Tesla proves doubters wrong but still they doubt

Tesla surprised the markets with much better than expected results, yet still the cynics remain unappeased. They are missing the point.

Article updated: 28 October 2019 8:00am Author: Michael Baxter

Tesla has no shortage of doubters, it is as if critics get an almost sadistic pleasure from finding things that are wrong at the company. It has always been like that, and if ever the company achieves anything impressive, they dismiss it as a fluke, a one-off, and say the underlying story is one of a company selling snake oil.

How many critics predicted that Tesla would be bust by now? How many suggested, a couple of years ago, that its then production targets were pie in the sky?

Consider July 2018. Tesla finally confounds critics, when it hits the production target of 5,000 vehicles a week. What an achievement? They had said it was impossible and yet the company did it. Then a glut of reports appeared, suggesting CEO Elon Musk was making staff work impossible hours, that the company had only managed to hit its target by throwing money at the challenge, meaning that the cost of production was prohibitively high, and the company wasn’t sustainable.

Now, 15 months on, Tesla reveals that not only did it make 97,000 vehicles in its latest quarter, but made a profit in the process. How did the company manage it? By cutting operational costs.

Yet still the critics are unabated. “But the company missed its 100,000 production target,” they say. You can almost imagine some jumping for joy when they proclaim that the ‘big boys’ are in town, that the more established car makers are in the electric vehicle game now, meaning Tesla is set to go into reverse gear, rewinding through the chapters that tell its story, all the way back to chapter 11. Others home in on the price — “Tesla is too expensive,” they say, probably with glee, and “an economic downturn is coming.”

Why? Over and over again, Tesla has achieved things critics said were impossible, yet always they focus on the few things it has not yet achieved?

This is a perfect example of innovator’s dilemma. The classic study, produced by Harvard professor Clayton Christensen, which looked at how companies that dominate a market place fail. Invariably they dismiss new companies with new business models as upstarts peddling toys. Yet the upstarts win, the ‘toys’ become market leaders.

Maybe it is about cognitive dissonance. You work in an industry all your life, you learn how to do things in a certain way, you see a certain approach work time and time again, how can a new approach work, regardless of what the evidence says?

Traditionally, making cars is hellishly complex. It is not something you master within a few years of a company’s formation.

But in the electric car business the most complex part of the process is making the battery. Electric cars have less moving parts, making their production process less complex than making internal combustion engine cars, until, that is, you factor in the battery.

And which company leads the world in making lithium ion batteries? Which company not only makes batteries for cars but to support solar energy? Which company makes batteries to provide backup for local grids, say in Australia? Which company has invested billions in lithium ion factories? It is Tesla. When it comes to lithium ion batteries, it is the traditional car companies that are upstarts.

And what other technology will be vital in the car industry in the future? Answer: AI. Tesla is one of the leading AI companies in the world.

It is Tesla that works on the cutting edge of autonomous cars, it is Tesla that has advanced plans to provide a car sharing service around autonomous cars.

In all the areas that are disrupting the car industry, Tesla is a master.

First critics said there was no future for electric cars — it is becoming harder and harder to make that argument. Indeed you can only credibly argue this, if you assume the trejectory of advances in electric cars seen over the last 10 or 20 years reverses.

Now critics insist autonomous cars have no future.

It seems that while Tesla advances thanks to a dream made possible by chips made of silicon, critics have their heads in the sand.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.