A Tesla Master Plan You Should Know

A third version of Elon Musk's "Master Plan" for Tesla Inc., something that he has been working on for almost a year now, is about to be released, something that he has been working on for nearly a year now. What is the point of him bothering to do that?

‍

Originally conceived in 2006 - four years before Tesla listed - the original Master Plan could have been read as a standard Silicon Valley bootstrapping pitch: Sell an expensive car to first adopters, then use the profits to build cheaper cars for a bigger market, and so on. Despite the fact that Tesla did not exactly follow that path, this is mainly due to the fact that the cost of building a car company makes it more important to sell the dream to the stock market rather than reinvest the proceeds. However, it is close enough to be considered accurate.

‍

It is fair to say that the second iteration was more of a manifesto than a plan, combining defensiveness about the then ongoing, and dubious, purchase of SolarCity Corp. with scenarios that were nearly blue-sky. In seven years' time, aside from the successful launch of the Model Y crossover, the company has still not achieved virtually any of those goals. A solar-roof sighting is rare and Tesla's entire energy business generates less than 5% of Tesla's revenue. In addition, there is still a lack of public specs for the semi-truck, and no mention is made of the mooted electric bus. There are both things that have not taken place in conventional terms, such as the achievement of worldwide regulatory approval for autonomous Tesla cars that you can then use as money-generating robotaxis, that have not taken place in the traditional sense of the word.

‍

However, this is what happened:

‍

There may be a case where you don't deliver on all of your company's stated plans but your company's valuation swells to more than $600 billion despite not delivering on virtually any of them, which suggests the plan might not matter at all. The specifics don't matter as much as the generality of the situation.

‍

Musk's tweet objecting to the word "recall" as being "anachronistic" for the process by which over-the-air software fixes are applied was one of the more amusing aspects of the recent safety recall of some 360,000 Teslassistance technology marketed as “Autopilot” and “Full Self Driving” — the latter of which, according to regulators, might get a bit confused around intersections — is a stickler for semantics.

‍

There is no apparent dissonance between the two. Hence, the Master Plan serves more as a means of accountability rather than an accountability tool. It is likely that Master Plan-à-Trois will require the barest of tweaks to keep the fans engaged, since the details of Master Plan, Part Two are mostly fan fiction. Although Musk tweets that it will offer a "path to a fully sustainable energy future for Earth." As far as total addressable markets are concerned, Earth is pretty huge. 

‍

In order for Tesla to justify its market cap, it is important to keep its addressable market as large as possible while also keeping it fuzzy, since, even if it does not need to tap equity markets in the same way it used to, Tesla still needs to do more than just sell cars to justify its market cap. Suppose, for example, that Tesla grows its vehicle sales by 50% each year through 2030 in order to maintain a net margin of 15% and a price point of $50,000 per vehicle. It would still require you to apply a discount rate of 2% - half the 10-year Treasury yield - in order for today's valuation to make sense, even though Tesla is expected to account for a third of the global passenger vehicle market by the end of the decade. In order to fine-tune that process, solar roofs, robotaxis, and artificial intelligence all play a part.

‍

The market capitalization of Tesla remains $600 billion below the peak reached 15 months ago in spite of Tesla's stock nearly doubling since the start of this year. Tesla announced its investor day, during which MP3 will be presented, on January 2, the same day it released disappointing sales figures, rounding out a year during which the stock plunged due, in part, to Musk himself selling heavily in the stock market. Whatever the reason, the news that a new, comprehensive plan is on its way is a helpful balm that comes at just the right time.

‍

The immediate priority the company faces in order to sustain Tesla's valuation is fairly banal regardless of the actual Master Plan that gets laid out at some point in the future. 

‍

As you may remember, Tesla, when it released its results for the year 2022, said it aimed to make 1.8 million cars this year. Even though that is just 31% higher than last year, it would still be enough for Tesla to meet the 50% compound annual growth target it set in early 2021 - something Tesla made a point of emphasizing in its announcement that it would be doing so. It followed a steep decline in Tesla's stock and an increasing concern about the company's demand after weak sales figures and Tesla's resort to price cuts that raised concern about demand. 

‍

Musk's more upbeat remarks on the call about margins expanding and producing 2 million cars this year may have contributed to the subsequent bounce in the stock. Also, similar beaten-down tech stocks and Bitcoin have rallied in the new year. If Tesla wants to maintain its optimism, it must demonstrate that it can buck the most common ills of the automotive industry - a slowdown and price competition. 

‍

In addition to that, it also means demonstrating progress on new products that have been developed. It is not only the long-delayed Cybertruck that is likely to be expensive but also a cheaper vehicle that will be sold to the mass market. The latter is crucial to the accomplishment of any loftier goal of achieving the energy transition on a massive scale and was, after all, the main objective of that original Master Plan 17 years ago. It is likely that we will hear a lot about that on March 1, along with all the other outlandish stuff that will accompany it. There is no doubt that Tesla's current lineup will have to deliver if it is going to maintain its valuation by the end of this year. As far as the Master Plan is concerned, it is not rocket science or robotaxi science that counts. It's just a matter of selling more cars, that's all.

‍