Tesla Factory Efforts

In our class, we have spent a lot of time discussing the so-called revolutionary strategies and campaigns of Tesla. While it seems to me that Professor Smitka’s stance — that Tesla is a “fraud” — is valid given their current production model, the company seems to feel otherwise. Just today, Tesla Motors released a statement that it would build “500,000 cars in 2018.” a staggering figure considering the lack of infrastructure possessed by the firm. This discrepancy between an industry expert and an industry player is fascinating to me, because I have never before felt so informed about the behind-the-scenes action within any particular field.

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One one hand, of course Elon Musk is desperately giving a “public shoutout to the sharpest minds in manufacturing” this week. After all, the CEO needs to support and represent his brand. On the other hand, it seems dishonest and even disreputable to make postive news out of a stagnant situation. If nothing else, ECON 244 has made me cautious to read headlines with any measure of trust or loyalty. It is popular to doubt car dealer but now I feel it appropriate to doubt car makers; there is just too much information asymmetry between what the news-consuming audience thinks it knows and what the state of affairs between parts sellers and factories. Regardless of Elon Musk’s sensational sound bits, I am now convinced that he is bluffing his way into the community of auto investors. It waits to be seen whether he will ever have the market share he promises.

5 comments to Tesla Factory Efforts

  • Directors – and stock pickers – tell companies they need to smooth profits, and show growth, and … demands that are not always internally consistent. But these pressures do encourage firms to massage reports, in ways that are often transparent but do not always included the data to recompile in the manner you prefer. But the accounting profession does not sign off without a credible case, and you can’t pad profits quarter after quarter unless there really is an increase, or unless you’re willing to engage in outright fraud, and can hide that from your accountants.

    As an economist I tend to discount what people say, and look at the numbers or other evidence of what they do. You shouldn’t be unduly cynical – firms vary sufficient among each other, and across time, that accounting is part art and part science. Data are also about past performance, not future outcomes. So even when all are operating as best they can to be honest, accounts won’t necessarily provide the information you want.

    Now Musk is very articulate, and projects his personality. At the start he was also in over his head, making cars is a lot more complicated than thinking up PayPal, getting it up and running, and then selling it to someone else. A BigIdea doesn’t get you very far, you instead have to plan for years, implement carefully, all while working on the next iteration, which for a small firm needs to complement existing product and so raise total sales. Historically perhaps 97% of would-be carmakers failed.

    Is Musk lying? I don’t know. If you have a magnetic personality, you can encourage people to hear what they want and not what you say. No 15 minute talk can convey the complexity of the auto business, providing additional opportunities for those reporting his words to hear what they believe he will say and not what he actually said. TV snippets are not a good medium for conveying complexity.

    Be a questioning listener, but try not to be a cynical one unless you have experience with that particular spokesperson.

  • barnettt18

    I think that Elon Musk represents the corporate finance takeover of the auto industry. He is a businessman before an auto enthusiast and makes his financial plans for Tesla evident before he talks about engine specs or other important parts of car manufacturing. I think that the prevalence of financial talk really proves that Musk is but one of many industry players who talks about financials but fails to back up his words with significant auto experience. I can’t wait to see how Tesla production plays out in the coming months and years to match Musk’s statements.

    Thomas Barnett

  • manleya18

    I, too am interested to see Tesla’s turnout over the next few months and years. The big question remains: can they enter the middle market with a car in the $35,000-45,000? How will we dispose of the batteries and produce cheaper ones? In macroeconomics we talked about the price mechanism and how producing cheaper products necessitates innovation, but with such new and cutting edge technology, it doesn’t seem feasible that Tesla can produce a mass-market battery that is reasonably priced in such a short amount of time. I’m not saying Musk is lying; he is an extremely ambitious innovator and has had great ideas in the past, but as Professor Smitka said, the numbers don’t lie.

  • siegels18

    One main thing that I have noticed during this class from professor Smitka’s lectures and from news stories is that the Tesla company’s cars are not very well made compared to other manufactures. This can be seen by the amount of warranties that are redeemed per car sold. For me this seems like a simple exercise in supply and demand. If their is demand for luxury completely electric cars then somehow this demand will be met by a producer who can make these cars better than Tesla has made them. I feel as though most people view Tesla as the only company that can produce these types of cars, but I think that if people want these cars then companies will realize that profits are there to be had and will try to produce better working luxury electric cars. Maybe there is something intrinsically unstable about producing fully electric cars rather than poor engineering on Tesla’s part but my bet is that another company will soon figure out a way to out-tesla tesla.

  • cranea18

    Although Tesla has yet to turn a profit and is behind the game with the quantity and quality of their cars, I think they are starting to change the game. When we were talking to Mr. Thai Tang at Ford HQ, he said that they do not really view Tesla as a threat, although they are watching what they are doing and trying to learn from them. Elon Musk has done things in the auto industry that other manufacturers have not thought of, such as selling directly to their customers instead of using dealerships. Even though Tesla will probably not be a major threat to the Detroit Three, they are certainly going to affect some aspects of the industry.

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