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Attacking Innovation - Why is Tesla so hated?

“Fake News : False stories that appear to be news, spread on the internet or using other media, usually created to influence political views or as a joke”

Criticism is very easy. People enjoy feeling superior, and like to attack things they don’t understand. Refutation of criticism requires effort and research, and responses are complicated. People lose interest before explanations are available, and when they are, nobody reads them. The falsities become accepted as truth.

Tesla – a prime example of how people fear innovation

Tesla is a significant target of many organisations. There are accusations of poor financial management, production issues, and false advertising.

This leads to a series of important questions.

Are these accusations true? Is Tesla a bad company? If not, why, do people hate Tesla when it (a successful innovative company) is finally achieving great milestones? Why does America attack its most well-known, popular, and successful new manufacturing company, when it brings so much employment to places like Nevada and California, and is producing electric vehicles which are the envy of Europe and Asia?

Some facts about Tesla and the wider automotive industry:

  • It is expensive and difficult to set up a new automotive company. Tesla is the first new automotive company in the US since Chrysler in 1924.

  • Tesla was established due to a sequence of extremely fortunate and unlikely events.

  • The Global Financial Crisis allowed purchases of a new production plant and stamping equipment for far less than expected.

  • Without the Global Financial Crisis, Tesla may never have appeared, and were days from folding in 2008 (before the GFC) and 2013 (soon after the Model S was released).

  • An influx of funds arrived via Daimler Chrysler and a US government loan at the precise moments that they were required.

  • Innovative leaders and engineers arrived at moments when they were needed, with ideas that fit the need and the times.

Watch this 2016 analysis by Andrea James (a former analyst who covered Tesla’s earlier history), especially from 32:38 to 36:20.

Source : Youtube (August 2016). [Andrea James (former TSLA analyst) interview by DaveT]

Typical arguments : True, False, or Uncertain?

  • Tesla is in danger of bankruptcy.

Tesla is spending significant sums on expansion and infrastructure, and does have high levels of debt (currently around $11 billion USD). It has been recently downgraded by Moodys to a lower credit rating. It is also true that the Model 3 vehicle needs to be successful for Tesla to succeed, and to pay their debts.

The expenses have been necessary for infrastructure, such as building and fitting out their vast battery factory, expanding their service departments, and extending their supercharging network. In fact, Tesla is projected to expand faster than any other modern automotive company, except perhaps the Ford Model T. (Note first quarter report on 2018 Vehicle Production and Deliveries.)

Tesla is still only in the early production phases of the production ramp, however they are not in danger of bankruptcy. The youtube video below explains why.

Source : Youtube (March 2018) [Why Isn't Tesla Broke?]

  • Tesla is a poor manufacturer, it repeatedly fails at meeting its targets/deadlines.

Tesla is not a poor manufacturer, but it is certainly inexperienced. It has had multiple issues in producing vehicles.

- Failures of parts suppliers can lead to issues in production. This has occurred multiple times. The vehicles are unlike traditional vehicles, and the parts are often unique. Tesla has had trouble with suppliers, and sometimes has had to manufacture parts themselves. For this reason they are far more vertically integrated than other automotive companies.

- Tesla is attempting to add a higher level of automation than other companies. This leads to some problems in production, and repeated setbacks.

- It needs to be more cautious and less outwardly optimistic in their projections. It has invariably failed to meet its own deadlines.

However Tesla is working hard at improving is manufacturing glitches. The Model S is significantly better than when it was first produced (though the Model X is still below average in reliability). Tesla owners rate Tesla vehicles very highly. Finally, Tesla is probably becoming more cautious in its projections.

  • Tesla’s autopilot is dangerous.

The USA based NHTSA (National Highway Traffic Safety Administration) believes that vehicles with Tesla’s autopilot are 40% safer than without it.

It is simplistic to say that Tesla’s vehicles are dangerous, though they can be if operated incorrectly. Autopilot is a driving aid, like cruise control. Cruise control should not be used to drive a vehicle without human oversight, and people generally understand this.

Autopilot in the future could become problematic in a public relations sense, as the types of accidents may change. That is, imagine that human driving flaws are radically improved and removed, and the accident rate therefore drops enormously, but autopilot occasionally has an accident that a human wouldn’t. The negative publicity would be unwarranted, but guaranteed. This sort of issue needs to be anticipated.

Therefore, the criticisms are at least partially justified.

However, it is also not true to say that Tesla is a bad company, nor is it in trouble.

At worst, Tesla has made some mistakes, but it has also been successful.

Since 2007, Tesla has evolved into a 37,000 employee company selling 100,000 vehicles annually, solar roofs, solar panels, and battery storage, and has some of the best automotive based artificial intelligence engineering in the world. Tesla is engaging in new manufacturing processes and challenging new industries in a multitude of ways.

It is this novelty and innovation that Tesla has displayed, which has resulted in a heavy attack by a variety of parties.

Forces against Tesla

There are many organisations who want Tesla to fail.

1. The Koch brothers and their empire

The Koch brothers are two conservative billionaire brothers engaged in oil and fossil fuel businesses. They are anti-climate change and fund anti electric vehicle movements.

