Elon Musk’s Master Plan Won’t Help TSLA Stock
The U.S. electric car manufacturer Tesla Motors Inc (NASDAQ:TSLA)—or at least its boss, Elon Musk—wants to build and sell an electric cargo truck. Musk also wants to build a vehicle to replace urban buses and self-driving cars that are available on demand. This was the second part of Musk’s big plan for Tesla stock.
Unfortunately, there was precious little about Tesla stock in this big plan. The Tesla “Master Plan Part Deux” is a great name for a social media post, but it doesn’t do much to reassure Tesla stock shareholders.
Elon Musk may as well take the name Zarathustra (a religious found, if you’re unaware), as he delivered the second and most visionary chapter of his famous “Master Plan,” first dropped on the world 10 years ago. He has infused some humor in the somber and rather sterile vision by naming it “Tesla Master Plan Part Deux” (he must have liked the Hot Shots movie franchise, I’m guessing), but Tesla stock wasn’t amused. It dropped almost four percent on Thursday afternoon.
It seems investors have become less susceptible to the song that Elon Musk sings. (Perhaps he shouldn’t change his name to Elon John quite yet?)
The four steps to Tesla’s future appear to be outlined as follows:
- Create solar panels with incorporated storage batteries
- Expand the range of electric vehicles to cover all major market segments
- Develop driverless technology that is 10 times more secure than human drivers through mass (“beta”) testing
- Make customer cars able to earn money for their owners when not used
Before this analysis proceeds, though, particularly in view of what’s really in it for Tesla stock, it is necessary to state one fact upfront: the world is not running out of energy. There are plenty of so-called fossil fuels (“hydrocarbons” is a more accurate and less politically charged term for them) left—enough oil, gas, and coal to keep the world running for several decades to come, in fact.
At least that’s according to Ahmed Zaki Yamani, a former oil minister of Saudi Arabia. He famously stated: “Thirty years from now there will be a huge amount of oil—and no buyers. Oil will be left in the ground. The Stone Age came to an end, not because we had a lack of stones, and the oil age will come to an end not because we have a lack of oil.” (Source: “Sheikh Yamani predicts price crash as age of oil ends,” The Telegraph, June 25, 2000.)
And who better than a Saudi oil minister to say this?
The fact that the same minister predicted oil prices would collapse as technology found new ways of extracting oil only adds to his credibility, too.
But why is this relevant to Tesla stock? Because the whole premise of Tesla and its now adjunct SolarCity Corp (NASDAQ:SCTY), pending board approval that is, rests on the assumption that the world is running out of fossil fuels. (Source: “Elon Musk sets sights on Tesla buses and trucks as he says electric vehicles are ‘not some silly hippy, thing’,” The Telegraph, July 21, 2016.)
The reader must forgive another premise, given Elon Musk’s emphatic commitment to driverless (self-driving) cars. Despite the failure of an ongoing U.S. government investigation into a deadly episode involving a Tesla driverless system on a “Model S”—the diver was watching Harry Potter rather than driving, entrusting his safety to the “Autopilot” feature—Musk has made autonomous driving a staple of the “Part Deux” plan. There was no talk about the problems of testing the system before committing to it. (Source: “Tesla’s Model X Has Bigger Problems Than Faulty Falcon Doors,” Wired, April 26, 2016.) This kind of risk is not good for Tesla shareholders.
The Tesla Plan Lacks Reality
The problem with Musk, as it is with so many prophets throughout history, is that his tank is slightly short on reality fuel.
It was fine for Moses to lead his people out of bondage from Egypt; after all, he had God do all the hard selling for him, from locusts to plagues to sea parting. Moses did not have to deal with his shareholders—“his people”—alone.
Musk, on the other hand, rules supreme at Tesla. He’s not paying attention to Tesla shareholders, but he wants to lead them to change the world. Meanwhile, Tesla stock continues to trade at dangerously high levels, at approximately 30-times its book value. Most car manufacturers, which are well-established names with more than a century of history, trade at two to six times their book values.
During his keynote address, Musk talked not only about his products, but also about his company’s possession of the technology to save the world from the catastrophe of climate change. Quite frankly, he seemed to move the subject of Tesla electric into the background.
Musk is no doubt a skilled tactician and a marketing genius. If I were a Tesla shareholder, though, I would have wanted more talk about the product—the cars—that were overshadowed.
When an investor buys Tesla stock, just as when a consumer buys a Tesla car, what they’re really buying is Musk’s message. That might help to explain the euphoric rise of TSLA stock and the lack of a serious discussion about Tesla Motors’ many risks and flaws.
Mind you, there would be nothing wrong if Tesla were a totally private company. Ferruccio Lamborghini of Lamborghini Automobili founded a car company that took risks by entirely using his own capital. He could do what he wanted, but never on his shareholders’ dime.
Elon Musk Himself Is the Product
Everything is honed to perfection in the Tesla car and Musk is the added value that allowed the Model S to grind excellent sales numbers in the luxury sedan segment.
Indeed, Elon Musk knows how to use the media. He should have been in the eye of the media storm over the fatal accident caused by excessive confidence in Tesla’s driverless system. Rather than deal with that, Musk pulled an all-nighter and drafted his plan to “deliver us from evil.” The most effective thing the new “Master Plan” has done is divert shareholder attention from a major problem to the company’s future—perhaps slowing the hemorrhage of Tesla stock.
The plan also explained to shareholders how the electric car would take advantage of SolarCity’s solar energy technology and panels. Musk also briefly mentioned that there may be a second and smaller SUV added to the current Tesla lineup.
More intriguing is his plan to start building trucks and buses “to substantially reduce the cost of freight.” They are apparently still at an early stage of development, but could be introduced as early as next year.
So far, there is still much speculation and concern about the entry-level “Model 3,” which should start reaching dealerships by the end of 2017. Yet, here is Musk promising a whole lineup of vehicles that not even GM or Ford could ever hope to promise. Of course, production is still falling short of goals at Tesla too. (Source: “Tesla Market Cap Hits Half of GM’s,” Wall Street 24/7, June 22, 2015.)
Finally, Tesla also announced that it will launch in the new “mobility services market.” This is where things get really interesting and where planet Earth finds its “redemption.” It is unclear whether Tesla will run its own car-sharing service, putting Uber out of business, or whether it will rely on a taxi service of some kind. However, in cities where the demand for mobility exceeds the availability of cars owned, Tesla will deploy a fleet of cars to ensure that everyone has a ride—wherever they are. (Source: The Telegraph, op cit.)
The Bottom Line for Tesla Stock
The best that can be said about Tesla’s “Master Plan Part Deux” is that it aims to impress. Impress it does, but it also provides few details.
The most glaring problem of all, though, is the company’s total lack of financial sustainability. Tesla is heavily—very heavily—indebted. Last May, Tesla issued 1.7 million shares to accelerate the development of the Model 3 and production capacity.
Currently, it is around 50,000 units per year. With the more than 370,000 orders for the Model 3, Tesla has to speed up. It set a quota of half a million cars by 2020, but Tesla still has not managed to start its large-scale manufacturing of the “Model X” SUV. Now, Musk has added a whole new series of cars and trucks and buses, requiring different levels of approval and testing and issues. It’s simply too complex to contemplate.
The analysts polled by Bloomberg are skeptical about Tesla’s ability to add new products to its range, too, given its history of delays and burning cash. Even Musk, who has admittedly already exceeded expectations with Tesla stock, would find it difficult to fulfill his many, many lofty goals. (Source: “Musk’s Master Plan Met With Indifference From Tesla Investors,” Bloomberg, July 20, 2016.)