Power play, p.1
Power Play, page 1
Copyright © 2021 by Tim Higgins
All rights reserved. Published in the United States by Doubleday, a division of Penguin Random House LLC, New York, and distributed in Canada by Penguin Random House Canada Limited, Toronto.
www.doubleday.com
doubleday and the portrayal of an anchor with a dolphin are registered trademarks of Penguin Random House LLC.
Cover illustration: Hitandrun Media @ Début Art
Cover design by John Fontana
Library of Congress Cataloging-in-Publication Data
Names: Higgins, Tim (Journalist), author.
Title: Power play : Tesla, Elon Musk, and the bet of the century / Tim Higgins.
Description: First edition. | New York : Doubleday, [2021] | Includes bibliographical references. | Identifiers: LCCN 2020048532 (print) | LCCN 2020048533 (ebook) | ISBN 9780385545457 (hardcover) | ISBN 9780385545464 (ebook) | ISBN 9780385547475 (open market)
Subjects: LCSH: Musk, Elon. | Tesla Motors. | Electric vehicle industry—United States. | Alternative fuel vehicle industry—United States. | Automobile industry and trade—United States.
Classification: LCC HD9710.U54 T47495 2021 (print) | LCC HD9710.U54 (ebook) | DDC 338.7/62922930973—dc23
LC record available at https://lccn.loc.gov/2020048532
LC ebook record available at https://lccn.loc.gov/2020048533
Ebook ISBN 9780385545464
ep_prh_5.7.1_c0_r0
To my parents
Contents
Prologue: The Beginning
Part I: A Really Expensive Car
1 This Time Could Be Different
2 The Ghost of EV1
3 Playing with Fire
4 A Not-So-Secret Plan
5 Mr. Tesla
6 The Man in Black
7 White Whale
8 Eating Glass
Part II: The Best Car
9 Special Forces
10 New Friends & Old Enemies
11 Road Show
12 Just Like Apple
13 $50 a Share
14 Ultra Hardcore
15 One Dollar
16 A Giant Returns
17 Into the Heart of Texas
Part III: A Car for Everybody
18 Giga
19 Going Global
20 Barbarians at the Garage
21 Labor Pains
22 Close to S-E-X
23 Changing Course
24 Elon’s Inferno
25 Sabotage
26 Twitter Hurricanes
27 The Big Wave
28 Red Tidings
Epilogue
A Note from the Author
Acknowledgments
Notes
PROLOGUE
THE BEGINNING
On a breezy night in March 2016 at the Tesla design studio, Elon Musk took the stage in front of a crowd of supporters. Dressed like a James Bond villain, in a black jacket with the collar up, he was on the cusp of achieving a decade-long dream, a goal the famed entrepreneur had spent years building toward: the grand reveal of his Model 3 electric car.
The design studio—near the Los Angeles airport and in the same complex as Musk’s privately held rocket company, SpaceX—was the home of Tesla’s creative soul. It was a magical place, where Franz von Holzhausen, the automotive designer who contributed to the re-imagined Volkswagen Beetle and Mazda’s resurgence, headed a team that put into form the ideas that Musk envisioned. Together they aspired to build revolutionary and dazzling electric cars, eschewing the techie, nerdy look favored by competitors, who had long seen such vehicles as experimental novelties.
Hundreds of customers turned out for the occasion. A Musk party wasn’t to be missed; whether it was for Tesla or SpaceX, his events attracted an eclectic mix of Silicon Valley entrepreneurs, Hollywood names, loyal customers, and car enthusiasts. Until now Tesla had been a niche luxury brand—a fantasy for California environmentalists that had morphed into a whim for the rich, a must-have among those wealthy enough to have garages full of BMWs, Mercedes, and other gas-powered status symbols.
The Model 3, with its pledged starting pricing of $35,000, held the promise of something different. It was the embodiment of Musk’s ambition to bring a fully electric car to the masses. It was a gamble in the form of a four-door compact car: that Tesla could generate the sales volume and cash to take on the biggest of the big boys in the century-old automotive industry: Ford, Toyota, Volkswagen, Mercedes-Benz, BMW, and, of course, General Motors. The Model 3 would determine if Tesla was a real car company.
Musk, just a year younger than Henry Ford when the Model T was introduced 108 years earlier, stood onstage that night, greeted by the pounding bass of techno music and screams of his fans, to rewrite history. He came to usher in a new era.
It was his mission to change the world and maybe even save it (and presumably get rich while doing so) that had helped him attract a team of executives to put his vision into reality. In the crowd, those key deputies—who had been pulled from the automotive industry, tech, and venture capital (including Musk’s trusted confidant, his brother, Kimbal)—reveled in the excitement.
Onstage, Musk fumbled through charts about rising CO2 pollution as he lamented the damage done to the planet. “This is really important for the future of the world,” he told the crowd to cheers.
