Teslas Background and Challenges

Tesla Motors was founded in 2003 as an electric car manufacturer. The organization is based out of Fremont, California, and currently sells three types of automobiles: Models S, X, and 3. Tesla also manufactures solar panels for homes and businesses.1 CEO and co-founder Elon Musk, whom you will learn about later, runs the 46,000-employee company.2 Tesla manufactured 253,000 automobiles and generated over $21 billion in revenue in 2018, yet still ended up losing $1 billion. In fact, the company has never generated a full year of profit in its entire history.3 Teslas financial woes are related to the challenges it is facing with the Model 3, its newest and least expensive automobile. The fully electric Model 3 costs $35,000 (compared to $75,000 for the Model S).4

So why arent things working out with the Model 3? First, manufacturing of the automobile has been hell, according to Musk.5 The vehicle was taking too long to make and had a high initial defect rate. Specifically, Teslas production line couldnt keep up with the demand for approximately 400,000 Model 3s between 2017 and 2018.6 The production line sped up in 2018 and more Model 3s were produced, but by that time, demand for the vehicle had fallen.7 This is a major problem for Tesla because of the lower price of the Model 3. Higher volume and manufacturing design improvements are crucial for Tesla to achieve the economies of scale required to manufacture the standard range (220 mile), standard interior Model 3 at $35k and still be a viable company, says Musk. Teslas inability to meet production goals, and a decrease in demand, also took a toll on its employees. Not only did the company cut 7% of its workforce in 2019, it also expected those who remained to produce more vehicles.8

Who is Elon Musk?

Musk Before Tesla

Tesla CEO and cofounder Elon Musk was always an entrepreneur. During his college days, he paid his rent by converting his off-campus house into a nightclub. He made his first millions by developing Zip2, a company that provided maps and directories to newspapers. Zip2 was purchased by Compaq in 1999. Musk took millions from his proceeds and starting what would eventually become PayPal. eBay purchased PayPal in 2002, providing Musk with the funds he needed to start Tesla.9

What Others Think

Here is a sampling of what those who know Musk best told Wired Magazine:

• Jeff Heilman, Musks first employee at Zip2: I went to his apartment. There was a mattress on the floor and about 30 Chinese food-to-go containers. Almost as if having an apartment was something you thought you should do because other people do it. It had no purpose because they lived at the office.
• Dave Lyons, Teslas former director of engineering: He has a way of slashing through the red tape with a machete. He was continuously challenging the status quo, and he has no tolerance for anything that is perceived to be a runaround at all. The only way to go is forward and through and he sends his teams to do whatever it takes to do that.
• Scott Haldeman, Musks uncle: You dont get the feel that he wants to be a billionaire, you dont get the feel that he wants to be famous. What he wants to do is achieve things.
• Robert Zubrin, founder of the Mars Society: Hes not Mother Theresa. He is not without selfishness, but his selfishness is of the form of Henry V in Shakespeares play. He is selfish for glory. 10

Legal and Workplace Troubles

Musk may be a hard worker, but he also gets himself and the company into trouble for the things he says. For example, in 2018 Musk tweeted that he had funding to take Tesla private, which was not true. The Security and Exchange Commission (SEC) charged him with distributing misleading information that harmed investors. In the end, Musk settled with the SEC by stepping down as Teslas chairman for three years. Both he and the company also had to each pay a $20 million fine.11 Musks controversial behavior doesnt end there. He consumed marijuana during a live podcast, called a Wall Street analyst boneheaded during an earnings call, joked about Tesla going bankrupt on April Fools Day, and called a British cave explorer a pedophile (the explorer is currently suing).12

The Company Wants You to Work Harder

Tesla is an organization in distress and Musks solution is for everyone to work harder. This approach is based on the idea that everyone at Tesla is in it together, and the organizations challenges are everyones challenges. Musk is known for sending everybody emails to further this idea. These emails are sent to tens of thousands of Tesla employees, rallying them to work harder to meet goals. For example, Musks everybody email in June 2019 states, we are on track to set an all-time record, but it will be very close. However, if we go all out, we can definitely do it! According to CNBC, it is typical for Musk and other Tesla execs to push employees to work long hours so that quarterly goals can be met. This is particularly true at the end of each quarter, when extra production and delivery work piles up.13

Musk doesnt just ask his workforce to work harder so the company is successful, he often discusses his own work schedule as an example of what he expects of others. He told VOX that he worked as many as 120 hours a week during the summer of 2018 to ramp up production of the Model 3 Tesla. He says, The other option would have been, Tesla dies.14 Musk expects the same selflessness of his senior executives. He suggests they find ways of motivating and inspiring their teams, reduce the noise in their work and help remove blockers. This includes the expectation that leaders should work harder than those who report to them and make sure that subordinates needs are taken care of before managements.15

Perform or Go

Tesla employees who do not heed the examples set by senior managers dont last long at the company. The company utilizes an aggressive performance management system to ensure that goals are met. At the automaking factory, performance measures are based on car assembly, which has plagued Tesla in recent years. A major part of the assembly issue is automation. In fact, Teslas production line is suffering from too much automation, according to Business Insider. Most car manufacturers automate stamping, painting, and welding, but CEO Musk decided to automate even more tasks typically done by humans.16 He directed that final vehicle assembly, including putting parts inside the vehicle, be completed by robots. Its remarkable how much can be done by just beating up robots ... adding additional robots at choke points and just making lines go really, really fast, he said in 2017.17 To Musks surprise, automation actually slowed production. Automation in final assembly doesnt work, said a Wall Street analyst. For example, Japanese carmakers actually limit automation because it is costly and negatively impacts quality. Tesla experienced this firsthand. Musks robots couldnt get the final assembly sequencing right, delaying assembly and prompting manual refinishes.18 Factory workers had to step in and do positioning and welding by hand, but it was too late as production targets were missed. As a result of Musks decision to increase the use of automation, hundreds of factory workers received poor performance reviews and were dismissed, without notice, in October 2017.19

