A fixation with tech is distracting everyone from what Tesla actually needs to do
The context is that automakers are transitioning from being in the heavy metal business to thinking of their vehicles as platforms for computer code.
However, this focus may distract Tesla from what it needs to do right now to drive its business forward and vindicate a market cap of around $30 billion: Build more cars.
Tesla has already led the way on the technology front. A Model S sedan, for example, can be effectively refreshed overnight, via over-the-air software updates.
Traditional car makers typically haven't thought this way. On the software front, they've wanted owners to come into dealership or service centers for upgrades. Otherwise, for the GMs and Toyotas of the world, a "refresh" has historically meant reshaping the sheet metal, a process that happens at a paleolithic pace compared to how often tech companies release software tweaks.
This is changing, however, and we'll get a glimpse of just how rapidly early next year at the Consumer Electronics Show, which the big automakers now treat as a extra car show, squeezed between the Los Angeles kickoff in November and the main event, the Detroit show, in late January.
Much of the discussion there will be about Tesla, software, self-driving cars, and Detroit's establishment of talent hubs in Silicon Valley. Perhaps that discussion should focus more on Tesla's hardware.
Two gulfs
Two gulfs currently define the auto industry. The first is the gap between Tesla and everyone else on software. It's not that Tesla has vastly better code than everyone else. Rather, it's that Tesla has put software at the core of its vehicles.
The second gulf is between Tesla and everyone else on hardware. Musk's company will probably be able to build and deliver roughly 50,000 vehicles this year. Next year, the total could get close to 75,000-100,000. But these are pretty small totals compared with the major players. Ford and GM build that many cars in a month and could easily assemble far more, if the market demanded it.
Make no mistake: Tesla's software leadership has been impressive. Beyond that, the technology that undergirds its vehicles is also stunning. The cars are expensive, but they are very fast, all-electric, and they serve up range that's on a par with gas-powered cars. They've captivated the car world. The major car makers buy Teslas and take them apart to see how they tick.
But Tesla's ability to build cars is becoming a perplexing liability. Musk has said that he wants to be delivering 500,000 vehicles annually by 2020 - a 10-fold increase in four years. This sounds ambitious, but in fact it isn't. If for whatever reason Nissan wanted to drastically increase production of its Leaf electric car, it could. And it could do so in a matter of months.
Tesla playing catch-up
In the US, much of the auto industry is running at full capacity. With a yearly sales pace of nearly 18 million new cars and trucks, and with abundant pent-up demand carrying over from the post-financial crisis years when people stopped buying vehicles, the debate is all about whether it makes sense to bring new capacity online.
Automakers are reluctant to do that, preferring to manage their existing capacity so they aren't stuck with idle assembly lines when the inevitable downturn arrives.
Tesla, meanwhile, has tremendous untapped capacity at its plant in Fremont, California, formerly a joint venture between GM and Toyota called NUMMI that can churn out over 400,000 vehicles a year. Obviously, Musk and his team's plan is to bring that capacity online, over the next half decade.
The WSJ noted that the company plans to hire 4,500 additional workers, above the 14,000 it now employs. It will be great if many of those new Tesla workers are software engineers.
But it's imperative that a lot of them are line workers who can put together Model S sedans and Model X SUVs. It's one thing to be a high-end car car maker like Ferrari, which is organized to build fewer than 10,000 exotic cars per year and sell them for more than $200,000 a pop. It's another to be Tesla, with Musk's world-changing objective and desire to being a mass-market EV, the Model 3, to market in 2017, selling it for $35,000.
Tesla and Musk have always told a technology story. It's a big part of the company's DNA. But going forward, we can now safely assume that Tesla will consistently set the bar high for software and remain competitive with the rest of the industry when it comes to attracting talent.
We reached out to Tesla for comments on the position that the company is now in and we'll update this post when we hear back. But I should stress that Tesla has never wanted to be like any other car company. So it will ramp up production on its own terms and likely innovate along the way.
Nonetheless, in 2016, Tesla needs to start telling a new story: that of a car company that can compete with everyone else at a more old-fashioned level, bolt-by-bolt and body-panel-by-body-panel.