22 BriefingElon Musk’s futures The Economist February 10th 2018
12 age systems to consumers and utilities on a
huge scale.
Why should anyone believe such hu-
bris? One argument is that electric vehi-
cles, designed and built the Tesla way, are
both better and potentially much more
profitable than the alternatives. A recent
tear-down analysis by McKinsey, a consul-
tancy, concluded that electric cars de-
signed from scratch are much better (for ex-
ample, on range and interior room) than
those that are modified versions of petrol-
fired cars and still made on existing pro-
duction lines. And by keeping a great deal
of its cars’ engineering in-house, as SpaceX
does with its rockets, Tesla may stand to be
much more profitable than its current com-
petitors. Jeffrey Osborne of Cowen, an in-
vestment bank, calculates that 80% of the
value of a Tesla is created in its manufactur-
ing plant in Fremont, some three to four
times the share for a typical passenger car.
What is more, electric-car factories
could be a lot more productive than those
for internal-combustion engines; whereas
a conventional car has about 2,000 com-
ponents in its drive chain, a Model S has
fewer than 20. Mr Musk says that these ad-
vantages mean he can create a “machine
that makes machines” qualitatively better
than anyone else’s. But the so-far-pitiful
production of the Model 3 suggests that, at
best, that machine is proving hard to bed
in. It also means Tesla is not getting the rev-
enues it based its spending plans on.
The “gigafactory”, a battery plant in
which Tesla and Panasonic are investing
$5bn, also has its problems. The invest-
ment is based on the idea that Tesla needs
economies of scale in its battery business
only achievable in a factory that is highly
automated and utterly huge. Mr Musk says
the gigafactory—near the town of Sparks,
Nevada—will be, by footprint, the biggest
building in the world (see page 61).
Romit Shah of Nomura/Instinet, a
bank, estimates that in late 2014, when the
gigafactory was announced, global battery
demand for electric vehicles was about 12
gigawatt-hours a year. Nomura thinks the
gigafactory alone will have 40GWh of ca-
pacity by the end of this year. In 2016 Tesla
bought SolarCity, a solar-power and
home-energy-storage firm that Mr Musk
had helped two of his cousins set up, for
$2.6bn. One of the reasons was to soak up
some of this huge supply of batteries. (An-
other was that SolarCity was drowning in
debt; the bail-out of the CEO’s side-gig was
controversial, but Tesla shareholders end-
ed up backing it by a large margin.) Storage,
not cars, maybe the biggest market for bat-
teries long-term: it was not an accident that
the company changed its name from Tesla
Motors to just Tesla last year.
Getting the gigafactory up to its prom-
ised speed and scale is vital to Mr Musk’s
plans. It has proved frustratingly difficult. A
visit to Sparks late last year found J.B. Strau-bel, a co-founder of Tesla and now its chief
technical officer, completely consumed
with the automation efforts: “Ramping up
such a complicated machine,” he says, “on
this unprecedented timescale, has never
been done before.” Last October Mr Musk
tweeted that the project was in “Produc-
tion hell, ~8th circle”.A Series Of Unlikely Explanations
While Mr Straubel struggles in hell, Tesla
burns money as the Falcon Heavy burns
kerosene. Barclays, a bank, reckons that
Tesla will consume $4.2bn this year. With
just$3.4bn in cash at the end of 2017 Mr
Musk will almost certainly need another
injection of funds by the middle of the
year—and maybe more later. Mr Osborne
of Cowen reckons Tesla’s capital expendi-
tures will amount to $20bn-$25bn be-
tween 2017 and 2020. Jim Chanos of Kyni-
kos Associates, a prominent short-seller
who predicted the collapse of Enron, re-cently denounced Tesla’shistory of miss-
ing deadlines and targets as meaning that
“the equity is worthless.”
As yet, though, the shareholders do not
seem to agree. Tesla’s stock price has held
fairly steady; people might even buy more,
if offered. They invest because, as a SpaceX
insider puts it: “They believe in Elon.”
When he says, as he did on February 7th,
“If we can send a roadster to the asteroid
belt we can solve Model 3 production,”
many happily accept the non sequitur.
His power to inspire isnot limited to the
public and his investors. It attracts bright
people to his companies, where they work
with a passion which matches his own
(and may well feel his temper all the same).
Mr Straubel insists that“the mission really
matters—that’s why we’re working so
hard.” Gwynne Shotwell, SpaceX’s chief
operating officer, says Mr Musk’s extreme
goals for SpaceX are “incredibly invigorat-
ing” and help her recruit the very best pros-The Boring CompanyTunnel vision
E
LON MUSK can seem flakily up him-
self. His newish tunnellingbusiness
appears to be a case in point. The project
has a cute name (the Boring Company), a
wacky way of raising money (an “Initial
Hat Offering” raised almost $1m by sell-
ing baseball caps), a physicist-knows-best
approach to a social problem (putting
private cars on high-speed underground
trolleys to reduce urban congestion) and
a quirky, memorable goal (to produce a
tunnelling machine that goes faster than
a snail, in this case a snail called Gary).
But it also showcases the techniques that
have made Mr Musk a success.Chris Anderson, the curator ofTED, a
non-profit organisation that spreads
ideas, says that Mr Musk is “uniquely
good at system-design thinking”. He
reduces thorny problems to what he sees
as their essence—typically expressed in
terms of physics—and then extends his
analysis to technologies, business sys-
tems, human psychology and design in
an attempt to solve the issue.
In the case of tunnelling he found that
current machines are much slower than
physics suggested they could be. The
solution, he decided, was standardisa-
tion and fixed prices, removing the op-
tion for passing extra costs up the chain.
That is quite like the genesis of SpaceX,
where he observed that launches were
much more costly than physics required
and prescribed similar solutions.
He then created a culture that empha-
sised experimentation, rapid learning
and incremental improvements, along
with a system of sticks and carrots that
pushed people to squeeze out ineffi-
ciencies. Thus pushed, managers at the
Boring Company have found a way to
convert the muck tunnelling leaves be-
hind into something like cinderblocks.
City planning is the field in which the
idea of a “wicked problem”—one resis-
tant to any definitive solution because of
contradictory requirements—was first
invented. Its practitioners are highly
sceptical of technofixes. But Mr Musk’s
employees are fired up, which is just the
way he likes them.HAWTHORNE
Digging into Elon Musk’s newest project reveals his management styleVery Little Gravitas Indeed