The Evolution of Electric Vehicles — Tim Higgins

The Evolution of Electric Vehicles — Tim Higgins

The Evolution of Electric Vehicles — Tim Higgins

It’s one of the most fascinating companies of the 21st century … Against huge odds, Tesla was able to pull off one of the most dramatic corporate turnarounds in history and become the world’s most valuable automaker. Wall Street Journal reporter Tim Higgins shares the extraordinary inside story in his book, Power Play. And in this episode, he discusses all things Tesla, Elon Musk and electric cars with host Charles Mizrahi.

Topics Discussed:

  • An Introduction to Tim Higgins (00:00:00)
  • A Luxurious Customer Experience (00:02:39)
  • The Evolution of Electric Vehicles (00:05:53)
  • Expanding Vehicle Range (00:11:42)
  • Challenging Traditional Automakers (00:19:21)
  • Safety is Key (00:26:54)
  • Selling the Future of Cars (00:32:18)
  • Supporters vs. Skeptics (00:38:38)
  • The Future of Tesla (00:47:12)

Guest Bio:

Tim Higgins is an award-winning tech and auto reporter for the Wall Street Journal. Before joining the Journal, Higgins worked for Bloomberg News and Businessweek. Today, he covers Tesla, Apple and other tech companies — while regularly serving as an on-air contributor to CNBC.

In addition, Higgins is a published author. Power Play details Tesla’s journey to developing a luxury electric vehicle and an unrivaled customer experience.

Resources Mentioned:

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Read Transcript

TIM HIGGINS: You’re hitting on the big bet that Tesla was founded upon. It was the idea that if it could make a car that was appealing, it would change people’s opinions of electric cars. You go back 20 years, and the idea of an electric car was a golf cart.

CHARLES MIZRAHI: My guest today is Tim Higgins. Tim is an award-winning Wall Street Journal tech and auto reporter. His latest book — Power Play: Tesla, Elon Musk, and the Bet of the Century — has quickly become a Wall Street Journal bestseller. Power Play is the riveting inside story of Elon Musk and Tesla’s bid to build the world’s greatest car.

CHARLES MIZRAHI: Tim gives us an insider’s view of the extraordinary story of Tesla’s rise to become one of the most fascinating companies of the 21st century.

CHARLES MIZRAHI: I recently sat down with Tim, and we talked about how Elon Musk’s genius shaped the company. We also did a deep dive on the nuts and bolts of the car.

CHARLES MIZRAHI: Tim, thanks so much for being on the show. I greatly appreciate it. And I’m really excited to talk about Tesla, Elon Musk and everything dealing with electric cars.

TIM HIGGINS: Well, thank you for having me.

CHARLES MIZRAHI: My pleasure, man. So, let’s get right to it. They say this is one of the most authoritative books on Tesla out there. And it’s got to be accurate because Elon Musk hates it.

TIM HIGGINS: He calls it boring. But you’ve read it, and I think others have. It’s actually pretty exciting. I’ll tell you what: I spent almost a decade in Detroit writing about the auto industry. I came to Silicon Valley a number of years ago and realized that something exciting was going on in the auto space — whether it was the electrification of the car or the efforts to develop self-driving car technology.

TIM HIGGINS: This was something that you didn’t see. But for every few generations, a big change was occurring. And Tesla was definitely at the forefront of all of that. And in 2018 — when I began working on this book — I thought it was going to be about watching the very dramatic collapse of the company. But what it turned out to be was probably one of the most dramatic corporate turnarounds of a generation. Against great odds, Tesla was able to bring out the Model 3 and become the world’s most valuable automaker. It’s really an incredible feat.

CHARLES MIZRAHI: Yeah. Full disclosure: I recently got a Tesla. I got the Model 3. I’ve leased cars for maybe 35 or 40 years. And the whole process of getting the car from Tesla into my driveway was completely frictionless and extremely easy. I found myself looking forward to the emails [about] when I was going to get this car.

CHARLES MIZRAHI: To me, a car was a commodity. And I was excited to get that. My boys — who are tech guys — said: “Pop, you’ve got to get this car.” They took care of everything. I was totally against it. If the car broke down … I had range anxiety and a whole bunch of things that we’re going to get to. But I want to tell you: I really enjoy it.

TIM HIGGINS: That buying experience is the different part of Tesla. And that goes back to the early days. Tesla decided not to go down this well-paved road of franchising, dealers, third-parties, contact with the customer, selling and servicing the vehicle.

TIM HIGGINS: Elon Musk fought for the ability to own that customer experience. He wanted it to be like going to an Apple store — having an educational experience. The car would sell itself, and you would have a luxurious experience. That was the aim. So, it’s good to hear that you had that experience.

TIM HIGGINS: Not everyone has that experience — and those are some of the growing pains that we see Tesla having right now. But the experience you had gets to the core of why there’s so much excitement among some Tesla users and fans out there. It’s a different car experience than they’re accustomed to.

CHARLES MIZRAHI: Absolutely. On my block and down the corner from me, someone has a Tesla. He’s had a Tesla for about a year and a half. I think it’s the top model. Is it the X? What’s the top model?

TIM HIGGINS: The Model S — the sedan. The Model X is the large SUV.

