Power Play

“The mechanics of the plan, reductively speaking, were this: Tesla would cut to the bone to save cash, and hope Roadster reservation holders didn’t freak out and seek their deposits returned. They would quickly reveal a design for the Model S to stoke further interest in the company, then again begin taking deposits. This would give them enough runway to coast until further investment could be generated. If the plan succeeded, they could eke their way through to Model S production. If it failed, they would stiff an ever-growing base of customers, all but spelling their demise.”

“One mistake some made early on was justifying an expense by saying that it was within budget. An engineer would long remember the response from Musk: Don’t ever use the word budget with me again because it means you’ve turned off your brain. Generally, Musk would agree to an expense if it was needed, but he wanted assurances that there was a real reason.”

“To win over Panasonic, Straubel needed to convince Yamada that Tesla meant business. He had a plan. It harked back to how Tesla had cajoled early investors into taking a chance on a little startup. To stoke Daimler and Toyota for the Model S, years before it was ready, they had worked up mule cars—dummies that were close enough to the real thing to give their audience a taste of what was to come. Tesla needed something they could showcase, a mule factory. Blueprints for a factory, however, failed to capture the kind of excitement their prototype cars had. The Tesla team became convinced that they needed to demonstrate to Panasonic and other suppliers how serious they were about the project. Quietly, they forged a deal with landowners in Sparks and began preparing the site for construction. They called bulldozers and earth movers from around the state, erected massive lights, began moving tons of dirt. The bill was enormous, climbing to $2 million a day. Straubel wanted to have a site prepped for a demonstration to Tesla’s would-be partners. He had to make it convincing enough to suggest that Tesla was charging forward—with or without them.”

“Each time Musk raised more money for the company, his grasp on the company grew tighter. Tesla was a game of control, and Eberhard had lost.”

“As Blankenship began working closely with Musk, he found some similarities to Steve Jobs, but also key differences. Jobs had likewise been super focused on many aspects of the business. With Jobs, he had spent their hours-long meetings delving into such details as the wood grains to be used for the legs of the tables that the stores would need to showcase their products, or else weighing the position of the holes that would be cut into those tables to accommodate cords—even discussing the size and shape of those holes. While Musk could be super focused on engineering issues or car design, he had less interest in other parts of the business, such as how the stores should look. He wanted it to be like Apple—he wasn’t up to picking wood grains. With Jobs, Blankenship had gone through several iterations of the store design in a physical warehouse; for Musk, all that was needed were some renderings. “Is that what it should look like?” Musk would ask Blankenship, sincerely. Blankenship explained there would be graphics on the walls and places for storage for apparel and brochures. It would be reasonably inexpensive to build—an open layout with the car at the center of attention. “OK,” Musk said, and left it at that.”

““You can talk to your manager’s manager without permission, you can talk directly to a VP in another dept, you can talk to me, you can talk to anyone without anyone else’s permission,” he wrote in another note. “Moreover, you should consider yourself obligated to do so until the right things happen. The point here is not random chitchat, but rather ensuring that we execute ultra-fast and well.””

“He added that there would be a “modest reduction” in headcount that he described as “raising the performance bar at Tesla to a very high level.” “To be clear, this doesn’t mean that the people that depart Tesla for this reason wouldn’t be considered good performers at most companies—almost all would,” Musk wrote. “However, I believe Tesla must adhere more closely to a special forces philosophy at this stage of its life if we aspire to become one of the great car companies of the 21st century.””

“Together with a Tesla lawyer, Blankenship sat in the state office going through the books, line by line, exploring the limits of what was possible. They presented an idea: Can we open a showroom that’s purely educational—no sales, just staff members on hand to tell people about the electric car? An official looked at the existing language. “Well, that’s not in here.” “So that means we can do that?” “Well, we’ll have to…” “No, no, no,” Tesla’s lawyer interjected. “It’s not in the law, it cannot be in the law next week.” Tesla had found the loophole they needed, and they sped right through it. The timing of their meeting, just after the legislative session had ended, meant they’d have fully two years on the ground before the statehouse had a chance to revise the laws on the books.”

“Running two complex operations, there was only so much maniacal obsession he could offer. He would give flippant answers until precisely the moment when something became the object of his focus, at which point he gave every fuck. In such a world, you’re delegated to and given full authority—until he turns his attention on you and your little fiefdom.”

““Rapid decision-making may appear as erratic, but it is not,” according to Musk. “Most people do not appreciate that no decision is also a decision. It is better to make many decisions per unit time with a slightly higher error rate, than few with a slightly lower error rate, because obviously one of your future right decisions can be to reverse an earlier wrong one, provided the earlier one was not catastrophic, which they rarely are.””

