Future of electric cars: Why global auto industry needs Tesla's Elon Musk

Tesla under new leadership might be able to maintain what Mr Musk has achieved

Elon Musk’s decision to settle fraud charges against him — by paying a $20 million fine to the Securities and Exchange Commission and agreeing to step down as the chairman of Tesla, the company he co-founded — is the best possible outcome for both investors in Tesla and anyone who cares about the future of electric vehicles.

By giving up the chairmanship for three years, Mr Musk will have the chance to focus on some of the huge tasks still ahead for the company, particularly raising the financing to meet the company’s looming debts. And the governance measures imposed by the S.E.C. — for new board members, better review of communications and a permanent committee of independent board members to monitor disclosures and conflicts of interest — are exactly what the company needs to prevent another social media-fueled debacle.

His leadership matters well beyond Silicon Valley. Tesla, under Mr Musk, has been the single most significant force driving the global automotive industry — and the consumers who purchase cars — to take the prospect of a fully electric vehicle future seriously. No other electric vehicle initiative — from Nissan’s Leaf and GM’s Chevrolet Volt and Bolt to the new wave of luxury electric cars being rolled out by German automakers and new companies funded by Chinese billionaires — has achieved the impact on the public’s imagination, brand loyalty or sales success of Tesla. Those initiatives might not even have occurred without the prod of Tesla’s example.

Aside from his vision for electric vehicles, Tesla under Mr Musk has accomplished a remarkable feat: the creation of a new automaker. In the modern era, nearly all new entrants have started in developing countries, at the low end; most new automakers founded in the United States and Europe have failed. Tesla’s approach is not what most expected from a Silicon Valley disrupter. Unlike Apple’s iPhone — “Designed by Apple in California, Assembled in China” — nearly all of Tesla’s value chain from product conception through delivery to customers is carried out by the company itself. Tesla’s travails in mastering high-volume production of a mass-market product, the Model 3, are well known, and it may never attain Toyota-like levels of efficiency. But if Tesla can persevere, it could achieve the elusive high-volume, mass-market electric vehicle that would be a tipping point for the future of the industry.

Second, Tesla under Mr Musk has established a template for what the “mobility” firms of the future must do. Chief among these is the ability to update vehicle functionality via over-the-air software updates; the addition of algorithm-driven features that offer partially autonomous operation along with the collection of data to improve those algorithms; connectivity with the consumer to provide them with ongoing services; and the ability to configure and purchase a vehicle online, to improve the customer’s experience.

Tesla under new leadership, or as a unit of a much larger company, might be able to maintain what Mr Musk has achieved. But Tesla’s survival thus far has been a tightrope act, and falling off is virtually guaranteed without Mr Musk.

He has proved uniquely and idiosyncratically able to sustain the loyalty and fervent belief of investors, customers and employees. While Tesla has benefited from public subsidies such as consumer tax credits, federal grants, and the sale of zero emission credits to other automakers, Mr Musk’s ability as a salesman is apparent in his success at raising private funds and sustaining high valuations. Even Tesla’s luck in buying its factory in Fremont, Calif., at a bargain-basement price from Toyota is attributable to Mr Musk’s ability to charm Toyota’s chief executive.

Tesla’s owners also seem to identify closely with Mr Musk. For the Model 3, they had to put down a $1,000 deposit, and most have been waiting months for their new cars. This willingness to commit to a purchase before the vehicle is even available for viewing has enormous value. It means Tesla spends almost no money on marketing, and it knows before building each vehicle who the customer will be and how they want it configured. No other auto manufacturer enjoys this type of prerelease enthusiasm — and it is Mr. Musk who single-handedly sustains it. Were Tesla to become the electric car division of an existing automaker, even if its products stay strong, this pattern of advance demand commitments would be unlikely to continue.

To be sure, Mr Musk needs help as a manager. Steve Jobs eventually found Tim Cook; Mark Zuckerberg found Sheryl Sandberg. Mr Musk has already found a strong managerial partner, Gwynne Shotwell, for SpaceX. He has pointed to his elevation of Jerome Guillen, a seasoned auto industry executive, to president of automotive as a similar move for Tesla. Mr Guillen has not yet stepped forward in a prominent way as co-leader, but the S.E.C.’s action, along with a much stronger board of directors, could nudge Mr Musk toward expanding Mr Guillen’s influence.

The SEC was wise to seek a deal with Mr Musk rather than using its enforcement power to shut down or “normalize” Tesla. The company without Mr Musk would be low-drama, but Tesla will be a shell of its former self if he is forced to depart.

John Paul MacDuffie is a professor of management at the Wharton School, University of Pennsylvania.

@2018NewYorkTimesService