#10 Product Excellence (Tesla’s Competitive Advantage #4 part 1)
(This is post #10 in a series explaining my long-term TSLA investment philosophy. For previous posts,
see Articles/megaposts by DaveT)
In this post I’ll dive into product excellence as a competitive advantage of Tesla.
Tesla’s product excellence begins with high standards. This is probably the attribute that distinguishes Tesla the most and is best seen in Elon’s unrelenting focus to deliver a stellar product in all aspects.
It’s difficult to exaggerate how good of a car the Model S is. It handles well, accelerates fast, looks good, has ton of cargo space, great range, can go across country with supercharging, and can even get better with over-the-air software upgrades or eventual battery upgrades/replacements.
However, in order to make the Model S as good as it is, Tesla had to go through a process where they looked at almost every aspect of the car and had to ask themselves how it could be better and come up with creative solutions to bring each aspect of the car closer to ideal.
Design Thinking
In recent years IDEO and other companies have pioneered and propagated a concept called Design Thinking. Design Thinking is where one uses creativity and out-of-the-box thinking to solve problems and make products better. A good example is the company OXO and their kitchen products. Oxo has reinvented dozens if not hundreds of kitchen utensil and food prep items. They take a typical potato peeler, as an example, and ask if a typical potato peeler is peeling a potato in the best possible way or if there’s anything they could do to redesign the potato peeler to make peeling potatoes better. This is a surprisingly arduous process that takes a ton of brainstorming, iteration and experimenting. Eventually, with a lot of focus and execution, the result is the potato peeler redefined. Or simply a better potato peeler.
Another example of design thinking is the SimpleHuman kitchen trash can I bought a few years ago (
Amazon.com - simplehuman Rectangular Sensor Trash Can, Fingerprint-Proof Brushed Stainless Steel, 40-Liter /10.5-Gallon - Simple Human Bin). It costed $200 at that time, and my wife was very skeptical of the purchase. She was like, “A $200 trash can!?!” But the trash can is quite marvelous. They really re-designed the trash can and made it a lot better than any other trash can I’ve used. The sensor just works, the trash is easy to pull out, the lid stays up when you replace the trash liner, the trash liner fits perfectly, etc. Everything just works and works better.
Bringing this back to Tesla, Tesla has enacted Design Thinking (creativity, user empathy, out-of-box thinking, problem solving, etc) to redesign as many concepts/functions while making the Model S. They took out all the buttons and replaced it with a huge touchscreen that can be updated over-the-air. They made the car fast with long range. They made a car that looks great but has a super low drag coefficient. They simplified the driving experience by allowing the driver to start the car by simply pressing the break and pulling a lever. They reinvented the car purchase and order experience. They reinvented the long-distance charging experience for electric vehicles. They are trying to reinvent the service experience. And there’s a ton of other aspects where they’re trying to reinvent but we don’t have access to (ie., internal processes, production methods, insourcing products, etc).
User Empathy
Elon and Tesla remind me of the user empathy found in some of the greatest companies/innovators of our time. Steve Jobs had a deep user empathy where he detested things that would complicate and overwhelm the typical user, thus the iPhone/iPad is remarkable simple to use. Google had a deep user empathy where they wanted to deliver the best and fastest search results to the user, while other search companies at the time (in the early days) cluttered their home pages with a million links and didn’t care much about the quality of the search results.
Often, companies lose sight as they focus more and more on making money, bringing in revenue, achieving growth, and delivering on earnings. The customer becomes just a means to reach a profit/revenue goal.
However, for visionaries like Steve Jobs and Elon Musk, the company only exists to bring value and make the lives of people better, and to the extent that they can accomplish that the companies will be rewarded financially, although financial goals aren’t the most important goal. Rather, the more important goal is to make the lives of people and the world better by providing amazing products/services that are far better and deliver greater value than what’s already out there.
This value of user empathy is not easily copied or imitated, since it’s a deep internal value. What Tesla has going for it is it’s been inseminated with this value of deep user empathy from Elon and his team, and this value guides the company to not only make the best products/services they can but also to make the right decisions going forward.
Improving Quality
Another aspect of product excellence is the way Tesla is continuously improving the Model S. Tesla has a strong control over what the reported issues customers face, and they have their team of engineers involved in addressing and finding solutions.
In the most recent quarterly conference call Elon shared details on his weekly Product Excellence meeting:
“Every week I have a product excellence meeting, which is a cross-functional group, so we've got engineering, service and production, and we go about all the issues that customers are reporting with the car, and develop action items to address to get car ultimately to the platonic ideal of a perfect car - that's what we're aiming for. Because although I think we've got great service, the best service is no service. That's really what we want, is a car that never needs to be serviced. And I think we're getting there quite rapidly.”
He also shared his aspiration to have the Model S (and other Tesla cars) have a quality unmatched by other cars:
“I mean our aspiration is sort of order magnitude better quality than any other car. And we'll keep at it unrelentingly until we get there.
It’s impressive that Tesla’s CEO is hands-on in addressing quality control issues and he exudes a vision of quality that is quite inspiring. On top of this, Tesla is able to assemble a cross-functional group to lead this effort since Tesla owns all their service centers and is also an engineering-driven company. This allows engineers the freedom to innovate and iterate on solutions, then for service centers to try those solutions out, and if the solution work then for production to immediately incorporate the changes into the production line.
The key to all of this is the speed at which a company can address a quality control issue. By bringing in key cross-functional personnel under the direction of the CEO, Tesla is able to quickly address issues that crop up. The result is the car gets better and better at a faster rate than any other car on the market.
Owners love the car
For a year and a half I followed the used car market closely and I would regularly email and talk to Model S owners who were selling their car. I wanted to know why they were selling their car and what their next car would be. While I did meet some owners who preferred other cars over the Model S and were selling their Model S as a result, the vast majority of the used Model S sellers were people who loved their cars and were getting a bigger battery, a performance model, or buying a new car with different options/colors/etc.
The general consensus among Model S owners is that they are very, very happy with their car. All of the effort that Tesla has invested in Design Thinking is paying off as owners appreciate the range, performance, supercharging, cabin space, technology, and the electric drive.
The result is strong and growing demand that allows Tesla as a company to be even more ambitious in their future growth plans.
A few final notes:
1. If you haven’t seen this video, this is a great one to watch. It’s the Consumer Reports auto team reviewing the Model S and sharing their thoughts (back in May 2013). Note how enthusiastic and impressed they are at how Tesla has rethought so many aspects of the car.
Talking Cars with Consumer Reports #5: Tesla Model S - YouTube
2. The Model X. Elon and his team is going over the Model X with a fine-toothed comb (
TMC Connect Snippets / Gems). The Model X exemplifies everything I’ve written here about high standards, design thinking and user empathy. It’s going to be a great car that redefines what an SUV can and ought to be.
3. Gen3. Elon understands how important product excellence is to the success of Tesla’s Gen3 vehicle. This is the main reason why he’s committed to Tesla as the CEO until Gen3 enters high-volume production. It’s because he knows that he needs to make sure the Gen3 is near-perfect and exudes the high standards and design thinking that he knows is needed to make it a success.
