Elon Musk, the CEO of Tesla Motors, is a visionary. But he’s had to air-freight tires from Czechoslovakia at what sounded like 10 times the cost of shipping them by sea (“I wanted to punch myself in the face for that one,” he told investors on an earnings call). He’s pushing factory workers to work 68-hour weeks to meet production goals. And he’s had trouble convincing suppliers to fill orders. All things that cost the company a lot of money.
The challenges of running an efficient business have given Musk new respect for the auto industry he’s often criticized as an outdated dinosaur. “Generally speaking, the car business is a pretty cost-efficient business. It may not be good at a lot of things—breakthrough technology, that sort of thing—but it’s pretty good at cost optimization,” he said on the call. He acknowledged that Tesla will need to get far more efficient if it’s going to compete.
Cost overruns and production difficulties are to be expected from a small company that’s just starting to ramp up production. But the difficulties are no doubt a big reason why Tesla failed to lower its losses as Wall Street had hoped. At one point after the earnings call last night, the company’s stock had dropped over 10 percent. The company did also have much positive news during the call: markedly higher earnings and success in hitting production rate targets (see “Tesla’s Explosive Revenue Suggests a Brighter Future”).
If Musk is Tesla’s Steve Jobs, then he really needs an equivalent of Apple’s Tim Cook to make the company take off—someone who’s a genius for logistics and supply chains. Without that, even a product like the Model S, which automotive insiders have generally declared a brilliant car, won’t be enough to guarantee the company’s success.
That person may already be in place at Tesla, to judge by the improvements the company has seen over the last month or so—if not Musk then one of his other leaders. Musk said suppliers are starting to believe that Tesla really can hit production targets, and he claims that workweeks are down to something like 50 hours, greatly reducing overhead costs. He’s optimistic that will come down to the 40s next month. We’ll see. He’s failed to meet optimistic goals in the past.
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