Podcast #345 — Edward Niedermeyer (@Tweetermeyer) on “Ludicrous” Stories About Tesla & Toyota

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My guest for Episode #345 is Edward Niedermeyer, author of the newly released book Ludicrous: The Unvarnished Story of Tesla Motors. It's available now through Amazon and other booksellers.

Ed is currently the Senior Editor of Mobility Technology at The Drive. He was previously the editor-in-chief for the site The Truth About Cars. He's also one of the hosts of the Autonocast podcast about autonomous vehicle technology.

In the episode, Ed and I talk about his thoughts on Toyota as somebody who has covered the automotive industry for over a decade. While his book has a lot of interesting details and stories about Tesla and Elon Musk (for example, I learned that Elon was not a founder), we focus mainly on the failed relationship between Tesla and Toyota.

We also touch on the dynamics that lead to somebody who criticizes a company being labeled a “hater.” It's interesting, perhaps, because Ed and I both want Tesla to succeed. Constructive criticism shouldn't be interpreted as wanting an organization to fail — and that sometimes happens to people inside of different organizations, as well.

This is a long discussion, at about 75 minutes, but I hope you enjoy it as much as we did. You can also read a transcript, below.

Streaming Player:

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For a link to this episode, refer people to www.leanblog.org/345.

For earlier episodes of my podcast, visit the main Podcast page, which includes information on how to subscribe via RSS, through Android apps, or via Apple Podcasts.  You can also subscribe and listen via Stitcher or Spotify.

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Questions, Topics, and Links:

• Edward's LinkedIn page
• Twitter @Tweetermeyer
• When you started covering the auto industry (2008), what were your perceptions of Toyota compared to the competition — when it comes to business results, quality, their management system?
  • “Culture is the only thing that can hold it all together”
• Toyota was a major investor in Tesla — what could have been a pivot point for Tesla if that relationship had gone differently?
  • Tesla is hell-bent on doing it their way? First time a Silicon Valley culture brought into the auto industry… speed, move fast break things… hubris, really smart
• Where's the right balance between responsiveness (to customer tweets) vs. planning and engineering?
  • “Dog mode“
• What did Akio Toyoda hope to learn from Tesla?
  • Akio had fear of “Big company disease” — Tesla = “enterprise culture” and wanted Toyota to learn from that — culture clash, arrogance from both companies (from Toyota sources)
• Do you know why the relationship between Tesla and Toyota fell apart after the investment and product collaboration?
  • Culture clash? From day 1 and the announcement. Toyota wanted to learn from Tesla, but Tesla didn't appreciate the opportunity to learn. Internal criticism is not welcomed even.
• Why did Tesla deviate from its initial strategy of being a “fabless automaker”?
  • Ambivalence about manufacturing?
• You wrote about a flaw in Tesla's plan to start with expensive cars and then keep moving down market. What mistakes have they made related to quality, process, and management style? What's the impact?
• What led to you writing your book Ludicrous: The Unvarnished Story of Tesla Motors?? Why write it? — what makes it “unvarnished? Are you “Out to get Tesla?” 
• Twitter comments — Why do you (and others who write critical things about Tesla) get labeled as “haters” — or there's an assumption you “hate Tesla” or have a short position in the stock? 
• Using NDAs to cover up quality problems – NHTSA said it's unacceptable practice
• How do you vet the stories that go into a book like this? How do you “quality control” the book to make sure there aren't stories made up by people who have a grudge against Tesla for some reason?

• The book's planned website: http://ludicrousthebook.com/

Thanks for listening!

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Transcript

Announcer: Welcome to the Lean Blog podcast. Visit our website at www.leanblog.org. Now, here's your host, Mark Graban.

Mark Graban: Hi, this is Mark Graban. Welcome to Episode 345 of the podcast. It is August 12th, 2019. My guest today is Edward Niedermeyer. He's the author of the book titled, Ludicrous — the Unvarnished Story of Tesla Motors. That's why the title for this episode talks about “ludicrous” stories about Tesla and Toyota.

The book Ludicrous is available now for pre-order at Amazon and certainly through other booksellers. It's scheduled to be released August 20th. Ed is currently the Senior Editor of Mobility Technology at the website The Drive. He was previously the editor-in-chief for the site The Truth About Cars. He's also one of the hosts of a podcast called “Autonocast,” which is about autonomous vehicle technology.

In the episode here today, Ed and I will talk about, first off, his thoughts on Toyota, as somebody who's covered the auto industry for over a decade. While his book has a lot of interesting details and stories about Tesla and Elon Musk, we focus mainly on the failed relationship between Tesla and Toyota.

We'll talk about some of the differences in the corporate culture, and even though maybe it's not strictly Lean related, we also talk about the dynamics that lead to somebody who criticizes a company being labeled a hater or worse. Maybe there are applications to what happens to people sometimes internally within an organization when they speak up in the name of making things better.

Ed and I are in agreement: we want Tesla to succeed and in any case, I think constructive criticism or talking about risks shouldn't be interpreted as wanting an organization to fail.

It's a long episode. I hope you enjoy it. If you want to find a link to more information about the book or if you want links to anything else mentioned here, you can go to leanblog.org/345.

Mark: Well, again, we are joined today by Edward Niedermeyer. Ed, how are you?

Edward Niedermeyer: I'm doing great, thank you.

Mark: Really glad to have you here. Happy to talk about the book. I've really been enjoying the preview that you provided, not just the sections related to Tesla and manufacturing strategy and execution and in Lean and Toyota, the whole story is quite fascinating.

Covering the Auto Industry & Toyota

Before we get into that, I'm curious. You've been covering the auto industry for over a decade now. As you were learning about the industry, I'm curious, what were your perceptions about Toyota compared to the competition, business results, their quality, their management system, things like that?

Edward: I started off covering the fall of the Detroit car companies in 2008, and it was a really good way, I think, to learn the auto industry, because it really just hits you how hard this business is, how many ways there are to fail.

I didn't really pay a lot of attention to it at first. Over time, as I was examining these and learning more about these Detroit companies and the mistakes they'd made and the problems they'd faced and the challenges, Toyota kept emerging as this other example, this counterexample.

I'm not sure if there was one point at which I really started to pay more attention to them, but certainly over time, they stood out more and more. I did start to make some effort to actually study a little bit more their history and their cultural innovations.

When I did learn more about Toyota and specifically the cultural stuff, it really just hit me as, “Oh, right, this counterexample explains why there have been so many problems on the other side.”

What Toyota really showed me is that when you have an organization as large as a modern automaker, culture is really the only thing that can hold it all together.

There are individual strategies or techniques or whatever that are really important to parts of the business, but just on a really high level, culture is the glue that either holds everything together or makes everything fall apart.

As you probably can tell from the book, this is something that had very much influenced my view on Tesla.

Mark: My impression is that even though — and we'll talk about this more later, I'm sure — Tesla purchased the factory from Toyota, it was the NUMMI joint venture plant, but as I've blogged about before, it seems like that Toyota culture left the building when Tesla took over.

Back in 2008 with the financial crisis, I think the clearest compare-and-contrast between GM and Toyota… GM was going through bankruptcy, but even post-bankruptcy, when there were short-term production slowdowns, GM thinks nothing of putting people on short-term layoff, where Toyota very intentionally chooses to not lay off people.

They do training. They'll send people to work for Habitat for Humanity. They're investing in their people and their loyalty, and I think that's a big part of the culture.

