Musk's Secret, Secret Master Plan for Tesla Is So Obvious

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

The original Master Plan, blogged in 2006 — four years before Tesla listed — read like a standard Silicon Valley bootstrapping pitch: Sell an expensive car to first adopters then use the proceeds to build cheaper cars for a bigger market and so on. Tesla didn't exactly follow that path, mainly because the cost of building a car company means selling the dream to the stock market is more important than reinvesting revenue. But close enough.

The second iteration was more manifesto than plan, mixing defensiveness about the then ongoing, and dubious, SolarCity acquisition with scenarios so blue-sky they bordered on ultraviolet. Seven years on, besides the successful launch of the Model Y crossover, virtually none of it has been achieved. Solar-roof sightings remain rare and Tesla's entire energy business generates less than 5 percent of revenue. The semi truck still lacks public specs and the mooted electric bus is no longer mentioned. As for gaining worldwide regulatory approval for autonomous Teslas that you can then send out as money-earning robotaxis, these are both things that have not happened in the traditional sense.

What did happen, however, was this:

When your company doesn't deliver on virtually all of its stated plans but its valuation nonetheless swells to more than $600 billion (roughly Rs. 49,65,200 crore), it's possible the plan doesn't really matter. Perhaps more precisely, the specifics don't matter.

One of the more amusing aspects of the recent safety recall for 360,000-odd Teslas was Musk's tweeted objection to the word “recall” as being “anachronistic” for over-the-air software fixes. Say what you will, but the man selling pricey driver-assistance 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.

The obvious dissonance doesn't seem to matter. Which is why the point of the Master Plan is simply to have one rather than it serving as a means of accountability on execution. Given that the details of Master Plan, Part Deux add up to mostly fan fiction thus far, Master Plan-à-Trois is likely to require the barest of tweaks to keep the fans engaged. Nonetheless, Musk tweets that it will offer “the path to a fully sustainable energy future for Earth.” And as total addressable markets go, Earth is pretty big.

Keeping that addressable market big and a little fuzzy is useful because, even if Tesla no longer needs to tap equity markets the way it used to, justifying its market cap requires quite a bit more than just selling cars. For example, you could assume Tesla grows vehicle sales by 50 percent a year through 2030, while maintaining an average selling price of $50,000 (roughly Rs. 4,137,800) and a net margin of 15 percent. Even then, with Tesla somehow accounting for a third of the global passenger vehicle market by the end of the decade, you would have to also apply a discount rate of 2 percent — half the 10-year Treasury yield — for today's valuation to pencil out. Solar roofs, robotaxis and artificial intelligence all help finesse that.

Despite Tesla's stock almost doubling since the start of the year, its market cap remains $600 billion (roughly Rs. 49,65,200 crore) below the peak reached 15 months ago. Tesla announced its investor day, when MP3 will be presented, on January 2, the same day it issued disappointing sales figures capping off a year when the stock plunged, in part because Musk himself was selling heavily. Coincidence or not, the promise of a new, sweeping plan is helpfully-timed balm.

On that front, regardless of the actual Master Plan that gets laid out, the immediate priority in sustaining Tesla's valuation is fairly banal.

Recall that when Tesla released its 2022 results, it said it aimed to produce 1.8 million vehicles this year. That would be only 31 percent higher than last year but would still allow the company to meet the 50 percent compound annual growth target it set in early 2021 — something Tesla went out of its way to emphasize in the announcement. This came after a steep decline in the stock and growing concern about demand due to soft sales figures and Tesla's resort to price cuts.

The subsequent bounce in the stock may have reflected Musk's more upbeat comments on the call about margins expanding and the “potential” to produce 2 million vehicles this year. But it also just mirrored a new year rally in similarly beaten down tech stocks and Bitcoin. Back at a premium of 160 percent to the market, Tesla will need to show it can buck that most ordinary of ills in the automotive sector — a slowdown and price competition — if such optimism is to be maintained.

It also means demonstrating progress on new products. Not just the long-delayed, and likely expensive, Cybertruck but a cheaper mass-market vehicle. The latter is critical to any loftier goal of energy transition at scale and was, after all, the main objective of that original Master Plan 17 years ago. We will likely hear much about that on March 1, along with the more outlandish stuff. For it to carry Tesla's valuation through the course of this year, though, today's lineup will have to deliver. The Master Plan that counts isn't rocket or robotaxi science. It's just sell more cars.

"We are planning to grow production as quickly as possible in alignment with the 50 percent CAGR target we began guiding to in early 2021. In some years we may grow faster and some we may grow slower, depending on a number of factors. For 2023, we expect to remain ahead of the long-term 50 percent CAGR with around 1.8M cars for the year."

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