Tesla’s Elon Musk: Master of Hyperbole

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Call me old-fashioned, but I come from the school of thought that CEOs of public companies shouldn’t just make things up as they go, especially when it comes to material aspects of their business.

Case in point: Tesla CEO Elon Musk.

Musk is a beloved entrepreneur, no doubt, but he’s also a master of hyperbole. Besides fueling a soap opera-like drama over whether he’s actually a Tesla cofounder -- eerily similar to the same controversy at PayPal -- Musk tends to breath an awful lot of his own exhaust fumes.

When it comes to making predictions about almost anything that matters -- launch dates, production volumes, and profitability -- Musk consistently overpromises and under-delivers, and not by small measures, either. He’s often wrong by years and integer factors, if not orders of magnitude.

While he admits to being “too optimistic” and having “a problem with punctuality,” that doesn’t really cut it, at least not for me. It implies that his claims eventually come true, if not just a little on the late side. That’s anything but true. Let’s get a little perspective on what Tesla’s famously optimistic leader had to say at a conference last week in Detroit:

The Model X SUV will launch this year at about the same price as the Model S.

The Model X was originally slated to begin production by the end of 2013 and customer deliveries in early 2014. After several delays, Musk said in his most recent shareholder letter, “we now expect Model X deliveries to start in Q3 of 2015, a few months later than previously expected.”

Sure, and at least a year and a half later than originally expected.

As for the price, in 2006 Musk said the Model S would be “roughly half the $89K price point of the Tesla Roadster and the third model will be even more affordable.” Well, the Roadster ended up at a base price of $110K. And while the MSRP of the Model S is in the $70-90K range, the average transaction price is said to be nearly $105,000.

No matter how you look at it, the Tesla S is selling for roughly twice what Musk originally said it would. I guess we’ll have to wait and see about the Model X but I wouldn’t be surprised if it’s actually priced higher than the Model S instead of lower.

The Model 3, Tesla’s first affordable car, will ship in 2017 priced below $30,000 including government incentives.

According to design head Franz von Holzhausen, Tesla’s third generation car will be “an Audi A4, BMW 3-series, Volkswagen Jetta type of vehicle that will offer everything: range, affordability, and performance … at a starting price of $30,000 … where we can bring all this excitement and technology to the average consumer."

Morgan Stanley reportedly expects the base price of the Model 3 to be $35-40,000 with an average transaction price of $60,000. This, I guess is the new Tesla math:

Priced below $30,000 = starting price of $30,000 = average transaction price of $60,000.

As for delivering on schedule in 2017, given Musk’s optimism and issue with punctuality, I think it’s safe to say the Model 3 will be available to consumers sometime before the end of the decade.  

The company will have annual sales of 500,000 vehicles by 2020 and a few million by 2025.

Since ramping production has always been and continues to be Tesla’s core problem and it took 12 years to produce 35,000 vehicles per year, the idea that it can grow 14 fold in just 5 years seems a bit far-fetched. And that assumes the demand is there -- an enormous leap for a new luxury product with the limitations of an electric car.

The second half of that statement, however, is where Musk leaves the land of far-fetched and arrives in crazy town. Here are some facts:

The largest automakers in the world, Toyota, GM, and Volkswagen each sold between 9 and 10 million vehicles worldwide in 2013. I don’t know how many models of cars, trucks, SUVs, and crossovers that includes but I’m pretty sure it’s a lot more than the four Tesla has planned.

BMW, the world’s top luxury carmaker, sold less than 2 million vehicles worldwide in 2013. If you assume when Musk says “a few” he means “three,” that would put Tesla in the top 10 global automakers just behind Honda and Hyundai and well ahead of BMW, Audi, Mercedes, Mazda, Kia and dozens of other brands.

It’s OK to dream big, but seriously, the chief executive of a public company should call it what it is, a dream. What it’s not is a production forecast.

Tesla will be profitable by 2020.

Musk has been talking about Tesla’s profitability for as far back as I can remember, and while the company gets an average of $100,000 plus per vehicle and hundreds of millions of dollars in government subsidies including California zero-emission credits, it still can’t make a profit.

Musk recently said the company could be profitable today if not for its ambitious growth targets. Maybe I’m missing something but isn’t that the same tradeoff every company faces? That’s like saying the company can make money today if it didn’t have to put enormous batteries in the cars.

The truth is, Tesla faces several significant growth and profitability hurdles:

For one thing, there’s the chicken and egg problem of needing lots of power stations to sell lots of cars and vice versa.

Tesla also needs affordable models to substantially grow but electric cars are expensive to make. Batteries aren’t cheap. No matter how many you produce it’s still an added expense versus gas-powered cars. They’ll always cost a premium.

Lastly, it’s hard to imagine an all-electric car company going mainstream. Consumers like having choices and a car you have to plug in and suffer range anxiety over is anything but a slam-dunk. Even if the demand for electric cars is there, you can bet the big guys will be all over it. It’s not as if Tesla’s the only game in town.

If the whole world goes crazy and goes all electric, then maybe, just maybe, Tesla might become more than a niche car company. But then, that’s in the real world, not the hyperbolic one Elon Musk lives in.