Sell the car, not the Kool-Aid

As promised, on Thursday Tesla CEO Elon Musk posted the logs from the disastrous NY Times long-distance test drive of his Model S sedan. Late Thursday, Broder himself posted his own attempt to reconcile his experience with the data.

At first, I was puzzled by Musk’s quixotic attempt to pit his famous money-losing startup against the country’s oldest and most valuable media brand. Yes, as a former engineer-entrepreneur, I get that engineers will scream “user error” at the top of their lungs rather than even consider that there might be problems with their baby.

There’s also the common sight of the rich egomaniacal founder — in this case, the highest profile multi-industry entrepreneur since Howard Hughes — assuming that a few business successes meant that he possesses the Midas touch, papal infallibility, or genius worthy of a Nobel prize.

Then I read the comment logs on some of these stories. Yes, the polarization seems worthy of a political campaign, but what surprised me was the vituperation against the NY Times reporter, in effect accusing him of being part of the evil Big Oil conspiracy to kill little ol’ Elon. Even one of my normally rational (except on politics) former co-workers has been tweeting that with a NYT reporter “you wouldn’t think guy would lie” and that the reporter was “unethical.”

The tactics being used by Tesla are straight out of a political campaign: Musk is not trying to convince the general public, he’s trying to protect his base, the true believers who’ll pay $80k or $100k for a car that makes them feel good about saving the planet but provides transportation equivalent (or sometimes inferior) to a $30k Toyota.

Psychologists tell us such an approach works due to “confirmation bias”: if you’ve plunked down a $5k-$40k deposit to get on the Model S waiting list, you will tune out messages that might suggest you’re getting a lemon. (I wonder how these buyers of this 400+ hp car will feel reading Tesla’s advice to avoid rapid acceleration and keep the speed under 60 on long-distance trips, let alone turning off the heater in the winter).

Perhaps Tesla’s near term goal is to keep those intended buyers from demanding their deposits back, since the company has been spending that money to keep the doors open. Or (as with a political campaign), perhaps Musk really believes what fawning reporters say within the Silicon Valley echo chamber. As was Steve Jobs in the Job I era, he’s likely surrounded by a staff who drink the Kool-Aid.

As with any product failure or business dispute, the truth probably lies somewhere in between. Some more neutral parties, such as Slate, Business Insider, Wired and particularly the Atlantic attempted to reconcile the new data with the original article by John Broder. And Broder himself wonders if some of the speed data was thrown off by using smaller wheels than normal.

If this were an actual court case, then Musk would lose — and lose badly — for two reasons. First, Broder is a more credible witness. He was there when the car was being driven, has witnesses and some of his explanations (like driving around a parking lot looking for the charger) disarm Musk’ accusations. He concedes that a caption (usually written by an editor) was misleading. In the end he’s willing to admit that if his sole goal was to maximize battery life, there are things he would have done differently.

The second problem is that, as Perry Mason or Matlock would be quick to point out, there’s no motive. Why would a NYT reporter who since 2009 has been “the Washington bureau reporter responsible for coverage of energy, environment and climate change” try to destroy America’s most famous electric car company here. We’re not talking Fox News or even the Wall Street Journal here. Meanwhile, with the survival of his company riding on this one product, Musk’s motives to present the data in the best possible light are quite clear.

Under other circumstances, Musk might able to win support from pro-business conservatives who distrust the NYT after years of editorializing on its news pages. (Some have compared Musk’s war against the press to that of Richard Nixon 40 years ago). But this audience is (for once) ready to believe the NY Times over a crony capitalist who sought $700 million in Federal loan guarantees (and won $465m) to keep his cleantech startup going.

The Model S is not the first cutting-edge product to fail a product review: this sort of thing has been happening for PCs, software and smartphones for decades. Sometimes, it’s because the rough edges are still showing: Broder was clearly misled by the onboard computer’s range estimates. In other case, the reviewers (again like real customers) use the product in ways that the engineer would not or would not even imagine.

In the end, Tesla will have to recognize that they made a mistake in providing their car in the middle of winter to an independent reporter, and telling him that he could drive up the Eastern seaboard using only the company’s “Supercharger” stations. The company will need better software, an onboard charging station locator, and 7/24 tech support equipped with better scripts for dealing with range anxiety in cold weather and other adverse conditions.

