Tesla's Culture and Manufacturing Challenges | In Practise

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Tesla's Culture and Manufacturing Challenges

Former VP Daimler and Executive Board Member at Tesla

Why is this interview interesting?

  • How Tesla’s culture and organization structure is shaped by Elon Musk
  • Approaches to innovation: Tesla versus incumbents
  • Major manufacturing challenges Tesla will face scaling production

Executive Bio

Herbert Kohler

Former VP Daimler and Executive Board Member at Tesla

Dr. Herbert Kohler served as Vice President of Daimler's Body and Powertrain Research from October 2000 to August 2006. Dr. Kohler was responsible for the Technology Strategy, the Intellectual Property Management and the Certification/ Homologation department of the Mercedes-Benz Cars. Since 1976, Dr. Kohler has served in various positions at Daimler AG, most recently as Vice President of Group Research & Advanced Engineering e-drive & Future Mobility and Chief Environmental Officer since April 2009. In August 2006, he was appointed head of Daimler’s Group Research & Advanced Engineering Vehicle and Powertrain. In 1993, he took the lead of the Strategic Product Planning. Before that, he founded the Environment, Technology and Traffic Center. He served as a Director of Tesla Motors, Inc. since May 2009. In 1982, Prof. Dr. Kohler earned his PhD in engineering from Stuttgart University, who appointed him an honorary professor in 1998.Read more

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Interview Transcript

I think a good place to start would be if you could provide some background to how you first came into contact with Tesla.

At that point in time, we saw there was a small company that was on the rise and we were interested in getting in contact with them. It was rather difficult for us because they try to avoid any outside influence or close co-operation. From the beginning, their biggest threat or fear was to get too involved with a big external company as they are normally much more complicated, very bureaucratic, behind the times, et cetera. I think it was in 2005/6 that I had the chance to meet Elon Musk for the first time, when I was in California for another meeting. I visited him and we talked a little bit and he said, “Maybe it makes sense for us to have a meeting at Tesla.” It was a few months later when we met, and at that point Elon was on the advisory council, he was not CEO, and we talked. I had two colleagues with me and I asked him if he would be interested in delivering a battery for our Smart application, the small car brand. The CEO of Tesla was not very pleased about that and thought it wasn’t a good idea, but Elon thought “Maybe, we can do that.” To cut a long story short, that was more or less the entrance fee or ticket for that kind of co-operation. He was interested in doing that to get a little bit more in contact with the automotive industry. But, once again, he was very suspicious regarding that involvement and what that then means.

Then we started. Of course, from the beginning, we thought about buying shares from Tesla. But he refused totally and said, “That’s not my intention.” I think it was in 2007, he was on the edge of bankruptcy because he ran out of financials. He had a lot of big problems, kicked out 50% of his staff, a lot of the people working in the engineering department. From one day to the next, he was suddenly open to that kind of co-operation. We started negotiations for that, and finally we bought 10% shares of Tesla. From my point of view, maybe Elon would see it differently, that was more or less some kind of key success factor. On the one hand, getting fresh money, and on the other hand, he could get some reputation showing the world that he is in close co-operation with a big OEM. That was my impression. One or two years later, Elon said to me in a private discussion at dinner that he would never forget that I was the one who supported him in that regard. Today, of course, he's forgotten all of that, but that was his reflection at that point.

What was interesting for me in all those negotiations was that, of course, he needed the money, but he was not at all open to close co-operation, because the automotive industry normally thinks in engineering, production, aftersales, workshops, etc. We offered him - you could say just as a gift - the opportunity to use our workshops or our after-sales organization, or repair shops, magazines where he could offer his product, and he said, “No, I will not do that.” It wasn’t disappointing for me but it was interesting that he refused that. He refused that due to the fact that he did not want to be part of a complicated organization. For me, that is one of the success factors and the disadvantages regarding a big OEM and his startup.

Of course, you can see and find all those kinds of behaviors in lots of startups. Most startups think about how they can co-operate but they also don't want to be too close to a big organization. Of course, that was one of his big success factors. We made that contract and we bought the shares.

He said that he wanted to have me in his advisory council. We did that and it was interesting how uncomplicated and how focused on one decision maker it was. Normally, in a big organization, you have too many people talking about one topic, and this was definitely on the opposite end of the spectrum. It started a kind of learning curve for me. He didn't have those complicated big meetings that last 3 or 4 hours, which is still the culture in the big companies. And in small companies, it's still the issue. I admire that very much. There was a discussion about engineering topics. In our culture, we would have 30 people round the table, with only two or three discussing the content, and the rest are more or less being broadcasted to and would just listen. What they did was definitely the other way round: somebody presented his issue or problem and then in 5-10 minutes there was a clear decision. Elon did that and then he left. That was so unique for me and in my opinion, that is one of their success factors. They are very flexible and everything is tailored to the decision of the one person, Elon. Of course, there are advantages and disadvantages to that but it was always clear who the decision maker was, and how quickly he could do that. Employees don't have to bother themselves with a lot of additional activities. For me, that is one of their success factors.