CHARLES MIZRAHI: Right. It’s not the X. It’s the Model S — S as in “Sam.”

TIM HIGGINS: Yeah, right.

CHARLES MIZRAHI: He had that. He put the power plug in front — or whatever the heck that thing is called — and he was walking around and saying: “Come, you have to see my new toy.” I just pooh-poohed it. And another guy — another block away from me — got one, too. I said: “What’s the big deal? It’s a car.” The whole deal of thinking that there could be anything new in the auto industry…

CHARLES MIZRAHI: All right. Every couple of years, you get a new car. There’s something different. But, Tim, I got this car, and it’s 100% different. The learning curve is very small. But once you drive a Tesla, driving a gas-powered car — with all the gadgets and everything — becomes less exciting.

TIM HIGGINS: You’re hitting on the big bet that Tesla was founded upon. It was the idea that if it could make a car that was appealing, it would change people’s opinions of electric cars. You go back 20 years, and the idea of an electric car was a golf cart. It was not something that you were going to aspire to have. It was full of compromises.

TIM HIGGINS: And it really was full of compromises back in the day. Traditional automakers — when they thought about electric cars and tried to develop them — thought that the customer was going to be motivated to buy an electric car because of the high prices of gasoline. They were going to be driven by a pocketbook concern.

TIM HIGGINS: And so, you ran into a dilemma there. The dilemma was: Battery costs were so expensive. To have a car that’s price-comparable to a traditional car, you have some tradeoffs.

TIM HIGGINS: When GM came out with the EV1 — which was one of the first attempts to make a mainstream electric vehicle — it looked like a spaceship because the company was really concerned about aerodynamics. It only had two seats, and it was full of compromises. It didn’t find an audience because it didn’t have the range. It didn’t have all the things you would expect.

TIM HIGGINS: Whereas Tesla’s argument was: “Let’s start at the top,” and “This will be a luxury experience.” The first vehicle they came out with was the Roadster. And the idea was that if you came out with a sports car, sports car buyers were accustomed to not having quality. But if it was cool and performed, they would be attracted to it. And with electric cars, the torque — that experience you have when you’re at a stoplight, hit the accelerator button and go back like this — was exciting. That’s where electric cars performed very well. And they saw that as the line to go down. That’s what could make electric vehicles sexy, cool and aspirational.

CHARLES MIZRAHI: Yeah, you hit it right on. A friend of mine said: “What’s so special about this car?” I said: “Get in.” And I floored it. I don’t know if it was zero to 60 in 3.9 or 4.1 seconds. I don’t know what was. But he said: “I got that same feeling as if I were on a roller coaster. You get that jolt.” And I said: “That’s freaking crazy.”

CHARLES MIZRAHI: But let me go back a bit. I remember watching Larry David in Curb Your Enthusiasm — and you can tell me when this was. He drove a Prius, right? I think it was a hybrid or an electric car. I’m not sure.

TIM HIGGINS: It was a hybrid.

CHARLES MIZRAHI: [The hybrid was] in L.A. — where everyone was showing off. That was on the show. It didn’t look like anything special. I wouldn’t want to be seen in it. Forget about being seen in a Prius. It didn’t look like anything that I’d want to go out of my way to get — even though I’m a conservationist. I make sure toilets don’t run. I change the flappers. I’m that kind of guy. I really am. And then, I saw the Prius. I said: “Ew.” It wasn’t anything exciting. What year was that? What year did that Prius come out?

TIM HIGGINS: Oh, you’re getting me there. It was the end of the 1990s. And so, you’re right. Its design was intentional. It was sending a signal. That was the idea of hybrid vehicles at the time — and even years later. If you were going to buy it, you wanted to signal that you were green. And that was going to be part of the marketing effort.

TIM HIGGINS: With Tesla, it brought out the Roadster. It was successful for what it was. But it wasn’t going to change the world. It was to get to the next product.

TIM HIGGINS: Elon Musk then becomes CEO. He’s thinking about what’s next. We think about the Model S. This was going to be the vehicle that showed an electric car was something you wanted in your driveway. The Roadster was the idea that electric cars could be cool. But the marching order with the Model S was to make the world’s best car — that happened to be electric. And you were going to buy it because of its performance, looks and all these other features that you were going to want in your life — rather than making some kind of compromise.

TIM HIGGINS: And so, the Model S had seven seats. It had a huge trunk. It had a trunk in the front. It had an interior that was unlike any other vehicle. It had a touchscreen in the dashboard that was like an iPad. These were unheard of things at the time. And by the way, it [had that] zero to 60 [miles per hour] in a few seconds. It was up there with some of the fastest, best cars in the world. And it was an electric car. We’ll make the argument that the cost of ownership is cheaper than what a traditional car would be. That’s a pretty compelling thing.

TIM HIGGINS: The bet was if people would go for that or not. It was going to be a high-end car, and that success would then usher in the ability to do a more mainstream electric car — which is what you have with the Model 3. All of the sudden, people were saying: “Hey, I want that. But I don’t want to spend $120,000.” But $50,000 or $60,000 is good, right?