A highly produced video gave the first glances of the Model 3. The car looked like a beacon of the future, outside and in. Sleek curves and lines encased an interior unlike anything on the market, the gauges of a typical car gone, replaced by a single large tablet-like screen in the center of the cockpit. The car zoomed along winding roads down the California coast. Again, the crowd cheered. One attendee screamed: “You did it!”
Musk commanded the stage, telling his audience that Tesla had already received more than 115,000 deposits of $1,000 each—a $115 million boost in cash to the company. Within weeks, Tesla would claim more than 500,000 reservations. It was a staggering figure: Thirty-two percent more than Toyota Motor Corp. sold that year in the U.S. of its popular family sedan archetype, the Camry. And these were reservations—people lining up two years before the car would even be produced.
The Tesla team had devised a plan to slowly start making cars, with the goal of having a few thousand ready by the end of 2017, then boosting their capacity week by week, through 2018, until finally reaching the goal of 5,000 cars a week by the middle part of that year.
That volume—5,000 cars a week, 260,000 cars a year—was a widely held benchmark, a defining figure of what it meant to be a viable factory in the stable of a major carmaker. If Elon Musk and Tesla hit it, they could become a new force in the automotive industry.
But even that wasn’t enough for Musk. He was already boasting that by 2020 he could get production at the company’s single assembly factory outside Silicon Valley to 500,000 vehicles in a single year—twice as many as most car factories in the U.S.
It is hard to overstate just how crazy this would sound coming from anyone other than Elon Musk.
Automakers typically take five to seven years from the start of designing a new vehicle to delivering it to customers. It’s a tedious and complex process, refined over generations of experience. Before a new car hits dealer showrooms, it’s tested in the desert, the Arctic, and the mountains. Thousands of suppliers contribute to the effort, building parts with astonishing precision for vehicles that will ultimately be pieced together in factory blitzes choreographed to the second.
But for all of his startup gumption, undeniable ambition, and vision, walking off the stage that day, even with pre-orders pouring in, Musk couldn’t escape the inexorable financial logic learned over a century by the likes of GM, Ford, and BMW: the process of making cars is a brutal business—and an expensive one.
And Elon Musk’s books were a disaster. Tesla was burning, on average, $500 million a quarter and had only $1.4 billion free cash on hand—meaning Tesla was on track to be out of money by the end of 2016 if something drastic didn’t change.
But this was all part of the confidence game he always knew he’d have to play if he were ever going to create the world’s most valuable automaker. Belief created the vision; the vision would create a market; the market would create cash; and cash would create cars. He just had to do it on an unimaginable scale, and do it fast enough to stay a car’s length ahead of competitors, creditors, customers, and investors betting against the company through a process called short selling that could pay handsomely if Tesla’s stock plunged in value.
It was, he knew all too well, a dangerous race.
Or, in his darker moments, the ultimate game of chicken.
* * *
—
In June 2018, a little over two years after Musk’s glitzy reveal of the Model 3, I visited him deep inside the cavernous Tesla Inc. assembly factory half an hour outside Silicon Valley. Musk looked weary. In a cubicle on the factory floor, he was dressed in a black Tesla T-shirt and jeans, his six-foot-two frame hunched over an iPhone. His Twitter account streamed taunts from short sellers; some of the world’s most powerful investors were wagering against him, predicting his imminent failu
Over his shoulder, the body shop towered: It was the greatest expression yet of Musk’s vision: a mechanical beast that ate raw parts at one end and spit out cars at the other. Two stories tall, with more than a thousand robot arms anchored to the floor and hung from the ceiling, it was a gauntlet for the car skeletons it forged. Sparks flew as the robot arms swooped in to weld pieces of sheet metal to the frame. The air filled with an acrid smell. A reverberation of metal clanged like a deafening metronome.
From the body shop, the car moved to the paint shop where pearl white, midnight silver, and Tesla’s iconic race-car red were applied. Then to the general assembly line where the thousand-pound batteries were added, along with all of the touches that make a car a car—the seats, the dashboard, the display.
It was at this juncture where the problems currently were, and why Musk had been sleeping alone on the factory floor. The assembly line was plagued by snags. He’d relied too much on robots to make the cars, he said. The 10,000 parts required from hundreds of suppliers had created an endless loop of complexity. Everywhere he turned, he found something working not quite right.
He apologized for his unkempt appearance—his brown hair hadn’t been combed in a while and he hadn’t changed his T-shirt in three days. In a few days, he’d turn forty-seven. He was a year behind schedule in cranking up production of the Model 3, the compact car that would make or break Tesla.
Musk sat at an empty desk. His pillow from a few hours’ sleep rested on a chair next to him. A salad went half-eaten. A bodyguard stood nearby. The company teetered on the verge of bankruptcy.
But for all of this, he was in surprisingly good spirits. He assured me that everything would work out.
A few weeks later, he called me in a decidedly darker mood. The world was out to get him. “It’s not like I desperately want this fucking role,” he said. “I’m doing this because I believe in the goddamn mission, that I think that sustainable energy needs to prosper.”
If it seemed like rock bottom for Elon Musk, it wasn’t.
