TESLA becomes a model for sustainable leadership: David and Goliath revisited

Tesla recently reached a market value of USD $ 50.84 billion, briefly surpassing General Motors – which has a USD $ 50.79 billion market value – and thus becoming the most valuable car company in the USA. How could a small 14-year-old company take on the 109-year-old giant and largest US automaker? After all, GM produces in 12.5 days what Tesla produces in one year. The answer is the leadership shown by Tesla in incorporating the concept of sustainability at the heart of its business strategy.

Far from focusing on short-term goals and immediate growth – as many traditional car makers do – Tesla decided from the beginning to adopt a big picture approach by focusing on addressing two important sustainability imperatives: the transition to a carbon neutral economy and the urgent need for a new sustainable business model for the transportation industry based on zero emissions.

Most present government policies request automakers to increase their energy efficiency and reduce the environmental footprint caused by engines. In other words, the demand from the regulator to automakers is to produce something that pollutes less and consumes a smaller amount of energy resources.

Tesla was not happy with this “minimalistic” approach because its main objective was to lessen environmental problems, not to fix them. Far from concentrating on producing less harm, the approach of Tesla is to focus on creating higher value for its customers and for society at large. Tesla’s mission is “to accelerate the world’s transition to sustainable energy” by focusing on renewable energy. And the vision of the company is “to create the most compelling car company of the 21st century by driving the world’s transition to electric vehicles.” This means that Tesla was founded with a long-term business model in mind and a built-in understanding of societal demands.

What’s next? Will Tesla become the leader of the car industry in the near future? There are and still will be bigger players in the car industry. In fact, VW is currently worth USD $ 70 billion and Toyota‘s market value is about USD $ 160 billion. But VW cheated on the emission performance of its diesel engines in the USA and as a result is paying USD $ 20 billion in penalties in that market. And Toyota – which created the Toyota way of doing business – found itself in trouble while avoiding accepting its responsibilities when the braking systems of some of its cars caused tragic accidents.

Tesla has not been free from challenges. A car operating in its computer assisted mode (autopilot system) had a fatal accident in Florida in May 2016, causing the unfortunate death of its 40-year-old driver. But a recent investigation conducted by the US National Traffic Highway System Administration (NHTSA) found no defects in the system and Tesla’s autopilot-enabled vehicles did not need to be recalled. Tesla keeps improving its systems, focusing on the big picture and the future. And this sustainable leadership approach is becoming a model for businesses that want to compete in the market place by achieving long-term profits while conserving the resources of the planet and contributing to building a sustainable society.

Francisco Szekely is Adjunct Professor of Global Leadership and Sustainability at IMD. He leads the online-base course Building Business Sustainability.