TIM HIGGINS: And so, you’re seeing that trickle down of technology — which you’ve seen in luxury technology for generations. The iPhone Pro has the best things. It trickles down, and you’re accustomed to that. Its scale will help the electric car become cheaper over time.

CHARLES MIZRAHI: Yeah. I want to talk about ownership for one more second. My thinking has totally changed. I thought: “What about filling up the car?” and “What I’m a broken down?” I had range anxiety and a whole bunch of issues. But after I got it and started driving it — I also have a Volvo — if the if one of my boys took the Tesla, I was pretty pissed. I’d say: “I have to drive the Volvo?” I didn’t look forward to it. I wanted to drive [the Tesla].

CHARLES MIZRAHI: The fact that the car is intuitive — I don’t need a key. It’s on my phone — which is amazing. I go up there, and I don’t have to fumble for my keys. I don’t have to worry about that anymore. As long as I have my phone, I’ve got it.

CHARLES MIZRAHI: Secondly, once you get in there, it’s clean, simple and sleek. There’s no confusion. My attention isn’t shifting between 20 different things. There’s a big screen. I push the lever down, and I go into drive. I click it and go into park. I get out. I don’t have to worry about shutting it off — which that’s freaking crazy. I get out of the car, and it’s still going. And then, you walk away, and beep! It locks up and everything. I don’t think my experience is unique at all. In fact, I think there are things I didn’t even talk to you about. But that was the aim?

TIM HIGGINS: Absolutely. It’s interesting that you hit on this concern going in. You had range anxiety.

CHARLES MIZRAHI: By the way, Tim, I’m the type of guy where I freak out if my car’s tank is on half. I’m always filling up and telling everyone: “Never leave the car with less than ‘F.'” Just fill up the car. And I’ve said: “Oh my gosh, where am I going to go to fill this thing up?” That has totally disappeared.

TIM HIGGINS: That’s a huge concern — even more so at the beginning. And so, the Model 3 comes out in 2012. It’s really hitting its stride in 2013. And there’s concern out there. General Motors comes out with the Chevy Volt. And this is a plug-in hybrid where, if you use the electricity, it can kick on a motor to keep going. So, you’ve got gasoline in the car as well to get beyond that range anxiety.

TIM HIGGINS: Tesla was facing this very real issue. And that was one of the smart things it did. Most of its customers were in California at the time. Or, the most important ones were. Tesla figured out: “The buyers of the Model S are wealthy people. Where do wealthy people go on road trips?” That’s where the concern with range anxiety was. Most users, in that period of time, were going to plug it in at home overnight. That’s what made sense. They were probably not having problems while getting through their days.

CHARLES MIZRAHI: What was the range of that car? How many miles?

TIM HIGGINS: These days, it’s 350 or 400 miles — or something like that. But at the time, it was getting over 200 — as I recall. It has changed over time. But it was a lot at the time.

TIM HIGGINS: So, they came out with the supercharger network. And you’d get to the intuitive part. They basically put charging stations for the L.A. customers between L.A. and Las Vegas — thinking that that was going to be a popular road trip. Or, [they’d put them in] San Francisco and Lake Tahoe — a ski area. Or, they’d put them between L.A. and San Francisco — another popular road trip.

TIM HIGGINS: You, as a customer, would then be able to know these places. It would be free. Your car would just work there. You would see it on the map, and it would tell you when you needed to pull over and do these things. It could calculate the trip for you. And it created an ecosystem that has proven to be incredibly important and hard to replicate.

TIM HIGGINS: It wasn’t that expensive to do. They figured out ways to do it rather economically. But it provided a marketing boost for the company. It has since built out this network around the world. And it has become one of the critical moats that they have.

TIM HIGGINS: Years ago, I remember testing a competing electric vehicle. I was taking that San Francisco trip toward L.A. — but not L.A. I ran into the issue of: I needed to charge the vehicle, and the vehicle I was using didn’t have one of those networks. And so, I was looking around and trying to find a place to charge in the middle of my trip. I was going to stations that didn’t work or were no longer there. It was a big hassle, and it ruined that road trip. I had range anxiety for the rest of the time.

TIM HIGGINS: That’s one of the challenges competitors have. They race to put electric vehicles on the road, but they’re a generation behind on some of those basic features that you take for granted — that intuitive: “I’m going to get on the road. The car is going to tell me where my opportunities to charge are, if it’s busy and how far I can get.” There are changes in electricity. If you run the air conditioner vs. the heater, it’s going to change your range. These are all things that you’re not accustomed to if you haven’t had an electric vehicle. But the car helps you. It teaches you how to do it.

CHARLES MIZRAHI: Yeah, you’re 100% right. Initially, for me, it was front-of-mind. And now, I’m at the point where I don’t think about it much. We just got a charger in my home — which cost me a fortune because my electric box was on the other side of the house. It was in the farthest possible spot.

CHARLES MIZRAHI: For those who don’t know, you can install a charger in your house — where it does around 30 miles an hour. So, plug it in overnight, and there’s 240-plus miles. It’s not a big deal at all. The average guy goes about 50 miles a day. I’m living in Brooklyn, New York. I drive around six miles per week, so it isn’t an issue.