* * *
—
At the heart of Musk’s fight and Tesla’s history is a central question: Can a startup conquer one of the biggest and most entrenched industries in the global economy? The automobile changed the world. Aside from the autonomy and mobility it offered individuals, and the entire swaths of modern civilization it has helped incubate and connect, it has generated an economy unto itself. Detroit helped make the middle class, establishing wealth and stability for the communities it touched. It also became one of the nation’s largest industries—creating almost $2 trillion in revenue annually in the U.S. and employing one in twenty Americans.
GM, Ford, Toyota, and BMW have grown into global icons that design, build, and sell tens of millions of vehicles each year. Those car purchases have come to represent more than just an appliance; they convey independence and status, a symbol of the American Dream and, more and more so, the Global Dream.
The downside is that as those dreams have spread throughout the world, those same cars, through their manufacture and use, have contributed to unprecedented scales of congestion, pollution, and climate change.
Enter Musk, a self-made multimillionaire by his twenties who dreamed of using his newfound wealth to change the world. His belief in electric cars was so resolute that he staked his fortune on its success, teetering on bankruptcy because of it and burning through three marriages—twice to the same woman—along the way.
It’s one thing to create a social network when the incumbent is MySpace. Or to use an online platform to unlock excess inventories of cars and apartments, to take on taxi cartels or the hotel industry. It’s something else entirely to stare down some of the biggest companies in the world and to challenge them on their own turf, with something they’ve been learning to make—often painfully—for over a century.
It is often a narrow-margin business. The average car may only generate about $2,800 in operating profit. To get to that point, you need to achieve extraordinary scale, including the ability to keep a factory humming to the tune of 5,000 cars a week. And even if you do that, you have to be damn sure that someone’s going to buy them all.
Any snag in production or sales can very quickly lead to disaster. Costs mount every day that a factory isn’t in use, or that cars aren’t moving out to dealerships, or that consumers aren’t driving them home. That cash flow, from consumer to dealers to manufacturers, is the lifeblood of the automotive industry; it in turn funds the development of a company’s next vehicles, something that can require massive investments and sunk costs.
GM spent a total of $13.9 billion on developing new products in 2016 and 2017. And in a business where profits can swing wildly from one year to the next (GM was $9 billion in the black in 2016; $3.9 billion in the red in 2017), it’s perhaps little surprise that the biggest carmakers can’t get by without hoards of cash: in 2017 GM had $20 billion in cash on hand; Ford had $26.5 billion; Toyota and VW both finished fiscal 2017 with $43 billion in their bank accounts.
So great are the barriers to entering the car business that the last major new U.S. carmaker to emerge that is still around today was Chrysler. That was in 1925. Or as Musk likes to remind people, in playing up the outrageous long shot he’s taking, only two U.S. car companies have not gone bankrupt: Ford—and Tesla.
* * *
—
So you’d pretty much have to be delusional to enter such a competition; which some think Elon Musk is. But he hasn’t shrunk from the challenge. Instead he has willed himself and his company to where the lofty visions of Silicon Valley meet the harsh reality of Detroit. His big idea is that in Tesla he can make electric cars really work. That they can outperform their gas-guzzling cousins; that they can out-style them; out-tech them; save customers billions of dollars a year on gasoline; and in so doing save the world from itself.
But it’s a promise that at times obscures the ruthless business ambition—and imperative—under which Musk and Tesla operate. Many of us might misunderstand or underestimate Tesla’s endgame. They might see the car as a toy for the green-conscious family down the block with money to burn, or for the status-inclined hedge funder with the progressive air. Or else it’s the new Ferrari for the walking midlife crisis who just parked next to you at the train station.
But these niche existences? These are decidedly not what Tesla is about. And that is why the fate of the company rides on the Model 3, the electric car for the masses. As one Wall Street banker lamented years ago, “Either they become a niche manufacturer like Porsche or Maserati and make 50,000 high-end cars annually, or they crack the code on a $30,000 car that would put them on the inflection point of a large industrial.”
That inflection point is the Model 3.
Musk’s relentless drive to create the Model 3, and the questionable tactics he has used to get there, have unsettled competitors and industry observers alike. Unlike most automotive executives, Musk’s philosophy of decision-making flows from his California ecosystem, where it’s better to make a fast, wrong choice that can be undone quickly than to spend time perfecting hypotheticals. For a startup, time is money, something even truer for a new car company that has been, largely from day one, burning through millions of dollars a day.
Musk is a firm believer in the power of momentum, that one win leads to another. And as he has developed and sold successive models of electric cars that have shattered preconceptions of what electric cars can do, he has undoubtedly strung together some Ws.
His success with Tesla’s early luxury models has sprung his competitors into action. The world’s largest automakers in 2018 were rushing to catch up with their own electric cars, investing more than $100 billion to build and bring out 75 all-electric and plug-in hybrid vehicles by the end of 2022, according to one study. By 2025, analysts were predicting then, almost 500 new types of electric cars could be on sale, representing one in five new car sales globally.
