Tesla is coming in for some harsh treatment, both in the media and on Wall Street.
The company’s stock has been serially downgraded by analysts, earnings have been predictably awful, and CEO Elon Musk has doubled down on various objective while at the same time initiating an acquisition of SolarCity, a company for which he serves as chairman and that was founded by his cousins.
This week, the Wall Street Journal dived into Tesla’s history of failing to live up to Musk’s ambitious promises, capping a period in which Tesla nay-saying has become pretty fashionable.
Even the usual point of contention with Tesla — sales, and whether the company can make its targets — has been abandoned as a metric. We could call this Tesla’s “whatever” moment, as those who closely follow the company give up on it ever beating expectations.
A history of misses
But we shouldn’t get too fixated on Tesla’s — and Musk’s — many misses. Why does Tesla always overpromise and under deliver? Because, at this point in the company’s history, there’s nothing to be gained from under promising and over delivering.
Don’t get me wrong, Tesla has wildly over delivered on the product side. It’s cars are widely considered, by owners, observers, and the motoring media, to be incredible.
But on the business side, the story has generally been one of missed targets and delayed launches. The Model X, spectacular though it may be, was two years late. There’s certainly no guarantee that Tesla next vehicle, the mass-market Model 3, slated to arrive in 2017, will be different. In fact, a betting man might prepare himself for 2018 or 2019.
This isn’t troubling. This is good business.
The vision thing
Ultimately, Tesla is a company constructed out of a vision: change the world. Replace fossil-fuel-powered transportation with clean vehicles. You might be sceptical about this, but trust me — this is what Musk believes. This is what drives him, far more than money. (He’s already spent a fortune once and would be happy to do it again.)
Job One at Tesla is to nurture and perpetuate that vision. Musk doesn’t want Tesla to grow up to be Ferrari — he wants it to displace the Toyotas and GMs of the world, or at least compel them to join him in transforming the way we get around.
Ferrari doesn’t need to assure anyone that it will beat expectations. The Italian supercar maker says it will build about 8,000 beautiful cars every year, and it builds 8,000 beautiful cars every year, selling them all. In the future, it may build more. But everything would be fine for the brand if it remained where it is.
Tesla is a completely different story. You don’t change the world without expressing ambitious stretch goals. Ultimately, you don’t have much of a story without ambitious stretch goals. So Musk really has no choice but to overpromise, knowing that underdelivering is probable.
This causes plenty of volatility with the stock price, the $100 swings over time. But anyone who understands the auto industry knows what Tesla is up against. There’s a reason why new car companies come along only every few decades. And don’t forget that Tesla isn’t just trying to be a new car company — it’s trying to be a car company that’s commercialising a technology, electric propulsion, that has never played a significant role in the history of the automobile.
No Big Failure
Tesla’s small failures, in the this context, are preferable to the Big Failure, which would of course be the company vanishing like so many car-of-the-future startups. Musk presents Tesla as being better than it is — better at technology, better at manufacturing — because that fuels the narrative. It’s analytically frustrating to see Tesla heading once again into a second half of 2016 that will probably disappoint, as the automaker is likely to just make it guidance for 80-90,000 deliveries. But in the grand scheme of things, it’s a blip.
It’s a blip because to really get Tesla, you need to accept the vision and put yourself 10 or 20 years into the future. If you do that, you can imagine a world in which 500,000 Teslas hit the road every year and the global fleet of vehicles is being decisively converted from gas power to electric.
In that world, whether Tesla delivers 80,000 cars in 2016 or 79,000 is unimportant. And whatever Tesla overpromised has been completely superseded by the vastness of its eventual over delivery. If you accept that Tesla is on this path, then you need to prepare to be continually disappointed for the next 10 years. This is a company built on a big idea. And big ideas don’t often happen on schedule.
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