Last night, Tesla CEO Elon Musk posted his anticipated Master Plan, Part Deux – an even more grandiose vision of the world according to Musk than the first. The plan includes heavy duty trucks, urban transport vehicles, sharing of autonomous cars and further justification for Tesla’s proposed bailout of SolarCity – another Musk family venture.
At this point, I can’t tell if he’s a public relations genius or we’ve all become so easily distracted that it just seems that way. Whenever shares of Tesla tank on a rash of legitimate bad news, all it takes is a feel-good tweet from the master showman to get the stock soaring again.
When a downright dismal December quarter and outlook wiped out 40% of Tesla’s market cap early this year, Musk tweeted that the company would be accepting down payments for its lower-cost Model 3 in seven weeks. Sure enough, the stock nearly doubled before that event even took place.
And after a string of bad news (another rough quarter, missed delivery targets, a fatal Autopilot crash and the dreaded SolarCity bailout proposal) got analysts and investors all worried, Musk again took to Twitter, this time to let everyone know he was working on the aforementioned sequel to his “secret” master plan.
Working on Top Secret Tesla Masterplan, Part 2. Hoping to publish later this week.— Elon Musk (@elonmusk) July 10, 2016
Sure enough, that got investors and the media buzzing … as planned.
ICYMI, Musk’s original plan for Tesla was published in August 2006. It described his vision to help accelerate our move from hydrocarbons to sustainable energy by building a range of electric cars and power generation options. A lot has happened over the decade since, but contrary to his claims in Part Deux, it has not gone according to plan.
For one thing, Musk actually said, “The second model will be a sporty four door family car at roughly half the $89K price point of the Tesla Roadster and the third model will be even more affordable.”
In reality, the Roadster MSRP starts at $101,500, the Model S at $71,500 and the Model X at $80,000. Meanwhile, the average transaction price of the Model S is said to be about $105,000 and the Model X is even higher. So in terms of pricing, Musk was off by at least a factor of two: a little less by list price, a lot more by actual sale price.
The next part of the plan was about funding: “In keeping with a fast growing technology company, all free cash flow is plowed back into R&D to drive down the costs and bring the follow on products to market as fast as possible.” It went on to explain that “the master plan” is to use sales from one model to fund the next, and so on.
That turned out to be even more flawed than the pricing model. In reality, Tesla has never been profitable or cash flow positive from operations.
The problem is that Musk drastically underestimated the time and cost to design and build vehicles. As a result, each model runs about two years behind schedule and is funded, not by sales of the previous model, as originally planned, but by new debt, stock offerings, and, to a lesser extent, customer down payments. More on that in a bit.
Which brings us to the much hyped Model 3. If Tesla can’t stay on schedule or make money selling tens of thousands of luxury cars to rich people, you’ve got to wonder how it’s going to become a trusted supplier of hundreds of thousands of reasonably priced vehicles to the masses without drowning in debt. At least that’s what I wonder.
Don’t get me wrong. Musk is a very smart guy with a purpose. He puts his money where his mouth is. He’s got showmanship in his blood. And, as CEO of two companies, he’s definitely a very hard worker. Those are all important qualities for an entrepreneur and he has them in spades.
As for planning and execution, forget it. His track record has been abysmal. He’s the ultimate “fake it ‘til you make it” model for the personal branding generation. Which explains all the hoopla over part two of Tesla’s master plan. As I see it, it’s pure showmanship. And it reveals more about Musk’s real plan than anything he put in writing.
Tesla’s ability to grow and scale is entirely dependent on Musk’s ability to raise debt, sell stock and get customer deposits on future cars. And the basis for all that is the market’s perception of the value of the company and its CEO. It’s based on the company’s and Musk’s brand value. It’s based on showmanship.
That may not have been Musk’s original plan, but it certainly appears to be the current one. And as far as that goes, he’s executing flawlessly. The question is, can he keep it up indefinitely without investors and customers realizing that, the minute they stop believing in the brand, the model comes crashing down? At least that is my prediction.
We’ll have to wait and see. One thing’s for sure. You’re not going to see any of that in any of Musk’s tweets or master plans.