As with anything else in life, we learn most from our mistakes. Tesla will have a much better product (and make Elon Musk even richer) if they make a Model S that anyone can use rather than trying to sell the Kool-Aid to true believers.

Bluster as a substitute for execution

Cross posted from the Cleantech Business blog.

In the ongoing search for electric car nirvana, the Tesla Motor Company has enjoyed an unusually charmed existence. Perhaps it’s the Silicon Valley mystique, perhaps it’s the Midas touch attributed to its co-founder Elon Musk — who became a centimillionaire from selling PayPal to eBay, and then used his funds to start a car company, a rocket company and a solar company.

After discontinuing its $100k niche toy, the Tesla Roadster, the future of the company depends on producing and selling its $60-100k Model S sedan in volume. The latter effort was dealt a major blow Sunday when the NY Times reported the very real problems in an actual test drive:

Stalled Out on Tesla’s Electric Highway
By JOHN M. BRODER

Washington — Having established a fast-charging foothold in California for its electric cars, Tesla Motors has brought its formula east, opening two ultrafast charging stations in December that would, in theory, allow a speedy electric-car road trip between here and Boston.

But as I discovered on a recent test drive of the company’s high-performance Model S sedan, theory can be trumped by reality, especially when Northeast temperatures plunge.

The problem was that — after several close calls — the car ran out of power shy of the next charging station, requiring a complex and time-consuming flatbed tow. Perhaps it was the effect of cold upon the battery life, perhaps it was the power consumed by the heater, perhaps it was bugs in the software or hardware.

Still, there’s no reason to think that the problems didn’t actually happen. In response, one would presume that Tesla would both improve its products and add additional charging stations to enable long-distance recharging.

Instead, the notoriously thin-skinned Musk tried to smear the messenger, both on a CNBC interview and on his twitter account:

@elonmusk: NYTimes article about Tesla range in cold is fake. Vehicle logs tell true story that he didn't actually charge to max & took a long detour.

In responses to major media outlets, the NYT stood by its story:

The Times's February 10 article recounting a reporter's test drive in a Tesla Model S was completely factual, describing the trip in detail exactly as it occurred. Any suggestion that the account was "fake" is, of course, flatly untrue.

Our reporter followed the instructions he was given in multiple conversations with Tesla personnel. He described the entire drive in the story; there was no unreported detour. And he was never told to plug the car in overnight in cold weather, despite repeated contact with Tesla.

Apparently the attack was an effort to prop up the stock price, which fell 4% in response to the NYT story. (That’s about $175 million in market cap — more than any of us mere mortals will ever see in a lifetime).

Despite the stress on the company and its stock, this is a textbook example of how not to handle a PR crisis. But it appears that within a NASDAQ-traded public company, no one can tell the emperor of Tesla to put his clothes on, or to listen to professional advice. As The Atlantic summarized its media report: “Elon Musk's Crusade Against The New York Times Isn't Helping Tesla.” The WSJ wonders whether this sort of concerted effort to intimidate reviewers will discourage coverage in the future.

Of course, this happened the same week that Musk — an expert in all things everywhere — was offering advice on Boeing 787 batteries. As Seeking Alpha dryly put it:

Tesla has burned through $1.25B in free cash flows in order to develop the company, and we expect that terrifying test-drives of electric vehicles from Tesla Motors will continue. We find it amusing that Elon Musk is willing to help out Boeing's Dreamliner due to the battery issue. We would like to remind Elon Musk and his team that they need to first fix their problems with their products before trying to be a superhero with the products of other companies.

Cruising range is an inherent limitation of the current generation of electric cars, and thus “range anxiety” will be a major obstacle to adoption. Musk has done himself — and the industry — no favors by helping to call attention to the article, rather than (as his employees apparently were trying to do) work with the reviewer to understand and correct the problems.

My rare agreement with the NYT

I have a lot of beefs with traditional printed and electronic media, particularly the elite media who it often seems have unchecked power to slant the news to fit their own biases. (Once upon a time, we journalists followed the Jack Webb dictum: “just the facts, ma’am.”)

That said, with professional journalists, their biases are usually better disguised (and less intrusive) than with most of the new media — us bloggers and the like. And today I find myself in the unfamiliar position of agreeing with the gray lady herself, THE New York Times.

I remarked on Monday that I thought the Yahoo video interview of Tesla CEO Elon Musk demonstrated a need for “journalism lessons for the new-media host.” Apparently I was not the only one to notice the interviewer’s shortcomings.