“That night, more than just a sales pitch for the Roadster, Musk laid out his grander plan for Tesla. The cost of the car not only bought attendees an exceptional sports car, it would help generate money to invest in developing other green vehicles.”

“A few days later, Musk would go further, posting on Tesla’s website his vision for the company, an elaboration on his simple three-step premise. Or, as he called it, “The Secret Tesla Motors Master Plan.””

““In keeping with a fast growing technology company, all free cash flow is plowed back into R&D to drive down the costs and bring the follow on products to market as fast as possible,” he wrote. “When someone buys the Tesla Roadster sports car, they are actually helping pay for development of the low cost family car.””

“He added another goal: He wanted to provide “zero emissions” electric power generation. The blog referenced his recent investment in a solar panel company, called SolarCity Corp. It was a venture with his two cousins (making him chairman in a third company, after Tesla and SpaceX) aimed at putting solar panels on homes, which, he wrote, could generate about fifty miles of driving per day worth of electricity.”

“Musk was out selling not only a cool sports car but the notion that one could power it without fossil fuels.”

““What I want to hear from you is that will be addressed after [start of production] and that customers will be informed that there will be an upgrade coming *before they receive the car*. I have never demanded that it be done prior to production, so I don’t know why you would even raise that as a straw man.””

“Marks inherited the unenviable position of trying to answer what Tesla was in the moment. He didn’t have the luxury of considering what it might become; he needed to save it today. He would suggest a different road from the one Musk had envisioned, and in doing so, he would quickly seal his own fate.”

“When Eberhard had brought his idea for an electric sports car to Elon Musk, they had seemingly shared a vision for what the company might become. But with each hard-won milestone, the company’s—and Musk’s—ambitions grew ever larger. Those ambitions were running headlong into the realities of the moment: the Roadster was a mess, threatening to undo all of their future plans.”

“Back in LA, Musk had dinner at a Beverly Hills steakhouse with a friend and early Tesla investor, Jason Calacanis. Musk was in a dark place. His third rocket had just exploded on liftoff, and SpaceX would go under if the fourth did. Calacanis had read that Tesla only had four weeks of money left; he asked Musk if that was true. No, Musk said. Three weeks. Musk confided that a friend had loaned him money so he could cover his personal expenses. There were other benefactors: Bill Lee, Al Gore’s son-in-law, invested $2 million, and Sergey Brin put in $500,000. Some employees were even writing checks, not sure they’d ever see the money again. Things looked bleak. Still, Musk said he wanted to show Calacanis something. He pulled out his BlackBerry and revealed a picture of a clay mockup of the Model S. “That’s gorgeous,” Calacanis said. “How much can you make it for?” “Well, it’s going to go 200 miles,” Musk said. “I think we can make it for $50,000 or $60,000.” That night Calacanis returned home and wrote out two checks for $50,000 each and a note to Musk: “Elon, looks like an incredible car…I’ll take two!””

“In Rawlinson, Musk found an engineer who enjoyed drilling down into the very basics of why and how a car worked, and what could be tweaked to make it better. Rawlinson saw in Musk the potential for an enthusiastic supporter.”

“Musk wanted to know what Rawlinson would do differently. “Elite fighting forces,” Rawlinson said. “Take the paratroop regiment. The big difference in a paratroop regiment is the leader is on the ground…You have direct leadership which adjusts to battlefield conditions.” Musk’s eyes widened. “Paratroopers! You mean special forces?” “Oh—” Rawlinson paused, realizing he had struck a vein. “Yes!””

“The presentation attracted those curious to see Musk in person. He wasn’t yet as famous as he would become but was already developing a reputation as a rebel in the tech world.”

“With investors suitably wooed, Musk huddled with his bankers on a call to discuss what they’d price Tesla’s stock at. The bankers recommend starting at $15 a share. Said Musk: “No. Higher.” Goldberg hadn’t been doing IPOs for very long but in his three years at it, he’d never seen any CEO push back on price like that. After all, these bankers from Goldman Sachs and Morgan Stanley were the experts. Now the experts were stunned. They muted their phones, filling their side of the conversation with profanity as they debated their next steps. Who the fuck does he think he is? Who here can convince him otherwise? Is this whole thing going to fail? Is it too late to pull out? In the end, they had gone too far to back down. Musk had them over a barrel, and after watching him for months as he pushed back against custom, they knew it was well within his MO to walk away if he didn’t get what he wanted on arguably the most important part of the IPO—the decision that would impact how much money Tesla took away from the arrangement.”

“Blankenship glanced online at the handful of stores Tesla had already established—many were either former car showrooms or designed like them. A customer had to drive to get to one. He thought that would be fatal for Tesla. Car customers tend to be loyal; a majority of new vehicle buyers in 2010 returned to the brand that they bought the last time. Some brands had even better return rates, such as Ford Motor Co., which saw a 63 percent loyalty rate. Tesla needed not just to convince people of their brand, but to persuade them to leave their old one. It didn’t help their cause that Tesla was asking buyers to take a chance on a new, unfamiliar technology.”

