The Musk Doctrine: Win Big By Losing

Bloomberg thinks it has finally figured Elon Musk out. After last week’s spectacular announcement that Tesla Motors will accelerate its production plans for the Model by 2 full years, it has distilled the essence of Elon down to what it calls “The Musk Doctrine.” Simply stated, it goes like this: “People do paradigm shifting work only when they’re under tremendous pressure, so the key is to ensure deadlines are always impossible.” The financial reporting service thinks the Doctrine might explain why Tesla “has never launched a product on time, yet no one seems able to keep up with him.” That drives Wall Street nuts, it says. 

Elon Musk in Norway via YouTube

In the wake of Musk’s grand announcement during last week’s Q1 earnings call, Wall Street reacted fairly predictably. That’s “too aggressive, setting up investors for disappointment,” wrote UBS AG analyst Colin Langan in a note to investors.  “We are all for setting aggressive targets,” wrote Joseph Spak, an analyst at RBC Capital Markets. “However, Tesla is increasingly asking the equity investor to sign up for a complex manufacturing ramp the likes of which we don’t believe [has] ever been seen before. This brings both elevated expectations and execution risk.” Sure enough, Tesla stock has shed about 30 points since the announcement.

So why did Musk do it? True, demand for the Model 3 exceeded everyone’s expectations. Maybe Elon and Tesla just want to make all those reservation holders happy. But Bloomberg sees another possibility. It thinks the promise Musk has been making for some time that Tesla would build 500,000 cars a year by 2020 was in danger of coming true. In other words, while everyone else thought he had set the bar too high, he came to believe he had set the bar too low. So he moved it up.

Ever since his earliest days prior to PayPal, Musk has demanded the impossible from his colleagues and himself. When building that many cars in so short a time began to look doable, Musk simply moved the goal posts to keep the pressure on.  “In order for us to be confident of achieving volume production of Model 3 by late 2017, we actually have to set a date of mid-2017 and really hold people’s feet to the fire, internally and externally.” Holding people’s feet to the fire is what Musk does better than anyone.

The risk, of course, is that some will wither under the pressure. Two of Tesla’s principal manufacturing leaders have left the company or intend to shortly. Musk seems to have a the ability to thrive under constant pressure. He even sleeps at the end of the Model X production line on occasion in a sleeping bag so he can personally oversee every aspect of the process. Not everyone is comfortable with such close supervision by the boss.

The Musk Doctrine may have other, more subtle consequences. Elon’s lofty projections have a way of readjusting everyone else’s expectations. Bloomberg offers a telling example of this phenomenon.  “Even as Tesla’s stock declined [after the announcement], analysts and auto enthusiasts almost universally moved their own estimates for Tesla unit sales higher. In the same report in which RBC’s Spak warned of “the risk to new investment” and maintained a neutral rating on the stock, he nearly doubled his forecast for Tesla’s 2020 sales, to 620,000. That’s higher than Musk’s old target—the one most considered impossible.”

“This may be [The Musk Doctrine] at work,” concludes Bloomberg. “Even though Tesla’s founder is almost certain to fail at his new goals—and is putting the faith of his investors and car buyers at risk in the process—he also just changed everyone’s horizon of expectations. What was once considered an impossibility for Tesla, and for electric cars in general, is now considered the most likely course of events.”

The question is, does Musk do this intentionally or was he just hard wired this way at birth? He is definitely someone whose internal settings go all the way to eleven. Either way, The Musk Doctrine may soon be taught in business schools around the world.

Photo credit: ABC





Steve Hanley

Closely following the transition from internal combustion to electricity. Whether it's cars, trucks, ships, or airplanes, sustainability is the key. Please follow me on Google + and Twitter.