He had the chance to build an electric car without any conflicts, without having to take care of what is going on with combustion engines, and how to match up with that. He was clear in saying “Build up an EV. I have a battery, and I now want to build the car around the battery.” This was totally different to our activities, of course. That, for me, is the second success factor. He did that very flexibly. He learnt a lot in a short period of time. He had people with him, but he was not that committed to them. He very often switched gears, got new people in. If he thought somebody was not the right guy for the corporation, he would kick him out. It was not a discussion over time, it was from one minute to the other. I saw a lot of good people coming and going. If they were not, let's say, on his track, he would fire them immediately. You could say that that's not the way you should do business, but that’s how he does business.

The last point is the manufacturing. One of the reasons he has been successful up to now is the NUMMI plant. Of course, you can discuss whether or not it is a success, the company is still burning money but he is on the market and he is influencing the market intensively. He wouldn't have had that success without the gift from Toyota, who more or less sold him the NUMMI plant for $40 million, which was a real gift for him. I know that up to that point, or two or three months before, he did not even have a plan of how to build up the production line. He dreamed about taking over a big building that was used to produce some of the first aircrafts in the 1930s. He was always dreaming about history and roots, but he had no clue how to build that up. At that point, I was rather suspicious about whether he could really survive. But once again, from one day nearly to the next, the NUMMI plant from Toyota was on the market and he bought it. I saw it as a real gift for him. Of course, he took the opportunity. It wasn’t a rubbish or an old factory. He got the production line, and the vice president of Toyota's production line moved over because the NUMMI plant was his baby. He was well trained and knew everything about the plant. That was more or less the second or the third success factor.

The last one, of course, is that his motto was always “I will never give up.” It’s his brain and his commitment, he was always the guy who led that company. And all the nice stories you read were really true, that he lived in the factory, that he put a carpet of a few square meters in the assembly plant and said “there’s my desk,” that he was steering the whole thing, that he was there 18 hours day, and that he slept in the factory. Of course, that is a very, very important signal to the people working with him. For me, that’s the story of what might be behind the success of such a new entity.

Could we go into each of those points? I think they’re all very interesting individually. Firstly, the culture, you highlighted how Elon is the key decision maker and that is very flexible and fast-moving by comparison to the incumbent OEMs. Is there any major difference in the organizational structure, i.e. the way that the engineering team works with design or anything throughout the value chain of the organization?

Due to it being a small company, they sit together very closely. There are these nice little stories where someone has an idea and wonders whether it could be successful. Well, the design was very close to the engineering, they sit next to each other. And there wasn’t that hierarchy there because one guy responsible for the advanced engineering and there was one design guy and more or less, they made the decisions together with Elon. There were not that many people.

I would say in the generation of the product there were not many people involved in discussions, arguments or reflections. It was only a small group of 2 or 3 people who decided what to do.

What did you learn from Tesla when they were supplying batteries for the Smart program?

Of course, the flexibility, the atmosphere needed to do that, being encouraged enough to do that. I don’t want to tell you how many people internally came to talk to me to say, “This will never be a success. What are you doing?” Two or three weeks ago, I had a meeting with a startup in Berlin and the head of that said to me, “You are blinded by your competence.” I laughed a lot about that, but I thought a lot about it in the meantime. That’s actually the type of thinking that’s very important to me.

And the kind of encouragement we got from working with Tesla was priceless. You can read about them every day in the newspaper and you could ask yourself “Is that really true?” It is really true. They did that. They were not aware of what the risks could be out of doing that. But he did that because he thought that that was the right way to go. Of course, with a high-risk factor, you will fail at some point. But, up to now, but he hasn’t failed.

From the beginning, he decided that he would do it with much lower capacity. Assuming he might be right on that, but at the end of course, he pumped in a lot engineering capacity, in order to achieve the result. He was not able to do that with 200 or 300 people. At the end, when I was there, there were 1200-1300 engineers in the engineering department. That kind of thing, of course, being very reluctant with additional capacity, he totally refused to work with third parties, engineering supply companies from outside. He said he would lose too much of his know-how to those people.

From the technical side, we were not very pleased the asynchronous e-motor, for example. We thought that that was the wrong way to go, because we wanted to have the permanent one. It depends a little bit on the efficiency but finally he was successful due to that point. It was a much easier design and it was very flexible. We learned to think about a new way to go with technical inputs. What he did with the design, he integrated the e-motor in the rear axle for example and that was a very successful step forward. He was not bound to something that already existed at that point in time. He was flexible enough to say “I’ll do that from scratch.” And he had the capability to do that.

We’ve seen issues in production for Tesla over the last year or so. They were targeted to ramp up to 5,000 vehicles per month in the 2nd or 3rd quarter of 2018, but faced some issues. What do you think were the root causes of those production issues?

He dreamed about being very flexible and automated, especially at the assembly plant and that was one of his big failures, which could ruin the company from one day to the next. The second thing is that he always told outside people that ramping up from 1,500 to 5,000 is not a big step, that it’s only a small step forward, and that’s definitely not the case. This is one of the second big failures he’s met, thinking “Well, for me, it’s not a big problem to make that step.” That was a big failure.

What did he miss about that?

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Tesla's Culture and Manufacturing Challenges

December 4, 2019

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