Musks aggressive goals may also be taking a toll on Tesla employees still with the company. Workers at the companys California auto plant spent twice as many days away from their jobs due to work-related injuries and illnesses in 2018 compared to 2017 (this figure was adjusted for workforce growth). The company also received more citations between 2017 and 2018 from the Occupational Safety and Health Administration (OSHA) than competitors Ford, General Motors, or Fiat Chrysler.20

Teslas performance management system does have some bright spots, however. For example, Musk believes in a strong feedback loop, where youre constantly thinking about what youve done and how you could be doing it better. I think thats the single best piece of adviceconstantly think about how you could be doing things better and questioning yourself, he said to Mashable. Musk believes that in an environment built on trust, negative and constructive feedback will allow employees to learn new things and consider better options for getting work done.21

Be Aggressive, Save the World

Tesla and Musks ambition (and aggression) seems to be based on the greater good. Musk made it clear in a January 2019 email to employees that Tesla needed to build affordable clean-energy products, and that the company needs to do everything in its power to advance the cause and save life on earth. The billionaires goal of saving the planet may be admirable, but his methods are questionable. First, the email was sent at 1 am in the morning, and started with an announcement that 7 percent of the companys jobs would be cut. Musk argued that the cuts were, in a way, necessary to give Tesla a better chance at saving the earth, according to Justin Bariso, an international business consultant.22 Bariso argues that Musk is utilizing his emotional intelligence to take advantage of his employees with the sole intent of achieving a corporate goal. According to Bariso, Once that goal is reached, or when individuals are no longer helpful to pursuit of the goal, they are discarded with little or no concern for their well-being getting people to buy into the mission of saving the world by working themselves to the bonesimply isnt sustainable.23

Bariso may argue that Musk is employing the dark side of emotional intelligence, but others say that leaders should be playing off employees sense of self-satisfaction and instigating behavior associated with doing ones best. Ashley Vance, who wrote a biography on Musk in 2015, said that Musk didnt just set deadlines, he got people to take ownership over their work.24 He may have been so good at this that some employees are convinced that Musks behavior had nothing to do with them working harder. Josh Boehm worked for Musk and said there was a common misperception that Musk pushed employees to work long hours. I frequently did work 12+ hour days and pulled many all-nighters at the office, but again this wasnt because I was forced to, but because I loved my work and saw the value I was bringing to the team, Boehm told Forbes.25 This feeling seems to fall right in line with Musks ideology that there needs to be things that inspire you, that make you glad to wake up in the morning and be part of humanity 26 Boehm does admit that burnout at Tesla is real, but says the organization promoted meetings to discuss worklife balance.27

Diversity Challenges

Teslas aggressive stance toward productivity isnt the only controversy surrounding the company. It is also criticized for its diversity policies. Overall, diversity has been a challenge for the technology industry for a number of years. The U.S. workforce is relatively split between male and female workers. However, this ratio favors males 4 to 1 when it comes to working at technology-related companies.28

Tesla is no exception to this diversity conundrum. In fact, a female Tesla employee told The New Yorker that her particular work group had more men named Matt than women.29 Tesla did try to honor 2017s International Womens Day by holding an event geared toward inclusiveness. According to The Guardian, the event provided an opportunity for women to discover essential oils that could help improve health and happiness. Unsurprisingly, the event was met with loud criticism. To make matters worse, the event was scheduled a week after a female engineer publicly accused the company of fostering sexual harassment and discrimination.30

Tesla postponed the event and instead organized a town hall to discuss diversity. The event included six male executives and one woman. Musk did not attend the event but sent a companywide email saying, If you are part of a less represented group, you dont get a free pass on being a jerk yourself. We have had a few cases at Tesla where someone in a less represented group was actually given a job or promoted over more qualified highly represented candidates and then decided to sue Tesla for millions of dollars because they felt they werent promoted enough. That is obviously not cool.31

Apply the 3-Step Problem Solving Approach to OB

Step 1: What are the problems?

• Look first to the Outcome box of the Organizing Framework to help identify the important problems in this case. Remember that a problem is a gap between a desired and current state. State your problem as a gap. And while you should look for problems at all three levels, we recommend looking first at the individual level given the focus of this particular case. If there is more than one desired outcome that is not being accomplished, then decide which one at each level is most important and focus on these for Steps 2 and 3.

• Cases have protagonists (key players), and problems are generally viewed from a particular

protagonists perspective. You therefore need to determine from whose perspectivea particular

executive, other leaders, one or more managers, employees, dealers, regulators, a team, or the

larger organizationyoure defining the problem.

• Use details in the case to determine the key problem(s). Dont assume, infer, or create problems that are not explicitly included in the case.

• To refine your choice, ask yourself, why is this a problem? Explaining why a particular outcome is a problem helps refine and focus your thinking. Because this is a cumulative case, you should consider topics across all chapters. However, again, because the focus of this case is on the individual level, you may want to focus your attention on the chapters in Part 1 of the textbook.