2. The media

The mainstream media likes to portray Tesla as in trouble or struggling. They also often ignore positive news.

This could be merely due to advertising, Tesla does not advertise, and all other automotive manufacturers do. There is no incentive to support Tesla with positive articles.

Some examples.

  • Leadership change

Compare articles about other automotive companies, with those on Tesla.

Both the articles below were released by Bloomberg.

However, look at the difference in language below.

(Fortunately, Bloomberg has also released positive reports, it just appears that negativity is worth more.)

Other media is no better.

  • Manufacturing and sales prospects in China

Very little was written about the positives for Tesla relating to the new ownership rules for manufacturing in China.

President Xi has announced that automotive companies can now own their own facilities, whereas in the past they had to construct projects with a 50% partnership with an existing Chinese firm.

Other automotive companies have arrangements with Chinese manufacturers.

This law appears to have been constructed specifically for Tesla, who is planning to build new factories in China. Once Tesla gains a foothold there, its prospects will be significantly improved.

  • Tesla vehicle production quality

Tesla has been attacked on its poor Model 3 quality, often with respect to panel alignment, but also on a variety of other manufacturing issues (including charging sockets, and computer/software glitches). This is undoubtedly true, particularly for earlier stages of production.

However, other car companies suffer panel alignment issues in their new vehicles, and are not reported to anywhere the same extent.

Most acknowledge that people should avoid purchasing early versions of new models.

3. Existing automotive companies

Tesla is a threat to other automotive companies. The more successful Tesla is, the fewer conventional vehicles are purchased. Tesla is already beating traditional companies in luxury vehicle sales, and could extend this to other categories as well.

4. Oil companies

Electric vehicles threaten the traditional oil monopoly.

Below is what could happen in the future, if electric vehicles continue to thrive in the market.

Source : Bloomberg, February 2016. [The Peak Oil Myth and the Rise of the Electric Car]

5. Dealerships

Tesla has no dealerships, selling directly to customers. Dealerships are powerful in the US, and have been fighting Tesla’s influence in every US state.

6. Short sellers and other market institutions

There is a very large market community who bets on companies failing. For whatever reason (including many of the above), Tesla has been chosen as their most likely company. It is the most heavily shorted stock in the US.

Other institutions may be trying to lower the price in order to buy in. Some speculate that large institutions are sending out negative publicity in order to remove small stockholders.

7. The Merchants of Doubt

This group of paid marketers attack Tesla with a variety of tools, the same as those used to argue against Tobacco and Climate Change.

Will Tesla beat the negativity?

With no advertising budget, and around 450,000 vehicle orders (the exact figure is unknown), perhaps public opinion is more important than any negative marketing.

“The balance of power is shifting toward consumers and away from companies. The right way to respond to this if you are a company is to put the vast majority of your energy, attention, and dollars into building a great product and a smaller amount into shouting about it.”

Source: Jeff Bezos

Despite the negativity in early 2018 by many media outlets, Tesla stock price is still strong (though it has dropped from its all time highs). Given that stock price is a measure of confidence in the company, perhaps this shows that the misinformation has not been successful.

In the latest earnings report (Q1, 2018), Elon Musk ignored questions by a number of well known analysts (which he called ‘bone-headed’), preferring to spend time answering questions raised by a representative of small retail stock holders.

This can be viewed either as a mistake, and poor communication (as analysts reports are very important for Wall Street), or as sign of extreme confidence that Tesla no longer needs them to achieve their goal to be profitable.

In the end, it is about whether people buy Tesla’s products, and whether they can make money. Elon Musk, and the rest of his management team, believe this will happen.

“Electric vehicles won’t displace ICE vehicles because they save money (except in the commercial realm), or even because of their very real environmental benefits. They will win out in the end because they’re better. They’re more fun and more convenient to drive, they’re safer, they require less maintenance, they offer more interior space, and their technological superiority enables all kinds of high-tech features that will someday seem as necessary as the AC and the stereo do today.”

Source : Charles Morris, Tesla Motors: How Elon Musk and Company Made Electric Cars Cool, and Sparked the Next Tech Revolution

The Innovator’s Dilemma

“The very decision-making and resource-allocation processes that are key to the success of established companies are the very processes that reject disruptive technologies: listening carefully to customers; tracking competitors’ actions carefully; and investing resources to design and build higher-performance, higher-quality products that will yield greater profit. These are the reasons why great firms stumbled or failed when confronted with disruptive technological change.”

Source: Clayton M. Christensen. The Innovator's Dilemma

The Innovator’s Dilemma targets the question of how established successful companies fail or lose market share to new innovation. Why does the market bet against innovation?

“Sustainable growth comes from aggressively seeking to kill your cash cow before someone else does. Companies tend to protect what they have instead of trying to destroy it themselves through innovation. Consumer businesses that are willing to cannibalize their existing audience are the ones that can survive in the long-term.”

This lack of recognition of innovation does not just apply to companies, but politics and broad scale social change as well. Despite a century of the fastest technological change ever seen, and an obvious beginning of the fourth industrial revolution, despite there being apparent solutions to major challenges such as climate change and fossil fuel dependency, the population is unable to observe technological change without, to some extent, fighting it.

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