Musk’s Secret, Tesla’s Secret Master Plan Is So Obvious

Elon Musk is set to release the third iteration of his “Master Plan” for Tesla, which he has apparently been working on for almost a year. Why does he bother?

The original blueprint, published on a blog in 2006 – four years before Tesla went public – read like a standard Silicon Valley pitch: sell an expensive car to early adopters, then use the profits to build cars cheaper for a larger market, etc. Tesla hasn’t exactly gone this route, mainly because the cost of starting an automaker means that selling the dream on the stock market is more important than reinvesting the revenue. But close enough.

The second iteration was more of a manifesto than a plan, mixing a defensive attitude toward the questionable and pending SolarCity acquisition with scenarios so blue they bordered on ultraviolet. Seven years later, apart from the successful launch of the Model Y crossover, virtually nothing has been achieved. Sightings of solar roofs remain rare and Tesla’s entire energy business generates less than 5% of its revenue. The semi-trailer still has no public specifications and the mentioned electric bus is no longer mentioned. As for getting global regulatory approval for self-driving Teslas that you can then dispatch as money-making robo-taxis, those are two things that haven’t happened in the traditional sense.

But here’s what happened:

When your company fails to achieve virtually all of its stated plans but still has a valuation of over $600 billion (around Rs. 49,65,200 crore), it’s possible that the plan doesn’t really matter. Perhaps more accurately, the details don’t matter.

One of the more amusing aspects of the recent safety recall involving some 360,000 Teslas was Musk’s tweeted objection to the word “recall” as being “anachronistic” for over-the-air software patches. Say what you want, but the man who sells expensive driver-assistance technology marketed under the names “Autopilot” and “Fully Self-Driving” — the latter, regulators say, might be a little confusing to intersections – is a follower of 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 during its execution. Since the details of Master Plan, Part Deux thus far mostly amount to fan fiction, Master Plan-à-Trois will likely require the slightest adjustment to keep fans engaged. Nonetheless, Musk tweets that it will provide “the path to a fully sustainable energy future for Earth.” And if we consider all the addressable markets, the Earth is quite big.

Keeping this addressable market large and a bit fuzzy is helpful because, while Tesla no longer needs to tap the stock markets like it used to, justifying its market cap requires a lot more than just selling cars. For example, one could assume that Tesla increases its vehicle sales by 50% per year through 2030, while maintaining an average sales price of $50,000 (approximately Rs. 4,137,800) and a net margin of 15%. . Even then, with Tesla somehow accounting for a third of the global passenger vehicle market by the end of the decade, a 2% discount rate would also need to be applied – the half of the 10-year Treasury yield – for the current valuation to be effective. . Solar roofs, robotaxis and artificial intelligence are all helping to refine this.

Although Tesla’s stock has almost doubled since the start of the year, its market capitalization remains $600 billion (around Rs. 49,65,200 crore) lower than the peak reached 15 months ago. Tesla announced its investor day, during which MP3 will be presented, on January 2, the same day it released disappointing sales figures capping a year in which the stock plunged, in part because Musk -even sold massively. Coincidence or not, the promise of a radical new plan is a timely balm.

On this front, regardless of what master plan is actually developed, the immediate priority of maintaining Tesla’s valuation is pretty mundane.

Remember that when Tesla published its 2022 results, it announced its goal of producing 1.8 million vehicles this year. That would only be 31% more than last year, but would still allow the company to reach the 50% compound annual growth target it set at the start of 2021 – something Tesla has set for itself. tried to emphasize in the ad. This follows a sharp decline in the stock and growing concerns about demand due to weak sales figures and Tesla’s reliance on price cuts.

The stock’s subsequent rebound may have reflected Musk’s more optimistic comments about increasing margins and the “potential” of producing 2 million vehicles this year. But it also only reflects a New Year’s rally for equally beaten-down tech stocks and Bitcoin. Back at a 160% premium to the market, Tesla will need to show it can overcome the auto industry’s most common problem – a slowdown and price competition – if such optimism is to be maintained.

It also means demonstrating progress on new products. It’s not just the long-delayed and likely expensive Cybertruck, but a cheaper mainstream vehicle. This last point is essential to any more ambitious large-scale energy transition goal and was, after all, the main goal of that initial master plan 17 years ago. We’ll probably hear a lot about this on March 1, as well as some more wacky things. However, for Tesla’s valuation to be sustained throughout this year, today’s lineup will need to deliver. The blueprint that matters is not rocket science or robo-taxis. It’s just about selling more cars.

“We plan to increase production as quickly as possible, in line with the 50% CAGR target that we began to achieve in early 2021. In some years our growth may be faster and others slower, depending on a number of factors. For 2023, we plan to stay ahead of the long-term 50% CAGR with approximately 1.8 million cars for the year. »

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