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Are Tesla’s Homegrown Business Apps a Good Idea?

On November 1st the Wall Street Journal reported on how Elon Musk is choosing his approach to IT at Tesla. In short, they’re building their own business applications.

“Last year, Tesla was facing delivery delays of the all-electric Model S which it introduced on June 22, 2012. At the same time, Mr. Vijayan’s team of about 25 software engineers was working hard to build a system that could support ramped up production.”

Then, just a few days later comes the news that operating expenses are eating into their margins.

“With a total of $133 million for the quarter, Tesla’s fixed costs effectively wipe out any profitability achieved on the top line. For the past two quarters, Tesla’s operating expenses equaled about 30% of sales. While gross margin has improved, there is simply not enough unit contribution to cover the remaining costs when costs of sales are 86% of revenue.”

Time to panic, right?

Maybe, maybe not.  It all depends on how Vijayan did.

If he was deeply involved in all of the business processes, knows SAP’s strengths & weaknesses, and can pinpoint the 80% of the features they don’t need, then he stands a chance.

But execution is at least as important as having an idea of what to build.  And hopefully he wasn’t swayed by their own internal “customers” or any of the hundred’s of other distractions.

Finally he’ll have needed to manage the bad habits that comes with a team 25 engineers – all with various backgrounds & ideas of how to build software.  Not to mention that 25 is too large for a single team, so they had to overcome the challenges of managing multiple teams – each probably working on different parts of the system.

If he did these things then maybe Tesla has a system that not only works today, but one that scales to the kind of company they’re rapidly becoming.

And it’ll be totally worth it.

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