5 Lessons From Tesla's Recent Rollercoaster Ride

Tesla has had a bad few months, that's for sure.

But any student of business should learn from what's happened. And that's where there are plenty of lessons.

Here's what you need to know:

A Tesla showroom in Manhattan's Meatpacking district. Photo by Spencer Platt/Getty Images

The stock has been on a rollercoaster ride for the past 12 months, at one point shedding more than 30% of its value compared to the beginning of the period. The share price is now back almost where it started (down just 1.8% over the year.) Compare that to a gain of around 13% plus dividends for the S&P 500. That is massive underperformance by any standards.

At the same time, the company has had to rightsize its workforce, issue a mass recall of vehicles and now there is news of one car catching on fire.

Here are some of the key teaching moments kindly provided to us by the universe.

Tesla became a grown-up auto company. In March the firm announced it would recall more than 100,000 Model S vehicles due to faulty steering. The move was described by The Verge as the largest such recall in the company's history. It should be obvious that no car maker, whether a traditional one or a solely electric vehicle manufacturer such as Tesla, would gain any delight from needing issue a recall notice. However, it is not unusual in car manufacturing. Auto companies recall vehicles all the time. All that this large recall means is that Tesla is now experiencing what the rest of the auto business has had to deal with for years. It happens. All the tests in the world can't take into account all the possible conditions under which the cars will be driven. Really the only thing that firms in the industry can do is to be aware that problems may happen after the cars are sold, and then act swiftly and decisively when faults are discovered. Tesla is doing just that, as do all responsible auto companies.
Layoffs are a reality with which we all must come to terms in a market economy. Earlier in June, the company said it would slash its workforce by around 9% or 3,600 workers. That's the reality of the U.S. labor market. Companies cut jobs all the time. Its been that way for years. It doesn't matter if you are with a new-economy firm such as Tesla or an old economy one bashing widgets, no one and nowhere is immune. In reality, so-called permanents jobs are no safer or stable than freelance gigs. If this is a novel idea for you, then get used to it.
When bad news comes, it does so in excess. As if the massive recall and the significant layoffs weren't enough, last weekend saw news of Tesla catching fire. Actor Mary McCormack, the wife of a Hollywood director, reports that her husband's Tesla burst into flames. You can read more here. Does this mean that the universe has it in for Tesla? Not at all. It is just that when less than perfect news starts to break about a company, then the world becomes attuned to the matter. On another day, or in another year, it is quite possible we would never have heard this news.
Progress doesn't happen in a straight line. Few if any entrepreneurs introduce radically new products or ideas with ease. Make no mistake, having a major success by pushing wholly electric cars is a radically new idea (see this fascinating brief about electric vehicles from the 19th century. As we now know, they failed as a mass market phenomenon at that time.) But as with anything truly new, there are always setbacks that must be overcome. In Tesla's case, the recent incidents of the mass layoff and the recall of vehicles are examples. I have no doubt that the company will see more hurdles that need to be overcome.
None of the turmoil is slowing down Elon Musk. Musk, the company's cofounder, is an entrepreneur to the core. He's got a view of how he wants to shape the future of the world. That goal is clearly his focus. What happens day to day is merely the path that he must travel to reach the goal. Indeed, that is the way most entrepreneurs get stuff done. As has frequently been said, visionary entrepreneurs are like the skippers of ocean-going liners who navigate using points on the horizon. They don't worry too much about the size of the waves hitting the side of the vessel. That's something from which we could all learn.