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Design flaws caused a Tesla Model 3 to suddenly accelerate out of control before it crashed into a utility pole and burst into flames, killing a woman and severely injuring her husband, a lawsuit filed in federal court alleges.Another defect with the door handle design thwarted bystanders who were trying to rescue the driver, Jeff Dennis, and his wife, Wendy, from the car, according to the lawsuit filed Friday in U.S. District Court for the Western District of Washington.Wendy Dennis died in the Jan. 7, 2023, crash in Tacoma, Washington. Jeff Dennis suffered severe leg burns and other injuries, according to the lawsuit.Messages left Monday with plaintiffs’ attorneys and Tesla were not immediately returned.The lawsuit seeks punitive damages in California since the Dennis’ 2018 Model 3 was designed and manufactured there. Tesla also had its headquarters in California at the time before later moving to Texas.Among other financial claims, the lawsuit seeks wrongful death damages for both Jeff Dennis and his late wife’s estate. It asks for a jury trial.Tesla doors have been at the center of several crash cases because the battery powering the unlocking mechanism shuts off in case of a crash, and the manual releases that override that system are known for being difficult to find.Last month, the parents of two California college students killed in a Tesla crash sued the carmaker, saying the students were trapped in the vehicle as it burst into flames because of a design flaw that prevented them from opening the doors. In September, federal regulators opened an investigation into complaints by Tesla drivers of problems with stuck doors.Jeff and Wendy Dennis were running errands when the Tesla suddenly accelerated for at least five seconds. Jeff Dennis swerved to miss other vehicles before the car hit the utility pole and burst into flames, the lawsuit says.The automatic emergency braking system did not engage before hitting the pole, the lawsuit alleges, even though it is designed to apply the brakes when a frontal collision is considered unavoidable.Bystanders couldn’t open the doors because the handles do not work from the outside because they also rely on battery power to operate.. The doors also couldn’t be opened from inside because the battery had shut off because of the fire, and a manual override button is hard to find and use, the lawsuit alleges.The heat from the fire prevented bystanders from getting close enough to try to break out the windows.Defective battery chemistry and battery pack design unnecessarily increased the risk of a catastrophic fire after the impact with the pole, the lawsuit alleges. Thiessen reported from Anchorage, Alaska. Mark Thiessen, Associated Press
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E-Commerce
President Donald Trump is directing the federal government to combine efforts with tech companies and universities to convert government data into scientific discoveries, acting on his push to make artificial intelligence the engine of the nation’s economic future.Trump unveiled the “Genesis Mission” as part of an executive order he signed Monday that directs the Department of Energy and national labs to build a digital platform to concentrate the nation’s scientific data in one place.It solicits private sector and university partners to use their AI capability to help the government solve engineering, energy and national security problems, including streamlining the nation’s electric grid, according to White House officials who spoke to reporters on condition of anonymity to describe the order before it was signed. Officials made no specific mention of seeking medical advances as part of the project.“The Genesis Mission will bring together our Nation’s research and development resources combining the efforts of brilliant American scientists, including those at our national laboratories, with pioneering American businesses; world-renowned universities; and existing research infrastructure, data repositories, production plants, and national security sites to achieve dramatic acceleration in AI development and utilization,” the executive order says.The administration portrayed the effort as the government’s most ambitious marshaling of federal scientific resources since the Apollo space missions of the late 1960s and early 1970s, even as it had cut billions of dollars in federal funding for scientific research and thousands of scientists had lost their jobs and funding.Trump is increasingly counting on the tech sector and the development of AI to power the U.S. economy, made clear last week as he hosted Saudi Arabia’s Crown Prince Mohammed bin Salman. The monarch has committed to investing $1 trillion, largely from the Arab nation’s oil and natural gas reserves, to pivot his nation into becoming an AI data hub.For the U.S.’s part, funding was appropriated to the Energy Department as part of the massive tax-break and spending bill signed into law by Trump in July, White House officials said.As AI raises concerns that its heavy use of electricity may be contributing to higher utility rates in the nearer term, which is a political risk for Trump, administration officials argued that rates will come down as the technology develops. They said the increased demand will build capacity in existing transmission lines and bring down costs per unit of electricity.Data centers needed to fuel AI accounted for about 1.5% of the world’s electricity consumption last year, and those facilities’ energy consumption is predicted to more than double by 2030, according to the International Energy Agency. That increase could lead to burning more fossil fuels such as coal and natural gas, which release greenhouse gases that contribute to warming temperatures, sea level rise and extreme weather.The project will rely on national labs’ supercomputers but will also use supercomputing capacity being developed in the private sector. The project’s use of public data including national security information along with private sector supercomputers prompted officials to issue assurances that there would be controls to respect protected information. Thomas Beaumont, Associated Press
