The latest news from Tesla reveals new realities about the business environment that leaders in every industry need to understand. The company is circulating a table showing how 2015 unit sales of its Model S stack up against sales of other luxury sedans, as Fortune’s David Z. Morris explains. The bottom line is that the Model S outsold all of them, with 25,202 units sold last year; the runner-up was the Mercedes S-Class, with 21,934 units sold. All of the nine competitors that Tesla listed suffered sales declines last year, most of them by double-digit percentages, while Model S sales increased 51%, reflecting the company’s increased production. Of course the comparison is artfully composed to Tesla’s advantage; that Mercedes will run you at least $95,000, while the Tesla Model S starts at about $70,000, for example. On the other hand, the Tesla outsold the similarly priced Audi A7 by a factor of three last year. Astoundingly, Tesla is now fully in the big leagues of luxury sedans. A few take-aways with broad relevance:
-This is an industry that was supposed to be impossible for outsiders to enter. The capital requirements are so large and economies of scale so important that the global giants seemed to hold all the cards. In fact, far from permitting new entrants, the industry has been consolidating into a few behemoths. Yet Tesla, founded 13 years ago, is now an important competitor in the most profitable segment of the business. It achieved the impossible by pioneering a fundamentally different technology and using a different business model that eliminates dealerships. If this industry can be disrupted by a startup competitor, any industry can be.
-Because electric car technology is still in its infancy, Tesla’s products will get substantially better and less expensive for years to come, while conventional cars get only incrementally better. Even as the giants work feverishly on developing their own electric vehicles, they will have a hard time catching up with Tesla because of the accumulating knowledge it gains from its significant head-start and its higher-volume production.
-Mission is power. No one can quantify the advantage that Tesla gains from creating a product that holds at least the promise of making the world a better place. But in attracting and motivating employees, and in enticing customers, it’s undoubtedly big.
-And yet – it could still all go wrong. Tesla is not out of the woods. It struggled to produce those 25,202 Model S cars last year plus the first Model X SUVs; for comparison, Toyota made about 9 million vehicles last year. When the mega-players are ready to go big with electric cars, they could flood the market, underprice Tesla, lose money (as Tesla does now), and presumably win a war of attrition.
What we can say for sure is that Tesla is making far larger competitors sweat, and in retrospect, the audacity of CEO Elon Musk and his co-founders was breathtaking. Whether you’re an incumbent in your industry, or a disrupter, or some of each, this story will continue to hold lessons for everyone.
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What We’re Reading Today
AIG gives board seats to Icahn and Paulson
Activist investors Carl Icahn and John Paulson received the seats in exchange for promising to stop their public fight with the company for a year. They have called for AIG to be split up, which CEO Peter Hancock said last month he will not do, opting instead for a reorganization of the business. Icahn has accused Hancock and the board of rejecting the breakup in part to protect their bonuses. Financial Times
Pandora searches for buyers
CEO Brian McAndrews and his music-streaming company have hired Morgan Stanley to introduce them to potential buyers. The stock is down more than 60% since October, cutting Pandora’s market value from $7 billion two years ago to less than $2 billion now. The company is struggling against rising players like Spotify and Apple Music. NYT
Jamie Dimon believes in his company very sincerely
Investors have fled from bank stocks over concerns that central banks are making a bad situation worse. JPMorgan Chase CEO Dimon responded by personally buying $26 million of his company’s shares this week. They’re down 20% this year but jumped over 1% on the news of Dimon’s purchase. It’s a signal that he doesn’t believe the fundamentals of his company have changed. Fortune
U.S. and Russia agree to a cease-fire in Syria…sort of
U.S. Secretary of State John Kerry met with representatives of Russia and several other countries, all of whom agreed to a “cessation of hostilities” across Syria and to provide humanitarian aid, starting in a week. Efforts against ISIS and other terrorist organizations won’t stop, however, nor has Russia committed to stopping airstrikes. The U.S. and Russia remain at odds over the leadership of Syrian President Bashar al-Assad, whom President Vladimir Putin supports. The Guardian
Building a Better Leader
To boost hiring, first improve your reference checks
Explain to the referee that a truthful reference is important in order to make sure the candidate will succeed in the new role. Harvard Business Review
In order to change a company’s culture…
…practice what you preach. If you want collaboration, you must encourage it even during difficult projects. Fortune
Struggling to find the right employee perks?
Hire a professional. Companies are outsourcing morale-building exercises and the provision of perks. Bloomberg
Clinton-Sanders debate heats up
Hillary Clinton is now trying to stop Bernie Sanders’s momentum. At their debate last night in Milwaukee, she echoed themes that Sanders has emphasized, such as a rigged economy for people at the top, while arguing that his proposals aren’t realistic and would be dead on arrival in Congress. Sanders tried to increase his support among minorities as the primaries head to Nevada and South Carolina. ABC News
President to meet with dictators
President Barack Obama will host the Association of Southeast Asian Nations’ leaders next week, including Thailand’s military ruler Prayuth Chan-ocha and Cambodian Prime Minister Hun Sen. Some of the rulers share an antagonistic relationship with China. As U.S. relations with Chinese President Xi Jinping have cooled, experts worry that Obama could be trying to gain influence in the region at the expense of human rights. Fortune
Facebook increases efforts against terrorist speech
U.S. officials met with COO Sheryl Sandberg in early January and pressed the company to do more about policing terrorist speech on the platform. The company has tapped Monika Bickert, a former federal prosecutor, to lead development of policy on what can be said on Facebook. In some cases, if Mark Zuckerberg‘s company detects an “imminent threat” in social media profiles, it will notify law enforcement. WSJ
Up or Out
President Barack Obama has nominated John King Jr. as Secretary of Education. USA Today
Cybersecurity company Norse has named Howard A. Bain III CEO. WSJ
Fortune Reads and Videos
A pay problem
Matt Brittin, president of Google Europe, Middle East, and Africa, tells legislators he doesn’t know how much he’s paid. Fortune
The NBA considers adding advertising on jerseys
The proposal would allow teams to sell one logo on jerseys for the 2017-2018 season. Fortune
Burberry faces lawsuit alleging it misled shoppers…
…about the supposed large discounts they were getting at its outlet stores. Fortune
Google may not look to smartphones for virtual reality
Instead, it’s developing a stand-alone headset. Fortune
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|Produced by Ryan Derousseau|