Tesla – A Rarity

imagesWhat is sustainability? What is a sustainable industry or business? In today’s society the definition of sustainable must be quite encompassing; Starik and Rands offer a modern definition. “Ecological sustainability is the ability of one or more entities either individually or collectively, to exist and flourish (either unchanged or in evolved forms) for lengthy time frames, in such a manner that the existing and flourishing of other collectivities of entities is permitted at related levels and in related systems” (Russo, 318). This paper will focus on something called sustainable entrepreneurship, which is well defined by J. Gregory Dees, a business professor at Duke University. “It combines the passion of a social mission with an image of business-like discipline, innovation, and determination commonly associated with, for instance, the high-tech pioneers of Silicon Valley” (Dees, 1). This definition fits quite well for Tesla Motors, Inc. and their plan to address a social problem, specifically our planet’s dependence on fossil fuels. Many governmental and philanthropic sectors have not fulfilled society’s expectations, so it seems that the best way for social change is through industry, specifically social entrepreneurs. As an auto company that created a business model previously unseen, Tesla is a great example of a company led by the ideals of social entrepreneurship.

Most if not nearly all of Tesla Motor’s success and ideals are directly related to Elon Musk’s visions and goals. Musk was born in South Africa, where he received his high school degree before moving to Canada. He eventually received undergraduate degrees in physics and business from UPenn and Wharton. After just two days at a graduate physics program at Stanford, he left school to pursue his entrepreneurial dreams that related to renewable energy, the Internet and outer space (Wikipedia). Throughout the earlier parts of his career Musk founded companies such as Zip2, x.com and Paypal; he eventually sold all of these for sizeable amounts of money. In 2003, he helped found Tesla Motors, Inc., the company that went on to sell the first ever 100% electric sports car and the first fully electric luxury sedan. Musk could have become complacent after he made his first billions, but he did not, just as his company hasn’t. “‘The easiest thing for me to do after PayPal would have been to start a new Internet company,’ Musk said recently at All Things Digital, a technology conference. Instead, he opted to use his share of the $1.5 billion eBay paid for PayPal in 2002 to tackle bigger problems–such as weaning the Earth off fossil fuels and figuring out a way to one day colonize another planet (because he believes it’s “inevitable” the human race will suffer an extinction event, as the dinosaurs did, if we’re stuck here)” (Sorensen).  On top of all this, Musk has been known to spend his free time on the board of Solarcity, a leading installer of solar equipment and claims to have an idea to build a mass transit called “Hyperloop” to effectively and quickly transport people from Los Angeles to San Francisco (Sorenson, 1). Elon Musk is clearly someone who has set out to change the world for the better (at least according to his track record) through his entrepreneurial skills. In order for companies to be socially conscious they need to be led by one or more persons with ethical and moral ideals similar to Elon Musk.

It is important to understand how truly innovative and unique Tesla is as a company. Andrea James, senior analyst with Daughtery and Co. comments, “”It has the potential to revolutionize transportation. Tesla is the closest anyone has gotten to making money off electric cars” (Sorensen). Tesla was able to achieve this with help from U.S. Government grants totaling $465 Million. They were able to receive these grants because of their forward thinking in terms of renewable energy. Musk can also claim Tesla to be “the only American car company to have fully repaid the government” (Sorensen). When looking into Tesla’s business summary on Mergent Online, there was one number on the main page that jumped off the screen to me, Musk’s salary. Musk’s salary is listed at $32,280 a year and the rest of his executive board has “reasonable” (that word is used lightly here) salaries of under $350,000 (Mergent). While it is obvious that he does not need more money, Musk is somewhat of an anomaly in today’s society. Today, CEO’s and other executives are taking home larger sums of money, and higher percentages of their business’s revenues, than ever before. For the first time in history the 10 highest paid CEO’s took home $100 million dollars or more, including two who were paid over $1 Billion (Rouche). It is so refreshing to see someone like Musk who does not get caught up in greed and simply tries to do what is right.

Here is an income statement for Tesla for the past three years from Mergent Online. It shows the singular quarter where their net income was positive.

