• Musk reversed Tesla’s plan to use a new platform for the Model Y SUV
• Musk’s idea was potentially brilliant, but it came at the wrong time for the company.
• It would have been a “disastrous pivot.”
On a Wednesday earnings call with analysts after Tesla reported its second-quarter results, CEO Elon Musk made a welcome admission: the company’s next car, the Model Y crossover, won’t be built on an engineering platform that’s entirely different from the just-launched Model 3. Instead, the cars will share components.
“I think in a prior call, we publicly had said that Model Y, or our compact SUV … would be a totally new architecture,” Musk said. “Upon the council of my executive team … who reeled me back from the cliffs of insanity — much appreciated — the Model Y will, in fact, be using a substantial carryover from Model 3 in order to bring its market faster.”
He added, “I’d like to thank my executive team for stopping me from being a fool.”
I listened in on the earlier call that Musk referred to, was shocked when I heard him say that the Model Y would use an all-new platform, and expressed my bafflement at what sounded like a disastrous pivot.
I understood, however, what Musk had in mind. He urgently wants to reinvent the manufacturing process for automobiles, correctly recognising that for Tesla faster and more efficient carmaking is the path to achieving the company’s goal of 1 million vehicle deliveries by 2020.
Massive automation of Tesla factories is a new preoccupation for Musk; he’s called the “alien dreadnought” theory in the past, the idea being that Tesla’s factories will be heading in the correct direction when you walk into one and feel as if you’ve boarded an alien spacecraft.
Given Tesla has more than 450,000 net pre-orders for the vehicle and it is getting about 1,800 new orders per day since last Friday’s handover event, it makes sense Musk wants to revolutionise Tesla’s manufacturing facilities quickly.
That’s all great, but a not-much-discussed issue with the Model 3 is the vehicle is a sedan being launched into a market that increasingly favours SUVs.
That’s why I was dismayed by Musk’s statements about a new platform for the Model Y. With a largely shared platform between the 3 and the Y, the crossover could get to final assembly much faster — and Tesla could conceivably bring in another 500,000 pre-orders. If the margins for these vehicles could be between 10%-20%, that would represent a swift path to profitability for Tesla, reversing seven years of reliable post-IPO losses.
Coming to his senses
Journalists aren’t supposed to unbiddenly tell CEOs what to do, but I had a least half a dozen conversations with a colleague about why I thought this was the worst idea Musk had come up since he got involved with Tesla back in 2007.
On one hand, I grasped Musk’s master plan and considered it ambitious and cool. On the other, I thought the company was introducing needless complexity to the Model Y roll-out, at a time when an affordable compact crossover could take the carmaker to a new level.
Obviously, I kept my pleadings to myself, but I did offer that Musk was making “a very big mistake at the worst possible time.”
His management team thought the same, and mercifully, they talked Musk out of his Model Y dreams.
Actually, therein lies some critical insight about Tesla. We often err in concluding that the company is a one-man show, but as charismatic and influential as Musk is, he also has a strong group around him. JB Straubel is a tremendous product guy, and Franz Von Holzhausen has quietly become one of the most important car designers in the business. Longtime CFO Deepak Ahuja recently returned to the company, after a brief retirement.
Fortunately, Musk listened to them at a time when it really mattered.
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