Power Play - Tesla, Elon Musk and The Bet of The Century (Book Review)

Recently I finished reading "Power Play" (book pictured above) and found it an entertaining read, chronicling the historic rise of Tesla and Elon Musk. I always scribble heavily in the margins of whatever book I'm reading and decided to capture the stories, lessons and observations which grabbed my attention in this post.

The topics are not in any particular order (just organized them alphabetically).

Feel free to jump around the page to whatever topics catch you're eye, there's certainly entertaining sections for every reader. Enjoy!

Advantages of a tech-enabled platform in an analog world - Musk struck a deal with Toyota to help develop an electric powertrain based on the popular RAV4 SUV. Toyota leads on the project were stunned at Tesla's ability and comfort in making so many project changes 'on-the-fly'. When the Toyota and Tesla teams were conducting cold weather testing on the prototype vehicle in Alaska, they collectively struggled to diagnose why the prototype was vibrating on slick roads. With a few keystrokes on a laptop, Tesla engineers modulated the vehicle's battery pack and traction-control algorithms and were able to fix the problems in a few hours. Experienced car makers from Toyota were flabbergasted as they thought it necessary to take the prototype back to the lab for a thorough investigation - they couldn't believe the speed of adjustment and iteration Tesla was capable of.

Apple CEO - In 2014-2015 when Apple began secretly working on its automotive aspirations, Apple started to poach Tesla executives with significant compensation packages that Tesla couldn't match. Eventually a call was arranged between Tim Cook (Apple CEO) and Elon Musk and the two briefly tested the waters about a potential acquisition. Musk showed interest, but with one startling condition, that he remain CEO... Tim Cook agreed, only until Musk clarified that he would need to be CEO of Tesla & Apple! Tim Cook reportedly was beside himself at the audacity of the request, responded, "FU** YOU", and hung up the phone. Absolutely incredible!

Ask for What You're Worth, Compensation - in 2017 it came time for Musk to negotiate a new compensation package. Musk demanded the board give him a plan that would make him the highest paid CEO ever and, if fully paid out, one of the richest people in the world. A ten-year plan was constructed that could be worth $50bn if Tesla achieved a variety of targets. What a great case study illustrating that you have to believe your own worth before other people will acknowledge it... even Elon Musk was not an exception to that rule.

Bumpy on the IPO Roadshow - Within weeks of filing IPO paperwork Tesla was racked with disaster. A team of Tesla engineers taking a private plane to a set of meetings when it crashed upon takeoff, killing all engineers onboard. Musk was supposed to be onboard this plane but cancelled his trip last minute upon learning that his brother had broken his neck in an accident in Colorado.

Convince the Best in Order to Work With the Best - Musk was able to attract remarkable talent to Tesla and accelerate the Company's growth thanks in large part by (i) the ability to convince others of the Tesla vision (largest EV company in a gasoline world) and (ii) backing that vision up with a fantastic product. Most skeptics relented and became a Tesla loyalist after taking their first test drive of the early Roadster.

Dichotomy of Tesla - Tesla seemed to regularly be in the financial press since its public markets debut with regular reporting about the automaker's potential insolvency. These financial troubles were a juxtaposition to the adulation Tesla was receiving from car enthusiasts (the Model S was the unanimous 2013 Motor Trend Car of the Year). This created an uneasy tension for the consumer who wanted to try this incredible new car, but were reluctant to buy from a company which they worried wouldn't be in business in a few years to service and repair the car.

Double the Deliveries or You're Fired! - Since Tesla did not have a web of auto dealership across the country, as Model 3 production ramped, Tesla quickly realized it had a problem - it couldn't deliver all of these cars to customers at scale. They pivoted and instead had the customer schedule a time to come in and pick-up the vehicle. When customer pick-ups weren't happening at a satisfying pace, Musk got involved. On a nightly sales team call, the Tesla team lead from Vegas got on the line and proudly announced that his team had signed up 1,700 people to pick up their Model 3s in the coming days. This was a record and something he and his team were proud of. Musk did not share the sentiment. Musk ordered the Vegas team lead to double that result in the next day, or he would be fired! This poor team leader was petrified, he was staring down the barrel of Musk's ire after just having relocated his family to Vegas a few months prior to join Tesla. The Vegas team lead went to work. Customer phone calls were traded for text messages. Customers were assigned a pickup window instead of getting to choose. Customers were asked to fill out all purchase paperwork in advance of coming to the warehouse. By 6pm the next day, the Vegas Team had miraculously reached 5,000 appointments, nearly ~3x what his team had reported the day before. Musk's response, "Wow".

