“Is Las Vegas on the line?” Alon Musk asked in one of the nightly conversations he had with his sales team in September 2018.
Las Vegas was the nickname for Kyle Hunter, who was only nine months in his job as head of Tesla’s sales team at an office not far from the city’s main street, and he waited for Musk’s next question.
“How many people did you sign to collect vehicles today?” Musk asked.
This was Hunter’s big moment: his team set up meetings with 1,700 people to pick up Tesla’s Model 3 cars in the coming days – a record – and he was proud to announce this achievement. The compact Model 3 was Musk’s gamble on the entire company in turning Tesla into a mainstream vehicle maker and opening up a new era of electric cars – and at the moment, Tesla had to move thousands of cars to survive.
Hunter set a record, but Musk was not pleased. The CEO of Tesla has instructed Hunter to either double that number the next day or he will take over the issue himself.
There was more. Musk said he heard Hunter’s staff relied on phone calls to set up car collection times. It will stop now. No one likes to talk on the phone, Musk said; It’s taking too long. Send customers text messages instead, it’s faster. If he hears of any phone calls the next day, he will fire Hunter, he said.
Hunter’s wife and children only joined him in Las Vegas; They had just finished unpacking the crates. But now Musk is threatening to fire him if he does not do the impossible within 24 hours.
Tesla was then a 15.year.old company, and money and time ran out quickly.
The company, founded in 2003, planned to make electric cars acceptable, first by showing that an electric car can also be as good as a sports road car and then that an electric car can be better than an executive car, with the prestigious Model S, after introducing the Model 3 to the public. – The fast acceleration of the cars and their sexy looks put the company on the map, and Musk’s behavior kept it in the headlines. For most of the year, Musk’s focus was on the company’s lone assembly plant in Fremont, California, where Tesla struggled to boost production of its new Model 3. “Reaching a production level of 5,000 Model 3 cars a week – the volume needed, Musk said, for the company to be sustainable. Problem haunted Problem and delays ate money that left the company and employees shaken. Musk called it “production hell.“
But now that most of the manufacturing headaches have been resolved, Musk has faced a new challenge of bringing these new cars into the hands of paying customers. Their money will give Tesla another day on the battlefield.
The production hell was no secret. Sometimes that year the whole world seemed to be looking at society – and some of the critics and enemies on Wall Street and Twitter openly wanted Musk to fail. However, the things here, based on interviews with former Tesla employees, relate to the weeks that followed in 2018 – weeks that later became known within Tesla as the “shipping hell.“
The text is based on the book “Power Games: Tesla, Oak Musk and the Bet of the Century”. When given several opportunities to comment on specific details, anecdotes and descriptions from the book – including those below – Musk responded: “Most, but not everything you will read in this book is nonsense.” Musk did not elaborate further and did not respond to further requests for comment on the article.
Personally and professionally, September was a musk on the boards. Many of his most talented deputies have long since left, including sales and supply managers who have tried unsuccessfully to avoid the situation Musk has just been in. He also faced the real threat of being evicted from the company in general by what the U.S. Securities and Exchange Commission defined as fraud against investors, when a few weeks earlier he claimed he had the necessary funding to turn Tesla into a private company.
The August announcement – through Musk’s favorite media, Twitter – shocked the stock when it became clear that it did not, in fact, have all the money needed for such a deal. He eventually abandoned the idea, but not before the SEC opened an investigation, eventually filing a lawsuit against Tesla and Musk alleging he had deceived investors. The SEC wanted to remove him from the position of CEO.
But none of that will change if Musk fails to reverse the trend in the three weeks remaining to the end of the quarter. He promised profits, and was determined to get it.
By August, the amount of cash available at Tesla had dropped to $ 1.69 billion – barely enough for the company to function. Within the company, Musk pushed employees to provide customers with 100,000 cars in the third quarter – roughly the amount the company sold each year in 2017. It was unclear whether the plant in Fremont could even produce such a quantity, especially as it struggled to pull out flawless cars.
Musk’s plan is based on the company providing almost 60% in the last weeks of September. Those destined for shipment to the East Coast will be manufactured earlier in the quarter in order to take into account the longer delivery time. West Coast cars will only be produced after the models designed for remote markets. Both of these will need to reach customers before the end of the quarter so that they can be counted in the profits of the period. This process was referred to by some people in the company as the “wave”, because of the way the cars were distributed to all customers at the same time. But this time, the scale was so large, and it happened so fast, that a big wave could have ruined society.
The company’s sales organization did not have hundreds of cell phones in which Hunter’s staff could send text messages, as Musk demanded, and they did not want employees to use their personal phones.
Overnight, Hunter and other administrators thought of a solution, using software that allowed them to send text messages from the computer. They stopped the practice of guiding customers in the mountains of related documents that customers would eventually have to fill out and sign. If Musk’s goal was for people to stand in line to get the car, then that’s what they would do. They just started assigning pick.up times to customers: Can you come on a Friday at 4pm to pick up your new Tesla Model 3?
Often, Hunter did not even wait for an answer before registering a client on a collection list. If the customer could not come, she may miss her place to get a car this quarter. Customers were motivated to complete the grueling paperwork needed to complete a sale when they saw their Model 3 waiting for them. Hunter’s staff began telling people to complete all documents 48 hours before handing over the car.
The team quickly went through the client list, setting them hours across the U.S. By 6 p.m. the next day, 5,000 appointments had been reached. Hunter rebuked the team and thanked them for their hard work. He struggled to stifle tears. He did not tell them his job was in danger; Everyone just knew it was very important to determine some dedication.That evening on the phone, Hunter reported these results to Musk.
