Tesla CEO Musk Morphs From Tony Stark to Henry Ford

Tesla CEO Musk Morphs From Tony Stark to Henry Ford

Elon Musk inspired Robert Downey Jr.’s portrayal of comic-book billionaire industrialist Tony Stark in the “Iron Man” films. The role model for Musk, a billionaire industrialist for real, appears to be Henry Ford.

The Ford Motor Co. (F) (F) founder’s mastery of mass-production made the Model T the first affordable car, revolutionizing transportation. Musk, who named Tesla Motors Inc. (TSLA) (TSLA)’s sedan the Model S as a tip-of-the-cap to Henry’s car, sees himself similarly as an engineer, a tinkerer, a nitty-gritty entrepreneur.“I don’t spend my time pontificating about high-concept things; I spend my time solving engineering and manufacturing problems,” said Musk, 42, in a factory-floor interview.

“Have you seen my desk? It’s right there in the middle of the factory,” he said, pointing to a drab workspace beside the Model S line. “It doesn’t look like Tony Stark’s office.”

Decade-old Tesla is an automotive phenomenon, with an industry-leading share price surge that erupted on the heels of its first quarterly profit, a rave Model S review by Consumer Reports magazine and rushed repayment of the Energy Department loan that got the company’s factory into operation. Beyond this year’s goal of selling 21,000 electric sedans, South African-born Musk wants to one day make a half-million battery-powered cars annually at California’s lone auto-assembly plant.

Quarterly ‘Nightmare’

Tesla’s initial struggle to reach a production pace of 400 cars a week led it to miss a 5,000-car sales goal last year for the $69,900 Model S. The company’s fourth-quarter loss widened after it added temporary workers and resolved supplier snags. That output level has since been surpassed, and “not trivially,” Musk said.

“At this point, making 400 cars a week actually feels like a walk in the park, whereas it was a nightmare in Q4,” he said July 10, declining to elaborate ahead of Tesla’s release of second-quarter results.

Shares of Palo Alto, California-based Tesla have more than tripled this year amid its profitable quarter. That profit included a one-time benefit from repaying its U.S. loan early. Without it, Tesla earned less than half a cent per share.

The carmaker may report a second-quarter loss of 18 cents a share, excluding some items, the average of 12 analysts’ estimates compiled by Bloomberg.

Rocket Man

Musk also runs rocket maker Space Exploration Technologies Corp., known as SpaceX, and is chairman of solar-power provider SolarCity Corp. (SCTY)

Gains for Tesla and SolarCity shares, along with expanding SpaceX business, have swelled Musk’s fortune to $6.9 billion, according to the Bloomberg Billionaires Index.

By late 2014, Tesla’s goal is to make 800 cars a week, before starting Model X electric sport-utility vehicle production, Musk said. The factory has 3,000 employees, including about 2,000 assembly workers, with two daily production shifts, he said.

The cavernous factory, pristine in early 2012, now is filled with activity. A once-spotless white floor bears smudges from accelerating production. Musk figures 40 percent of the facility’s 5 million square feet (465,000-square-meters) now are used for assembly of cars, electric motors, aluminum-encased battery packs and parts storage.

Overtime and temporary labor costs are falling as workers hone assembly skills, Musk said. Tesla (TSLA) is also making “nuanced” changes to the Model S to trim production time, cost and weight, he said.

‘Aerospace’ Bolts

Some practices were “way overkill,” Musk said, such as high-strength boron-steel inserts in the side pillars secured with “aerospace-grade bolts.” Those are being replaced with lighter, cheaper and easier-to-assemble aluminum reinforcements that maintain a five-star U.S. crash rating, he said. By year end, engineers will slice the Model S’s weight as much as 80 pounds (36 kilograms), Musk said.

Tesla (TSLA)’s Fremont facility is highly self-contained compared with most large auto plants. It stamps its own aluminum body panels and chassis parts, molds plastic components and dashboards and even die-casts individual metal components.

“I’m not aware of other plants that do their own die-casting,” said Michael Robinet, managing director of consultant IHS Automotive in Northville, Michigan, who studies assembly practices. “That’s very difficult to do on-site.”

Tires, glass and stereo speakers are among the few things the plant doesn’t make itself.

‘Vertically Integrated’

“We’re quite vertically integrated,” Musk said. “We’re closer to the way Ford did it than Ford is” now.

Henry Ford built the world’s largest vertically integrated auto facility, the Ford River Rouge Complex, in Dearborn, Michigan. The plant had its own steel foundry, coke ovens, glass furnaces and a cluster of other shops making every vehicle part.

Ford (F) and other automakers ultimately abandoned the self-contained approach, finding that suppliers could improve production efficiency.

“Tesla is really bucking the trend,” Robinet said. “It will be difficult for them to gain economies of scale as they expand if they don’t work more closely with the supply base.”

Tesla straddles technology and autos. Its entrance into the Nasdaq 100 this month demonstrates its tech-industry bona fides.

‘Mundane Pieces’

Bill Ford, great-grandson of Henry Ford and executive chairman of Ford Motor (F), said managing the flow of parts will be a challenge as Tesla grows.

“I love their technology,” Bill Ford said April 30 at a conference in Beverly Hills. “They need to be mindful as they scale up that running a car company is different than running a technology company. Some of the mundane pieces, like supply-chain management and keeping dealerships stocked with parts, aren’t very sexy, but they are very real.”

Most suppliers of parts and materials for Model S were hassle-free, Musk said. About 5 percent were “slightly problematic; 3 or 4 percent were problematic; and 1 or 2 percent of them were a nightmare,” he said.

“We still have a lot to learn and can get a lot better, but I think we’re pretty good at this point managing the supply chain for tens of thousands of units a year,” he said. “We’re going to really have to step things up.”

To contact the reporter on this story: Alan Ohnsman in Fremont, California at aohnsman@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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