I did not know that freelancer interviewer Sarah Lacy is a former Business Week reporter. It is certainly not something I would have guessed, until I read a profile of Lacy and her latest interview with Musk,written by John Koblin of the online paper New York Observer. Nor did I know that one tech veteran called her “the hottest reporter in the tech world — ever.”

After Lacy and Musk complained about the accuracy of a NYT column on Tesla, Koblin asked the NYT what they thought. Here’s what Koblin found:

“I think Sarah Lacy was too busy giggling to do Journalism 101 and call Randy or me for comment to make sure what Elon was saying was accurate,” said Tim O’Brien, the Sunday Business editor of The Times, in an interview. “Because it was not only inaccurate, it was flat-out wrong. We wrote a clarification of the headline. We didn’t retract the story at all; we stood firmly by the story, and I still stand by Randy’s column.”

“You can’t help but watch that interview and marvel at the squishy familiarity between Lacy and Musk,” he continued. “And I wonder whether or not some journalistic blinders had popped off.”

To his credit, Koblin has comments from both The Times and Lacy, although not Musk or columnist Randy Stross (not that this kerfuffle warranted the extra effort).

Koblin notes that (as reported by CNET) Lacy made herself the center of the story during an interview a year ago with Facebook CEO Mark Zuckerberg. As with this week, afterwards Lacy felt like she had done a “fine” job. At the same time, the media blog Crisisblogger argued that the 2008 kerfuffle was “created largely by bloggers and tweeters.”

The one nice thing about an interview is that the journalistic bias is up front — whether for favoring the interview subject (as in Lacy’s case) or the traditional 60 Minutes “ambush” interview. This only tells us so much: we can’t see if the two parties are business partners, college classmates or current (or former) lovers. In most cases, we also can’t see what was left on the cutting room floor, to make the subject look better, worse or at least more exciting.

Now, more than ever, it’s essential for the citizens of a democracy to be able to sift through the news — fact, fiction, opinion and distortion. This should be part of any high school civics class, as well as the citizenship classes for those new to the US and its cacophony of news sources.

The moral hazard of cleantech hubris

Since last summer, many firms have lined up to get their share of taxpayer subsidies. It is not always clear which firms deserve such subsidies and which ones do not, but as always, it’s predictable that the undeserving firms will do their best to appear deserving.

One of the companies seeking Federal aid is electric car maker Tesla Motors. Tesla has shipped its Roadster to an affluent niche market, but hopes to find a broader (niche) market with its $57,000 Model S sedan. Plans for the Model S have been on again and off again; right now they’re said to be on again.

Tesla is personified by chairman/CEO/founder Elon Musk, a 37-year-old serial entrepreneur who appears to be simultaneously running his 3rd and 4th startups.

My coworker Randy Stross (author of Planet Google) wrote about Tesla in his New York Times column. His Nov. 30 column questioned Tesla’s suitability for Federal bailout dollars:

The Tesla Roadster is an electric car that goes fast, looks sensational and excites envy. The seductive appearance, however, obscures some inconvenient truths: its all-electric technology remains woefully immature and don’t-even-ask expensive. If enough billionaires step forward to inject additional capital to keep the doors of its manufacturer, Tesla Motors, open, I’m happy for all parties.

If investors pass up the opportunity, however, why should taxpayers fork over the capital that Tesla needs? The company is requesting $400 million in low-interest federal loans as part of the $25 billion loan package for the auto industry passed by Congress last year.

The program is intended to encourage automakers to improve fuel efficiency, but should it be used for a purpose like this, as the 2008 Bailout of Very, Very High-Net-Worth Individuals Who Invested in Tesla Motors Act? Can you conceive any way that federal dollars could be put at greater risk — and for no equity in return, keep in mind — to benefit fewer people?

Tesla Motors, a privately held company based in San Carlos, Calif., has spent almost all of the $145 million in capital it has raised to date. It says it will soon receive another round of $40 million from its private investors to sustain operations.

In the start-up ecosystem of Silicon Valley these would be respectably large numbers, but in the automotive world, fully developing an entirely new line of technology can easily run $1 billion. That is what General Motors’ first attempt at an electric vehicle, the EV1, was estimated to have cost to develop in the 1990s.

Stross had two inaccuracies in the original article. First, he confused the $109k Roadster with the “mass market” $59k Sedan (later corrected online).