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E-Commerce
I keep coming up against a logical fallacy in strategy that I feel compelled to address. The logic holds that when a company has a shareholder-unfriendly component of its portfolio e.g. the business in question is cyclical, or it is low-growth or low margin the company should diversify to make that business less-shareholder unfriendly. I take on the fallacy in this Playing to Win/Practitioner Insights (PTW/PI) piece entitled Diversification Cant Disappear a Strategy Problem: It Just Creates a Different Problem. And as always, you can find all the previous PTW/PI here. The argument The usual motivator of this argument is cyclicality: We have a cyclical business, and shareholders dont like the ups and downs of that business across the cycle, so they discount our stock because of the volatility of our earnings. A memorable example of this for me was Alcan in the 1980s, at that time the worlds best aluminum company and arguably Canadas finest company. But it didnt like the cyclicality of its core business, which was making and selling aluminum ingots. The downstream industries that used aluminum in some way appeared alluringly less cyclical. So, Alcan invested in a number of those businesses including packaging and aluminum structured automobiles. Other shareholder-unfriendly attributes include being a slow-growth business. This causes companies like News Corporation to buy MySpace to get into a fast-growing business Internet services. Another is a business that has experienced a drop in structural attractiveness and hence inherent profitability level, perhaps because buyers are getting more powerful or a supplied input becomes much more expensive. Unfortunately, these diversification efforts dont often succeed. For Alcan, these downstream businesses turned out to have very little in common with the skills and capabilities involved in making ingots of aluminum and were eventually sold off. For example, the packaging portfolio was sold off to Amcor, a global packaging company that knew how to run a packaging business. And News Corporation exited MySpace with its tail between its legs, selling it for $35 million six years after buying it for $580 million I am not opposed to the intent I am in favor of improving ones portfolio of businesses. In fact, I was part of one of the greatest such efforts in recent memory. I was on the board of Thomson Corporation, which started its transformation as the worlds largest newspaper company, the worlds largest textbook publisher (tied with Pearson), Europes largest travel company, and a major player in North Sea oil. It concluded the transformation as Thomson Reuters, the leading supplier of on-line, subscription-based must-have information, analytics, and workflow solutions for legal, financial, accounting, and investor relations professionals having exited its entire starting portfolio. So, I get it. I like investing in good businesses as much as the next person. I just hate the logic regarding shareholders Shareholders arent geniuses I have said that on numerous occasions (e.g. here and here). But they are not stupid either. Lets say the company is correct that shareholders dont like something about an important business in its portfolio it is cyclical or growing slowly or its industry is becoming less structurally attractive. If that is true, shareholders will collectively price that negative feature into their valuation of that business as part of their overall valuation of the stock. Lets say the contribution of that shareholder-unfriendly business to corporate earnings per share (EPS) is $4/share and that if it wasnt cyclical, shareholders would put a 20X multiple on those earnings. So, it would have contributed $80 towards the companys overall share price. But lets say that because it is cyclical, shareholders discount the value of those earning to a 15X multiple, meaning that the cyclicality of the business costs the company $20 on its share price (i.e., $4 of EPS X 5 times lower multiple). And if there are 50 million shares outstanding, that is a cost of $1 billion in shareholder value due to the cyclicality of that business. The same calculation would hold if it were a slower growing business on which the shareholders similarly put a 15X multiple instead of 20X. Or if a business has experienced a sharp structural drop in future profit potential. The bottom line is that because of the features of the existing business, shareholders subtract $1 billion of value from the overall valuation of the business. Lets continue with the logic. Imagine the company diversifies into a non-cyclical business or fast-growing business or higher profit business. If it is a great business, the shareholders will put a high valuation on it. Lets say that the company buys such a business for $2 billion and it performs so well that shareholders soon value it at $5 billion which makes it a great diversification investment. But the logic of this argument holds further (implicitly) that over and above the value that shareholders will give to the great new business into which the company diversified, the shareholders will reduce the $1 billion valuation hit that they are applying to the problematic business. Not only can I not think of any reason why shareholders would do that, I have never seen them do it because there is no reason. In the words of the great Nobel Laureate, the late George Stigler, when I met him in his Chicago apartment, Roger, a company cant use its competitive advantage twice brilliant insight from a brilliant man. In this case, it cant use the plus-$5 billion to disappear the minus-$1 billion. In essence, it will be a plus $5 billion and an unchanged minus $1 billion. What is the problem? As I said, I like investing