Drink Wine & Woo Suppliers - Coming up against key deadlines in the early Tesla Roadster production lifecycle, Musk got word that the UK supplier who was engaged to supply body panels for the Roadster had walked away from the job after producing only a handful of panels. This put the Roadster production timeline in jeopardy as Tesla was required to have all vehicle components to a Lotus factory (who was doing all assembly for Tesla at the time) or it would lose its assembly spots. It was a disaster in the making. Musk hopped on a jet, went into the quitting supplier's factory floor, and ripped out the custom tooling needed to build the parts. Musk quipped that this disruption gave him an opportunity to "drink wine in France and woo a new supplier." Talk about resilience.

First Principles Thinking - As Musk was hiring managers and building teams to execute his visionary Tesla product roadmap, he was insistent on first principles thinking, especially when it came to car design. The notion: drill down to the most basic ideas, ones that can't be deduced from any other assumptions. Musk detested the idea of doing something "just because that's how its always been done".

Follow the Money - Any idea who Martin Eberhard is? Exactly, me neither before reading this book. Martin Eberhard is the Co-Founder of Tesla (along with Marc Tarpenning) and was the one who recruited Elon Musk to be an early investor in the Company. Despite the enormous progress realized under Eberhard's stewardship, each subsequent capital raise (i.e., each check stroked by Musk), Eberhard increasingly lost control of the Company. 3 1/2 years after Tesla's start, Eberhard was ousted from the very Company he helped launch, with nothing to show for it... Regardless of how great an idea is, you can't ignore the realities of financial ownership which ultimately take the day.

Go Fast but Acknowledge the Costs - Musk showed particular distaste when hearing excuses about time constraints. In the middle of a meeting where a timing limitation was raised, he would stop the dialogue and dig into the assertion (ex: a part couldn't be made in time). He'd regularly ask - "why couldn't this supplier speed things up?". These challenges from Musk encapsulated a consistent battle against the limiting beliefs of his team. The cost of this approach? A de-motivated team which feels like they are consistently asked to do the impossible will ultimately lead to high employee turnover (which is what happened).

Go To Market, Premium Segment First - The Tesla founders had a background in consumer electronics. This experience showed them that the newest technologies always sold for a premium first, then came down to suit the everyday buyers. Early adopters gobbled up the new tech, willing to pay more, before the mainstream followed suit. The Tesla founders wondered, "why should an electric car be any different?". This inspiration led to Tesla's first EV being the Roadster, a two-door sports car designed to capture the imagination of the early adopter who had the budget to splurge.

Google Buyout? - in the depths of Tesla's pains (financial and operational) when trying to scale Model S production, Musk reached out to his friend Larry Page (Google Founder) and offered to sell the Company so that Tesla would have runway to eventually build out the mass-market Model 3. Under this deal, Musk would have remained as Chief Executive, but not an owner. These talks were scuttled when Tesla announced a record quarter of deliveries for the Model S, causing the stock to soar, and allowing Tesla to raise more money from investors. No buyout required.

Hell (Level 9) - During a particularly horrendous quarter where Tesla missed its vehicle delivery guidance by more than 80% - Musk sounded dreadful on its earnings call with analysts. One Wall St. analyst sensing Musk's suffering asked, "How hot is it in hell right now?"... Musk replied... "Let's say Level 9 is the worst, okay?... We were in Level 9 , we're now in Level 8."  

