Posted on June 11, 2018 by Matt Pressman
To create breakthrough products, Steve Jobs created his own reality distortion field which helped Apple reach unattainable goals. Likewise, Elon Musk has an unorthodox method for setting Tesla's goals. Yes, there's a lot of bellyaching in the media over Musk's missed deadlines. But according to former Apple analyst Gene Munster (via Loup Ventures), "There's a method to Musk's goal-setting madness."
Munster argues that, "Musk misses expectations because he publicly sets the same targets for all four of the company’s stakeholders" — investors, suppliers, employees, and customers. To better understand Musk's aligned (albeit reality distorting) approach to setting goals, let's examine each key stakeholder group for Tesla.
Investors on Wall Street have struggled to understand Musk's many missed deadlines. But, Tesla is different than most public companies. Why? Munster explains, "Most public companies have the luxury of sending different messages to each of their stakeholders. By comparison, most other public companies don’t have to carefully balance these groups for 3 reasons: 1. they can source parts from multiple suppliers; 2. they have a broader product line; 3. they have a more favorable cash position."
According to Munster, "Tesla needs to pressure suppliers to promptly deliver parts. If the company tells those suppliers that they need to have parts to produce 5,000 Model 3’s per week by the end of June, and tells investors that they expect 5,000 by the end of September, that may cause some of its many suppliers to believe they have wiggle room in what Tesla has asked them to deliver." Even worse, "If one supplier misses its target, the entire production line misses its target. As Musk wrote in an internal letter, 'actual production will move as fast as the least lucky and least well-executed part of the entire Tesla production/supply chain system.'"
Employees also need to get consistency and alignment when it comes to deadlines. Once suppliers hit their milestones, "The next step is assembly. Employees need to be held to the same goal as the suppliers to assemble the Model 3 on target. Like the supplier, if the employees think there’s wiggle room in the target, they will likely fall short."
In addition, "customers are notified via email when to expect delivery of their vehicle. Those communications to customers are also picked up by suppliers, investors, and employees. If any one of the stakeholder groups senses wiggle room, they’ll slow down; it’s human nature. And speed of production is a critical element to Tesla’s success."
So what's the best way to forecast Tesla's elusive timelines? According to Munster, his "rule of thumb to translate Musk’s targets into reality is to add 3-9 months." Musk admitted so much at Tesla's Shareholder Meeting, "I think I do have an issue with time... I'd probably put some sandbag on future dates, that's probably wise."
For long term investors, a missed deadline may be disappointing. But it doesn't take away from Musk's successful track record. Yes, Musk has been late with deadlines for Tesla's Roadster, Model S, and Model X. But each vehicle program eventually hit its marks. And each car became an industry game-changer. In turn, Munster expects, "the Model 3 [to] mark a pivotal moment in the world’s adoption of EVs."
Source: Loup Ventures