In his recent book on Tesla founder and
CEO Elon Musk, Ashlee Vance describes
Timothy Watkins of Valor Equity
Partners, an early investor in the electric
car company, as an eccentric Brit who
helped Musk and his team understand
the real cost of a Tesla Roadster and how
to bring that down to an acceptable level.
True to his eccentric description, Watkins
sported a ponytail, leather jacket, and a
black leather pouch (which was never
more than 12 feet from him during his
visit) when he arrived to meet with CTPs
and CTAs at FGMK in Chicago recently.
Watkins, head of operations for
Valor, provided an overvwiew of the
investments that the Chicago-based
private equity fund targets—typically
situations with high growth potential in
which more than just capital is required
to scale the business. For example, an
ideal target company might have high
growth prospects but a management
team that wants to maintain its focus on
products while Valor’s project managers
and engineers assist in optimizing
the supply chain and sales processes
based on critical market needs.
Valor assisted in redesigning the supply
chain for Tesla’s complex battery packs,
which were sourced from low-cost
labor in Asia. The battery packs were
shipped to Tesla’s European partner,
Lotus, which assembled the vehicles
in the UK before shipping them to the
United States. When the cost to capitalize
this supply chain at production volume
was calculated, those involved quickly
realized that it had to be simplified.
While Musk had the courage to commit
to a U.S. factory for building battery
packs, some competitors stayed with
complex international supply chains.
“It is, in my opinion, one of the reasons
why Fisker failed,” Watkins said, referring
to Fisker Automotive, which produced
a plug-in hybrid electric vehicle and
continued to operate with an Asian
and Finnish supply chain until it was
forced to close its doors in 2013.
Watkins vividly remembers Valor’s
first visit to the Tesla facility. “We
just had so much fun in the car.
We knew right there that we had to
make an investment,” he said.
As the first institutional investor in Tesla,
Valor would play a key role in not only
guiding the Tesla team to reduce the
material cost of the Tesla Roadster from
$120,000 to $85,000, but also to build
what they called a “sales machine.”
“It is all about understanding the sales
event,” Watkins explained, “and for the
Roadster, it was the test drive. The more
test drives you can perform, the more
Teslas you will sell—that simple.”
What sets Musk apart, Watkins said, is that
“he has a special way to line up all the
human vectors in one direction.” Also,
Musk has tremendous insight into what
is really worth fighting for in a product.
When Tesla faced a failed two-speed
gearbox design in the Roadster that
reduced the car’s 0-60 mph acceleration
from sub 4.0 seconds to 4. 3 seconds,
Musk took another year to complete a
full redesign to bring the car back to sub
4.0-second 0-60 mph performance.
Not all of Valor’s investments are as
high-profile as the Tesla success story.
By applying lean supply chain principles
to its investment in Little Caesars pizza
franchises, Valor performed an equally
impressive turnaround. “We just didn’t
know how often the product was not
ready for customers,” Watkins said.
Once actual point-of-sales data was
used to establish 15-minute supply
chain replenishment triggers, the
market's positive reaction convinced
the team that it was on the right track.
“We have learned not to primarily
seek control,” Watkins explained.
“Control is, many times, illusionary.
What is more important is to take the
time to reach consensus with the
company on where you need to go.”
It is rare to find an investor so
determined to bring more than money
to the table, from trying to bring a
manufacturing system online at a
small French subcontractor during
the August holidays—which Watkins
described as “more psycho warfare
than engineering”—to applying lean
techniques to the SolarCity installation
process to understanding data collection
in India for Valor’s investment in
Premise. Valor Equity Partners shows
that it is possible and profitable for an
equity investor to actively work with its
investment teams for win-win outcomes.
CTPs, CTAs Get Behind the Scenes Glimpse
into Valor Equity’s Tesla Investment
BY KOBUS VAN DER ZEL, CTP, GLOBAL TURNAROUNDS INC.