Thiel, who helped build PayPal along with Tesla CEO Elon Musk, recently published a book, Zero To One, which describes what startups in the past have done to become successful, and advises entrepreneurs on how to build the future. Musk can be considered one of, if not the, ultimate entrepreneur having started three businesses (PayPal, Tesla and SpaceX) in three vastly different industries
Here are Thiel’s seven reasons why (with direct quotes from the book in italics) Tesla has been so successful where other electric car companies, including Fisker, and other cleantech companies in general, have failed:
1. TECHNOLOGY. “Tesla’s technology is so good that other car companies rely on it: Daimler uses Tesla’s battery packs; Mercedes-Benz uses a Tesla powertrain; Toyota uses a Tesla motor. General Motors has even created a task force to track Tesla’s next moves.”
The Model S has been a technological marvel, having received numerous awards, including multiple from Consumer Reports and Motor Trend and Automobile magazines. Deals with major car companies to produce various parts has also proven lucrative, and is something Musk has said may continue in the future.
2. TIMING. “In January 2010 — about a year and a half before Solyndra imploded under the Obama administration and politicized the subsidy question — Tesla secured a $465 million loan from the U.S. Department of Energy. A half-billion-subsidy was unthinkable in the mid-2000s. It’s unthinkable today. There was only one moment where that was possible, and Tesla played it perfectly.”
Tesla was able to parlay its importance for President Obama’s cleantech initiative (at the time) into a massive loan, which it has since repaid back in full. Again, as the company has repeatedly shown, it helps to be in the right place at the right time.
3. MONOPOLY. “Tesla started with a tiny submarket that it could dominate: the market for high-end electric sports cars.”
Though the Roadster will never be compared to the Ford (F) F-150 in terms of volume, it did allow Tesla to build a fair amount of revenue from it (3,000 at $109,000 apiece) to move further down the chain. The company is further expanding this concept with the Model S as it gets to its third-generation car, the Model 3, which Musk believes will be a mass market car.
4. TEAM. “Tesla’s CEO is the consummate engineer and salesman, so it’s not surprising that he’s assembled a team that’s very good at both.”
Thiel notes that Elon has described his team like “the equivalent of Special Forces,” something that can be corroborated with current Tesla employees. In a recent interview with TheStreet, Gilbert Passin, Tesla’s vice president of OEM & Re-Manufacturing, said Musk isboth demanding and motivating. “Elon is a very inspiring person, he will put you to the limit,” Passin said. “He will really ask you the impossible, he will not settle for mediocre results. He will only settle for the best of the best in what you’re trying to achieve in manufacturing or design or performance or charging capability. It’s very fascinating working for someone like that. He will not let go of any kind of outstanding result that is demanding.”
5. DISTRIBUTION. “Most companies underestimate distribution, but Tesla took it so seriously that it decided to own the entire distribution chain.”
Here, Thiel is talking about Tesla’s service centers and its stores, which it has had to fight to keep open in some states, including New Jersey, New York and Ohio. Thiel notes that Tesla’s up-front costs are higher than other automakers because of a change in business model with no dealership network, but it “affords control over the customer experience, strengthens Tesla’s brand, and saves the company money in the long run.”
Tesla is also working on expanding capacity with its Gigafactory, which will allow it to sell cars at a much greater volume than it currently is.
6. DURABILITY. “Tesla has had a heart start and it’s moving faster than anyone else-and that combination means its lead is set to widen in the years ahead. A coveted brand is the clearest sign of Tesla’s breakthrough: a car is one of the biggest purchasing decisions that people ever makes, and consumers’ trust in that category is hard to win.”
Tesla has taken the automotive world by storm, gaining consumer, media and investor praise for how it operates, and competition has taken notice. General Motors (GM) has set up a task force to watch what Tesla is doing. There have been reports of various Tesla accidents and cars going on fire due to improper driving, but the car and the company were given a clean bill of health from the National Highway Traffic Safety Administration (NHTSA). As Thiel notes, winning trust from the consumer is hard.
7. SECRETS. ” Tesla knew that fashion drove interest in cleantech. Rich people especially wanted to appear “green,” even if it meant driving a boxy Prius or clunky Honda Insight. Those cars only made drivers look cool by association with the famous eco-conscious movie stars who owned them as well. So Tesla decided to build cars that made drivers look cool, period- Leonardo DiCaprio even ditched his Prius for an expensive (and expensive-looking) Tesla Roadster.”
The Model S is an incredible stunning and attractive car, and tends to garner the majority of attention when seen on the streets or in a parking lot. Aesthetics matter a lot in consumer electronics, fashion and automotive, and Tesla has got that down pat, whereas other electric vehicles have failed in that aspect.