Social entrepreneurship is not a new phenomenon; it has created the innovations and institutions that helped build our society. It also implies a blending or interaction of different sectors, which is important in today’s society in order to accomplish change. Social entrepreneurs can be not-for-profit ventures, social business ventures, community development programs or any organization that looks for effective methods to serve their social mission(s) (Dees, 1). Later in his paper Dees creates a more extensive definition of what social entrepreneurs do:

“Social entrepreneurs play the role of change agents in the social sector, by:

• Adopting a mission to create and sustain social value (not just private value),

• Recognizing and relentlessly pursuing new opportunities to serve that mission,

• Engaging in a process of continuous innovation, adaptation, and learning,

• Acting boldly without being limited by resources currently in hand, and

• Exhibiting a heightened sense of accountability to the constituencies served and for the outcomes created” (Dees, 4).

I realize that this is both a broad and idealistic definition, but the businesses that are able to satisfy all of these conditions are the businesses that will create the most positive change for society. Tesla, led by Musk, has always been a company driven by a vision of social value and innovation.

An article from the Journal of Business Ventures, describes two different types of organizations that are involved in social entrepreneurship, Davids and Goliaths. Both types of organizations are important in transforming an industry towards sustainability. Below is the article’s chart of the two types of organizations:

Criteria Davids Goliaths
Age Rather New Old, incumbent
Size Small Large
Objective Function  Social and/or environmental objectives at least as important as economic objectives Economic objectives dominating, social/environmental objectives complementary

Are small or large firms more likely to engage in sustainable entrepreneurship? Economies of scale would argue that larger firms because of their available resources are more likely and able. In a study done by Damanpour in 1992, research found that there was a stronger link between positive innovation and firm size for manufacturing industries (Hockerts & Wustenhagen, 4). Tesla would seem to fall under this category, as a manufacturing goliath with the resources to make change. Yet, they differ from the Goliaths in this article in two of the three categories. They are an extremely new company, founded as recently as 2003. Additionally, they are not a firm that is dominated by economic objectives; in fact they are quite the opposite.

It was not until their tenth year of existence that they had a quarter where they had positive earnings, and this was not due solely to car sales. They actually made a large sum of money from selling zero emission credits to other car manufacturers. ““The Zero Emission Vehicle regulation is a requirement that’s placed on the large auto makers to make and sell zero emission vehicles,” said Ana Lisa Bevan, with the California Air Resources Board. The board requires auto-makers to turn in a certain number of credits per year. Companies earn those credits by making and selling zero emission vehicles” (Weingberg). If companies come up short of their required amount of credits they must pay the state a penalty of $5,000 per credit. Or there is another option; they could buy credits from companies like Tesla who has posted more than enough zero emission credits. I find this to be a wonderful example of an unexpected benefit Tesla received for being an environmentally conscious company.  Tesla did not develop 100% electric cars with the intent of selling zero emission credits, but by creating a product that is beneficial for the environment they were rewarded financially. Tesla was run more like a not-for-profit than a business, with the mission of making the world a better place. Musk invested his money in order to grow sustainable development, not his bank account.

“Snapchat founders turn down $3 Billion from Facebook!” This deal (or no deal), has been all over the news recently, and for good reason. Why would Facebook want to buy a company that to date has posted ZERO dollars in revenue? There seems to be a new trend in the start-up business world. That trend is making a product or service that is free in order to broaden the customer/user base for as long as possible before trying to become a profitable business. Recent companies such as YouTube, Amazon, Facebook and now Snapchat have had great success with just this mentality.  Although Telsa Motors Inc, is a little different in that they were always a company that was working towards producing a product to sell to consumers, one can draw similarities between their business model and that of Facebook or YouTube. As it is mentioned in the David and Goliath article, a vital part of being a successful social entrepreneur is making social or environmental issues a priority for the business. But, despite all of their idealisms, the true success of Tesla Motors, Inc. will take the test of time. What must be kept in mind is that Tesla is an extremely young company and they must continue to fulfill their lofty ambitions.

As I have mentioned throughout this paper, Tesla is a unique company. Their business model is also unique because they own all of the distribution and all components of the product (Weingberg). When perusing their website I found it interesting that it does not contain a mission statement, or even have a page for company values or ideals. Perhaps some companies that actually want to have a positive impact on society do not need a mission statement to convince the public of their intentions – they let their actions do the talking. “Social entrepreneurship describes a set of behaviors that are exceptional. These behaviors should be encouraged and rewarded in those who have the capabilities and temperament for this kind of work. We could use many more of them” (Dees, 6). Social entrepreneurs are rare and should be celebrated and rewarded. But, despite all of their idealisms, the true success of Tesla Motors, Inc. will take the test of time.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s