CHARLES MIZRAHI: I’ve found that Tesla took away a lot of my anxiety. I’ve got to say: It was brilliant. All of the things you mentioned moved to the side. I don’t even think about them anymore. Now, I’m just experiencing and enjoying the automobile.

TIM HIGGINS: Tesla has taken away that friction. That’s been a huge benefit for the company. And the challenge, going forward, is that it will have more and more customers. Building out and maintaining that will become more of a challenge. But it has removed one of those hurdles — in the interim — that I think a lot of people are going to have.

CHARLES MIZRAHI: Tim, you’re a smart guy. You’ve been working for the Wall Street Journal for a while. You were in Detroit. You knew what was going on. How come this guy … Musk didn’t found Tesla. That’s another thing that people think. He didn’t found Tesla. He invested in it right after his PayPal winnings came, and he took it from there.

CHARLES MIZRAHI: But hang onto that for one second. How come the auto industry — with the billions in R&D, engineers, capacity issues…

CHARLES MIZRAHI: Building a car is a capital-intensive, pain-in-the-ass business. It’s a low-margin business. It’s not a good business. I’m looking right behind you. For the folks who are listening in, [Tim] has a 2009 article about GM going bankrupt. The auto companies were taken out behind the barn and shot. Here’s a guy — as ballsy as can be — who comes out and flips a whole industry on its head. So, my question for you is this: What was Detroit thinking, and why didn’t they see this coming?

TIM HIGGINS: Sure. Well, Detroit traditional automakers never thought that a startup could be a real competitor — for all the reasons you just laid out. Bashing metal as a business is a capital-intensive game. The idea was that maybe they could get some ideas from startups. But eventually, a car company would get serious and industrialize it. It would be able to swoop in and own the market. That’s always been one of the concerns for Tesla. OK, you’re doing a nice little thing here. But once GM, Toyota or Volkswagen get into the game, then you’re toast.

TIM HIGGINS: There are a few things here. Let’s unpack this. One of the challenges for traditional automakers is that they’ve been making their money from gas-powered cars. If the bulk of your profits are coming from pickup trucks and sport utility vehicles — like they are in Detroit — you don’t have a lot of incentive to say: “Let’s blow this up and make it a battery car.” That’s one of the big challenges…

CHARLES MIZRAHI: Let me interrupt you for a second. In the 1970s — when I was in high school and thinking: “How am I ever going to afford a car” because gas prices were zooming — Detroit was still making these huge boats.

CHARLES MIZRAHI: I remember we had an Olds 98. That thing would take up three parking spaces. It got nine miles to the gallon. It was huge. It was like driving a living room. At the time, the imports were coming in from Japan — the Toyotas and Datsuns. You had to be a total moron to not see that in California — and everywhere else — people were starting to buy these imports. They were smaller. And they said: “Well, they don’t want smaller.” But you were able to get 25 miles to the gallon. We used to have to wait on gas lines. It was insane. Detroit was saying: Well, in Michigan, everyone is driving our big cars.”

TIM HIGGINS: It’s the innovator’s dilemma, right? And in a lot of ways, Tesla didn’t have anything to lose. It didn’t have a legacy. It could say: “Why not an electric car?”

TIM HIGGINS: And the other big choice that set Tesla apart was … Traditional automakers have been thinking about zero-emission vehicles. But the challenge was that they were always looking for the perfect technology. Yes, there were these batteries. But there are all these reasons against them. So, let’s develop something new or find the next thing.

CHARLES MIZRAHI: Let me step in for a second. For those who are not tech savvy — and correct me if I’m wrong — an electric vehicle is nothing more than a battery with four, five or six seats on it. It’s the batteries that are the keys. Battery technology is what’s holding this back in a big way. These batteries are heavy, huge and need to be charged. The game now has become extending the lives of the batteries so you don’t need to charge them [as much]. And make them lighter and smaller so cars can go further. Is that right?

TIM HIGGINS: Yeah, exactly. So, Tesla’s insight was: Let’s stop looking for the perfect. Let’s look at what’s on the shelf right now. And at the time, lithium ion cells — these fat-finger-sized cells that were very popular in camcorders or laptops — were a new technology that was on the shelves. They said: “Why don’t we just use those?” We’ll take thousands of them, wire them together and put them in a pack to create a battery pack.” That would be enough juice to power a vehicle. And because they were using so many of these cells, they felt like they’d be able to eventually get scaled and bring the price down — which was an important thing.

TIM HIGGINS: And then, on top of that, it’s a known technology. These cells are out there. They’re selling them in computers. Instead of looking for something that could be better, they were just going to double down on that technology.

TIM HIGGINS: So, that was one of the big insights that Tesla had. It went out and figured it’d make an electric car based on lithium ion cells — the laptop batteries. In the auto industry, that was looked at as crazy. I remember hearing car guys in Detroit mock Tesla. They basically said that it was a laptop battery car. It was seen as dangerous. What were the long-term implications? Would it be able to survive?

TIM HIGGINS: Well, Tesla gets into it and starts raising money. And they realize: This could be dangerous. In fact, lithium ion cells tend to catch fire. They started doing the math. What happens with one kind of fire? Then, you’ve got six thousand cells on fire. You have a bomb on wheels. It was an existential moment early on.

