Elon Musk’s electric car company Tesla has defied expectations and succeeded — despite having an expensive, experimental product that nobody was sure even had a market. How did it happen? One analyst says it’s all about destroying the car market from the top down.
Over at Forbes, business professor Jeff Dyer has a fascinating, in-depth analysis of Tesla as a company. He begins by explaining that the company is in the odd position of being a “high-end disruptor.” Musk followed the usual pattern of many disruptive companies, by injecting a brand-new kind of product into a dinosaur industry. But unlike most disruptors, like Uber or Amazon, he didn’t upend the market by attracting consumers seeking a deal.
Instead, he jumped into the market at the very top. Writes Dyer:
High-end disruptors produce innovations that are leapfrog in nature, making them difficult to imitate rapidly. They outperform existing products on critical attributes on their debut; they sell for a premium price rather than a discount; and they target incumbents’ most profitable customers, going after the most discriminating and least price-sensitive buyers before spreading to the mainstream. If you look within some large companies, you can flesh out previous examples: Apple’s iPod outplayed the Sony Walkman; Starbucks’ high-end coffee drinks and atmosphere drowned out local coffee shops; Dyson’s vacuum cleaners now have solid market share; Garmin’s GPS golf watches have taken much of the business from range finders. The incumbents didn’t react fast enough, and the high-end disruptors took over their market.
So the closest comparison to Tesla right now might be Apple, which continues to dominate the gadget space with top shelf devices aimed at first worlders with disposable income. Dyer talks to a number of market experts who say that Tesla managed to turn this strategy into a money-maker. The fact that investors are clamoring to throw money at Musk, and that GM and Nissan have introduced electric car models, suggests that Tesla is a successful disruptor that will eventually be profitable.
Instead of learning from the aging car industry, Musk is taking his cues from the future. Dyer explains:
Tesla ... updates designs continuously, borrowing ideas freely from its sibling SpaceX, including its extensive use of aluminum in both the body and the chassis of the Model S, as well as drawing and casting techniques used to produce the aluminum bodies of SpaceX’s Falcon rocket and Dragon capsules. “It’s very helpful to cross-fertilize ideas from different industries,” says Musk.
That’s right — these cars are more influenced by rockets than other automobiles.
That said, the company does appear to be running on the same fumes that propel its fellow disruptor Amazon — which is to say, Musk wants everybody at work, all the time. Dyer writes:
Tesla’s innovation process is neither easy nor comfortable. A recent Musk biography tells the story of the time when, after asking already overworked employees to continue pulling overtime before the launch of the original Tesla Roadster, one employee said, “But we haven’t seen our family in weeks.” Musk’s response: “You will have plenty of time to see your family when we go bankrupt.” Musk also looks down on holidays, having nearly died from malaria following a trip to Brazil and South Africa in 2000. “That’s my lesson for taking a vacation: Vacation will kill you.”
Sounds like Tesla is an exciting, innovative place to work — and that it may one day be worth as much as its investors are betting it will. But like so many startups, it runs the risk of grinding through its most talented employees with long hours and unrealistic expectations. So if you’re thinking of quitting your nice tech gig to fly rockets into the future with Elon, make sure your Tesla contract guarantees some paid time off.