Photo: Alex Davies
Elon Musk, CEO of Tesla Motors, he has turned a pipe dream — an all-electric car company — into a viable business, in a high-risk, high-cost industry.Musk is also CEO of SpaceX, whose unmanned Dragon rocket successfully docked with the International Space Station for the second time, dropping off cargo per the company’s $1.6 billion contract with NASA.
His intense ambition and self-confidence enable him to handle both jobs at the same time, despite the myriad challenges — like broken-down cars, economic collapses, and failed rockets — that come with changing the automotive and aerospace industries.
It’s the combination of that ambition and business acumen that have made Musk what he is today. “For all his grand plans, he’s a pretty pragmatic businessman who knows how to build a company,” Matt Desch, CEO of satellite-communications provider Iridium told Esquire last year.
Starting With A Clear Vision
Musk, who was raised in South Africa, then moved to Canada and ended up in the United States, has degrees in physics and business. That’s hardly what would you’d expect of someone mastering automotive and space engineering. But that resume has not dictated Musk’s goals, which are straightforward: Create a zero-emissions form of transport, and revolutionise inter-planetary travel.
In May 2011, Musk told CNN the fully reusable orbital rocket is one of the three inventions that will one day change the world. He explained: “It’s the fundamental invention necessary for humanity to expand to the stars and to become multi-planetary.”
Late in 2012, he told Space.com he wants SpaceX to help create a self-sustaining 80,000-person colony on Mars.
It’s not about making a profit either, he told Smithsonian magazine in December: “For me it was never about money, but solving problems for the future of humanity.”
Tesla’s Simple Approach
There’s a reason there are only a handful of automakers operating today: Designing and building cars costs a huge amount of money, and it’s easy to make a dud. To succeed where so many have failed, Musk created a very simple master business plan, which he explained in an August 2006 blog post:
- Build sports car
- Use that money to build an affordable car
- Use that money to build an even more affordable car
- While doing above, also provide zero emission electric power generation options
Photo: Tesla Motors
So far, Tesla is pretty much on track: The Roadster, an all-electric sports car, was produced from 2008 to early 2012. The two-seater could go from 0 to 60 mph in 3.7 seconds and drive more than 200 miles on a single charge. It sold for about $89,000, more than the price of a brand new Jaguar F-Type sports car.It was followed by the Model S, a more practical ride with room for seven. In his master plan blog post, Musk predicted the Model S would cost about half the price of the Roadster. The new sedan is less expensive, but not especially affordable.
The cheapest version starts at $52,400 (after a $7,500 federal tax credit). The most capable version (with a big 85 kWh battery that offers a range of 300 miles) starts at $72,400. That is still a lot closer to a BMW than a Ford. But Musk is still determined to get there, he told Mashable last year.
Those prices open the Model S to accusations of being luxury car for the wealthy. Critics include former GM executive Bob Lutz, who called the Model S “a nice car for a social elite” in July 2012.
In response, Adam Hartung at Spark Partners praised Musk’s plan, describing Tesla as a “disruptive innovator.”
The Roadster wasn’t for everyone, but it wasn’t designed to be. It was meant to demonstrate a really good car could be made without the traditional trade-offs people like Mr. Lutz said were impossible to overcome.
Now Tesla is introducing a car that is much more aligned with what most people buy.
Perhaps most importantly, it is an excellent car. It was named “Car of the Year” for 2012 by Motor Trend Magazine, marking the first time in the 63-year history of the prestigious award a vehicle with a non-combustion engine has been awarded the prize.
Accepting the award, Musk called it a “pivotal turn in history,” and acknowledgment that Tesla had built not just a great electric car, but “the best car of any kind.”
The Model S will be followed by the Model X. When the all-electric SUV was revealed in February 2012, Tesla said production would begin by the end of 2013. That has just been pushed back a year, the company announced in its annual report on March 7.
That filing also noted the Model X will cost about the same as the Model S, so the SUV will not be the “even more affordable car” Musk predicted in his business plan.
Finding the Right People
On top of his ability to read and learn quickly (Success magazine writes he mastered rocket science by “reading books and asking questions”), he surrounds himself with smart, talented people, who have the expertise he is missing.
He has long believed in talent over numbers, he said back in 2007: “Numbers will never compensate for talent in getting the right answer (two people who don’t know something are no better than one), will tend to slow down progress, and will make the task incredibly expensive.”Tesla CFO Deepak Ahuja came from Ford, bringing with him knowledge of large-scale automotive operations.
