The "Cuisinart Effect"

The earliest case study I recall being assigned back in bizz school was about the "Cuisinart Effect."

Only a scant few of you were alive back in those halcyon, early days of television, I know, but to give you young whippersnappers a bit of background, there was once this company called Cuisinart.  They were the "My Pillow" of their day.  They vaulted upon the scene, promising home cooks they too could become Julia Child.  All they'd have to do is just buy one of these new-fangled (and uber expensive!!!) food processor contraptions.

And they did.  By the hundreds of thousands.  Cuisinart soared to the top of the stock market.  They were media and business darlings.  They were swimming in Benjamins.  Life for them was good.  

Until one day...it wasn't.  That's because there was this one day when everybody who wanted one of these things...had already bought it.  And they had no second act.  No plan to gradually change and upgrade and modernize to meet changing market demands.  And then...nothing.  Bankruptcy.  It happens.  Often...

There's another rule of business that comes into play about right here.  That's the "Buggy Whip Rule."

There's this town in New Hampshire.  Back in the pre-auto horse-and-buggy days, you had to have a buggy whip if you wanted to guide old Nelly down the trail.  But then, toward the shank end of the 1800's, electric cars came along. And then gas powered cars.  And more and more ordinary folks took the plunge and parked old Nelly in the barn and cranked up New Nelly in the driveway.

And the buggy whip bizz, as they say, went the way of the Cuisinart; primary market dead, secondary/subsequent market yet to be established.

From a high of more than 30 buggy whip manufacturers in this one single town at the height of the market, there's now only one left.  And that one is making custom whips for specialized needs, and so it continues to prosper (but only) in a highly-defined niche.  

The others updated their resumes.  Just as the management and employees of Cuisinart did, and Tesla, Inc., in my opinion, will soon do.

There's this guy named Elon Musk.  He's our modern day Howard Hughes, in my opinion.  He's a biiiiig-time dreamer and inventor, and even bigger-time B.S. artist, spinning his gauzy web of implausibilities.  He's managed to make himself into a billionaire by leaving a lot of losing investors along the way.  And he's about to lose a lot more.

Tesla is a Wall Street darling!  People throw money at this idea with abandon.  I say an idea because it's yet to be proven a real, honest-to-God regular-production automobile.  And Musk's going through that cash like shit through a Christmas goose!  Need an example?  Sure.  Tesla's current burn rate, meaning its income versus outgo, is more than $One Billion Dollars a Quarter!  

Think of that.  It raises scads of cash from investors, and then loses it in an effort to reach sufficient manufacturing volume to become profitable.  That volume would be 5,000 units per week, Tesla's self-chosen target.  Current production of the long-awaiting Model 3, is less than 2,000.  

Oh yeah, and that Model 3 was supposed to debut at $35,000 a copy.  A year ago.  Now, the cheapest one you can buy goes out equipped at $56,000.  Seems like they've got a problem.

And then there's Musk's mercurial personality.  He was just videoed smoking a giant doobie during a  podcast.  He Tweeted an offer to take Tesla private at $420 a share (get it?), and said he'd locked up financing to do so.  He hadn't. He, and the Company, is in Big Time Kimchee with the Securities and Exchange Commission.  People go to jail for kiting stock.  Or at least they used to.  I guess it depends upon how you vote...

And now back to Cuisinart.  When everybody who wanted one of those high-priced gadgets had bought one, they promptly went upside down.  I predict Tesla will meet a similar fate.  

And just for good measure, the current resale value of a 2015, 3 year-old Tesla Model S, which went out the door for $130,000 when new (it costs a lot not to have to buy gas!), now has a resale value of $43 - $48,000.  Think of that:  If you can afford $2,000 a month depreciation, you can afford a Tesla...

Tucker couldn't make cars profitably.  Neither could Stutz.  Nor DeLorean.  Nor Auburn.  Nor literally dozens and dozens of other would-be auto manufacturing magnates over the decades.  I predict Musk and Tesla will join them.  Don't know when, but I think sooner rather than later.  And so will a couple of $Billion dollars in investor money...