In the classic 1987 film "The Untouchables," Sean Connery's character, Jim Malone, delivers a memorable line to Elliot Ness played by Kevin Costner: "What are you prepared to do?" Like it was for Elliot Ness, this question also is important for today‘s legacy automakers. As Elon Musk continues to employ unconventional methods for Tesla, what are legacy CEOs prepared to do to respond?
"The Chicago Way" for the Auto Industry
In “The Untouchables,” Malone describes to Ness his method to get to Al Capone: “They pull a knife, you pull a gun. He sends one of yours to the hospital, you send one of his to the morgue. That’s the Chicago way!”
Likewise, Tesla is challenging industry norms and rewriting the automotive playbook in what is becoming, “the Tesla way.” It should be clear to legacy automakers by now, that historical norms are not enough to compete against a company trying to mold the industry to its way of conducting business. What are legacy auto companies prepared to do to compete in this shifting automotive landscape?
Redefining Pricing
To support its goal of rapidly scaling, Tesla has drastically cut the prices of its core vehicles. Interestingly, these pricing decisions frequently are occurring in real-time. Consider the Model Y, a potential 2023 best-seller, which cost $20,000 more than the average U.S. new car at the beginning of the year. Fast forward to October, and the starting price of Model Y is now $4,000 less than the new vehicle average. While this strategy raises concerns about Tesla profit margins, a larger question is, how will traditional automakers respond? Are they willing to compete on price, which might have short-term margin ramifications, but long-term strategic benefits?
A Manufacturing Revolution
Tesla is trying to revolutionize manufacturing. Its unboxed production plan is designed to slash manufacturing costs by 50% while reducing the size of the factory by 40%. It's an audacious goal that could change the industry's fundamental approach to building vehicles. Yet, it raises another critical question. Are established automakers prepared to even consider such a dramatic shift in manufacturing strategy?
Interestingly, Elon Musk seems to believe that automotive success is not based on product innovation. He believes success actually comes from manufacturing innovation. This is highlighted by Musk in the recent biography by Walter Isaacson.
“It’s not the product that leads to success. It’s the ability to make the product efficiently. It’s about building the machine that builds the machine. In other words, how do you design the factory?”
Tesla Engineering and the Musk Algorithm
In the Musk biography, Walter Isaacson described something called “the algorithm.” This algorithm consists of five commandments that Musk frequently demands his engineers follow. Of the five, it is the first algorithm that is most important for legacy automakers to understand: “Question every requirement.”
Specifically, Musk believes, “You should know the name of the real person who made the requirement. Then you should question it, no matter how smart that person is. Requirements from smart people are the most dangerous because people are less likely to question them. Then make the requirements less dumb.”
Musk frequently tells engineers to treat requirements as recommendations. From how Tesla’s controversial autonomous driving technology (FSD) is being developed, to the decision to eliminate the turn signal stalk on its vehicles, Tesla often ignores engineering and product convention with a goal of creating smarter solutions.
Industry experts often debate the merits of some of these Musk-driven, “less dumb” decisions. However, maybe they should be asking if legacy automakers are willing to question their own conventions toward a goal of disrupting themselves.
The automotive industry is at an inflection point. Tesla is creating new norms, and defining a different path forward. Traditional automakers must ask themselves, are they ready to disrupt their own conventions to remain competitive in this evolving landscape? In other words, what are they prepared to do?
For questions, feedback, article ideas, or story contributions, email: RMcAdory@TaaSMaster.com
This is a lesson for every industry that is facing disruption.