A Cold Chinese Takedown Of Elon Musk
The announcement of major layoffs for Tesla China, the entrepreneur's electric car company, prompts a deeper analysis of Musk as manager.
BEIJING — Last weekend, Space X launched two new communications satellites under the command of Elon Musk. Meanwhile on the other side of the Pacific, Tesla China, another company founded by the famous California-based entrepreneur, was quietly going through an unprecedented round of layoffs. Unfortunately Musk doesn't seem to understand what went wrong.
The downsizing decision came from Musk himself, straightforward and decisive without any room for questioning. "The Chinese market's sales performance is not ideal. It hasn't moved towards a clear road of long-term positive cash flow," he declared as he prepared to eliminate at least 30% of Tesla China's jobs.
"Absolutely confident of himself and having absolute discretion have always been Elon Musk's style", a source close to Musk stated to me just before the firings. Obviously the arrogant "Iron man" was unmoved by any local consequences, and proceeded with the company's retrenchment.
Elon Musk's faith in himself, rather than in any God, finds its roots in his own ability to pull success out of a seemingly impossible set of events. Leading up to 2008, the Tesla Roadster sports car was falling short of being put into operation on schedule due to a cost overrun while four rocket-launching failures almost broke his substantial personal fortune as one of the co-founders of PayPal.
Just as he was getting over these adversities the financial crisis hit again. The company was cash-strapped. But once more Musk pulled himself out of the predicament with Tesla's Model S.
Such absolute confidence does not allow for any voice of doubt. Yet such a self-willed personality also led him to commit the most serious mistake, to act as the executive operator of a car company that has now set foot into an international market.
"Elon is definitely a gifted man. But his very un-orthodox way of thinking makes him unsuitable as manager of a company. First because he himself has never had any real managerial experience, let alone in an overseas market to which he is a total stranger," said another source in China who has worked with him.
It is said that Toyota and DaimlerChrysler sold their shares in Tesla Motors precisely because they do not like the company's management approach. In the meantime, in the face of a Chinese market more complex than he had imagined, Musk embodies a manager with neither wisdom nor expertise.
Elon Musk getting off a Tesla car in Shanghai on April 23, 2014 — Photo: Pei Xin/Xinhua/ZUMA
Take the cooperation plans of Tesla China with Tmall, a Chinese platform for local Chinese and international businesses to sell brand name goods to consumers, and Dalian Wanda Group, a Chinese conglomerate and operator in various industries, as examples. Last year, Tesla China's top executives first announced an upcoming limited edition of its Model S with Tmall on China's "Singles' Day" — Nov. 11, which has become a shopping spree festival. But the cooperation was halted by Musk at the last minute.
Meanwhile, when Tesla China started negotiating with Wanda Cinemas, the largest movie theater operator in China and Asia, about building charging stations the plan was also vetoed by Musk because he suspected that Wanda was just trying to bask in the sunlight of Tesla.
No longer a start-up
"As a matter of fact, Tmall and Wanda are both much better known than Tesla in China. Musk doesn’t understand the Chinese market nor does he know how to manage," a Tesla China insider lamented to me.
Elon Musk just can't understand why last April when he made his first trip to China he was feted as a business hero, while less than one year later he is treated with such coldness. He seems to be behaving like a child. In the face of his beloved and suddenly broken toy he doesn't know how to repair it, so his next act is probably just to throw it irritably on the floor.
This is of course best reflected in his crude decision to make huge layoffs in order to maintain the firm's cash flow.
"As a power player and technology-based CEO, Musk’s success relies to a large extent on the company’s technological breakthrough, not on management and operation," argues Zhao Ning, an automotive industry analyst. "But it’s a very dangerous situation for Tesla which already has been through the start-up phase."
Far away back in the United States, Musk seems to have no idea what happened to the carmaker’s Chinese market. He simply believes that making cars is far less difficult than making rockets, and therefore he will eventually overcome the challenges in China as well. What he forgets is that compared to the relatively closed rocket-making market, car manufacturing is an industry with a high market density and fierce competition.
Even more important, the leaders of this sector possess experience and vision in operating internationally. An article about Musk aroused quite a bit of buzz in my circle of friends lately. The article stated that the electric carmaker is convinced that one should look at problems using the First Principle of physics “so that one can differentiate what one should do and what is just following other’s footsteps.”
The question is that, when you are not in your own area of expertise, how do you determine whether your foot is stepping out in the right direction?
In my opinion, though excellent in physics, it’s time Musk polishes up his economics and management skills.