Toyota and Tesla — A Failed Partnership

Edward: Yeah, no, absolutely. Toyota in particular, that contrast was a really important one then, but I think now too, with Tesla…

the cultures could not be more different, and it's funny to think that not only did Tesla buy a factory from Toyota, but Toyota was a major investor in Tesla.

For me, people often ask and I think this was on Twitter one of the questions you got asked and so I'll go ahead and just answer it now, what could have been one of the major turning points or pivot points in Tesla's history?

I think for me, the most important pivot point was the Toyota relationship.

If they could have made that work, the positive things that Tesla brings to the auto industry, it could have brought those and Toyota could have brought…They're just perfectly complementing each other. They both cover different aspects of the business.

If they could have made that relationship work, Tesla could be just an absolute powerhouse today, and it's amazing to…and to be fair, it's possible that the relationship never could have worked. They probably, by the time they got together, they were too different and it was just probably doomed to some extent from the start. If that had been possible, that would have been a world-beater automaker right there.

Mark: My impression had always been Tesla clearly has a very innovative product, and arguably only the type of product that a startup could create because of inertia and other factors in the legacy automakers.

I always wondered… they have an innovative product. The way you go about assembling a car is pretty much known science at this point. It seems like assembling a sled full of batteries to a chassis is not radically different than putting in, inserting, an engine and a transmission.

It seems like from what I've read and what I've been told about Tesla that the company, for better or for worse, is hell-bent on inventing their own way. Elon Musk has publicly made comments about how he was going to invent a better way of manufacturing, better than Toyota. Where do you think some of that comes from? I'm curious, some of your thoughts on that.

Lessons from Tesla “Schooling” Toyota: Did You Get the Memo?

Edward: At a high level, I think what makes Tesla so interesting is that it is sort of the first time that we've seen a high-tech startup, Silicon Valley startup-style culture brought to the auto industry.

I think because people look at cars mostly as consumers first, it's very easy to see some of the positive things that that's brought — the big screen and the over-the-air updates and just the games and apps and there's a lot of things that as consumers, it's really easy to see, this car has technological features that other cars don't and that we live in a kind of a technology-worshiping society, and that's really cool.

What's interesting about this is what works and what works best in a high-tech startup, particularly in the software space, is basically almost the exact opposite of what works best in a major automaker.

If you think about it just on a basic level, startups tend to be these small groups of very talented people who are allowed to run free and come up with creative, innovative solutions to tough problems and things like that.

That stuff happens at automakers as well. But really, what defines success in an automaker is a culture that's oriented around the reality of their size and complexity. As I was saying before, culture is the only thing that works.

More specifically, industrial culture, which really, in its modern form, come out of the Toyota Production System and the Toyota Way, is just extremely different. It's major breakthroughs, Red Bull-fueled hackathons leading to major breakthroughs on one side and kaizen on the other.

These are literally as different of approaches to working as you can almost get.

A lot of people think that I'm just out to get to it, at Tesla. I don't like them or I'm getting paid by some various interest to go after that.

The reality is what makes this story so important is that we need more high-tech influence in the auto industry, in mobility. The technology space has a lot to offer and there are a lot of improvements we can make on the way we get around today but what Tesla is really showing is that bringing those ideas, making an invention into an innovation requires something more than just that creativity.

It requires the structure, the discipline, the focus, everything from regulatory compliance but also manufacturing is really an important part of this. Not just manufacturing but the process of taking an idea into something that can be manufactured efficiently at a high quality. All of that, that's what car companies do and it's something that as a society broadly, I think we really lost our appreciation for.

In part because we do worship high tech so much. This Tesla story, it's so important because it shows that there is a space in the future for industrial manufacturing and for all those other things that car companies do to bring an idea into a product that though very dangerous, right? Cars are dangerous. They're still safe enough that they can be sold, they can be defended in court.

There's a lot of things that are very much taken for granted and what Tesla does is it shows where the line is between what the high-tech startups do well and what the industrial manufacturing companies do well. I'm not sure this really answers your question but I think it's a really important part of the book and a part of the story is understand — that's why this story matters.

It's not because Tesla is good or Tesla is bad. It's because their experience, they're a test case that shows us how the future is going to shake out. It's really important to see with clear eyes what they've done well but also, what they really have not done well. When it comes to manufacturing, they really not done well.

Mark: Yeah. I think I view the company… there's lost potential there where this idea of Tesla technology, Tesla innovation combined with Toyota, mass production but building at scale — Lean manufacturing is different than the “old” mass production — They should really call it “producing at scale.”

It could have been a marriage made in heaven because it all just put out there, for the record, even though I worked for two years at General Motors 20 years ago, I think Tesla is an incredibly important company. I want Tesla to succeed and some of my own personal frustration with Tesla comes at seeing what I think are preventable, avoidable struggles.

Production Hell, Customer Responsiveness, and Good Engineering

Elon Musk talks about production hell. What? It doesn't have to be that bad. [laughs] Anyone who wants to label me a hater, I think they misunderstand me. I'm not a huge fan of the legacy auto industry in a lot of ways. The one difference that illustrates differences in culture, I saw the other day, there's this pet mode feature in.

The idea is that you can leave a dog in a vehicle. The air conditioning will run and there's a display on the center stack that says, “It's OK. Fido is in here.” The vehicle is being cooled. Wait a minute, who's really going to take time to look at that screen when the first assumption we've been conditioned to say, “It's horrible if not illegal to leave a dog in the car. Don't do that.”

There's that dimension. The thing I saw most recently as a customer discovered a flaw in the way that it was designed. He said that dog mode only works if you've left the climate control in automatic. He added in manual and he came back to the car, it was 85 degrees. He tweeted Elon Musk.

Here's the thing I love. Elon wrote back and said, “Working on it.” I believe that and they are hyper responsive.

As an engineer, I look and say, “My God, that's really bad engineering.” He had allowed that flaw and there's this difference between engineering discipline and being proactive versus the break things past mindset of Silicon Valley.

Edward: Yeah, that's exactly right. We've seen mobility become this huge trend in Silicon Valley. I think part of it is tied to the hubris. It's really a part of all of this. If Tesla really wanted to be a small volume super premium manufacturer, a Bugatti or Lamborghini for Silicon Valley.

I've always thought they have a niche there waiting. I mean not waiting, they created it. They could own it and they do own it although there's more competition now. The issue is that there's always this hubris that that's not enough. It's not enough to make premium, a small volume cars. They have to go into mass market.

This is why I started criticizing, writing critically about Tesla back in little bit in 2014, mostly in 2015. At the time the manufacturing stuff was very evident that there were problems with it. They are more or less have been out for a few years. Even though it was a really well received car, we could see these issues already.

I guess what you're saying about the dog mode which is that part of the Silicon Valley culture is speed. The speed is this intrinsically good value and in the auto industry, we don't have it at all. The tech people tend to look at the car people and say, “Oh, you just slow dinosaurs. 100 years old and you're just like old and tired,” or something.

They don't realize and don't know the reason it takes so long to develop a car and bring it to market is that it's incredibly complex physical object which makes it fundamentally different than software. Tesla has shown that you can update some of the software stuff but there's been all kinds of problems in Tesla's cars that you can't just do an over there update for.