VP of Sales and Ownership George Blankenship was a key strategist behind the success of Apple’s stores. Now, his task is to do the same with Tesla stores (and be Musk’s right-hand man at press events).
Gwynne Shotwell, a veteran of research and development centre Aerospace Corporation, was tapped to be president of SpaceX.
More recently, Musk said he has started to take personality as well as talent into account. At South by Southwest last week, he said his biggest mistake was “weighing too much on someone’s talent and not someone’s personality. I think it matters whether someone has a good heart.”
A History Of Failures
Tesla and SpaceX are competing in extremely expensive industries dominated by enormous corporations and government entities, and their roads to success have not been easy.
According to Success magazine, “the first three rockets built by SpaceX produced crash-and-burn videos.”
But neither company threw in the towel.
In 2008, struggling Tesla nearly collapsed during the financial crisis. When Tesla needed cash to fund the Model S, Musk chose to bankrupt himself — giving up the money he earned from his success with PayPal — rather than let it die. He sunk his last $35 million into the company, the New York Times reported.
In a February 23, 2010 court filing, Musk admitted he was broke: “About four months ago, I ran out of cash.” The filing, part of his divorce case from his now ex-wife, Justine Musk, said he had been living off of personal loans from friends since October 2009.
It was an extremely rough time, Musk’s brother Kimbal told Esquire:
This wasn’t Elon facing adversity. This was, ‘Holy shit.’ Personal bankruptcy was a daily conversation. Tesla was on the limb to deliver cars that people already paid for. Bankruptcy would have been easier than what he did. He threw everything he had into keeping Tesla alive.
In 2009, the company landed a $465 million federal loan, which it used to get the car into production. With its successful IPO in June 2010, Tesla became the first automaker to go public since 1956.
Musk has never had a problem creating demand for the Model S, and now Tesla has finally hit its goal of producing 400 cars a week, the number it needs to keep hitting to generate income.
And SpaceX this month completed another successful trip to the International Space Station.
The common thread in Musk’s leadership that has brought both companies to these tentative levels of success is his willingness to take risks, his tenacity, and the fervent confidence that gets others on board with his seemingly crazy ideas.
Success At A Cost?
But there are downsides to the latter two qualities. Musk is combative, and reacts harshly to outside criticism. Simply put, it’s hard to find an instance where he has publicly admitted being wrong, because he is so convinced he knows what’s right.
In 2008, the popular television show “Top Gear” said the Roadster it tested ran out of power before achieving the promised range (and featured the stars pushing it).
Photo: Alex Davies / Business Insider
Musk insisted it was misleading, and responded with a lawsuit. The legal battle dragged on for five years, and finally ended this month, with a loss for Tesla.When John Broder at the New York Times wrote a review last month accusing the Model S of the same shortcoming, Musk called the review “fake” on Twitter, and lambasted Broder in a blog post, writing “some believe the facts shouldn’t get in the way of a salacious story.”
Ultimately, the Times admitted the review showed problems with precision and judgement, but Public Editor Margaret Sullivan also accused Musk of using the car’s digitally recorded driving logs “in the most damaging (and sometimes quite misleading) ways possible.”
Musk’s protests of mistreatment may rally his supporters, but they earn him little love or respect otherwise. Peter Handal, CEO of professional training company Dale Carnegie, told Business Insider his attitude can be a turn-off:
It would have been more productive for Musk to simply cite the car’s performance log and refer to the article as “confusing” or “inaccurate.” labelling a journalist’s report this way might not end well since it can damage relationships, cause hostility and tarnish reputations. And from a practical point of view, that’s not an effective way to “win friends and influence people.”
Yet even after asking on Twitter to “bury the hatchet” with the Times late in February, Musk kept ragging on the review when asked about it at the Geneva Auto Show, where he was talking about Tesla’s upcoming debut in Europe, and showing off the Model S and the upcoming Model X.
But ultimately, Musk’s personality may do him as much good as harm, Peter Handal says:
Even though it might raise some eyebrows, Musk’s aggressive leadership approach is not necessarily a bad thing. In his industry, he is on the cutting edge of automotive innovation and technology, and he feels that this is the correct way to handle how to conduct business.
What really matters is the products he builds: No investor will care if Musk acts like a jerk, if Tesla delivers its cars on time and SpaceX keeps running successful journeys.
If both companies stay on track, it will be a testament to Musk’s ability to convert seemingly utopian visions (with the help of a fortune made in the startup industry) into models for a new world.
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