“Wow,” the CEO said.
It was a breakthrough, one that some executives later voted for as a quarterly founding member. But there was little time to celebrate. They went to put out the next fire.
Instead of building distribution centers that would perform some of the functions of a regular car dealership, Musk pushed for the delivery of cars directly to customers ‘homes and offices – and completely bypassed the agencies’ bottlenecks. Musk wanted 20,000 cars to be shipped directly to customers in the third quarter. In theory, this would have saved the money needed to expand distribution centers; In practice an army of people was needed to physically take the cars to customers. There was no way Tesla would be willing to take out 20 personal shipments. Still, executives relied on staff members who worked at Amazon and Uber in all their expertise in tracking packages and hiring gig staff.
An initial plan to design trucks carrying vehicles with Tesla branding was abandoned because it was too expensive and would take too long. Instead, contractor workers simply drove the cars to the buyers’ houses and gave them the keys. Tesla drivers would return to the office by ordering Uber or Lyft. Some drivers saved time by pre.ordering the vehicle at the customer’s home – a plan that did not always work when Uber drivers arrived for the delivery of the Tesla car.
As the end of the quarter approached, it became clear that the team had not been able to predict how many trucks would be needed for the ever.increasing delivery of cars to distribution centers from which drivers would drive customers. Third party companies did not have enough space for all the cars. Managers, who have little experience in the automotive industry, simply assumed they could continue to increase and increase shipments at the rate at which cars went off the production line.
In one nightly conversation, a manager who was recently hired as a customer experience and operations manager made up for it here. She spent years overseeing National Guard supply chains before joining Tesla, in between working at Walmart. It had a lot of operational experience and with one look at the numbers realized it had bad news for Musk: the company would not be able to reach the 100,000.car target this quarter. They were on track to send about 80,000 cars.
Musk did not accept it. He said he must have these shipments carried out. Within a few days the principal was fired. Musk said at the night conference call for sales executives that it was not because she was not flattered enough but because of “her fundamental inability to show performance.” In reality, what happened was that she gave him an answer he did not like to hear. He wanted to hear: we will do what we can. The principals learned not to tell him the unencumbered truth.
In another case, a senior sales manager came to the SAA filing. After nearly two years at the company, he filed a resignation notice. News of his decision reached the then CFO of the company Deepak Ahoja, who did not want to lose the promising manager and began trying to find a way to keep him. But Musk’s reaction was the opposite: he was furious.
At the Fremont Shipping Center, he turned to the manager and screamed curses at him as he approached him, telling him to leave. “I do not want anyone here to fire me at an important time like this,” Musk screamed, according to someone who witnessed the incident.
Musk followed the manager to the parking lot. The scene was not a pleasant play and was public enough for the board to investigate, amid accusations that Musk physically pushed the director. (A few months later, the board issued a statement to Bloomberg stating that there were no contacts between the two people. Board chairman Robin Dunholm did not respond to a request for comment).
Workers are needed
As the clock ticked towards the end of September, and Tesla’s sales target seemed increasingly absurd, Musk took to Twitter and asked for an unusual request from the company’s loyal customers: help us send the new cars to customers.
Veteran Tesla owners have appeared in stores across the country. They focused on showing customers how to operate the new cars, and explained to them life with the electric vehicle, which allowed paid employees to manage the large amounts of paperwork. Musk and his new girlfriend, singer Grimes, worked at the forwarding center in Fremont, along with board member Antonio Gracias. Musk’s brother, Kimble, who is also a board member, came to a store in Colorado. It was literally a moment of all hands to the deck. Surrounded by friends and family, Musk seemed happy, one of the principals recalled: “It was like a big family event — he loves it – he loves loyalty.“
The company was ready to list the final shipping results for the quarter. It was close. Tesla managed to deliver 83,500 cars – a record that exceeded Wall Street expectations but was still 15% lower than the target it set for sending 100,000 vehicles. (It was also very close to the appreciation of that customer experience manager who was probably fired because she said it would be). Nearly 12,000 mechanics were still on their way to customers and missed the target set for the third quarter.
Although the number did not reach the goal set by Musk, it was still a great achievement. It was also enough to push the company to a quarterly profit of $ 312 million – in part because many of those cars were expensive cars that Hunter’s staff were instructed to take out. It was the company’s biggest quarterly profit up to that point, and came as a surprise to many on Wall Street who were expecting a loss. In the final days of the quarter, Musk also reached an agreement with the SEC that allowed him to remain CEO, but limited the way he was allowed to use Twitter.
The momentum continued into the fourth quarter and allowed the company to report in January 2019 for the first time quarterly profitability. During a conversation with investors and analysts, Musk sounded confident about next year, expecting the company to be profitable “in all quarters in the future.“
More than eight years since Tesla became a trading company, investors could finally enjoy a blue sky – or so Musk told them. In practice, it will not be so easy. Until January 2019, Musk focused on shipping the more lucrative 3 models to first.time customers in Europe and Asia while trying to cut spending in the U.S. Among the many fired was also Hunter.
Based on the book “Power Games: Tesla, Oak Musk and the Bet of the Century,” by Wall Street Journal reporter Tim Higgins, to be published in the U.S. on August 3 by DoubleDay, part of the Knopf DoubleDay publishing team, Penguin’s Department Random House The book will be published in the UK on August 5 by W. H. Allen.
All rights reserved to Tim Higgins, 2020.