Making cars is a measure twice cut one's business. It's a test for five years because… One of the things, again this is hubris part, is people think, “Well, I'm really, really smart, right? I have all these really, really smart people working in this company.” If we just think it through, we'll find all the problems, we'll fix them and it will be fine.

What 100 years in the auto history has taught is that it doesn't matter how smart you are, there is no one who is smart enough who understand all of the different ways that a car can fail, can break and have problems. One of my favorite examples of this with the Model S was the fit on the glass roof was really hard to do.

It's known that's a difficult thing to do in manufacturing. There were these little channels along the edges of that glass panoramic roof that would collect its water. Around part of it, they were using felt that was like natural wool felt.

What ended up happening, because of three or four different decisions, none of which on their own were a terrible decision per se, but the way they stack up together it started creating… Especially, in Norway but other places as well, the water would soak into this wool felt. It wouldn't be able to dry fast enough. It would rot.

There would be this mold. There's some amazing photos of mold just taking over the entire inside of the headliner of people's cars. That to me is the auto industry. You can make a decision about each one of those little decisions. No one in their right mind is going to understand how all of those things are going to fail in that cascading failure. That's why each of us has to test, test, test, test, test.

Mark: My dad spent his whole career at General Motors. There is a reason why they go test vehicles in Death Valley. They go test vehicles on the top of a mountain in Colorado. They are looking at the extreme-edge use cases for vehicles where not everyone's got the [laughs] temperature and the weather of Silicon Valley.

You talk about speed, and it's funny. At least for a period before the other automakers caught up, there was a time when Toyota was going from basically idea to market in two years in the development of a new model. The rest of the auto industry was taking four to five years. It's ironic that people would view Toyota as in, “Well, if you've got process, then that's therefore going to be slow.”

If anything, it's because of process and discipline that Toyota was a lot faster on the product-development front over time. That's just another of their lost opportunity.

More on Toyota and Tesla

Edward: People have lots of very interesting ideas about why Toyota wanted to have a partnership with Tesla and want to invest in them. People say, “Akio Toyota just drove the car and thought it was really great and loved it. That was it.” That was part of it. There's lots of different things that go into a decision, a strategic investment like that.

Akio Toyota had taken over Toyota. He was really worried about what he called “big-company disease,” which is you look at General Motors. That's like the [laughs] prime example of a big-company disease. He felt like some of those things were happening at Toyota. He felt that Tesla embodied what he called “enterprise culture,” which maybe we could compare to Silicon Valley startup culture.

He wanted Toyota people to be exposed to that. That was what a lot of that investment, according to my sources, was about. First of all, the culture clash was immediate. Again, I really could not go into a lot of details about this in the book, unfortunately.

My sources at Toyota do say it wasn't just that Tesla was arrogant. There was some arrogance on Toyota's side as well.

Toyota's engineers, [laughs] the best engineers in particular, tend to have some arrogance. They tend to have a hard time working with new systems. There was a culture clash on both sides there. One of the really interesting things was at the time, and this was roughly around the sudden unintended acceleration-scandal period, they were looking at speeding up their development cycle for vehicles.

They were examining that possibility internally. Around the time that they realized, “OK, this Tesla relationship isn't going anywhere,” also independently it wasn't just, “Well, this Tesla experience went badly.” They decided they actually wanted to extend their development time, not in operating it shorter but actually making it a little bit longer.

I think it wasn't by much, maybe by four to five years or something or three or four. I don't remember the details right now. I think it's interesting that they went in hoping to learn from this move-fast-break-things mentality. They, if nothing else, did not find anything there that made them be like, “Oh, yeah. That's the direction we should go.”

Mark: I was going to ask, and I think you alluded to it. Why did that relationship between Tesla and Toyota fall apart? Is it probably just described as culture clash?

Edward: It was from day one. Again, the challenge with reporting on Tesla is that anecdotes are very hard to corroborate sometimes, especially when they happen at higher levels. When you're dealing with a known litigious player, you'll have to be very careful. Unfortunately, there's some wonderful anecdotes that for legal reasons did not make the cut.

Suffice it to say that literally the announcement event had major culture clash from the very, very, very beginning. Again, it was very much Akio Toyota's idea. It wasn't something that necessarily had come organically from inside Toyota. The culture clash was extremely strong, maybe not its engineers so much. There's definitely conflict on the engineering side.

Outside of that, Toyota definitely wanted to learn from Tesla. The tragic part of this is that really I haven't seen any evidence that Tesla understood the opportunity that they had to learn from Toyota. Individually, there were some cases where people got it. Organizationally and culturally, there was no we-need-to-jump-on-this attitude.

For me, one of the frustrating things about having been critical of their manufacturing culture back as early as early 2015, late 2014 was that at the time I said, “Look. This is not about right now. You can make Model S in 20, 30, 40 thousand units a year. You don't have to be the leanest operation out there. You'll get away with it.

Tesla's Cultural Aversion to Criticism

What you've been saying is that you want to be a mass-market player. You want to be making half a million cars a year, a million cars a year. If that's true, you need to get on top of this stuff now because culture is not something that you can just turn around right away. You have to start as soon as humanly possible.

Even if you've gone at that point, 2012 — Tesla had been around for about 10 years — already you face a challenge at that point in shifting the culture. They needed to do that.

This gets to another really problematic part of Tesla's culture which is that, when people are critical… this is both outside the company, people like me or other reporters or analysts who make critical statements about the company, but also even internally. It is not a place where internal criticism is welcomed, generally speaking. Again, these are all generalized. There are exceptions to everything, but responding to that we-need-to-improve-culture.

This goes back to even “Frank” in the book. In 2008, right when the Roadster was first being produced, he came in and said, “Listen. We have to institute some Lean practices here.” It was like, “Forget it.” The culture was already so entrenched as being not a traditional automaker. “We're going to be doing our own thing” that it was like, “Get out of here. We don't want you.”

That rejecting these suggestions, the tragic part is that in those early days they were able to get away with it because they're making small volumes of premium cars. That was OK. They needed to start that then in order to avoid what's been basically an absolutely disastrous launch and manufacturing of the Model 3, which now the company is really at stake.

From Fabless to Fully Integrated Manufacturer

Mark: I'm curious on one thing you talk about in the book. Tesla at some point deviated from its initial strategy of being a fabulous automaker as they called it. Back during the financial crisis, there's probably still excess capacity in the auto industry. Suppliers and subcontractors essentially have the ability to build the cars.

Tesla could have designed the cars and basically had manufacturing outsourced. Then they moved away from that. Maybe it was this opportunity. It was too good to pass up to buy the NUMMI plant. What are your thoughts on why they moved away from that strategy to say, “We're going to build”? They've actually insourced more than an automaker would.

Edward: That really started with the Roadster. The original pitch tech was, “Yeah. We're going to be this fabless company.” This actually goes back to even earlier in the '90s. There was really this trend of these tier-one/tier-two suppliers doing more and more of the R&D work for automakers and basically the automakers increasingly becoming final assembly and marketing.

That trend has hit a bit of a high water. Now especially with new future technologies being developed, automakers understand that they need to be masters of their fate technologically. At the time, it seemed like, “Oh, you can buy all these parts off the shelf. Then you can have someone else put them all together for you.”

As I described in the book, and others have described this process as well, the Roadster did not turn out the way they thought it would. They thought it would be basically a simple conversion. Then Elon Musk was certainly was pushing to have a lot more changed about the car so it would be more unique and distinctive.

Mark: This was a Lotus body that they were buying. Right?

