My friend and I were lamenting Tesla's financial situation/stock price, especially given how great the product is, and the conversation turned to recent strategic mistakes Tesla has made. Would be curious to get people's take on this and strategic choices ahead of it:
1. Not raising $5-10bn in equity last year when stock price was near $400. Would have been easier to exit the "funding secured debacle" with "going private was operationally too difficult, so instead we're raising enough money so that Tesla never has to worry about short term financial results ever again." Would make the whole cash/debt conversation moot and would have destroyed the shorts. Pair that with no more guidance, no more tweets, no investor days. At a price of $400 this would have been what, like 7-12% dilution?
2. Not leading with the Model Y. Now that we see it is effectively a vertically stretched Model 3, I cannot understand why they didn't lead with this. It probably costs $1k more to manufacture, if that, and the pricing premium could have easily been $5k+. Note this is true for all other car manufacturers - crossovers built on the same platforms as sedans still command a very healthy price premium. Demand in the US would have been stronger and longer lasting, and crossovers are a growing share of the European market.
3. Focusing too much on new autopilot features vs. perfecting existing highway driving. To be fair, I'm not sure how much of a choice this was, but I certainly think they would have benefited from nailing adaptive cruise control before rolling out some of the other features. I would love for them to have focused on making cut-in recognition flawless (e.g., recognize other cars' turn signals) vs. rolling out enhanced summon or whatever, which is a feature I will never use.
4. Not marketing at all/losing the PR game. This worked when the customer base consisted of early adopters b/c enthusiasts naturally generate content that appeals to that segment. But everyday people don't care about Tesla'a 1/4 mile times and version 2019.16.2 vs 2019.16.3.2 - they just want the thing to work. I'm not advocating for Super Bowl ads, but it feels like Tesla's PR strategy is basically Elon tweeting, which is often bad. Related - making promises that can't be kept.
5. Not having a more strategic tie-in to Tesla Energy. It seems like they're finally thinking about this, but I just don't understand why my car can't power my house in the event of a power outage. I get that I'd have to spend a few $k on electrical upgrades and parts, but this seems like a natural option to upsell people on when they buy a new car and would be a true differentiator. Or just using my car like a Powerwall and selling energy when prices are high and I don't need the range.
6. Working on the roadster, semi, pick-up, insurance, robo taxis, etc. None of those things are lacking coolness and the pick-up is a very lucrative segment of auto manufacturing (best selling passenger automobile worldwide is the Ford F-Series), but Tesla can't afford to not focus right now. They should be focusing on operational efficiency, even if that means they're boring for a year or two.
7. Not creating a software marketplace for the UI. This may be a big effort, and has security implications, but I just don't understand why I can't download a spotify or Apple music app. Or use Waze. Or listen to podcasts. Or integrate Alexa or Google Home. Or have messaging apps accessible via voice. I understand Slacker licensing, yada yada, but I'd be surprised if there wasn't a way to get out of that contract or at least open it up to other vendors. The UI is already the best in the business, but why should Tesla do all the work to maintain it?
8. Allowing internal culture/team issues to persist. There are great and terrible things about how Elon runs the show. But remember that Steve Jobs had Tim Cook running ops since the 90s, allowing him to be the crazy visionary, but also deliver profitable products on time. It doesn't seem like Elon has that. Maybe Jerome Guillen really steps up and owns that role, but if it's not him, someone has to.
Some of these are still choices Tesla can make, others are things they're actively working on (and maybe are in actual focus now), and others are no longer available to it. FWIW I think the general product arc (Roadster -> S -> X -> 3) was the right one and think Tesla's long term focus on self-driving is critical. I also think they overall make an amazing product. I would be curious to get others takes on the above and what you feel are the most important strategic decisions ahead of it.
Disclosure: I'm not short or long Tesla. I own a P3D and mostly love it.
1. Not raising $5-10bn in equity last year when stock price was near $400. Would have been easier to exit the "funding secured debacle" with "going private was operationally too difficult, so instead we're raising enough money so that Tesla never has to worry about short term financial results ever again." Would make the whole cash/debt conversation moot and would have destroyed the shorts. Pair that with no more guidance, no more tweets, no investor days. At a price of $400 this would have been what, like 7-12% dilution?
2. Not leading with the Model Y. Now that we see it is effectively a vertically stretched Model 3, I cannot understand why they didn't lead with this. It probably costs $1k more to manufacture, if that, and the pricing premium could have easily been $5k+. Note this is true for all other car manufacturers - crossovers built on the same platforms as sedans still command a very healthy price premium. Demand in the US would have been stronger and longer lasting, and crossovers are a growing share of the European market.
3. Focusing too much on new autopilot features vs. perfecting existing highway driving. To be fair, I'm not sure how much of a choice this was, but I certainly think they would have benefited from nailing adaptive cruise control before rolling out some of the other features. I would love for them to have focused on making cut-in recognition flawless (e.g., recognize other cars' turn signals) vs. rolling out enhanced summon or whatever, which is a feature I will never use.
4. Not marketing at all/losing the PR game. This worked when the customer base consisted of early adopters b/c enthusiasts naturally generate content that appeals to that segment. But everyday people don't care about Tesla'a 1/4 mile times and version 2019.16.2 vs 2019.16.3.2 - they just want the thing to work. I'm not advocating for Super Bowl ads, but it feels like Tesla's PR strategy is basically Elon tweeting, which is often bad. Related - making promises that can't be kept.
5. Not having a more strategic tie-in to Tesla Energy. It seems like they're finally thinking about this, but I just don't understand why my car can't power my house in the event of a power outage. I get that I'd have to spend a few $k on electrical upgrades and parts, but this seems like a natural option to upsell people on when they buy a new car and would be a true differentiator. Or just using my car like a Powerwall and selling energy when prices are high and I don't need the range.
6. Working on the roadster, semi, pick-up, insurance, robo taxis, etc. None of those things are lacking coolness and the pick-up is a very lucrative segment of auto manufacturing (best selling passenger automobile worldwide is the Ford F-Series), but Tesla can't afford to not focus right now. They should be focusing on operational efficiency, even if that means they're boring for a year or two.
7. Not creating a software marketplace for the UI. This may be a big effort, and has security implications, but I just don't understand why I can't download a spotify or Apple music app. Or use Waze. Or listen to podcasts. Or integrate Alexa or Google Home. Or have messaging apps accessible via voice. I understand Slacker licensing, yada yada, but I'd be surprised if there wasn't a way to get out of that contract or at least open it up to other vendors. The UI is already the best in the business, but why should Tesla do all the work to maintain it?
8. Allowing internal culture/team issues to persist. There are great and terrible things about how Elon runs the show. But remember that Steve Jobs had Tim Cook running ops since the 90s, allowing him to be the crazy visionary, but also deliver profitable products on time. It doesn't seem like Elon has that. Maybe Jerome Guillen really steps up and owns that role, but if it's not him, someone has to.
Some of these are still choices Tesla can make, others are things they're actively working on (and maybe are in actual focus now), and others are no longer available to it. FWIW I think the general product arc (Roadster -> S -> X -> 3) was the right one and think Tesla's long term focus on self-driving is critical. I also think they overall make an amazing product. I would be curious to get others takes on the above and what you feel are the most important strategic decisions ahead of it.
Disclosure: I'm not short or long Tesla. I own a P3D and mostly love it.