TIM HIGGINS: And this is really where the big technological breakthrough for Tesla occurs. It figures out how to develop a battery pack that contains energy in a way that keeps it from having runaway fires. They do this through a combination of software and mechanical engineering. There are all sorts of goop in this pack to keep the cells at a certain temperature. They dissipate the heat throughout the pack. It’s very complex and cutting edge.

TIM HIGGINS: This breakthrough was really what separated Tesla from others at that point. And to this day, it’s one of the advantages it has over traditional automakers. It figured out how to manage those cells in a way that was creative and used technology that was already out there. And that, in a lot of ways, was why Tesla was able to get on the road so quickly.

CHARLES MIZRAHI: So, you’re telling me that it went into the equivalent of a RadioShack, took parts off the shelf and said: “We’re going to make an electric car based on what we have sitting around”? That was it?

TIM HIGGINS: Essentially, that was the game. In fact, it was very hard. The original business plan was built on a lot of assumptions that turned out to be kind of correct. One of the assumptions was: They’d be able to get these cells.

TIM HIGGINS: Well, they ended up being harder to get because, at the time, we were starting to see Apple and other personal tech companies have these fires on airplanes. People were kind of scared. And the battery companies were saying: “Wait a second. You’re going to put how many of these cells in a car? We don’t want to be liable for this. We don’t want the black eye.” So, Tesla had to prove that it could build a safe car. And that made its relationship with Panasonic critical. It had to convince this giant battery maker that this was going to be safe and [Tesla] was going to be a good customer. That became a key breakthrough for Tesla.

CHARLES MIZRAHI: You talk about safety and all. I like it. Another thing I like about my Tesla is that I feel more secure with my sons driving it. And when I drive it, it tells me how close I am in inches. It automatically stops at certain points. I don’t have auto drive. I’m in Brooklyn. Auto drive is another feature that we’ll talk about in a second.

CHARLES MIZRAHI: But in terms of safety, I think that when consumers looked at it, they wanted to give it a six-star rating — with five stars being the top. I think it was something like that. And what I found interesting was, a few weeks ago — unfortunately — someone in the Brooklyn area was driving a car late at night. It was a bunch of kids — high school or college kids. They were going really fast, and unfortunately, one of them died. The article said the make of the car. He was driving a Tesla. And I thought that was so telling.

CHARLES MIZRAHI: If someone dies in a Honda or Volvo accident, you don’t hear much about the car. You hear about the car accident. They use Tesla to say: “I thought those didn’t crash.” I found it so amazing that, in the public eye, Tesla is now almost synonymous with an extra level of safety.

TIM HIGGINS: One of the key things that Elon Musk had when he brought out the Model S was he wanted to have it ranked among the safest cars. That was a key thing. Part of it was because they were bringing out a new technology, and that was a concern. But crash safety has also become a core brand attribute.

TIM HIGGINS: If you talk to people who study the manufacturing of the vehicle, they have all sorts of issues with the way they make it. Well, one of the things with the Model S is it’s over-manufactured in a way that has proven to be rather remarkable in crash studies. And that’s been a key thing.

CHARLES MIZRAHI: It’s also the warnings that it gives you — of what you can and can’t do, how close you are to something or if you’re going over the speed limit. And there are a whole bunch of other features. Once again, they’re intuitive. When I rent a car on a business trip and it doesn’t have these things, I say: “Gosh, how do you drive these things?” It’s like going back to the Stone Age.

TIM HIGGINS: The introduction of driver assistance features — you do notice when you go back a step. People say: “Wait a second. This didn’t have automatic brakes.”

CHARLES MIZRAHI: Back in the day, we had my father’s Olds 98. It had two benches. We used to travel to Long Island to visit my aunt. We had maybe eight people in the car. My younger brother sat on my grandmother’s lap in the front seat, and I sat next to my father in the back. We had two other kids. Seatbelts? I think my father cut them out of the car. He didn’t like the way they hung out. That was not a safety standard. No one used seatbelts. There was only a lap belt at the time.

TIM HIGGINS: Well, it’s funny. A lot of Elon Musk’s personal life is in these cars. When they were working on the Model S, he had five children. And so, he wanted there to be capacity for his family in the vehicle. A sedan normally has five seats. So, he insisted that there should be two small children’s seats in the trunk. That could be an option.

TIM HIGGINS: Then, his concern was, if there was a rear-end, he didn’t want his kids getting smashed. I spoke to engineers who talked about how this was a huge issue in his mind — making sure that rear impact was going to [occur] in a way where those two little seats were going to be OK. So, that played into it.

TIM HIGGINS: Flash forward to the conversation around Tesla now. There’s concern about the implementation of advanced driver systems. They call it “Autopilot” — full, self-driving technology. The car cannot drive itself. It has technology that’s supposed to help the driver manage some of the driving load. And so, the company has come under a lot of criticism for the way that it has marketed it.

TIM HIGGINS: I’ve used Autopilot, and I know a lot of people who have. It feels like the future. It gives you more confidence in the car than the car can actually give. Sometimes, you’re lulled into thinking that it can drive itself. And it can’t. You, as the driver, need to keep the mental load on the road and be able to take control if the car can handle things. That’s proven to be a challenge for the company in recent years.