Edward: Yeah. Lotus was identified as the car body. The AC Propulsion had developed for this. They call it the tzero, which is like a race kit car. It had this amazing electric drivetrain. They thought, “Oh, we'll just take this drivetrain. We'll license their technology and put it together with this Lotus. This will be simple. It'd be like dropping a different motor in a car.

Well, that's not what happened at all. [laughs] The AC Propulsion case is a really interesting one. This is how clueless, frankly, they were about manufacturing. They didn't realize that these drivetrains were handmade by the people who invented them. There was no documentation. They were just extremely finicky. They were like a work of art almost where it can only really be made by one person.

The difference between that and something that's manufacturable is there's an ocean dividing those two realities. They had to make it manufacturable. In the process they dramatically reinvented that drivetrain and made it better. That's held up as part of Tesla's innovation and it is.

Also, [laughs] the other way of looking at this that gets left out in the other books that are out there and the other perspectives on this is that, if you're about to go into the car-manufacturing business, you got to make sure that what you're doing can be manufactured. [laughs] They hadn't done that. Then on the car side as well, there was this [inaudible] .

Then there was also this lack of understanding of re-engineering a door for a car can be more expensive than redeveloping a new drivetrain. People take things about cars for granted. What evolved from a idea of, “Just buy a couple off-the-shelf parts and put them together very simply and put it out there” turned into a lot of invention, creation, and building their own thing.

They were an accidental automaker. They ended up in this place of being an OEM without really setting out to do it. That's where the ambivalence about manufacturing has always been.

On some deep level, they'd never wanted to be a car company with its own factory but, at the same time, they threw these twists of faith and lack of planning, frankly, that ended up having to do more and more. Then it was like, “OK, we're going to manufacture battery packs.” They started doing this stuff just to get the cars out the door. In the process, it became their culture.

It shows that culture isn't necessarily the principles that you write down at the beginning and say, “This is what we're going to do.” It's what you end up actually doing and how you end up solving problems.

Now, these things are all just part of Tesla's culture. Getting from something where you're very control freaky and using cutting-edge technology to manufacture these cars or unlike anything else that's out there, now trying to build mass market, affordable cars is a totally different project.

They've got this culture that was forged in this experimentation with the Roadster. It's just not a great fit for what they're trying to do now.

Mark: It's interesting when you look at the culture and some of the differences there, how much of that… There's this faith where you think, OK, alternative history…

We had no financial crisis… if General Motors had not gone bankrupt, GM might not have pulled out of the NUMMI joint venture with Toyota. Tesla might not have had the opportunity to buy that factory for literally pennies on the dollar. They might've pursued the fabless manufacturing, fabless automaker route.

Tesla's Supplier Relations

Edward: It's possible. One of Tesla's big challenges as well is working with suppliers. If you look at their supplier relationships, they've all fallen apart. Actually, at the moment, we're looking at the slow motion collapse of their most important supplier relationship, which is with Panasonic which is their battery supplier. That's the one relationship that's endured.

One of Tesla's big challenges as well is working with suppliers. If you look at their supplier relationships, they've all fallen apart. Actually, at the moment, we're looking at the slow motion collapse of their most important supplier relationship, which is with Panasonic which is their battery supplier. That's the one relationship that's endured.

If you look at Mobileye which help them make Autopilot a reality, go down the list. If you talk to suppliers as well, working with Tesla is a very unique challenge. I think it's because they've wanted to do things, themselves, but also it's very difficult to go to a supplier when you're a low-volume automaker and get them to take you seriously.

Other high-tech startup companies… We've recently heard things from… I had the CTO of Zoox, which is a self-driving car company, that they're building this robocar from the ground up. They've clearly realized that you have to be able to work with suppliers even if that means giving up some of what you want to control.

It's like you literally cannot do this stuff by itself. You cannot create a totally new car, and the self-driving system, and all of these things without leaning on the people who understand manufacturing, and cars, and car parts and how they go together, and how they work together and how they don't.

One of the important lessons that Tesla teaches is that if you want to be in the manufacturing business, you have to be able to work with suppliers.

Mark: Yeah. That's a big part of Toyota's success. I just pulled up here… There's an annual ranking of asking the suppliers which automakers are best to work with. Toyota, every year for the last seven years, has been number one. Honda is number two. Nissan is at the bottom of the list with Fiat Chrysler. I guess it shows not all Japanese automakers are the same.

Toyota, that's a big part of their culture and their broader management system. It's not just their own production, but it's the supply chain that they…

Edward: They realized that suppliers have to be brought in as part of the development process. Early on, you have to bring them in and make them part of the team that's developing this car. They're not just a company that you buy parts from. They have to be integrated in the development process.

Then once the production happens, they have to be able to do just in time. That requires a really close relationship. This is something I learned early on about the difference between Toyota and other companies, is GM and Chrysler were infamous for just bleeding their suppliers dry.

Tesla, there hasn't been a lot reported on this. There's a lot of stories. They're waiting to be told. It's a difficult one. They keep going back to suppliers and say, “We need more, we need more, we need more cuts. We need lower cost, retroactive price cuts.” That has been reported.

Mark: I've read about that. That's crazy. [laughs]

Edward: Yeah. Those are two things. They work in a short term. If you need to make your quarterly numbers, OK, go soak your supplier. The problem is that over the long run, it breaks down the relationship. The relationship is what makes not only the quality good — they make you a priority — but then also it allows the just-in-time to work.

If you look at Tesla, one of their biggest problems on the service side is lack of parts availability. That's an inventory management just-in-time problem. You need to have really good relationships with your suppliers in order to solve problems like that. They certainly don't have great relationships with their suppliers at this point.

Mark: There's another key element there where the part shortages and being good to work with means having a stable level of production schedule.

There was a point back in 2004, I was working for a software company where we're doing some implementation work with an auto supplier in Michigan that sent headliners to Honda — they sent it down to Ohio — and Ford and Chrysler. They said Honda, when they sent a schedule, they knew that schedule was going to be consistent in terms of the mix of how many of which type of headliner to send

The Big Three automakers were constantly jerking them around. The schedule meant nothing. They would change their order at the last minute. That was incredibly disruptive. It ended up increasing cost, which would prevent that supplier from being able to offer better efficiency and lower cost over time.

The Hockey Stick Effect

Imagine Tesla with their Silicon Valley hockey-stick production curves. I'm always reading about their big end-of-quarter push, which reminds me of what Dell computer was like in the 2000 timeframe when I worked there. That end-of-quarter spike, that mad scramble to hit this quarter's numbers, that just creates a lot of problems, too.

You can say they're being innovative because no one else in the auto industry does it that way, or they're crazy because nobody else does it that way.

Edward: In some ways, the crazy part is that they are… It's like they find new ways to do old problems. You know what I mean? That lack of planning and that lack of consistent scheduling is a problem that a lot of automakers have struggled with for a very long time.

Tesla has just found new ways to have that old problem. It's one of the things that I've still never been able to find a good explanation for, is why Tesla varies the rate of production so much within a given quarter.

You can see it. People who watch the factory can tell it. It's like dead for the first month or so of the quarter. As the quarter goes on, it just builds this crescendo of frantic people running around, people working 14-hour shifts, seven days a week, just absolute madness.

It's like everything we know about manufacturing makes it clear. It's not that hard to understand why. Steady operating at a steady state is the best way to operate for your production facility and your system. It's the best way for your suppliers. It keeps things consistent and predictable for them.

