ON 8 January 2020, shares in Tesla – the US electric vehicle manufacturer – were up 5% on the day, taking its market capitalisation to around US$89 billion.
The same day, the equivalent values for Ford and General Motors were US$37 billion and US$50 billion respectively, bringing their combined total to US$87 billion; a few billion dollars shy of Tesla’s.
Fuelled by a surprise third-quarter profit, progress at their new China factory and better-than-expected car deliveries, Tesla’s stock had more than doubled over the preceding three months. In doing so, it officially became the highest-valued automaker of all time, surpassing the once mighty Ford’s historical US$80.8 billion market value, in 1999.
According to Tesla, the business was founded in 2003 ‘by a group of engineers who wanted to prove that people didn’t need to compromise to drive electric – that electric vehicles can be better, quicker and more fun to drive than gasoline cars’. The statistics above are all the more noteworthy, knowing that Tesla delivered just 367,500 vehicles worldwide last year. By way of contrast, GM and Ford – the behemoth auto manufacturers – each surpassed two million deliveries in the US alone.
Two of a kind
Elon Musk is the egotistical co-founder and chief executive of Tesla – the company named after Nikola Tesla (1856-1943), a brilliant Serbian-American scientist and engineer who earned more than 700 patents. He is most famous for developing alternating current for powering electric motors, but his work also led to advances in wireless communications, lasers, x-rays, radar, lighting and even robotics.
Apparently, Elon and Nikola share a number of intriguing commonalities: photographic memories and the ability to perform advanced mathematical functions in their head; extreme faith in their ability to overcome obstacles and achieve their objectives; and an intense fascination with the planet Mars. However, their single most common trait is their quest for free energy, to improve the lives of humankind.
Even back then, Nikola was concerned about using the Earth’s resources too quickly and wanted to explore the use of ‘renewable’ fuels. He researched ways to harvest ‘the natural energy in the ground and in the sky’, creating artificial lightning in his laboratory and probed electrical potential differences in the Earth and across tall objects. The great financier of the day – JP Morgan – was a backer of Nikola and reportedly took exception to this research, arguing that ‘he wasn’t interested in funding a power source that he couldn’t meter’.
Led by Musk, the stated mission of Tesla Inc is to accelerate the world’s transition to sustainable energy. In the quest to create production systems for the welfare of humankind, Tesla also builds scalable clean-energy generation and storage products.
Challenging the Establishment
Elon Musk and Nikola Tesla are examples of nonconformist innovators – the former taking on the enormous US car manufacturers, the latter up against Thomas Edison, the founder of the General Electric Company, later known as GE. Each pitted themselves against mere incrementalism and me-too products, rejecting the usual idea-development pathways and timetables. Characteristics also shared by the two men include their reported unreasonableness, renowned social awkwardness and dogged determination to stick to their vision and prove people wrong.
There is, however, one very important difference between the two – Nikola was not a successful businessman, sadly dying almost penniless, never quite able to commercialise his inventions. Elon is a multi-billionaire, with the success of Tesla continuing to significantly enhance his wealth.
Covid-19 and sustainability
In an article authored to discuss sustainable transport, we thought it would be boring to simply review charts projecting the anticipated penetration rates of EVs across global car markets, or the investment opportunities presented by battery technologies. Returning to the valuation of Tesla – yes, these factors partially explain its stratospheric stock price. EVs are a growth market for the next decade (boosted by government incentives to meet emissions targets) and declining battery prices will improve the company’s margins. Much like the status enjoyed by Apple products in some parts of the world, Tesla cars are also seen as aspirational, with a loyal, enthusiastic and ever-growing customer base.
We believe, however, there is something else at play in the case of Tesla, which highlights why we think sustainable investing, particularly in the post-Covid-19 world, will emerge into the mainstream.
Early evidence is demonstrating those companies managed to the benefit of all their stakeholders – including shareholders, employees, suppliers, local environments and communities alike – have seen their stock prices perform better than their peers, across sectors and geographies. They have been more resilient in the face of this current crisis and their culture and values have embedded behaviours that have provided a roadmap to negotiate these challenging times.
Resilient companies are continually adapting and evolving, giving them strength. Constantly iterating and changing processes and employing people who are creative and flexible has been standard operating procedure for years. The pace of innovation is the cornerstone of their culture and, in this context, it is clear why Tesla responded proactively to donate ventilators to New York City, while GM and Ford were busy negotiating terms with the Federal government.
We do not want to highlight Tesla as a perfect company. Far from it. The eccentricities of Musk, which range from public drug use to willfully ignoring regulatory demands, are rightly cause for concern and raise serious questions around the governance of Tesla. However, his constant drive to challenge orthodoxy, break the rules where necessary and deploy second-level thinking are key to successful leadership of game-changing businesses.
Looking closer to home, we believe these same characteristics will be needed to develop and implement a progressive and coordinated sustainable transport policy for Jersey. The Island’s leadership should look to Nikola and Elon for inspiration in the quest for renewable energy and the opportunity to enhance local quality of life.