Tesla is proof that the next 20 years of the technology industry will not be like the last 20

Tesla is 15 years old, and despite its considerable internal and external struggles and dramas, Elon Musk's electric car company remains a Silicon Valley darling and admired by the traditional auto industry.

None of this implies that the company is improving its main mission, which is to build cars. Tesla has improved dramatically on this front, but compared to other automakers, it's gone from what I'd say is an F in management to a C.

This is because large-scale manufacturing is complicated. Musk knows this and often points out that Tesla's aspirations are to reinvent the process to ensure the company's legacy.

But what Musk knows, and Tesla's most enthusiastic fans don't, is that his model seems to be moving toward startups that have created buzz by going public like Lyft and Uber.

The basic issues are scale and speed. I'll give you an example of a company I know well. Business Insider started with a few guys in a rented dock in New York, working hard to kick off blog posts on technology and markets in 2009. Ten years later, Business Insider is the world's largest online news publication, with a extensive network of offices. We were acquired by Axel Springer, a German media conglomerate, in 2015 for $450 million, and since then our growth has been impressive by all accounts.

Our central hub in New York is located on two office floors in lower Manhattan and we employ a large number of journalists compared to other digital outlets, although we're still a long way from Tesla's headcount of around 40,000 people. A classic example is Instagram, which was bought by Facebook in 2012 for $1 billion, when the app had 13 employees.

Problem gets worse

Uber and Lyft have some structural similarities: the technology part can be run by a relatively small number of highly-trained software engineers, but on the ground the business part requires an army of human drivers, as well as capital to invest in the cars, an asset that is devalued. If I were to port this model over to Business Insider, we'd all be creating the publication the same way we do now, writing a news issue each day, printing it out afterwards, and distributing the result by hand. Our business plan would be worse than the one it replaces, newspapers.

I can continue. Apple is taking some time to figure out what the next amazing product to launch will be. The Apple Watch has worked fine, but it's not an iPhone. The future and controversial Apple Car has been transformed from a car to a self-driving software project; while Alphabet's Waymo has devoted a decade to this problem and, right now, is taking self-driving cars on the road as a commercial solution.

That is, tasks have been made easier, more scalable and cheaper. The Internet of Things is evolving like a sporadic fad. So investors have returned to transportation, largely because everyone needs it, and also because the auto industry is worth billions worldwide, but tends to be slow to innovate.

Tesla's Ongoing Struggles in the Real World

Tesla was ahead of the trend by a decade, but Silicon Valley is ignoring the automaker's struggles. The lesson should be that the best way to make (or lose) a fortune in the auto industry is to start with one (Elon Musk basically lost the millions he originally invested in Tesla after he and his colleague sold PayPal to eBay, but was able to reverse the death spiral in 2008, and the company's growth has skyrocketed ever since.)

The basic math of the car business indicates that it requires a huge amount of capital to generate a huge level of cash flow, from which it tries to make profit margins that could exceed 10%.The cash balance is short to the levels of Apple or Google, but before the economics of the tech economy became a standard, people used to worry about what Ford, for example, would do when it accumulated tens of billions of dollars of cash flow. cash on your balance sheet. Even now, Ford makes enough money to weather several short, cyclical recessions.

Going back to Uber and Lyft. The balance of your accounts also includes a lot of income to come. But their businesses quickly go from top-notch growth to bottoming out because of the insatiable need for drivers. That end of the business is structured around a dense and robust urban environment, an Uber driver in a place like New York or San Francisco probably can't make enough trips to stop thinking of that job as short-term or temporary. .

Autonomous cars could remedy this situation, which is why General Motors Cruise and Waymo are pushing in that direction. For Tesla, the solution is automated manufacturing, but that's not going to eliminate 100% of its workforce. And so far, the company's efforts to robotize its assembly lines have met with the same luck as previous experiments by the industry. In fact, Tesla had to build a rapid assembly line under a shop last year to meet its production targets, a line that would not have been unknown to Henry Ford.

Amazon is also not exempt

If I'm getting especially curmudgeonly, the only tech company that's using the old model (think: Facebook and Google) and looking pretty solid is the brutally competitive Amazon. It's a company that's good at experimenting with innovations that don't reinvent the wheel but give it traction (Echo speakers aren't Sonos, but Alexa is winning) and its buy-everything-us strategy has won over consumers in droves. Resisting is futile, as I recently found out when I needed to buy a tuxedo for an 8-year-old boy with just a few days to spare.

That said, Amazon doesn't have a perfect track record (remember the Fire phone?) and is starting to get into other areas like electric planes and trucks (it invested in startup Rivian not long ago) so we'll have to see if the biggest online consumer aggregator can get it in the world of big and complicated machines.

If Tesla's experience is any guide, the journey will be difficult. Another example, from my own life. I'm writing this story at home at 9am on a Thursday, using a high-speed Internet connection and Business Insider's content management system. I fill it in, with photos and everything, totally digital, all from the comfort of my home. The story could be good enough to get into in less than half an hour.

In 1990, before the internet, when I wrote stories at home, I had to save it to a disk and take it myself to publication that would later turn it into a print product. The writing part took about the same time as now, but the logistics around the delivery and the result involved hours. And of course, there was a lot of other people's work to be done when my work was done. You don't want to know what it was like when we used typewriters and publishing without digital tools (publishing a full-size newspaper, in those days, was something of a miracle).

Welcome to the age of slow scaling

What Tesla has tried to do and failed is reverse engineering, a little more speed in car production, to make the physical car more of a virtual software. They have somehow succeeded at this, believe it or not (an air software and its updates, for example, can fix problems like braking dynamics). But trying to crack the AssemblyLine code has been more difficult.

Many of the future opportunities that Silicon Valley wants to attack are like this: so-called disruption can take hold and gain investment, but it doesn't scale fast enough to achieve profitability. Tesla has shown that in 15 years, the company has grown dramatically but has only made money for three quarters since 2010.

After two decades, even isolated success stories (General Motors bought Cruise for $1 billion, all when Cruise had 15 workers and the company is now valued at $14.5 billion) come with staggering costs. Cruise's future investment prospects, for example, come in part from General Motors' multibillion-dollar Michigan factory where it builds the EV that Cruiser operates.

How many VCs want to invest in companies that require a few billion dollars of long-term investment?

We're going to find out because this is what's coming: the era of slowly scaling. And if anyone wants a full tutorial on how it will take place, there's no better person to listen to than Elon Musk.