Up and down from supply chain management to manufacturing, itself, it just makes sense, but here we are years later. Tesla is still doing this frantic slow down, speed up variable rates. I wish I could explain why they do it. They certainly won't ever say as a company officially. I can't even tell you why they think that's the right way to do things.

The best guess I've heard is cash management. I will say also that one of the other things that Tesla proves is that managing a car company for the benefit of stock investors, momentum stock investors in particular, seems to be a very poor idea.

Momentum stock investors have the opposite mentality of a long-term automaker, what you want as an automaker, long-term leadership perspective. That's also been something that has hurt Tesla. They became a momentum stock, and then they started running the company in a way that make those people happy. Now, it's just a terrible, terrible decision.

Mark: One of the brilliant things that Tesla did was taking all those pre-orders for Model 3 because that then gives… this is what Boeing does…. you create this huge backlog. Then you basically have known demand as long as the customers are willing to wait. Then you could level your production, which has a lot of benefits.

It seems like they've burned down a lot of that backlog. I may have read things where Elon talks about, “We're constantly adjusting pricing,” I'm paraphrasing, “to help shape demand.” Companies like this — I know it was the case at Dell — there was this crazy pressure to hit the quarterly numbers.

Then within the last weeks of the quarter, you start offering discounts and deals. I haven't shopped for a Tesla. I don't know if that's what they do. I would guess — I'm curious if you know this or have a sense of it — that their widely varying production rates are far more variable than the actual in demand for cars.

It must be something that they're injecting to try to catch up from not being on a good pace to hit what they've promised Wall Street maybe.

Edward: Exactly. You're constantly seeing them change things based on whether… Sometimes, it's about volume. They need to hit their volume goals. Sometimes, it's about showing a margin. You see they just constant…

It's deeply ironic because Elon Musk has always pitched the company store approach, not having franchise dealers, as being a way to avoid these slimy guys who play all these games of pricing. You never know what you're getting and blah-blah-blah.

Tesla is bad or actually probably worse than a lot. It's hard to say because different dealers. There's good dealers. There's bad dealers. You can't compare that whole system to what Tesla is doing, but Tesla constantly changes how much autopilot costs, how much [inaudible 42:31] self-driving costs, discounts.

They'll have a car on the showroom floor and then, “Oh, we don't ever discount,” they say, but then, all of a sudden, not once… It can be sometimes tens of thousands of dollars offer some of these things or certain options that were… ludicrous was $10,000 one day. Then the next day, it's free with…

Mark: …supercharging. Was included, then it's not. Now, it is again.

Edward: Frankly, this is tied to the problems at manufacturing as well, but now what we're starting to see too which is going to be problematic for the company is that this is starting to erode customer satisfaction as well or happiness.

It's one thing to say, “OK, I'm an early adopter. If I'm going to pay more, I maybe even get a little less because that's how these high-tech products work.”

Now that we're in a more mature business — they're in a higher-volume, lower price-point market — people are starting to say, “Wait a second, depreciation aside, what I bought three months ago or four months ago is now literally worth $6,000 less.”

That's not even a depreciation. That's a new MSRP. How can that happen? It's because they needed to move more cars. They care more about that than about the people that they've sold cars to.

I read the forums a lot. Obviously, this is all subjective and not quantified. I definitely, over the past year or so, increasingly seen this unhappiness with the constant changing in prices and options. People are getting burnt out on it. They won't keep up with it.

It just doesn't feel like Tesla is trying to make things fair and even-handed, especially to the extent that they promised they would be able to relative to new car dealers.

Why Write the Book? Why Get Attacked?

Mark: I want to ask back and talk a little bit about… I like to ask authors, what motivates you to write a book? That's such a big endeavor. There's already other books out there about Tesla. I guess it's that question of why write the book. Again, the title and the subtitle, it's Ludicrous — The Unvarnished Story of Tesla Motors.

Why write it? What makes it unvarnished?

I want to talk more about Twitter sphere. I tweeted that I was going to be interviewing you. There were a number of people who wrote and said basically, “Well, he's writing the book because he's out to get Tesla.” You kind of referred to that earlier. Why wade into this? Why write a book?

I’m interviewing @Tweetermeyer tomorrow about his upcoming book about Tesla: “Ludicrous” — any questions you’d want me to ask him?

— Mark Graban (@MarkGraban) August 4, 2019

Edward: Well, the short answer to why write a book specifically is because that was incredibly naive. [laughs] I had no idea what it took to write a book. Actually, because of all these people that you're referencing — I've been dealing with them for a long time — where any kind of criticism with Tesla, even when you are trying to be constructive about something…

One of the knocks against me is I've been predicting that Tesla would fail since… they say since 2008, because I wrote a couple of blog posts way back then, but I didn't write about Tesla between 2009 and late 2014 when I started writing a little more critically.

Then in 2015, as I described in the book, I stumbled onto this battery swap thing, which I've been really fascinated with. I realized that Tesla had created this Potemkin technology that was then used to prop up their financial situation. That was the point at which I got sucked into the story. That was sort of coincidental.

I've been writing about them for a long time. People have been saying from the very beginning, if you write anything critical about… Particularly at the time, there was a lot about the manufacturing, you're trying to hurt them. You short their stock. You must be short their stock. You're trying to make the stock go down.

It's like, “No. Listen to what I'm saying. I'm saying if you don't fix these problems now and you don't start building your culture when Model 3 comes out, it's going to be a disaster because you're not going to have that manufacturing culture in place. You're not going to have done enough testing and all these other stuff.”

Frankly, the knock on me is that I've been predicting that they've failed since 2008. In reality, what I've been doing is trying to warn them of exactly the problems that have happened.

To me, as I mentioned earlier, this is the real… There's so much happening with Tesla, which is why it's such a great story with the exception of both of these fans of the company and almost all investors in the company.

Then Tesla, itself, has written blog posts saying that I'm shorting their stock and making up stories and all these stuff, which is absolute lies. That part aside, it's the best story that the car industry has to offer. It's got it all.

(read Ed's reply post)

Especially for me, I'm not a traditional car guy. I'm interested in all kinds of things, the environment, trade, politics, and engineering. I'm a generalist. Tesla has so many culture, too. Tesla has success. It's so tied into where we are culturally right now, whether that's our obsession with technology, and where that comes from, and what that means for how we see the world.

Even if you look at the successes of someone like President Trump. There are some real similarities between how he has succeeded in his strategies for success and Elon Musk's. That makes people really angry. I kept that out of the book, but it's true. Tesla is very much a product of our time.

My core interest is history. Tesla just embodies all these different aspects of our current moment in history, and particularly the auto industry and where it's going.

One other thing, you mentioned the dog mode earlier and that little bug where if the fan mode weren't on automatic, the dog mode wouldn't work. Someone could've potentially allowed their dog to die from heat. That is one little example of what happens when you don't test enough, right?

Mark: Yeah.

Edward: This is what the auto industry is really good at, is testing and being thorough and thinking through… There's this whole spiel called functional safety where it's literally working through all the way the things that go wrong, what happens when that thing goes wrong, like the five whys of safety. It's a very simplistic way to think about it.

These things are important for cars. It's not a smartphone app. It's not software on a computer that's just ones and zeroes. This is life and death. 30,000-plus people a year die just in the US. 1.5 million globally a year die on the roads because of cars.

