How can Ford, GM regain edge on Tesla? They must find their ‘why.’

This article was originally published in The Hill on April 17, 2018: https://thehill.com/blogs/pundits-blog/finance/329097-how-can-ford-gm-regain-edge-on-tesla-they-must-find-their-why

The annual New York International Auto Show rolled into the Big Apple this week, packing the Jacob Javits Center with intriguing new cars, trucks and SUVs from most every major auto maker.

Just as intriguing was what company wasn’t there — Tesla. No display, no cars, a total no-show. Yet, its presence was everywhere. Palo Alto-based Tesla is the most talked about car company in the business right now, mainly because it’s not like any other car company. As 7-Up is the “Uncola”, Tesla is the “Uncar” company.

By Wall Street standards, on any given day, Tesla is the most valuable U.S. car company. Since hitting an 18-month low of $142.32 on Feb. 2, 2016, the company’s stock has been on a tear, closing at $312.39 on April 10, causing its market value to surpass Ford Motor Company and regularly compete with General Motors. For the record, in 2016, GM’s net income was $9.43 billion; Ford’s was $4.6 billion. Tesla lost $773 million.

So it begs the question: How does a company that sold less than 80,000 electric cars last year, burns through cash, regularly misses deadlines and loses money every year become more valuable than profit machines like General Motors and Ford?

There are two forces working in Tesla’s favor. First, Wall Street classifiesTesla as a car company, but values it like a tech company, giving its debt-laden, unprofitable balance sheet a free pass, while holding others in the class to a higher standard. Second, Tesla’s valuation makes perfect sense examined through the lens of Simon Sinek’s “Golden Circle” theory: people don’t buy what you do; they buy why you do it.

According to Sinek’s 2009 book, “Start with Why,” consumers gravitate toward leaders or brands that have a very clear reason for being and strongly convey why they do what they do. Sinek uses Apple as an example, but a more recent model is Tesla.

From the beginning, Tesla founder and CEO Elon Musk has had a clear message — he’s focused on the why. He once said, “Selling an electric sports car creates an opportunity to fundamentally change the way America drives.”

The company now also makes solar panels and builds batteries. Why? To fulfill another promise: “Going from PayPal, I thought: ‘Well, what are some of the other problems that are likely to most affect the future of humanity?’ Not from the perspective, ‘What’s the best way to make money?’,” Musk said.

That’s Sinek’s Golden Circle talking, and people want in on that.

Well over 100 years ago in Detroit, another dreamer and visionary was doing the same thing. Henry Ford made the famous Model T, replacing horses with affordable, reliable transportation. That was what his company did, but Henry Ford was very clear on why his company was doing this. They were changing the very definition of mobility and putting the world on wheels. The people were buying.

Today, for most consumers and investors, Ford and General Motors (and nearly every other automaker for that matter) struggle with the why. We know what they do — build cars — but why they build them has been lost over time. Making a profit is a result, not a purpose.

Tesla, on the other hand, has an emotional magic that makes it so much more than a car company. It’s a vision or a promise and likely the reason Wall Street investors and many consumers are buying what Tesla is selling.

We saw it back on March 31, 2016, when hundreds of thousands of people put $1,000 down to reserve a Tesla Model 3. It was an opportunity to stake a claim in Elon Musk’s vision. Buying the stock is also a way to buy into his world.

We’re seeing it again with Musk’s recent tweets about unveiling an electric tractor-trailer in September. His challenge, of course, is that the commercial trucking space is far more practical than emotional, but there will always be consumers and investors ready to reward a company for delivering cutting-edge products, so even here the future could be very bright for Musk.

The challenge for the leaders of other manufacturers is to find their “why” again and convey it authentically to consumers and Wall Street. Remember Simon Sinek’s mantra: “People don’t buy WHAT you do; they buy WHY you do it.” With Tesla stock, investors are certainly buying.

Rebecca Lindland is executive analyst for Kelley Blue Book, the most trusted resource for car shopping. Kelley Blue Book (KBB.com) is a Cox Automotive™ brand. Cox Automotive is a subsidiary of Cox Enterprises. For more information, please visit https://www.coxautoinc.com/