Rahul Kapoor is an associate professor of management at the Wharton School of the University of Pennsylvania. In his research, Rahul focuses on the management of industry disruption and business ecosystems from a perspective of both established and emerging firms. The opinions expressed in this commentary are his own.
The calls for Elon Musk to step aside as Tesla’s CEO seem to be getting louder. Last month, the SEC requested that Musk be held in contempt over one of his tweets, and earlier this month, a major Tesla investor said the company would be just fine without Musk at the helm. Indeed, with each tweet, he seems to move closer to a breaking point. But replacing Musk with a seasoned executive at this point would likely risk Tesla losing its edge as one of the most disruptive forces that the auto industry has seen in decades.
In 2003, if someone were to ask me the odds of a new US-based startup building a high-performance electric car for the masses and surviving more than 10 years, I would put them at nearly impossible. Because participation in the auto industry required significant capital and knowledge, and large, established firms controlled the distribution channels, it was difficult for startups to compete. And, established players had little incentive to innovate outside their core business. That left the industry sort of stuck with established players and incremental innovations over several decades. But Tesla defied the odds, and it has its controversial leader to thank.
His strategic acumen
Tesla’s unique strategic choices underlie its trajectory of progress. Rather than first releasing models at low price points, as other automakers tended to do, it began with high-end models that fundamentally changed the perception of electric cars as glorified golf carts with short range and slow acceleration. It later moved to more affordable versions, like its $35,000 Model 3. It also bypassed the established distribution network by selling its cars online instead of at dealerships and operating its own stores to generate awareness and excitement about Tesla’s innovativeness. It opened up its portfolio of patented intellectual property to competitors. Unlike its much larger competitors, the company also preemptively built a battery manufacturing plant in the United States, costing billions of dollars, and a vast supercharger network worldwide. Read MoreThere’s a good chance that Musk is the brains behind many of these decisions. Tesla is synonymous with Musk, both as an organization and as a brand. More importantly, Musk’s judgment regarding the future of electric cars has become the blueprint for the entire industry.
Many high-end automakers, such as BMW, Daimler and Volvo are pursuing fully electric cars, focusing on improving batteries and deemphasizing hybrid options. And Musk’s hands-on approach from building the organization to designing and manufacturing the vehicles has provided him with a unique experience that is second to none in this business. Such a skillset is especially valuable at a time when the company is developing an electric car that’s affordable enough for the masses. Any unforced error now can be extremely costly for Tesla and can open the doors for rivals that are finally accelerating their electrification efforts and are keen on gaining market leadership.Of course, not every aspect of Musk’s decision-making represents sound, strategic judgment. Consider the recent seemingly ad-hoc decisions around store closures and price increases, the $2.6 billion acquisition of Solar City in 2016, which seems to have been of little benefit to Tesla, or his attempts at taking the company private last year. But that’s probably a by-product of trying to do too much too quickly, and that too with an extreme level of self-confidence.
His long-term vision
Today, Tesla needs Musk more than ever — not because of what it has achieved but because of what he has promised. The reason Tesla enjoys a higher valuation with only a small fraction of the sales that many of its established peers see is because of the growth path that Musk has sculpted. More Tech & Innovation Perspectives
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It’s true that Tesla cannot compete with its established peers in terms of scale, but it can in terms of the pace of innovation. That is what Musk has always aspired to do, despite significant short-term scrutiny by investors and analysts. Not having him in the driver’s seat will put Tesla at risk of losing its momentum as a disruptive innovator and succumbing to pressure to generate short-term cashflow instead of staying true to its long-term vision. Remember what happened to Apple after Steve Jobs was ousted in 1985, only to come back in times of desperation more than 10 years later? He staged one of the biggest economic revolutions of the internet era and made Apple the most valuable company on the planet. Or consider Jack Dorsey’s return to Twitter after seven years, and leading a remarkable recovery despite facing formidable competitors and an environment of increasing distrust in social media.
His leadership style
Pursuing unorthodox strategic decisions and long-term goals that come with lots of uncertainty and risk requires a unique leadership style: one that inspires people to implement a vision — no matter how farfetched it may seem — and carry out the mission despite significant challenges. This is what Musk excels at. It is no secret that he is the chief architect of the house of Tesla, and it will be his legacy. He inspires people by his passion for Tesla’s mission and by underscoring its importance for our planet. His resolute hands-on approach to be involved at every level and for almost every task, while clearly stretching his own abilities and many of his colleagues’, gives a sense for how deeply he cares about every aspect of what Tesla is about and should be known for. That, by itself, can be a strong enough motivation for many.Musk could certainly help himself and his team by finding a “Sheryl Sandberg” — someone he can trust and have by his side to share some of the demanding tasks on a day-to-day basis. This is also how he may be able to decouple exuberance from efficiency so that he can be remembered for not only being a disruptor but also a creator of a sustainable machine of disruption.
Of course, having a co-founder as a CEO is a double-edged sword. While they carry the passion of creating a great company, along with a strong appetite for risk-taking, they may not be adept in juggling short- and long-term considerations, and in aligning with the different stakeholders. However, Tesla is not quite ready for a corporate operative yet.
There is much more left to be done within Tesla’s disruption-oriented agenda, especially at a time when the industry is in a nascent stage of electrification and autonomy. Getting rid of Musk is more likely to derail its competitive edge as a pioneer and a technology leader than to sustain its agenda of disruption.
Source: edition.cnn.com