Not being responsible on how you engineer those is going to contribute to that. Even more important is if you're looking at the future, now you're talking about cars that drive themselves.

Yes, you need innovation to do that. You need creative thinkers coming up with new solutions, but you extra need that functional safety, that thorough test, test, test, vet, vet, vet, go through all the potential problems. That process-driven stuff that traditional automakers do well, the validation, that is such an important part of this.

Again, with self-driving cars coming eventually, we're going to be asked to trust our cars even more than we already do. Moving more towards move fast and break stuff is absolutely the wrong approach. We need to appreciate what it is that the car companies have been able to do in terms of making vehicles as safe as they can be.

Design, Engineering, and Testing

Mark: I think there's an inherent flaw in dog mode. There's that center screen that on a sunny day, when there's glare, if the windows are tinted, is someone even going to be able to see or read that. I was scrolling through some articles. I was trying to see…

I predicted somebody is going to smash the window of a Tesla because they think they're saving a dog. There's an article here that says, “Even the fact the dog mode is there is because somebody on Twitter asked.”

Again, I admire that Elon listens to customers and is responsive. He's sometimes as defensive and as rude as Steve Jobs was when he interacted with customers, but you're right.

The engineering discipline of not just testing but what people call failure modes affects analysis. To brainstorm and be proactive, what are the ways the system could fail? There's a whole different podcast we could do around promises versus reality.

Is this a vision that they're just having trouble catching up to? It's hard to tell if something is a lie or if we just didn't execute, but one other thing you mentioned about similarities to Trump. [laughs]

Criticism Equals “Fake News?”

I've made that comparison before. It's not a perfect analogy, but Elon Musk certainly plays the fake news card. He labels something he doesn't like as fake news or like you said, maybe it's a product of polarized times where you can't just disagree. You have to label that person as being somehow evil because they have a different view.

That bothers me when Trump does it. It bothers me — I've seen Elon do similar things.

Edward: I think a lot of this culture that's built up around Tesla is very much an online culture. The Internet is what allows it to exist and what's created it. It's funny, because I've been watching it emerge and now become this multi-headed beast.

What's fascinating is it came out of electric car fan culture, which is totally, totally different. Yeah, there was a lot of passion, a lot of enthusiasm. Some of those “Big oil is the reason that electric cars don't exist” — some of that was there, but it has really turned into something different.

I think a lot of it comes to actually the fact that the culture is really dominated by people who are investing. Again, when you see people out there defending Tesla, a lot of times they aren't thinking at all about what is going to be best for this company long term. They're actually thinking, “What's going to be best for it short term and not just best for the company but best for its stock price.

They're constantly saying anybody who criticizes Tesla is shorting the stock, or working for the shorts, or trying to make the stock price go down. They're projecting their own stake in this onto other people.

I think it's another way in which something that can seem like a really positive thing — having this incredibly passionate fan base is something that any automaker would kill for. Nobody has anything close to this. It's this awesome thing.

But it's gone wrong. It's taken a turn to where it's one of the things that hurts the company the most. It's hard to say the extent to which this culture outside the company is caused or directly fostered by the company itself versus taking cues from it. That relationship, like anything else, is complex.

I think that refusal to listen to constructive criticism, the forcing people into the enemy box, and anything that might make the stock go down today is bad for the company, even if that means acknowledging something as part of the first step towards solving it long term. That's really problematic.

It's mob rule. That, I think, is also something that's very much of this moment — online communities radicalizing themselves and pushing each other to be ever more extreme and radical. You see that in a lot of different other areas, too.

Mark: There's a blog post here on the Tesla blog — this might be what you're referring to — called, “A Grain of Salt.” It talks about — maybe you can talk a little bit about this — where they say a blogger who fabricated this issue about a high-speed accident in Germany that caused Model S to fly 82 feet through the air, it says, Edward Niedermeyer.

This is kind of Trump-y to punch down and, no offense, call you out by name and saying, “It's probably wise to take Mr. Niedermeyer's words with at least a small grain of salt,” because you inaccurately predicted their death.

They say, and I'll let you respond to this, “We don't know if Mr. Niedermeyer's motivation is to simply set a world record for axe-grinding or whether he and his associates have something financial to gain by negatively affecting Tesla's stock price,” blah-blah-blah.

They don't directly call you a short seller but it's important to highlight there's several billion dollars in short sell. That's against Tesla which means there's a strong financial incentive.

Edward: Right. They basically said I made up the story and that I… The story, this was in 2016. The story was that there was a guy who posted on this forum saying his suspension on his Tesla had broken and that in order to get it repaired, under goodwill, which is like free or reduced cost repair that Tesla would do if something that wasn't necessarily a warranty repair.

He had to sign a nondisclosure agreement and he posted the agreement, which he wasn't supposed to do but he did anyway. Rightly so, because this creates a major regulatory problem because auto safety regulation in the US, NHTSA, relies on two sources of data. He got it from the manufacturer itself which obviously they have an incentive to not share everything, or you can get it from customers who write these complaints into NHTSA.

Not only was Tesla making people who had defects or problems that they are repairing, sign a nondisclosure said you cannot talk to anybody about any of this, then also, there was this culture in the forums that was like the owners wanted to know information about what was going wrong, the investors would come in and be like, “No, don't talk about. This is fine. You're just making this up. You must…”

This extremely defensive like, “There can't be anything wrong with these cars. Everything must be fine.” I found multiple other examples of people alleging that Tesla uses nondisclosure agreements to basically prevent them from talking publicly about this stuff. I wrote the story. I list all these examples and NHTSA came out. I got comment from NHTSA.

They said this is unacceptable practice. They have to stop. They cannot keep using these agreements. Because I think Tesla didn't have a real good…They said we would never do anything to prevent people from reporting stuff to the regulator while they did in fact do that. I think they felt like they had to do something.

They said that in the example with the guy's suspension breaking, I mentioned that there have been some other complaints about suspension breaking too but I was very clear. I'm not a forensic engineer. I can't tell you I also have examined these things.

I can't tell you if a defect exists. But, I can tell you that we don't have the information to know that a defect exist in part because Tesla has been silencing people from sharing information that might allow you to conclude that a defect exists. Tesla basically made it out like I had said that a defect exists and that a defect didn't exist.

They created a straw man out of my piece. Then said all this stuff about me. This is where I've been predicting Tesla's bankruptcy for 10 years. It's because in 2008, when I literally the first year I was doing this, and I was writing freelance for a blog that someone else would heavily edit my pieces and they put up the headlines.

We have a number of series called the Death Watches which at the time, it was the GM death watch. It was the biggest one and the Chrysler and the four death watch. Of course, those came true. GM and Chrysler went bankrupt for a year or maybe just over a year. The guy who ran the site at the time wanted to do a Tesla death watch.

At that time Tesla did almost go bankrupt. Elon Musk said it himself in 2008. They came extremely close to bankruptcy. One of the reasons they didn't go bankrupt is they pulled a funding secured type of a situation which is funny, people forget about that. It's in the book and we go back and look at the history.

That was one of the ways they keep alive is by saying that they got money when they hadn't yet. I didn't write that at the time. It was a death watch. We were re-blogging other people's reporting and they just happened to be this death watch headline.

The Tesla one was maybe, I don't know, a fraction of the GM one. This allows them to create a perception that I've been doing this non-stop. The irony is that in 2014, this has been years into this, halfway through this, this was a 10-year jihad. I had lunch at Tesla headquarters with a high-ranking Tesla executive.

