12/27/23, 1:21 PM The Tesla Way vs.

The Toyota Way - Lean Enterprise Institute

Executive Leadership

The Tesla Way vs. The Toyota Way

By James (Jim) Womack, PhD
June 2, 2016

Does Tesla offer a Way of working that can challenge TPS? Perhaps a bit
more time, and the development of a complete Tesla Business System,
will get us closer to an answer.

Photo courtesy of Maurizio Pesce from Milan, Italia – Elon Musk, Tesla Factory, Fremont (CA, USA)

Given the ever-increasing barriers to entry in what Peter Drucker famously

called the “industry of industries,” it’s a wonder that any automotive startups
defy the long arc of consolidation by establishing themselves as viable
competitors. And it’s even more notable when these newcomers present a
model that just might challenge the incumbents to the core. Lean thinker Mark
Donovan recently asked LEI founder Jim Womack whether the path taken by
Tesla founder Elon Musk points to a new machine that can change the world.

Mark Donovan: Is something seismic happening here?

Tesla, one of Elon Musk’s three major companies, just booked close
to $14 billion in deposit-backed advance sales in under three weeks
through the unprecedented direct-to-consumer launch of the
$35,000 Model 3.

Many are calling this car the Model T of our time, a breakthrough new vehicle
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that will mark the start of a worldwide shift to clean and safe electric
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transportation. In the meantime his other company, SpaceX, landed the Falcon
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12/27/23, 1:21 PM The Tesla Way vs. The Toyota Way - Lean Enterprise Institute

9 stage-one rocket on a drone ship in the Atlantic Ocean as proof of concept

that it can cut the cost of space travel by at least 30 percent with reusable
rockets.

Then there is the Gigafactory in Nevada from Tesla’s energy division, which,
once operational, will produce more lithium ion batteries than all other lithium
ion battery factories in the world combined, at significantly lower cost and
greater efficiency. Not only will these batteries power all of their amazing
electric vehicles (EVs), but they will also revolutionize the energy industry with
storage solutions that allow energy production to be truly level-loaded, among
other things. As a not-so-small side note, SolarCity has become the leading
installer of solar panels in the U.S. and is revolutionizing the way we generate
power. Most of this is done in-house on U.S. soil at a time when more
companies than not are choosing to outsource and offshore their production.
Can we all agree that something seismic is happening that deserves close
scrutiny?

At the recent Lean Transformation Summit I asked Jim Womack what he

thought of my hero Elon Musk. Jim said that either we should be studying him
much more closely or that he could be about to walk off a cliff. This was prior
to the two major events I mentioned above. I am now deeply convinced that it
is the former, and that something truly amazing is taking place that is worthy of
our close attention.

Clearly Musk is a brilliant thinker and an exceptional executor; yet I think there
is something much more profound happening than just a great leader driving
three world-changing companies. I believe Musk is showing us a new way to be
successful and sustainable in the 21st century.

I see strong parallels to what Womack saw in Toyota in the 80s. The
breakthrough results appeared before anybody really understood how they
were being accomplished. Then, with close study, Womack and his team
dissected and discerned a set of principles and behaviors driving these
advances and delivered to the world a blueprint for success in the 20th century
with The Machine that Changed the World, a call for action that we have all
largely failed to execute. Sorry Jim, it is not for lack of trying, but most of us
seem to be missing something, or more likely, a number of somethings.

All of Musk’s companies are founded upon exceptionally inspirational

purposes…

Tesla: To accelerate the advent of sustainable transport by bringing

compelling mass market electric cars to market as soon as possible.

SpaceX: To revolutionize space technology with the ultimate goal of

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enabling people to live on other planets.
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12/27/23, 1:21 PM The Tesla Way vs. The Toyota Way - Lean Enterprise Institute

SolarCity: To accelerate the mass adoption of clean energy.

Each creates a sense of great urgency and “ludicrously” high expectations. The
earth is the burning platform, quite literally. Saving the planet and the human
race is a pretty compelling call to action.