in great new businesses. If there is a $5 billion opportunity available for a $2 billion price, a company is foolish not to grab it. The problem is a company putting itself in the position of believing the presence of the undesirable business creates a requirement to diversify. This is especially the case because the tool used is typically acquisition because organic growth is viewed as taking too long to solve the problem. And the failure rate in acquisitions is legendarily high in the general case. This is a very specific case that makes doing a successful acquisition even harder. There is a very specific requirement of the acquisition it must reduce our overall cyclicality, or increase our overall growth rate, or increase our overall profit margin. These are hard criteria to meet in an exercise that already has a high degree of difficulty. Additionally, it works against a key principle that helps determine acquisition success. As Ihave written about previously in Harvard Business Review, acquisitions are more financially and strategically successful if they are more about what the acquiring company can do to help the acquired company than the other way around. When the focus is on what the acquired company can do for the acquirer, the acquirer tends to have to pay top dollar for the acquired company and the acquirer can do little to help pay for the high takeover premium, as with the News Corporation-MySpace acquisition above. News Corporation paid absolutely top dollar and it had no idea how to help MySpace as it faced withering competition. Thus, in the failure-ridden world of acquisitions, the logic of this diversify-to-eliminate-the-shareholder-problem drives companies toward very low success rate approaches. Net, there are compounding shortcomings of the approach. First, it doesnt actually solve the problem for which it is designed to solve. And second, it involves engaging in a very high-risk activity. That is not a good combination. Implications for strategy As I pointed out previously in yet another Harvard Business Review article, companies are better off if they simply value businesses at what they are worth not their value on the books. They may wish that a business was worth as much as or more than the amount of investment put into it. But the instant the investment is irreversibly made into the business in question, its value becomes a function of its future prospects, not its book value. If it was a poor investment, its true value will go down, and the opposite if it was a good investment. That is the valuation that shareholders make every trading minute. They revalue your assets continuously by collectively buying and selling your shares. Why shouldnt you revalue similarly? Bad businesses dont have bad shareholder returns shareholders have long since revalued them downwards. And great businesses dont automatically have great shareholder returns shareholders have long since revalued them upwards. Shareholders get valuation. If you can make a business better great, just do it. But dont try to disguise the shortcomings of a business through diversification. You arent fooling anyone but yourself and certainly not the shareholders. A far better plan is to suck it up and recognize the true value. And if you dont like what you have, sell it and move on. That is what we did at Thomson Reuters. We didnt attempt to disguise the negative attributes of portfolio companies. We got rid of them to companies that liked their attributes better than we did. For example, we sold our newspaper business to the worlds biggest newspaper company, Gannett, for US$2.2 billion. They were enthusiastic but it ended up being a deal that a Gannett CFO later confessed to me was the worst acquisition deal in his companys history. And even better, we sold the textbook business to a pair of delusional private equity firms for US$7.75 billion, and they resold it three years later for a reported US$2.25 billion ouch! The combined divestiture proceeds of US$10 billion were really helpful in bringing the transformation to fruition. Practitioner insights I try hard not to be disrespectful to the status quo. Most things that stick around for a long time do so because they have shown themselves to make sense. But in the world of business ideas, a minority like SWOT, strategies not strategy, and revenue forecasting stick around even if they fail to make any logical sense. You must be ready to reject them when they are demonstrably dumb ideas. This is one of them. Dont invest in big and high-risk ways to disguise a problem that cant be disguised. It is one of the silliest and most wasteful activities in company life. And there are lots of folks hanging around that make huge returns by whispering in corporate executive ears about this kind of diversification. They are the (so-called) strategy consultants, investment bankers, and M&A lawyers who make countless billions promoting stupid deals, like the disastrous AT&T takeover of Time Warner which AT&T bought for $85 billion and sold for $43 billion three years later. That was the equivalent of the AT&T executive team making a $38 million stack of shareholder money outside AT&T corporate headquarters, pouring gasoline on it and lighting it on fire and repeating that exercise every day for three years. The brilliant deal was purportedly going to get the boring AT&T into the exciting, faster growing and higher margin content business. I predicted at the time that it would be an epic disaster and it most certainly was. It is what happens when you adhere to a loser theory. Instead, either love a business or get rid of it to someone who will love it more. You cant win in a business that you dont love. Competitors who love their business will wipe the floor with you and yours. Only spend time and resources on businesses that you love. Those are the only ones that will get the care, attention and investment that they need and deserve.
Category:
E-Commerce
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