Musk’s secret, Tesla’s secret master plan is so obvious

Elon Musk is about to release the third iteration of his “Master Plan” for Tesla, something he’s apparently been working on for nearly a year. Why does he bother?

The original blueprint, blogged in 2006 — four years before Tesla’s listing — read like a standard Silicon Valley startup pitch: Sell an expensive car to early adopters, then use the proceeds to build cheaper cars for a larger market, etc. Tesla hasn’t exactly gone that route, mainly because the cost of building an auto business means selling the dream on the stock market is more important than reinvesting the earnings. But close enough.

The second iteration was more manifesto than plan, mixing defensiveness about the then-dodgy acquisition of SolarCity with storylines so blue they border on ultraviolet. Seven years later, besides the successful launch of the Model Y crossover, practically nothing has been achieved. Sightings of solar rooftops remain rare, and Tesla’s entire energy business generates less than 5% of revenue. The semi-trailer still lacks public specifications and the mentioned electric bus is no longer mentioned. As for gaining global regulatory approval for self-driving Teslas that you can then send off as a revenue-earning robotaxis, those are two things that haven’t happened in the traditional sense.

What happened, however, was this:

When your company falls short of nearly all of its stated plans, but its valuation nevertheless swells to over $600 billion (approximately Rs. ‘importance. Perhaps more accurately, the details don’t matter.

One of the most amusing aspects of the recent security recall for around 360,000 Teslas was Musk’s tweeted objection to the word “recall” as “anachronistic” for live software patches. Say what you will, but the man selling expensive driver-assist tech marketed as ‘Autopilot’ and ‘Full Self Driving’ – the latter, regulators say, might be a little confusing around intersections – is adept at semantics.

The obvious dissonance doesn’t seem to matter. This is why the purpose of the master plan is simply to have one rather than to serve as a means of accountability for execution. Given that the details of Master Plan, Part Two so far mostly add up to fan fiction, Master Plan-a-Trois will likely need the slightest tweak to keep fans engaged. Nonetheless, Musk tweets that it will provide “the path to a fully sustainable energy future for Earth.” And as the total addressable markets grow, the Earth is quite large.

Keeping this addressable market large and a little fuzzy helps because, while Tesla no longer needs to mine the stock markets like it used to, justifying its market capitalization requires a lot more than selling cars. For example, you can assume that Tesla increases its vehicle sales by 50% per year until 2030, while maintaining an average sales price of $50,000 (about 4,137,800 rupees) and a net margin of 15%. Even then, with Tesla representing somewhat of a third of the global passenger vehicle market by the end of the decade, you’d also have to apply a 2% discount rate – half the yield of the 10-year Treasury. – for today’s valuation to be established. . Solar rooftops, robotaxis, and artificial intelligence all help refine this.

Although Tesla’s stock has nearly doubled since the start of the year, its market capitalization is still $600 billion (around Rs 49.65200 crore) below its peak 15 months ago. Tesla announced its Investor Day, at the MP3 presentation, on January 2, the same day it released disappointing sales numbers ending a year when the stock plunged, in part because Musk himself was selling off. strongly. Coincidence or not, the promise of a radical new plan is a helpfully timed balm.

On that front, regardless of the actual master plan that’s presented, the immediate priority in maintaining Tesla’s valuation is pretty mundane.

Recall that when Tesla released its 2022 results, it said it was aiming to produce 1.8 million vehicles this year. That would only be 31% more than last year, but it would still allow the company to meet the 50% compound annual growth target it set at the start of 2021 – which Tesla tried to emphasize in the ad. It came after a sharp decline in the stock and growing concern over demand due to weak sales figures and Tesla’s reliance on price cuts.

The stock’s subsequent rebound may have reflected Musk’s more upbeat comments on the call about expanding margins and the “potential” to produce 2 million vehicles this year. But that only mirrored a New Year’s rally in tech stocks and bitcoin alike battered. Returning with a 160% premium to the market, Tesla will need to show it can thwart the most common ills of the auto business – a slowdown and price competition – if such optimism is to be sustained.

It also means demonstrating progress on new products. Not just the long-delayed and probably expensive Cybertruck, but a cheaper mass vehicle. The latter is essential to any higher goal of large-scale energy transition and was, after all, the primary focus of that original master plan 17 years ago. We’ll probably hear a lot about that on March 1, as well as wackier stuff. For it to carry Tesla’s valuation this year, however, today’s lineup will have to live up to it. The blueprint that matters isn’t rocket science or robotaxi. It’s just selling more cars.

“We plan to increase production as quickly as possible in line with the 50% CAGR target that we started aiming for in early 2021. Some years we may grow faster and others slower, depending a number of factors. For 2023, we expect to stay ahead of the long-term CAGR of 50% with around 1.8 million cars for the year.”

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