Next, they innovate based upon first principles thinking. Musk states “I think it’s
important to reason from first principles rather than by analogy. The normal
way we conduct our lives is we reason by analogy. [With analogy] we are doing
this because it’s like something else that was done, or it is like what other
people are doing. [With first principles] you boil things down to the most
fundamental truths…and then reason up from there.” They have demonstrated
this not just with their “product” innovation but also with functions such as
their innovative approach to sales and marketing.

Finally, they have engaged the entire planet to contribute to their mission by
openly sharing all their patents freely (what a gift to society) and allowing
customers to promote the brands.

These things allow them to attract and inspire the best talent in the world and
create virtuous cycles of success. Could it be a simple as all that? Probably not,
but I think we should try to better understand what they are doing and how we
can learn from it. I bet Musk would be very happy to share The Tesla Way with
the world. Dr. Womack?
___________________________________________________________________________________

Jim Womack: Is there a complete business system fueling The Tesla Way?

Let me take this from the other direction, asking how Toyota would
have pursued Musk’s “first principles.” (Hence the “Tesla Way versus
the Toyota Way” of the title.) They were also a start-up (from the late
1930s but not in volume production until the late 1940s due to the
war), facing choices in pursuing its first principle of providing the best
transportation possible for consumers of modest means in a war-ravaged
country where hardly anyone had a car.

Toyota could have done this by copying foreign practices in product

development, production, etc. and (like Nissan) even making foreign designs on
license. That would have been the way to go fast, and Nissan jumped out to a
big lead in market share in Japan by using this strategy. Instead Toyota decided
to go slow and to innovate as a business enterprise before it innovated with
products. (This really began in 1950 when they believed their sales forecast,
built ahead of the market, ran out of cash, and fell into the hands of Japanese
bankers who broke the company in two to create Toyota Motor Sales and
Toyotauses
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12/27/23, 1:21 PM The Tesla Way vs. The Toyota Way - Lean Enterprise Institute

By 1965 Toyota had fully elaborated its new production, product development,
supplier partnership, sales and customer support, and general management
systems, the latter focused on developing capability in every employee. They
had also created an enterprise that was stable and that could tackle new
challenges from solid base.(Taiichi Ohno’s production system is widely known
in this regard but Kenya Nakamura (product development), Shotaro Kamiya
(the sales system), and, above all, Eiji Toyoda (the management system)
contributed much more.

In addition, by 1965 Toyota had learned how to compress lead times in product
development and production so it could grow almost entirely with internally
generated cash. This meant never having to rely on banks again and retaining
more than 50 percent of the shares within the Toyota Group so that Wall Street
raiders weren’t a concern either.)

By 1966, Toyota was ready to go as a volume player, one competing on much

more than low wages. And the Corolla was launched then as Toyota’s first
international product. What followed was rapid growth (facilitated by brilliant
production-system design methods) across the world and in an ever-growing
range of products.

By the mid-1990s (after Lexus was successfully launched) Toyota was finally
ready to innovate with products. (After only 40 years!) The first was the Prius
(when no one else believed this technology had promise), whose most
interesting characteristic was that it was launched on time and actually worked
exactly as promised with no quality or reliability problems. Only later did it turn
out that Toyota could grow its market share and make money with Prius
technology. (These objectives were not part of the original plan, which was to
make a mass market vehicle that could dramatically reduce the consumption of
carbon fuels and burnish Toyota’s image as a technology company without
losing much money in the process.)

The next innovation was hardly what the world would call innovative: offer
Prius-proven hybrid technology all the way across the Toyota product range
while reducing the cost of the technology by 30 percent, so Toyota could also
make a good margin. But the results are pretty impressive: eight million Toyota
hybrids on the world’s roads to date as Toyota has made record profits.