TIM HIGGINS: So, you’re seeing conflict out there right now. Elon clearly has been concerned about user safety in the vehicle — the way these cars are designed and the structural elements of it. Safety has always been a big issue. But then, [Tesla] comes under criticism for the way it’s deploying the marketing for some of these features.

CHARLES MIZRAHI: We expect more. We want more. We want this thing to actually drive itself, pick you up and drop you off. It’ll take time. But it’s definitely on the way. So, you’ve researched this book. This book to your while to write, right? How long did it take you?

TIM HIGGINS: Several years.

CHARLES MIZRAHI: You didn’t get up close and personal with Elon himself, but you got a lot of information about him. What’s his genius side? What do you think his No. 1 thing is … Charlie Munger, Warren Buffett’s business partner, said that the thing about Musk — and geniuses like him — is that they’re people with 200 IQs who think that they have 250 IQs. He said: “I’m scared of those types of people.” Based on your research and being immersed in the automobile industry, what is the one thing that Musk has that makes him stand out?

TIM HIGGINS: It’s interesting. He’s clearly very bright. He clearly has engineering chops. There’s also another element. You see it in other entrepreneurs in Silicon Valley, too, but not to this level. They have a little bit of naivete or delusion. They look at a problem and say: “Why can’t it be done this way? It would be so much better.”

TIM HIGGINS: If you look at a traditional automaker, it would say: “The reason you can’t do that is because of X, Y, Z and 100 years of experience. A guy like Elon doesn’t want to hear about 100 years of experience. He wants to look at the math and engineering and say: “Well, it can be like this. This would be better. Why not do that?” And so, he goes after it.

TIM HIGGINS: One of the huge differences that sets him apart from everybody else is his risk tolerance. He’s willing to put it all on the table and take a risk on something that he believes is correct. That puts him in the winner’s circle. But it also creates great risk. He’s has faced a lot of near-catastrophes because of that.

TIM HIGGINS: So, he has that risk capability. But a lot of people have crazy ideas. He also has that ability to sell his vision of the future in a way that’s been critical. He’s been able to sell to customers — like yourself — which is key. If you’re making cars, you have to have people buy them. But it’s more important that he’s been able to sell the vision of the future of cars to investors. People have come with him on this journey — willing to put down billions of dollars to fund this car company and get it to the point where it can make money.

TIM HIGGINS: There was a reason why there hadn’t been a lot of startup car companies up to that point. Investors didn’t want to take the risk. The return on capital was not in their timelines. It takes years and years of losing money to get a car out. And then, you have to do it all over again. Most people thought that was crazy, whereas Elon saw the potential to change the world. And he could raise the capital through his sales ability and continue to take risks that others probably wouldn’t.

CHARLES MIZRAHI: What’s his mad part? What’s the part of him that you think is reckless?

TIM HIGGINS: Well, one of the problems for a guy who’s always told “no” or something is not possible — and he starts to do the impossible — is he doesn’t listen to people. He wants to prove that he can do something. And 2016 is a pretty good example. He was making decisions that were risky. People were telling him: “Don’t do this. This is a bad idea. Here are all the challenges.” And he was just plowing through it.

TIM HIGGINS: For example, in 2016, they brought out the Model 3. Here was what the Model 3 looked like. The response was unlike anything from a recent generation. People were lining up to put money down to have the opportunity to buy. And they weren’t even sure when it was going to come out. So, there was lot of excitement. Well, Tesla’s finances were still pretty rickety. It was struggling with the Model X. The market wasn’t sure where the company was going. So, it needed to raise money.

TIM HIGGINS: Elon sold it on the idea that they were going to pull ahead in production. They were going to pull those production plans ahead so they could get more cars out faster. That was a really risky gamble. And part of the way he wanted to do it was he was going to greatly increase the automation in the factory.

TIM HIGGINS: His ultimate vision was to have a lights-out factory. That’s the idea that robots can do most of the work, so you can turn the lights off, go home and let the robots do it. They’d be going so fast that cars would fly out. Well, anybody in the auto industry who has been around for a while knows that automation has its place, but it can be incredibly costly and complicated. And if you make a mistake, it can be hard to unwind.

TIM HIGGINS: That’s ultimately what we saw in 2018. The company nearly went into bankruptcy because he overplayed automation. The factory was in a knot. It was taking months to figure out how to fix things. And ultimately, the way they were able to get out of that problem was with a little bit of luck — and other people’s ideas came into play.

TIM HIGGINS: The Model 3 was created with the idea that it would be easier to build than the previous generations of Tesla vehicles. The engineers are sitting around and saying: “This thing should be easier to make. Why don’t we take it out of this overly-automated assembly line and do it by hand?” They had some tools to help them. That could speed things up.

TIM HIGGINS: And so, that’s what they ultimately did. They put a tent outside the factory. They brought some of the tools out there. They put their assembly line out there — outside of this overly-automated assembly line. Once they did that, they sped up production. Getting away from automation was one of the key things that got them through that problem.

CHARLES MIZRAHI: It’s amazing. It’s counterintuitive, right? So, what is Detroit doing at this time? Are they looking at this and saying: “I told you so”?