How does that happen if I'm in a middle of a 10-year death watch? It doesn't make any sense but people repeat it again and again because it's a “my team versus your team” thing.

Mark: In the early 2000s, there was a website — effed company dot com — . The URL is… You can figure it out. They would do that all the time with tech companies

That was very much a Silicon Valley thing, a company death pool or death watch around tech companies. Tesla is a Silicon Valley tech company. That seemed like it was part of that era or that wasn't a Tesla thing.

Edward: If you'd look at the… I'm really glad I did take the opportunity with this book to go back through the history of the company. I didn't do it to write the definitive history. That's not my… I don't think it can be done at this point.

I think people need to be able to come out and speak more openly about the company before we get the real definitive history of exactly what happened. The reason I did it was to understand the roots of the problems and the challenges that they're having today.

I'm glad I did it, because what it shows is it's easy now that Tesla is this 40, 50 billion-dollar juggernaut to look back and say like, “Oh, this was inevitable. This was bound to happen.”

Their history is punctuated with annual or every 18 months, maybe every 24 months, just these near-death experiences and the truly desperate and frankly, in a lot of cases, at best unethical things that were done to keep the company alive.

Elon and Tesla are Survivors

That's why I have a lot of respect on some level that they had been able to fight, tear, kick, and bite to stay alive. The survival instincts of this company are amazing. Elon Musk's ability when his back is against the wall to make something happen is amazing.

That is fundamentally not how you run an automaker successfully. The entire game in car-making is planning out the future as much as possible. Even if you leave some money on the table somewhere in there, if you stick to your plan and you stay consistent, you can keep that machine rolling along.

People don't understand that literally there's a Wikipedia. There's an article or a list of defunct American car companies. Just the American ones is over thousands. This is a business that is chewed up and spit out some huge egos, some huge fortunes, larger-than-life personalities again and again.

As impressive as it is that Musk has got Tesla to survive as long as they have and certainly to get the market cap that they have and everything else, the idea that their success thus far guarantees continued growth in the same level or even long-term survival is not the case.

This is not just my opinion. This is what history very clearly shows, not just the history of Tesla. Then you compare that with the auto industry and what's worked. It couldn't be more clear.

Mark: Again, there are a lot of things I admire about Elon Musk and Tesla, but like you said it's not just DeLorean, Fisker, and other electric carmakers of the 2000's era failed. It's good that Tesla has survived, but then there's the flip side.

Ethics and Honesty

There are ethical and honesty concerns. I learned from your book that Elon Musk was not a cofounder. He certainly portrays that. As I learned from your book, he was an investor who became chairman and basically forced his way into being CEO, this denial of quality problems.

The first funding secured incident, which made me chuckle, because I didn't realize the $420 price share funding secured wasn't the first time he had pulled that. Then there was the story you wrote about of the somewhat questionable way they forced a profitable quarter so that they could secure DOE loans.

Am considering taking Tesla private at $420. Funding secured.

— Elon Musk (@elonmusk) August 7, 2018

There were some things they had announced about those loans when they hadn't even had their application approved. Right?

Edward: Yeah. They didn't even have an application that filled out the basic requirements for applications approved at the time. That was the second. The 420 was the third time he basically said that, “I could find where that funding was secured when it wasn't.”

The second time was when they said that they had a DOE loan. The DOE had told them that they would disperse the funding for their loans in four to five months. It ended up being a year and a half when the actual dispersal happened.

At the time they made that announcement, they hadn't made a complete application to the program yet. These things matter. If you can project a sense of certainty that things can happen, again there may be a number of parallels that you can connect this to or leave that to others.

It's this fake-it-till-you-make-it thing. You can project the sense that you are successful or that you are almost successful or that success is right around the corner. Oftentimes, that's enough to make it so. That success comes into being.

Then I think that pattern, this is what Tesla has been doing basically its entire history is saying, “There's this great thing right around the corner. We're almost there, but we're not quite.”

Then using that to make money or to raise money, which then fills in the operational holes for what's happened. People have likened it to a Ponzi scheme. I wouldn't say that itself obviously, they create products. They do innovate. They do some amazing things, but their financial pattern is pretty clear then.

This has been reaching a crescendo for a while. I think now this pattern has reached a point where it's full self-driving where it's saying, “We're going to take these cars and they're going to drive themselves. They're going to be appreciating assets. They're going out and earning $30,000 a year and all this stuff.” People believe it.

I have a podcast called “The Autonocast,” so I spend a lot of time talking to people in the self-driving car space. Again, I've documented all this history. A lot of people think that a lot of these specific incidents that we've been discussing were fraudulent on the part of Tesla.

I try to avoid using that term. I think that with this full self-driving thing… Again, most famous historical examples of frauds, people don't set out to commit fraud. That does happen, but it's relatively rare.

More often, people get into something with good intentions. It gets out of their control and they have to do one thing. Then they get away with it. They do something a little bit more aggressive, and they get away with it.

I don't' spell this out in the book, because I don't want to get sued. I don't want to say that they're committing fraud, but this self-driving thing is the point at which they become very much like Theranos.

Mark: I always experience that.

Edward: Theranos had to do this pretty early in their history, because they never had anything, and people say, “Whoa.”

Mark: I don't think she intended to commit fraud, but it got out of control.

Edward: Exactly. It got out of control very quickly. With Tesla, they've made legitimately great cars. They've done things that are legitimately real, and add value, and distinguish them from Theranos as a company. Again, this pattern of having to project, “Fake it 'til you make it,” — that's the term that gets used a lot with Theranos — that was the self-driving part of this.

I am personally convinced that that pattern has reached as far as it can go with this thing. We'll see what happens. We've got a heck of a show lined up for the next couple of years when they have to reach to a point where they said they would deliver on this stuff. How they handle that is going to be really interesting.

You already see this. It's one of the things that's making people who did believe in the company lose faith. Tesla runs on faith as much as anything else. In some ways, faith is the most important asset. To the extent that this is eroding faith, it's already sowing some of the seeds of real fundamental problems with the company.

Mark: There's a lot of other interesting stories in the book. I encourage people to go and pre-order it. It's called Ludicrous — The Unvarnished Story of Tesla Motors by Edward Niedermeyer.

Toyota Aversion Syndrome

Ed, maybe let me ask just one more question, because there's stuff in the book about this culture clash between Toyota or NUMMI veterans and Tesla.

There's a quote in there of Elon Musk getting mad and yelling at someone, “We're not building Toyotas,” which I think goes back to your point.

They were building more like a Bugatti or Range Rover where people realize it's a premium product. It's interesting. They're more willing to accept breakdowns, or electrical glitches, or other problems. You mentioned earlier there's a story about someone on the road. It's your production team. You call them Frank.

His colleagues didn't show much interest in developing the TPS culture he had learned in his previous assembly line job. I've had people email me. A couple of people have said, “I work at Tesla, and you don't dare bring up Toyota or NUMMI.” It's just something you don't mention.

The Vetting of the Book and Sources

There's different stories. I guess my final question for you is considering the company… It's litigious. They've come after you. How do you vet the stories that go into a book like this? How do you quality control it to make sure the stories aren't made up by somebody who has a grudge against the company because they got fired for some reason?