Toyota’s next product innovation was the Mirai fuel cell vehicle, just launched
after decades of development. Does this make any sense? Not according to
Elon Musk, who coined the term “fool cells.” But, no one thought the hybrid
technology had potential either (any more than they thought a high-
performance, long-range electric vehicle made sense) and we are just at the
start of
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12/27/23, 1:21 PM The Tesla Way vs. The Toyota Way - Lean Enterprise Institute

So, what’s my take on the Tesla Way, as an advocate of the Toyota Way? Like
Mark, I love Musk’s first principles. But I worry about the business system
supporting them. Tesla is in its 14th year as a car company, which is a long time
in Musk years. Yet it’s hard to see how its product development system (always
years late, with rework to do post-launch), the production system (with spotty
quality and unknown amounts of rework and warranty claims), the supplier
management system (with an inability to forecast demand to suppliers), the
customer support system (which is still to be created for a mass market), and
the general management system (which seems to wear people out at a
remarkable rate, rather than build capability in every employee) have matured
to a point where they equal to the challenge of marketing 500,000 vehicles in
2018 and one million in 2020. Wouldn’t it seem reasonable to expect some
stability by this point?

The Tesla Way is to go fast (“Let’s try ludicrous mode!”) and hope that genius
and adrenaline can compensate for the lack of planning and stability. But I
would advise going slower and getting the job done right the first time in
accord with the Toyota Way. We will see.
___________________________________________________________________________________

Mark: How about pairing Toyota execution with Tesla First Principles?

Jim, it seems we want the Toyota/Tesla Way…Toyota’s world class

execution with Musk’s first principle innovation at a “ludicrous”
pace. Am I completely off my rocker to think a Tesla/Toyota
partnership is possible for this ramp? They don’t need to get into
bed together forever, however, they do each have something the other needs
right now in order to achieve his stated mission.

Tesla has built an EV in a class of its own that fulfills Toyota’s Global Vision and
which the market is ready for TODAY. Toyota has the Toyota Production System,
which in my opinion is the only production platform in the world capable of
ramping this up at a Musk pace. It wouldn’t be business as usual for Toyota or
Tesla. They would each have to swallow a bit of pride and accept that the other
offers something that would take them years, if not decades, to develop on
their own.

Together, today they are stronger, faster and better. I don’t imagine this would
be so difficult for them to accept. The “burning platform” requires no less than
the speed that Musk demands. Does it not justify a bit of extra urgency even at
the cost of some burned-out people or disgruntled vendors? Better if this can
be avoided but do we really have that luxury today? We are at war with climate
change whether or not we admit it. If it is actually possible to get 500,000
Modeluses
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12/27/23, 1:21 PM The Tesla Way vs. The Toyota Way - Lean Enterprise Institute

If there are two companies in the world that I would bet could rise to this
challenge they are certainly Tesla and Toyota. How apropros that all of this is
happening at NUMMI. Let’s dream big just like Elon and get it done on time like
Toyota!
___________________________________________________________________________________

Jim: Let’s continue to show respect and learn from one another

The Toyota/Tesla Way sounds like a great idea. But…not in one

company. Toyota and Tesla have already learned about each other
from Toyota’s brief investment in Tesla and their project to produce
an all-electric Toyota RAV4. And they decided to admire each
other from a distance. The most practical way forward is for Toyota to be bolder
in pursuing first principles and for Tesla to be less ludicrous, showing respect
for each other as they share the road.

Written by: James (Jim) Womack, PhD

About James (Jim) Womack, PhD

Widely considered the father of the lean movement, Womack has been talking and publishing about
creating value through continuous innovation around deep customer understanding for many years. In
the late eighties, he and Dan Jones led MIT’s International Motor Vehicle Research Program (IMVP), which
introduced the term “lean” to describe…

About

Mark Donovan founded Wooden Ships, a knitwear fashion company based in Bali, Indonesia in 1992 with
his wife and business partner Paola Buendia. His lean management journey began in 2007 after reading
The Toyota Way. Largely self-taught in lean principles, he continues to read, practice, share, teach, and
learn every day.

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