Human Ingenuity is Hard to Quantify - There were countless of intelligent individuals who stood up throughout Tesla's adolescence and cited thoughtful reasons why the Company would fail. Between the anecdotes cited in the book and in this post, I genuinely believe their assessment of risks at the time were well founded... BUT, ultimately those risks were mitigated by an x-factor, Ingenuity. Its difficult to factor the impact that human ingenuity and resourcefulness has on the rate of improvement. The skeptics of Tesla saw a current state of affairs which was extrapolated into potential future realities. These projections were linear and ignored the ability of intelligent individuals to solve problems in creative new ways. These projections couldn't estimate the ability of humans to re-write the rules.

Learning by Fire - Tesla had learned how to make an electric vehicle in one of the most expensive places on earth, California. Increasing production capacity in new markets like China would bring incredible profitability uplift for the business.

Leverage Publicly Made Commitments to Accelerate Results - Musk would regularly use public announcements as a tool to juice his team. Whether it was production guidance, new car launches or delivery dates, Musk would create seemingly arbitrary deadlines in order to keep everyone absolutely sharp and razor focused on moving as quickly as possible.

At one point Musk promised full-self driving capabilities by the end of 2017 (which didn't happen). Internally at Tesla, these comments certainly rubbed some engineers the wrong way as they didn't see it as possible, but interestingly, other team members shrugged off their disbelief. Musk said it - therefore some people internally thought that fact alone made it possible. After all, Musk had pushed his team to clear hurdles which had stymied experienced automakers for decades. This is a pretty incredible phenomenon when a team begins to believe in a leader and their collective ability to do the 'impossible'. When you regularly defy what's 'possible', limiting beliefs become less potent!

Limiting beliefs - When Musk was asked why he had pulled forward Model 3 production plans when members of his team had warned him of the pitfalls, he replied, "People have said that my entire life; what else is new?"... "They also said we couldn't land rockets."

Lone Star State - Texas regulation at the time prevented Tesla from operating its own auto dealerships in the state. Tesla representatives carefully plotted a trip to the State House in Austin just after its legislative season had ended. Tesla lawyers went line-by-line through the code and pressed legislators if the Company could open just a 'showroom' as long as it was purely educational. The Tesla lawyers didn't receive an outright "no" which to them indicated a needed loophole to enter the Texas market. The timing of their visit to the capital, with the legislative session just ending, meant that Tesla had 2 years of runway before the State House could change the laws to prevent even a showroom for Tesla. Even with regulatory protections, there is no underestimating what a motivated and well-intentioned competitor is capable of doing to disrupt the status quo.

Managing Wall St - the financial community had its eyes trained so heavily on Tesla's delivery (sales) figures that it informed the production scheduling at Tesla. Tesla needed to put a key in the customer's hand in order to count as a 'delivery'. In order to squeeze as many vehicle deliveries as possible in a given quarter, East Coast customer cars were prioritized early in the manufacturing schedule to allow for the longer delivery times from Tesla's CA manufacturing facilities. Cars for West Coast customers would be made in the waning weeks/days of the quarter due to the shorter delivery radius.

Musk Has Always Been an Open Book, Its Part of His Approach - Musk would regularly converse with employees and openly share how all the challenges of scaling the company were affecting him. This presented a vulnerability and instilled a sense of motivation seeing the founder processing likely the same emotions, fears and insecurities that individual employees also were experiencing.

Musk's Interviewing Tactics - Musk would regularly conduct interviews himself with engineers. He would ask each candidate a simple question, "What have you done that's extraordinary". He would then proceed to dive deep into the details of the candidates work. Candidates consistently remarked of Musk's ability to quickly dissect and comprehend the finer points of an engineer's projects. Wrong answers by the engineering candidate would result in an immediate conclusion of the interview and some poor HR director receiving the wrath of Musk.

Musk on Automation - "Excessive automation at Tesla was a mistake. To be precise, my mistake. Humans are underrated"

Musk on Decision-Making - "Most people do not appreciate that no decision is also a decision. It is better to make many decisions per unit of 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 reserve an earlier wrong one, provided the earlier one was not catastrophic, which they rarely are."