“One of the next places Blankenship targeted wouldn’t offer such easy entree. Texas was among a handful of states that banned carmakers from selling directly to customers. Musk wasn’t about to lie down, though. Tesla simply needed to find a way around the law.”

““We are revolutionizing the auto purchase and ownership experience,” Blankenship told the San Jose Mercury News. “At a typical car dealership, the goal of the dealer is to sell you a car that’s on the lot. At Tesla, we’re selling you a car that you design. The shift is people say: ‘I want this car.’ ””

“Every Friday afternoon before heading to dinner with his wife at a steakhouse near the San Jose store, Blankenship went to the Tesla showroom to study the customers. He watched them linger as they took in the floor-to-ceiling display windows, as they took test drives, as they used the free charging station in the parking lot behind the store.”

“Initially, Musk interviewed most candidates, often asking a simple question: What have you done that’s extraordinary? Engineers would marvel at his ability to dive into the finer points of their work. A wrong answer would end the interview quickly—and often draw Musk’s wrath to the recruiter who had sent the person.”

“Musk was building a culture around how he wanted Tesla to operate. He subscribed to “first principles thinking,” a way of problem solving that he attributed to physics but that was rooted in Aristotle’s writings. The notion was to drill down to the most basic ideas, ones that can’t be deduced from any other assumptions. Put in terms related to Tesla: Just because another company did it one way, that doesn’t mean it’s the right way. (Or the way Musk wanted it done.)”

“One engineer recalled using the time on the flight to ask Musk his opinion on the suspension characteristics for the Model S, a subject they had been debating. Because Tesla was building their car from scratch, such questions were purely up to them. Was the car’s handling going to be sporty, like a BMW, or more giving, like a Lexus? Musk paused, looking directly at his engineer. “I’m going to sell a fuck load of cars, so whatever suspension you need so I can sell a fuck load of cars—that’s the suspension I want.””

“Musk listened to the senior leader for about twenty minutes before cutting him off. “This is the stupidest thing I’ve ever seen,” he said, before walking out. “Don’t ever show it to me again.” Musk didn’t want to prioritize one thing over another, he wanted to prioritize everything.”

“Musk gathered the departed leader’s remaining colleagues together. “Look they’re good engineers, but just not good enough for the team,” he said.”

“He rarely carried anything but a phone, his assistant trailing him with whatever he might need. So he had no interest in cluttering a center console area with cubbies.”

““Ultra hardcore.” It was followed by a warning: “Scaling Model S production without hurting quality over the next six months is going to require extreme effort. Please prepare yourself for a level of intensity that is greater than anything most of you have experienced before. Revolutionizing industries is not for the faint of heart, but nothing is more rewarding or exciting.””

“As he reviewed the workflow, he realized there was no standardization of what was being done at workstations. This was because the design of the vehicle kept changing, and without standardized work, it was harder to know if the installation of parts was the problem or if there was a legitimate design flaw. Normally, the steps would have been plotted out years in advance; tested innumerable times; certified and documented in a picture book for workers to memorize. Tesla hadn’t done that—each worker had come up with their own process. Watkins thought he knew the answer. He ordered up GoPro cameras to attach to some workers to document their steps. They were going to reverse-engineer how they were building the car to figure out how to fix the problems. They also implemented a buddy system; subsequent stations down the line checked the work of preceding ones. As Chain, the quality executive, would later write about his experience: “What would have been deemed as unacceptable by any carmakers was seen as part of an ongoing process by Elon Musk who believed, rightly so, that the user experience of driving a truly innovative automobile would outweigh minor defects that will be eventually corrected.””

“Musk turned to George Blankenship, now the head of global sales, with clear instructions: “We make a dollar, we have a company. We lose a dollar, it’s another losing quarter—we do not have a company.””

“Musk complained to his staff about having to cater to the whims of the market; that every move was taken out of context and overreacted to; that their focus was on the next quarter when he was thinking about the next decades.”

“Musk spelled out his thinking. “Public company stocks, particularly if big step changes in technology are involved, go through extreme volatility, both for reasons of internal executions and for reasons that have nothing to do with anything except the economy. This causes people to be distracted by the manic-depressive nature of the stock instead of creating great products.””

“But with growth came distance: He no longer had a finger completely on the pulse the way he once did. His direct control was slipping. In a series of emails to employees, he laid out his expectations that managers shouldn’t be blocking the flow of information.”

““When I say that managers will be asked to leave if they take unreasonable actions to block the free flow of information within the company, I am not kidding,” he wrote.”