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Tesla - The Modern Purpose Company

The company is about than just electric cars

12May

The entire foundation of capitalism was originally focussed on purpose and quality. When the concept first surfaced the idea was that money was the token with which success is rewarded, so if there were two shops in the same town selling the same thing, the one selling the best product or selling the same product for less would be rewarded with increased revenue. It is a simple model that worked fine for a long time, but in the past 50 years this has been subverted somewhat.

Today, companies are often not judged on the quality of their service, but instead on the amount of money they make. Take investment banking as a prime example; they exist to provide a service of making money, which skews the system as they are not providing a service to reap the reward of money, but are instead creating the reward without a service being offered. This isn’t to say that the banks themselves aren’t providing a service and using the traditional model, but instead the service they provide essentially undermines the service/reward dynamic that traditional capitalism relied upon.

However, we have also seen a flip, where the success of a company is not judged on the quality of their work or even the purpose and relevance of their existence, but instead on the profit they create. This is led predominantly by the markets, where company profits dictate the value of shares in that company, making money for shareholders who offer no service to justify the monetary reward. This focus on profit rather than purpose is what saw companies like Enron fail so spectacularly. After all, their purpose was purely to make money, the problem is they inflated the amount made to make them seem more attractive to investors.

This loss of purpose across almost every company, where the balance sheet becomes the most important element, has had destructive consequences, but there are modern companies bucking the trend and chief amongst them is Tesla.

Traditionally seen as an electric car company, the Palo Alto based company has not focussed on their bottom line (which is probably helped by the fact that their CEO is worth over $15 billion) but instead on the quality of their products and their purpose.

This has been exemplified recently through their launching of solar roof tiles and batteries to store electricity created through renewable energy sources like solar and wind turbines. It has moved them away from being a car company to being a purpose driven company - to stop global warming. It is a thread that runs through the entire company’s operations, with Elon Musk consistently talking about reducing climate change, criticizing older business practices, and even ‘saving the world’ through the company’s work.

These themes have been central to the enduring success of the company and have helped to gain it widespread support amongst the majority of the public. Even when there were reports from the right wing media about government about wasting tax payer money on subsidies or about a fatality caused by a malfunction in their autonomous driving software, because of their fanatical fans, the company weathered both without real incident. In fact, in early April 2017 Tesla was, for a time, more valuable than Ford despite Ford selling 2,614,697 vehicles, compared to 76,230 from Tesla. It shows the impact that having a clear purpose and people who believe in it can have.

2017 is set to be one of the most important years for the company and, with record sales in Q1 of 2017, it has begun well. However, as with every company with a purpose, judging them on sales and production alone is not a definitive assessment of success. Instead we can look to traditional car companies too, with companies like Ford, Volkswagen, Nissan, Toyota, and a number of others creating electric vehicles in no small part because of the impact of Tesla. They have made the manufacture of electric vehicles considerably easier to justify for companies who would have otherwise been perfectly happy to continue with traditional fuels, which ultimately helps with their purpose, even if it may end up ultimately negatively impacting their bottom line.

This is perhaps the place where any purpose driven company should be judged, not necessarily on how much they can make for shareholders, but what they can do to the wider society and what changes they can create. Tesla are one of the clearest modern success stories in this area, and with sales of electric vehicles up 42% from 2015 to 2016 the numbers really back up this idea. 

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