Elon Musk’s third Master Plan turned out to be an appendix to the original Master Plan. Back in 2006, the Tesla Inc. chief executive blogged:
Back at about 4.30 pm eastern time on Wednesday, he said the same thing, at length, with a lot of big numbers: 30 terawatts of renewable energy, 115 terawatt-hours of batteries, $10 trillion of manufacturing investment. And so on. The first part of Tesla’s show-and-tell was, essentially, a TED Talk, providing high-level parameters for that paradigm shift posited 17 years ago. As so often, Musk occasionally wandered off on a tangent or two, including Mars (of course) and even the sheer prevalence of iron on Earth, prompting his observation that we all live on a “muddy rust ball.” A white paper was promised.
Recapitulation is a fine rhetorical device but it isn’t revelation. And Tesla’s equity story thrives on the latter.
That isn’t to say the event was just a total rehash. Not at all. As various Tesla executives took the stage, they dropped a lot of interesting details. Tesla is going all-in on iron-based battery chemistry — mining the muddy rust ball — which is cheaper but, as of today, regarded as inferior. Tesla also aims to dispense with rare earth metals in future motors; another potentially game-changing development in addressing the critical minerals headache for energy transition. On another headache, EV charging, Tesla talked about optimizing it to take advantage of excess renewable power to reduce costs, including a proposed all-you-can-eat overnight charging plan for windy Texas.
There were also several lengthy disquisitions on Tesla’s streamlined manufacturing process and reduction in parts, promising potential cost savings of up to 50% on vehicle build. The latter is critical. Tesla’s implied average selling price in the fourth quarter was about $52,000 with a gross margin of about $12,300, excluding leased vehicles. Getting to a sub-$30,000 Tesla offering true mass-market potential, as envisaged in the original Master Plan, while preserving $10,000-plus margins demands cuts of that magnitude. On this, Tesla faces bigger problems than just the fact that (a) these are, as with most investor presentations, just targets; and (b) Tesla has a habit of overpromising when it comes to investor presentations. The chief problem is that Tesla still hasn’t unveiled this cheaper vehicle. It did keep appearing on various slides as a car-shaped icon swathed mysteriously in a sheet; which is apt because it haunted the entire event.
Tesla needs that car. Recall that the recent rally in the stock simultaneously took Tesla back to a 170%-ish premium to the S&P 500 but kept its market value roughly $600 billion below the peak reached in late 2021. It is simultaneously beaten down and enormously expensive. Even if Tesla meets its medium-term growth target, at industry-beating margins, its current market cap requires sub-Treasury yield discount rates to justify (see this).
Last year’s collapse can be blamed on any number of things — not least Musk’s own massive selling — but the simplest way to think about it is option value evaporating. Belief in robotaxis and all the other Master Plan Part Deux moonshots slipping away, or at least pushed further into the future. A new, cheaper EV would reboot the story. The fact that Tesla didn’t show even a prototype on Wednesday is interesting. It’s not like they waited for a market-ready product before revealing the Model 3, the Semi or the Cybertruck.
While Musk kicked things off with evangelism about transforming the planet, this long, meandering event ended with Zachary Kirkhorn, the chief financial officer, going through a long list of cost saving measures and efficiency metrics. He then announced long-range capital expenditure estimates that were five times everything the company has spent to date in order to achieve, among other things, sales of 20 million vehicles a year (last year’s figure was 1.3 million). That is certainly an aspirational growth target. But it would have come better twinned with a shiny new vehicle rather than a $175 billion spending forecast.
For a company with seemingly magical powers of narrative setting, this was just an oddly low-energy event. Even the big news that Tesla is building a big plant in Mexico — which will apparently also eventually build the next-gen vehicle — didn’t get announced until the start of Q&A, three hours in. There were so many tantalizing glimpses of new platforms, tooling and other technology — and mercifully few mentions of robots. But a Master Plan, in terms of specific, timely objectives, it was not.At the beginning, Musk said “what we’re trying to convey is a message of hope and optimism.” They did, after a fashion. The problem is that the crowd is full of those emotions already, and has priced Tesla for so much more.
More From Bloomberg Opinion:
• Elon Musk Was Right About Rivian Losing Billions: Chris Bryant
• Sorry, Twitter. Elon Found His Next Shiny Object: Parmy Olson
• Musk Has Turned Tesla’s ’Failing’ Into Winning: Matthew Winkler
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Liam Denning is a Bloomberg Opinion columnist covering energy and commodities. A former investment banker, he was editor of the Wall Street Journal’s Heard on the Street column and a reporter for the Financial Times’s Lex column.
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