Musk on the Life of an Entrepreneur - "The reality is great highs, terrible lows and unrelenting stress".

Musk on the Scene - Elon Musk was brought in during the initial funding round to help finance the first Tesla prototype. The founding team at Tesla presented to Musk an estimate of $25mm to build the first prototype. Musk told the team their estimate was too low (which turned out to be true), and despite funding the team, gave them a 10% chance of success at the time!

Musk on User Experience - Musk believed that the user experience of driving a truly innovative automobile would outweigh minor defects that will be eventually corrected. This philosophy would never leave the lips of a traditional OEM who prized manufacturing of defect-free vehicles above all else. Based on Tesla's adoption and popularity today - it appears Musk was spot on.

Musk Putting Tesla on HIS Balance Sheet - Musk was taking insane personal risk throughout the growth at Tesla. One evening as Musk and others were going over a set of financial projections, Musk picked up a call from his money manager. Musk was overheard barking orders that holdings needed to be liquidated because Tesla needed to make payroll. He was writing personal checks to cover employee salaries and putting work expenses on his personal credit cards. Wild!

Musk's Super Secret Master Plan - While trying to sell investors on the vision of Tesla selling more than just the Roadster model (late 2000's), Musk publicized a laughably simple "Secret Tesla Motors Master Plan". It was comprised of 3 steps: (Step 1) - Build an expensive sports car starting at $90k that could attract attention. (Step 2) - Build a luxury sedan that could compete against the Germany luxury cars and sell for about half the price of the sports car at ~$45k. (Step 3) - Build a third-gen car that would be more affordable and appeal to the masses.... I'd say he did a pretty spectacular job in crafting and executing a vision that fit on a napkin!

Perilous Communication - Those who managed to have any sort of tenure at Tesla learned the subtle difference in response when faced with an insurmountable task. Musk wanted to hear "we'll do our best" instead of "it can't be done". Those who accepted that nuance lasted much longer in positions of leadership.

Problems Are Not Actually Problems - Musk had a chief of staff named Sam Teller. Teller was one of the few people that had a transcendent picture of what was going on across the various domains of Musk's empire (Tesla, SpaceX and Solar City). She shared an insightful piece of advice for newly hired senior executives looking to get the inside scoop on Musk. She said - "For Musk... problems are not actually problems. They're normal. Musk spends all of his time solving things that are broken. Surprises are the problem. Musk doesn't like to be surprised." What a powerful perspective - what if we didn't really see problems in the way they are customarily defined. What if we just saw them as a rudimentary part of our human experience. What would that empower us to do? What hurdles could we clear?

Rapid Decision-Making - Throughout the origin story of Tesla and Musk's meteoric rise, short-hand ideas and decisions were regularly prioritized over more elaborate planning processes. Musk truly operates under the notion that it is better to be directionally right (and move with speed) than be precisely wrong (and move slowly).

Round 1, Fight - Musk wanted his deputies to argue, disagree and 'fight' with one another in front of him. He didn't want decisions and full consensus to be reached without an ability for him to participate in and directly shape the decision-making process.

Set Big Goals and "Fail" On A Worthwhile Target - While outlandish targets set by Musk were regularly missed, the commitments and action organized towards outsized targets catalyzed resourcefulness from the Tesla teams and still led to tremendous outcomes.

Sh** Tesla Doubters Used to Say -

• "Tesla is just a one trick pony. Yes they brought out a great Model S with avg ticket price of $100k, but it took the team at Tesla years, when it was there only focus. They won't be able to figure out the mass-production systems required for the Model 3 (everyday consumer car at $35k) without going broke"
• From GM engineering task force studying Tesla as a competitive threat in early 2010's - were dismissive of the battery technology, citing concerns about the types of cells used and the accompanying fire risk. They also claimed the giant touchscreen in the center of the car was dangerous and a distraction to drivers.