Secondly, he said Tesla wanted $400m in Federal loans: today, the current estimate is $700m. The money would from the Department of Energy’s loan guarantee program instituted by President Bush. The first $250m would be funded by 2005 legislation to reduce carbon emissions, the second $450m from the 2008 program for drive-train electrification. (The loan guarantees will charge fees to cover the program’s projected default rate, estimated at 25% by the GAO.)

While Stross’ comments were harsh, they don’t seem unusually so. Silicon Valley companies are often called on their wildly optimistic predictions. And in this climate of bailout fatigue, formerly entrepreneurial companies embracing government subsidies should expect some level of public examination and accountability.

Still, this was in November: after four months, all was forgotten, right? Wrong.

In video clips posted Friday to Yahoo Tech Ticker, Musk was interviewed by Sarah Lacy. In one of the video excerpts, Lacy shows one of Tesla’s scarce Model S prototype and asks the question “Should your taxpayer dollars go towards producing it?” She then began her interview with Musk:

Lacy: The New York Times did this piece that everyone in Silicon Valley got very up in arms about…

I don’t think “everyone” in Silicon Valley got upset. Some are too busy trying to keep their own startups alive to worry about Musk’s electric cars. A few tech entrepreneurs (like Paul Allen) were even willing to be politically incorrect and oppose the bailout.

Let’s restart the hard-hitting investigative interview:

Lacy: The New York Times did this piece that everyone in Silicon Valley got very up in arms about, saying that, you know, that the government money going to Tesla, would be this, you know, huge risk of capital that would only benefit the wealthy and venture capital backers who put money in the company, and called the Roadster basically a $109,000 concept car.

What do you say to that article?

Musk: Randy Stross is a huge douchebag! [Both laugh uproariously.] And an idiot!

Wow! I’m impressed! What a command of the English language! What an ability to inspire confidence among taxpayers that their $700m will be well spent! I’m not sure which is the greater need: journalism lessons for the new-media host or PR lessons for the centimillionaire entrepreneur.

After this ad hominem attack, Musk changes the subject:

Musk: First of all, what is he doing picking on electric car company? I mean, why would he pick on the little guy who's trying to do good, when you’ve got egregious wastes of money in the tens of billions occurring in … in … in Detroit? Why?

Hmmm... So wasting nearly a billion dollars on a little car company is OK because it’s not as bad as wasting $10 billion on a big car company? Musk said the money was intended for a “mass market car,” but (since no one owns a car in Manhattan) only in Silicon Valley would $57k be “mass market.”

Musk supposedly has an undergraduate economics degree from Wharton, so I assume this is just posturing rather than a serious answer. Here is how I would explain why that answer would get an “F” in my technology strategy class:

We can look at a wide range of cutting edge technologies in the past — biotech, dot-com, PC makers, disk drive makers and semiconductors — and see that when many companies enter the market, some companies survive while other companies fail. A priori, there was no way to tell the winners from the losers: if there were, investors would not have invested in the losers.

Today, while society may want electric cars, we don’t know which companies will survive and which will fail. If Tesla fails, U.S. taxpayers could lose $0.7 billion.

A VC expects to lose its entire investment anywhere from 10% to 33% of the time. It compensates for that risk by taking equity and getting a 10x return for the big winners. Here, the government would be supplying 80% of Tesla’s invested capital, but will only earn a fixed fee should Tesla have a smash success.

If you and the current investors don’t want to put up that money — but instead want taxpayers to bear most of the risk — perhaps you know something that the public doesn’t about the riskiness of the investment.

Economist Ken Arrow calls that a moral hazard problem due to information asymmetry. Economics tells us we should be suspicious when people who know the most want others to shoulder the risk.

When funding is tight, many tech companies will grow slowly until their positive cash flow will enable further re-investment. However, in this case, Tesla wants to expand its capitalization fivefold to fuel explosive growth, in hopes of grabbing market share before GM, Nissan, Toyota and others bring their electric vehicles (or plug-in hybrids) to market.

However, by taking Federal funding, Tesla would move into the realm of a regulated government-sponsored enterprise, along with all the other companies received bailouts and subsidies. Government money means playing by government rules, however irrational those might be. The best and brightest of Wall Street are fleeing from the TARP-sponsored wards of the state, presumably a lesson that (most) cleantech entrepreneurs will learn someday, as well.