Edward: That's a good question. Unfortunately, a lot of anecdotes that were in this book have had to be removed. The book goes through a rigorous legal review with the publisher's lawyers on top of also… We have a fact-checking review prior to that with my editors.

Then also before that even happens, I have my own personal vetting process where I decide, “Is this person credible? Does this anecdote seem real?” What's important to understand is that, unfortunately… I say this as a storyteller. It's unfortunate that the best anecdotes I have had to be left on the cutting room floor.

Anecdotes can be a wonderful way. They're engaging. They draw you in. They can illustrate these broader patterns, but what's important is not the anecdote. This is why it was OK leaving them on the cutting floor. What's important is not the anecdotes. It's the broader patterns. When it comes to the broader patterns, there's no shortage of evidence to support how things are at Tesla.

One of the issues with Tesla across the board, whether it's quality or as a culture, all these other things, is that it's inconsistent. Because it's inconsistent, it can be great for some people.

I made it very clear in the book. If you're an engineer, especially a design engineer, Tesla was like a playground. People had the best jobs of their careers at Tesla if they were in those areas.

People who are in manufacturing very rarely say that Tesla was the best job of their career. People who are in quality control very rarely say that Tesla was the best job of their career.

There are inconsistencies within the company. Those are what show you what the company's priorities are and, therefore, what the culture is. The important part wasn't… I mean we're losing leading sales on the table by not going for the splashy anecdotes as much as possible, but that wasn't the point of this. The point of this was to understand what are the broader patterns.

As a result, the book… I've spoken with lots of people, mostly former Tesla employees at all different levels, everything from the board, and not just employees, from the board level to top-level executives all the way down to ranking file on the assembly line.

I've also drawn a lot on the excellent reporting that a number of other people have done in this space. I listed them on the back of the book. It's too long to list them all here, but there's been some amazing journalism done.

For me, because my priority was to illustrate the patterns, that was the point of going through the history of the company, was to not document it exhaustively but to understand where these patterns come from. That, to me, is the important part.

I'm not going to share all the details that went into that individual sources, because if the individual source said something that was totally outside of these patterns, I wanted to understand why and where that was coming from. The patterns, themselves, were already precleared to me before I even started writing the book.

By the way, I will have a website. It's not up yet, but it's ludicrousthebook.com. I will be posting all of my sources, not the identities of the people that spoke to me but everything where I have a citable source, which I have in the endnotes at the end of the book.

I will also be posting all the documents that I've obtained through FOIA request. There's some stuff in there that was not why they've been reported and maybe of interest to some people. That will all be up there. I'm fairly transparent on Twitter, too. For better or for worse, if you want to ask me a question about any particular part of the book, I'm there. I don't run away from that.

Mark: Yeah, @Tweetermeyer.

Edward: @Tweetermeyer, yup. I've dealt with enough of these criticisms and these attacks that I'm not afraid of it anymore. Bring it on.

Mark: I asked this question about vetting sources because when I put out there on Twitter what questions would be asked, some of the responses were attacks [laughs] instead of questions. I thought of this question. It's a fair question. How do you vet sources?

Who Would You Rather Fight?

I'm going to ask two other questions and then let you go because there's often the many sides of Twitter. On the humorous side, Chad Kirchner asked, “Would he rather fight one horse-sized Elon or 100 duck-sized Elon?”

Edward: [laughs] Honestly, I'd rather not fight Elon at all. I would like it if Elon could see that my criticisms are constructive. I don't want Tesla to fail. I don't want him to fail. These things are things that automakers have had to deal with.

There are the things that make the auto business so difficult, and why there's so many car companies that have gone bankrupt, and why Tesla, itself, has already several times very nearly gone bankrupt. I would prefer not to fight Elon. However, I think I'll take my chances with one horse-sized Elon. You get 100 duck-sized Elons, they start putting their heads together, that sounds scarier.

Mark: Yeah, one horse-sized Elon could kick you and cause a lot of damage. I don't know if the duck-sized Elons would just be annoying. I don't know if will but… [laughs]

If Ed Were CEO of Tesla?

The less flippant question instead of 100 duck-sized Elons, if you were made the new CEO of Tesla, what would you do in your first 100 days?

Edward: It's a very challenging question, A, because I don't think I'm personally very well-adapted to the auto industry, myself. Some of these things that I criticize, people think, “Oh, you're so much better. You must think you're so much better than Elon or than Tesla or whatever.”

No. A lot of these things are things I know about myself. I'm not the most organized person. I'm not great at planning. Luckily, I work in a creative field where you don't necessarily have to adopt these Lean practices super rigorously, although I'm sure I could improve my own productivity if I did.

I've never held myself up as like, “I would be better at running this company than anybody.” The other part is that the problems, when you boil them down, are cultural. Therefore, nothing in 100 days is going to change that. We're talking about months, years, a decade to turn cultures around.

As a result of that, what I would put my priority on is I would just try and solidify what Tesla has. What Tesla has is a very successful premium car business. I would basically say… Also, as I write in the book, I think a lot of this desire to get into the mass market comes from the desire to build a legend.

I talked about this, the top secret master plan where Elon Musk puts out this strategy of going to mass market is in response to a conflict with one of the original founders, Martin Eberhard, over publicity.

Elon was getting enough of the publicity, so he puts out this thing that's like, “We're going to save mankind by making cars for even the poor folks.” What Tesla has proven is that they can have a real impact on the auto industry even just selling premium cars.

I would refocus Tesla just to be a small-volume, premium car maker. I would hike prices. I would set them up. I would do special editions and things like that, so trying to get them onto a profitable basis, not trying to have them chase growth at all costs.

I would also try and do some things to communicate to the public that we're not going to attack critics anymore. No company has all the answers. We need to listen to what we're doing wrong in order to fix them.

There's a mix of strategic stuff and then also setting the tone to be able to be a bit more humble and focus on the task, which is continuing to develop and make cars that people love and get excited about but also delivering them at much, much better quality and having a much more consistent service and customer experience after that.

Tesla has done some amazing things to innovate, but what the company needs is to be on a really solid footing. That's not sexy. It's not exciting. It's not going to be the kind of thing that has them in the news every day and every week like it has been. As we've also seen, that's something that's turned from being a real positive thing to being more of a negative thing.

Honestly, I would try and make Tesla more like a regular car company. I know there's fans who don't want to hear that. I think I would be terrible at leading the company as a result. That's fine. It's never going to happen. I think the company really needs to consolidate its success, and if it keeps doing what it's been doing, it will never do that.

Wrapping Up

Mark: Thank you, Ed. I appreciate you giving so much of your time to talk about a fascinating company, an important company. There are a lot of really interesting stories in the book. I've read about the first hundred pages, I think I said, and looking forward to reading the rest.

The book is available now for pre-order on Amazon and I'm sure the other major bookstores. The book is Ludicrous — The Unvarnished Story of Tesla Motors. It is due for release on August 20th. It's currently the number one new release in the automobile industry section, so congratulations for that, Ed.

Edward: Thank you.

Mark: Thank you again. Thank you again for sharing the book with me and being a guest here on the podcast.

Edward: No, thank you. It's been really great. Like I said, I hope that if the book accomplishes anything, that it gives people a better understanding of the kinds of things that you guys talk about — you specifically, but the Lean Institute.

I think these are really important things that too often get left behind in the love of innovation. I really respect what you guys do and I'm really pleased to have been able to be on the show.

Mark: Thanks.

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