TIM HIGGINS: Well, that’s the thing. There have always been a lot of Tesla skeptics. Every time Tesla did something that people thought was impossible, [they’d think]: “Eventually, Elon is going to get his comeuppance.” A lot of people were betting against him — like short sellers — and rightly so. A lot of his claims were pretty hard to believe. It just seemed like, at some point, the math wasn’t going to work.

CHARLES MIZRAHI: Hang on a sec. I totally agree with that. I never shorted Tesla. I never recommended it, either. I just kept looking at the numbers and said: “This company does not make money. His claims sound like that of a charlatan. If it weren’t for the government tax credits, there’d be no profit — or anything resembling profit.”

CHARLES MIZRAHI: My suggestion in 2018 and 2019 was: “Buy the car. Don’t buy the stock.” The stock was zooming because Tesla was a religion. People were buying based on faith in Elon Musk and Tesla. There was no looking at it from a dollars and cents point of view. It didn’t make any sense at all. As you mentioned, the company was always a hair away from folding. They just couldn’t do it. And to build cars was difficult. So, buy the car, but don’t buy the stock.

TIM HIGGINS: The situation changed. The Model 3 came out, but there were all sorts of problems delivering it. Sales weren’t as robust in 2019, and I think people on Wall Street were getting tired of Elon’s show. At the beginning of 2019, he was talking about opening a factory in China in a year. It didn’t seem believable. So, that was a dark period for the company.

TIM HIGGINS: But lo and behold, at the beginning of 2020, it was able to open that factory. And that became very important because as COVID-19 took over, it gave them a hedge. They only had one assembly factory in the U.S. And that was taken offline for a while because of COVID-19 precautions in the states. So, they had a factory in China that could deliver cars. And what happened was that Tesla was able to get through that initial wave of COVID-19 and turn a profit.

TIM HIGGINS: That was a wake-up call. Elon was able to bring out the Model 3. He was able to open a factory. He was regaining some credibility in the market. It sent the stock to the moon. It did something that allowed Tesla to raise capital cheaply — in a way that it hadn’t been able to before.

TIM HIGGINS: What it created was basically a war chess to go forward and pay for the future growth that was so important to them. But it could also weather the inevitable downturn that it was going to see — like all car companies do. And that changed a lot of things for the company. It was able to do that one-two.

TIM HIGGINS: So, you ask: “What is Detroit doing? What are the traditional automakers doing?” Well, if there were no Tesla tomorrow, it’s understandable that Tesla and Elon Musk’s vision of the future of the car has won today. From Volkswagen to General Motors to Mercedes — these companies are pouring billions of dollars into developing electric cars that they’re going to be putting on the road in the future.

TIM HIGGINS: In part, it’s because governments around the world are pushing for those electric vehicles, and they are given strength to do that because they can point to the Model 3. They can point to Tesla and its profitable quarters and say: “Customers will buy electric cars if you make good ones.” And that has put traditional car companies in a tough spot. On top of that, investors are saying that this is the future. So, the vision that Elon and Tesla put out years ago is starting to come into play.

CHARLES MIZRAHI: Yeah, it’s absolutely amazing. A few weeks ago, Tesla released its third quarter 2021 [results]. It had a new delivery record of 241,000 electric vehicles. And it’s on pace with an annual production rate of almost one million electric cars. It was considered a joke a while ago.

TIM HIGGINS: It’ll be interesting. You can envision a world in which they sell as many as — or more than — BMW. That would be a real change. It’s remarkable growth. In 2017, there were thousands of cars. You go to hundreds of thousands. And the company is on its way to a million next year.

CHARLES MIZRAHI: What I found interesting about your book — I really liked how you developed it. Most people look back, and it becomes 20/20 hindsight — confirmation bias. Of course, the company is so successful. Everything it did was correct. And that’s why it’s successful. But as you pointed out, there were several places where they made good bets and did well. And any bad ideas were quickly discarded.

TIM HIGGINS: You see that in startups. It’s the startup mentality. Let’s fail fast and go on to the next thing. We’ll figure out what’s working and go on. It’s a bit of a cultural difference from the traditional automaker. A product is going to go through multiple years of development. Somebody’s career is tied up with that. If there’s a mistake, there’s going to be a huge autopsy. Somebody is going to be blamed. There’s a reason for all of that. There’s a reason why that’s developed. But at Tesla, they didn’t have that kind of fat. They were nimble enough that they could move quick. And that’s part of their culture.

CHARLES MIZRAHI: Yeah, it seems to be a huge advantage.

TIM HIGGINS: Definitely. It’s helped them weather some of these storms. And here’s a good example of how being able to move fast — married with its technological advances — has helped the company. Like your iPhone or Android device, the Tesla vehicle can use cellular service or Wi-Fi to update the software in the car — which was unheard of when Tesla rolled this out.

TIM HIGGINS: And so, in 2013, they were starting to have some trouble. Some of the Model S cars were running over things on the road — resulting in car fires. Go back to that earlier conversation that we had. The concern about car fires was really big at Tesla. Here were these new vehicles and technology out there. They were running over things and having fires. That was a big concern.

