3 of Elon Musk's highly unusual leadership principles

Fortune

The Tesla CEO has a reputation for being unconventional and unpredictable, but his accomplishments are undeniable. These are the leadership tactics he deploys when building and running companies.

Transcript

00:00 - Let's get married.

00:01 - Elon Musk is one of the most fascinating

00:05 business people in the world.

00:07 His approach is so unconventional.

00:10 The guy has a very belligerent management style.

00:12 He's very hard to work for.

00:14 Were he not the owner or the lead shareholder

00:17 or the controlling shareholder,

00:19 all of these companies,

00:20 some of which don't even have boards of directors,

00:22 any conventional board of directors,

00:24 were he a hired hand, would have fired him a long time ago.

00:27 But look what he's accomplished.

00:28 Everyone wants to know how he does it, right?

00:31 What are his daily management principles?

00:33 It really made it worthwhile to dig in

00:36 and look at kind of the tools that he uses

00:39 that have built him an empire,

00:40 but also an empire that many question may be built on sand.

00:45 One of the principles,

00:55 I learned about it from one of his engineers

00:58 who spent 10 years with him at SpaceX,

01:00 is that he loves to keep turning over the workforce.

01:05 - There were a lot of people doing things

01:07 that didn't seem to have a lot of value.

01:09 And I think that's true probably

01:11 of most Silicon Valley companies,

01:13 maybe not to the degree to which it was at Twitter,

01:15 but yeah, there's a potential for significant cuts,

01:20 I think, at other companies

01:21 without affecting their productivity,

01:22 in fact, increasing their productivity.

01:25 - His personnel policy is extremely demanding

01:28 and extremely belligerent.

01:30 This engineer was telling me,

01:32 "If I made a mistake in February,

01:35 I'd spend the next 11 months

01:37 worrying about making a second mistake

01:39 because you make two mistakes a year, you're out."

01:42 - At this point, I think I know more about manufacturing

01:45 than anyone currently alive on Earth.

01:47 I can tell you how every damn part in that car is made.

01:50 - He demands that everyone know

01:52 everything there is to know about,

01:53 he calls it the idiot index.

01:54 And the idiot index is knowing

01:57 what the raw materials are that go into every part,

02:00 what their cost of each of them is,

02:02 adding them up,

02:03 and then knowing what that finished part costs.

02:07 And if you don't know that number, twice, you're out.

02:10 Musk's greatest talent may be his ability to sell a vision.

02:16 He doesn't want his shareholders or his investors

02:19 to think too hard about returns on equity

02:22 or what dividends are gonna be

02:24 or any of these kind of conventional metrics.

02:26 'Cause you could never get to a $650 billion market cap

02:30 for Tesla using conventional metrics.

02:32 You really have to believe.

02:33 And he gets people to believe.

02:35 - We're gonna move to just truly massive scale,

02:38 scale that no company has ever achieved

02:42 in the history of humanity.

02:44 - The vision is essentially

02:46 the Teslas that are out on the road

02:48 and the ones he's gonna sell in the future

02:49 are gonna be worth multiples of what you paid for them.

02:53 Here's why.

02:54 He's gonna send you self-driving software

02:57 that you can install in the car.

02:58 You drive the car nine hours a week on average,

03:01 but with this software,

03:02 your car can circulate all day as a robo-taxi.

03:05 50 hours a week,

03:06 you've got this money-making car picking people up.

03:09 Therefore, the Tesla that you paid $40,000 for

03:12 is gonna be worth $200,000.

03:14 Therefore, he's saying,

03:16 who cares about what our margins are?

03:18 Who cares that they're going down?

03:19 The point for us is to sell as many Teslas as possible.

03:24 We're gonna discount.

03:25 We can sell this software for so much money.

03:29 That's where the big money's gonna come from.

03:30 This is a tech company,

03:32 not a metal-bending car company like all the others

03:35 that have market caps that are 10% of Tesla.

03:38 - Frankly, Tesla cars are robots on wheels.

03:41 Anything that's connected to the internet

03:45 is effectively an endpoint actuator

03:46 for artificial intelligence.

03:48 (upbeat music)

03:50 - One of his tactical strengths

03:52 is his ability to spin these situational arguments

03:55 that we'll use completely different points of view

03:58 depending on what he wants to accomplish

04:00 for the same company at the same time.

04:02 For example, in the case of X,

04:05 it's in his interest to paint a very bad short-term portrait

04:09 of what's going on there.

04:11 That philosophy is aimed at his banks.

04:15 The worse they think things are going,

04:17 the better his chance of buying out the debt

04:19 at a huge discount 'cause they can't get rid of the debt

04:21 because the interest rates are too low.

04:23 On the other situational side,

04:25 if he's looking at the future,

04:26 it's another gauzy vision that he's promoting

04:29 about how it's gonna be worth $250 billion,

04:33 be among the biggest market cap companies in the country,

04:36 and that's aimed at satisfying all of his big investors

04:40 who are probably not so happy right now.

04:42 Kind of the good cap, bad cap argument,

04:44 in the short term, we're doing horribly.

04:46 That's aimed at the banks.

04:47 In the long term, we're gonna do great.

04:49 That's aimed at placating the shareholders.

04:51 (upbeat music)

04:54 I think there's a certain music man element to Elon Musk

04:58 and that his arguments have to be taken

05:00 with a lot of skepticism.

05:02 And that has not been the case so far.

05:04 But now you're in a situation

05:06 where a lot of people are getting disappointed.

05:08 Clearly, all of the big names that he pulled into X,

05:12 these folks can't be happy with what's happened

05:16 to the valuation of that company.

05:17 He's got 13 billion in debt.

05:20 The interest rates are eating him alive.

05:22 They're absorbing most of the cash flow.

05:24 A lot of Tesla investors are not happy either

05:27 with the decline in the margins

05:29 and the decline in the share price.

05:31 Who knows how much lower it's gonna go.

05:33 So really, things are not going well for him now.

05:36 And we may be in for something of a revaluation

05:38 of his promises and pledges.

05:40 (upbeat music)

05:43 (upbeat music)

05:45 (upbeat music)

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