Show them Failure, Show them Success - Musk would regularly gather employees across disciplines and talk about how Tesla's prospects were 'doomed' and how they were going to 'go up in flames if "we can't figure this out" or "if we can't work harder than we're currently working". A stick-based management tool. But in the same conversation, Musk painted bright pictures of the future for employees - saying, "If we pull this off, the company could be worth $200-$250/share". The carrot. Musk regularly used these two tools in combination to extract as much as he could from his strained teams.

Tesla, An Auto Parts Supplier? Inconceivable! - An early venture investor in Tesla (Vantage Point) butted heads with Musk as the company matured because they viewed Tesla more as an auto parts supplier (i.e., selling electrical powertrains to existing auto manufacturers like Ford or GM). Musk had always envisioned Tesla to be a manufacturer, the consumer facing brand. Its almost hard to conceive of a world, knowing what we now know, of Tesla being a non-descript auto parts supplier.

Tesla, the First DTC Car Company - For over a century the car business has operated with an independent distribution model, meaning Ford does not directly sell its manufactured vehicles. Ford relies on its dealership channel, a network of independently owned and operated car lots governed by franchise agreements between the auto manufacturer and the local business owner. Over time, these local auto dealer franchises began to wield significant local influence and created regulatory structures in their local jurisdictions to protect their businesses interests. For example, some cities and states outlawed the practice of automakers selling their vehicles direct to the consumer (was the case in Texas). Despite existing industry norms, Tesla sought to, yet again, disrupt the status quo by bypassing the dealer channel network and sell its cars directly to consumers.

The Problems of Being Small - Tesla experienced challenges in convincing lithium battery suppliers (like LG and Panasonic) to sell to them. At the time, Tesla was having issues keeping the battery cells from overheating which would cause an explosive and lethal chain within the car. Battery manufacturers looked at the situation and said - "Tesla is a shallow pocket, We are a deep pocket... if your car blows up, we are the one who will be getting sued". This presented significant challenges for years for Tesla when trying to secure sufficient lithium battery volumes.

Ultra Hardcore - Musk sent an email around during the early innings of the Model S production ramp which read: "Scaling Model S Production without hurting quality over the next six months is going to require extreme effort. Please prepare 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"

Vertical Dis-integration of the Auto Business - In the early 2000's when Tesla was evolving from being just an idea to a product, the broader automotive industry was simultaneously going through a transformation. Historically the large original equipment manufacturers (OEMs) like Ford & GM had manufactured most of its components in-house (i.e., Ford would built everything from brakes to airbags to the transmission). But as these behemoth companies were forced to evolve among changing consumer tastes and crappy balance sheets, they spun out the manufacturing of many car components to become standalone, 3rd party businesses. This was important for Tesla because it enabled them to purchase individual vehicle components from these newly formed companies (as opposed to convincing Ford to sell component parts to an upstart competitor). The unbundling of the auto industry lowered the barriers to entry for Tesla when building its early prototype.

What's in a Name? - Musk still maintains the playfulness and humor of a child. As has already been well publicized, Musk wanted to have the car after the Model S be the Model "E" so it would allow his company's vehicle lineup to spell "S-E-X". Unfortunately, Ford held the trademark to "Model E", so Musk opted for the next best thing, "Model 3" -> "S-3-X".... close enough.

Where's the Cash? A Supply Chain Nightmare  - Tesla's supply chain in the early days was wildly complex, which left cash being tied up in inventory for incredibly long periods of time. For ex: Tesla would buy batteries from Japan -> these batteries would be shipped to Thailand to be assembled into a battery pack -> the battery pack then goes to the UK to be put into the Roadster frame -> which then was placed on a boat to California. This trip would take months! For a company growing as quickly as Tesla, with inventory taking months to reach its destination, could have easily killed the Company by choking out its liquidity in the early days.

Other Tesla Quips:

• "The first rule of business is to stay in business"
• One executive was known to tell Musk, "I think we can fix this", quickly followed by the proverb, "No man comes up with a good idea when being chased by a tiger" (presumably in an attempt to lower Musk's profound rage)
• Musk attempted to cultivate a no-asshole policy at Tesla, but it turned out all to be a matter of perspective as "one-man's asshole is another man's straight shooter"