TIM HIGGINS: The engineers started looking into it, and they realized that what was happening was the road debris was puncturing the battery pack — resulting in the fires. They could use that software — that remote capability — to raise the car’s suspension a little bit. And that would decrease the probability of puncturing that pack dramatically. And so, that’s what they did. They sent out a signal to all the cars out there. They all raised a little bit, and that gave them time to come up with a physical fix or reinforcement — an extra added caution. They reinforced the pack, and that enabled them to avoid what could have been a huge disaster.

TIM HIGGINS: Look at General Motors right now. It’s having to recall all of its Chevrolet Volts — its electric vehicles — because of problems with some of the batteries. It has this problem. This is something that all car companies have to deal with. And luckily, they have the ability to do this.

CHARLES MIZRAHI: It’s amazing. Just think of the billions of dollars they saved without recalls, maintenance and taking it off. And it’s sent out in a phone update. Recently, I got an update on my Tesla app for the car wash feature. When it goes into a carwash, I think it shuts down everything so no water can get in. And it automatically goes on that pulley system. It’s something to that effect. I don’t know what it was. I just saw that there was an update for the car wash feature. And I said: “Wow, that’s absolutely amazing.” It’s really crazy.

CHARLES MIZRAHI: Elon Musk has so many different ideas. He wants to colonize Mars. And he has a zillion other ideas. What’s next for Musk and Tesla?

TIM HIGGINS: It’s interesting. He was doing SpaceX before Tesla. And a lot of people close to him talk about how, in a lot of ways, SpaceX is his first love. It’s almost like his wife. Whereas Tesla is his spicy mistress. There’s a lot of drama. He can’t quit loving it. It’s there. And in the last few years, after getting out the Model 3 and getting past some of these hurdles, his attention is on SpaceX right now — and the dramatic things it’s doing.

TIM HIGGINS: It’s a challenge. There’s only so much time in the day for Elon. And you look at the future of Tesla. One of the key things that he needs to do is develop a leadership bench that’s beyond him — a generation of people who can take that company from what it is now to a multi-generational company. That’s something that they have to figure out at some point. And that’s been a challenge for Elon.

TIM HIGGINS: He’s building the senior executive ranks. They’ve been moving at such a fast pace that he’s burned through a lot of people. Some have left because they couldn’t take it anymore. Some have left because he couldn’t take them anymore. That could be challenging for the company. One of the things that they continue to struggle with is the meat and potatoes part of the car company business. It’s the car development, selling and servicing. So, as Tesla gets more and more sales out there, it has to grow its store and service networks. And that’s a challenge.

TIM HIGGINS: So, those are the things they have ahead of them. They have to learn how to execute on many fronts. Today’s crisis is building and delivering cars. They’ve essentially been running from crisis to crisis to the point where they need to develop a smooth operating system.

CHARLES MIZRAHI: Yeah, 100%. It’s blocking and tackling — the basics of the business. It’s not sexy. But now that it’s out there, if you don’t do that, the brand quickly dies as more and more people get the car. The press is all over it if there’s any type of screwup.

CHARLES MIZRAHI: Tim, you did a great service — not only to the technology people want to know about technology but entrepreneurs. It’s not always the way it appears — that they go from strength to strength. There are many failures, mistakes and problems that are punctuated by a few great successes.

CHARLES MIZRAHI: I don’t know if you’ve gotten this from other people — in terms of feedback — but it’s an inspirational book. You can face challenges, and challenges are the norm. The successes are the exceptions. Appreciate that because without those failures, you’re not going to get amazing gains.

TIM HIGGINS: Every day, it could have gone in a different direction. It’s about figuring out how to deal with the challenges ahead. It’s interesting that a lot of the choices they made were between two bad decisions. And they tried to figure out what the least bad decision was. That’s kind of how it is.

CHARLES MIZRAHI: Yeah, it’s a lot of gray. It’s not black and white. It’s the fog of war. You’re never making decisions in a laboratory. It’s always messy and complicated. And sometimes, you have to pick the lesser of two evils. You have to decide. You have to have the balls to do it. I’ve seen Elon Musk and Tesla carry through.

TIM HIGGINS: You hit on something that Elon once told me. It was this idea of: Not deciding is a decision. He would rather make a quick, wrong decision and change course if it’s not working than not decide. That gets to one of the key philosophies he has. It’s kind of his strategy. It’s almost like a gambler at a casino. If you’re on a hot streak, keep going. Use that momentum. He’s all about momentum. That’s what he wants.

CHARLES MIZRAHI: Right. The name of the book is Power Play: Tesla, Elon Musk, and the Bet of the Century. Tim is a guy who knows something about cars. He knows a hell of a lot about cars. It’s a really enjoyable, quick read. You keep it moving. Fantastic job, man. I wish you continued success.

TIM HIGGINS: Well, thank you. I appreciate it. It’s an honor to be on the show.

CHARLES MIZRAHI: Great. Thanks so much, Tim.

CHARLES MIZRAHI: Thanks for listening to this episode of The Charles Mizrahi Show. If you’re a new listener, welcome! If you’ve been listening for a while, we’re glad to have you back. Either way, we’d love to know what you think of the show. Please leave a review if you listen on Apple Podcasts. Reviews make it easier for others to find the show. You can also see the video of the interview on The Charles Mizrahi Show channel on YouTube.

 

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