with the unions and all those pension liabilities to former workers, he’s got another advantage which accrues to any new company in an established sector, indeed one the big Silicon Valley companies have conspired among themselves to avoid by means of forming a labor-market demand-side cartel.
I’m guessing a lot of your work environments are a lot like mine, where compensation is fairly flat and compressed and bears little relation to ones marginal productivity in the short term, despite everyone knowing informally who is really pulling the weight. In the long term high performers are rewarded with promotions, but this suffers from Peter Principle problems, and anyway only works in tall hierarchies. There is a new employee where I work who is getting paid nearly as much as I am, but who is doing 20% of the work, because he is a moron, but he beats everybody in seniority, which is, alas, how the system works. He won’t get promoted, but in a way that’s almost worse, since the good performers will leave the job and people like him will stick around, lowering average productivity.
Everybody I know has lots stories like these.
So that creates another kind of obvious arbitrage opportunity. Maybe “Productivity Correlation Arbitrage.” If one could only pick one good manager in a unit or office, tell him he must fire 60% of people, and that he has unlimited authority to fire anyone he wants, and those he retains will get paid double so long as all the work gets done, then I have no doubt that the company and everyone left will be much better off.
Some seasonal companies actually do something like via over-hiring, automatic attrition, and selective rehiring. I had an uncle-in law who worked a job like this on the Alaskan oil fields and called it something like an “underbrush fire” that left all the big timbers standing.
But most mature organizations, especially those saddled with strong unions, can’t legally or practically manage anything remotely approaching this kind of ruthless culling.
But if a new company can poach a few good managers with the special inside knowledge needed to be future poachers of more good people, then your new company can start off with much better people producing much more value and for only a little more money. Is Tesla doing this too? That’s pretty smart, and it seems to borrow from some insights that may have been gained from Silicon Valley experiences.
Hmm… something to think about.
Tesla is still a welfare queen. I saw a post at another blog of pictures of the cars driven by Tesla workers at one of the plants and it was highly doubtful any of them could afford to buy even a low end Tesla even if they wanted one.
The whole electric car concept is a stupid idea that will go nowhere and only appears to work because of subsidies (like the solar and wind generation).
I do give Tesla credit as far as styling and design of the vehicles, but I could not imagine these being really practical.
I give Tesla, and especially Elon Musk, full marks for creating the first true improvement over the internal combustion, mass-produced car. Truly incredible.
That said, in three years you’ll be able to add the full sensor package, computers and backend support granting full autonomy to a standard car for about $10K. And that car can carry enough gas to travel 400+ miles, takes about 10 minutes to refill at any of 400,000 stations in every corner of the USA. No subsidies, and manufacturing facilities that produce 60 million new cars every year; that’s about 165,000 cars per day. Tesla has produced about 180,000 cars total in its life as a company.
Market cap notwithstanding, Tesla has a long way to go.
Bill: What improvement exactly did Musk or Tesla “create”? Can you point me in the direction of the invention which wasn’t patented decades before? Maybe the trade secret that everyone wants to be able to copy but can’t?
William Morrison produced an electric automobile in 1891, 126 years ago. Rechargeable-battery-powered electric vehicles were produced 75 years ago in WWII because of gasoline rationing. Electric golf carts were popular and being mass produced in 1951.
Technology was never an issue. Electric vehicles are arguable simpler technology than internal combustion systems. The issue has always been competitiveness: the batteries cost more and take longer to charge.
Tesla has not invented anything to fix those fundamental problems. Musk invented a great marketing strategy.
I grew up in southeast Michigan and worked for 2 of the Big Three, and I am astonished by Tesla. Just to try and start a new car company is gutsy. Look at the failures just in my lifetime; Saturn, Geo, Hummer, AMC and DeLorean.
Tesla has a design that eliminates the internal combustion engine and its lengthy drive train. By doing so, the car is drastically simplified, with far fewer moving parts. They have about 370 patents. It’s not a prototype, they have 180,000 cars on the road.
The car itself is the safest on the road, engineered better than its nearest competitor, Volvo. Part of the reason is that it doesn’t have an engine that winds up in the lap of the driver in a crash. NHTSA’s roof crush resistance testing machine broke when they tried to test the Model S. It also has the lowest drag coefficient of any production car.
By putting the heaviest part of the car (the fuel source) in the floor, it has one of the lowest centers of gravity of any vehicle, radically improving its handling. It has more trunk space than any other sedan, again because of superior design.
The fact that Tesla can diagnose the car from your garage, distribute software updates without service visits, and has far fewer moving parts terrifies automakers, who see the end of their business model, including their 100 year-old dealer network. Tesla only wants to see the car once per year; soon, it will drive itself to routine visits or come to your house for text drives.
Autopilot offers a benefit to drivers that most engineers would have said was unlikely in anyone’s lifetime, and will eventually dispense with mass transit and privately owned vehicles. (Yup, that one is pretty far out there, but keep in mind that Ford’s strategy for autonomous cars is to produce fleets. They’re already preparing.)