The risk of overconfidence for Tesla is now at its highest point since the company
The business news cycle for weeks has been dominated by the
carmaker’s surging market cap, which at about $48 billion has
passed both Fiat Chrysler Automobiles and Ford. For a brief period, Tesla also climbed above
General Motors to become the largest US
automaker by stock valuation.
As I’ve pointed out a few times, Tesla’s $300-plus share price isn’t driven by any
meaningful fundamentals. It’s pure futurism, and anyone
buying in now is betting on a very big payday far down the road
for Musk and his vision. In the short term, Tesla’s traditional
volatility will undoubtedly reappear, so the question isn’t
whether Tesla’s stock will fall, but how far.
The company itself didn’t ask for a fat market cap or to be
counted among what observers are now calling the “Big Four” US
automakers. Rather, Musk and his team have simply been plugging
away on the fairly unglamorous specifics of execution. The
company continues to increase production and sales of the Model S
sedan and the Model X SUV, but more importantly, it’s gearing up
for the launch of the Model 3, which is slated for
the end of this year.
If Tesla has a major challenge to confront when its comes to the
“real” — as opposed to financially speculative — aspect its
business, it’s that it has so far shown itself to be pretty bad
at carmaking basics. With the high-tech, high-price-tag Model S
and X, this could be forgiven. But with the Model 3, the market
isn’t going to be so lenient. If Tesla hopes to sell 500,000 vehicles in 2018, it needs to get its
assembly lines in order and come up to speed with the rest of the
The loss of laser focus
For much of late 2016 and early 2017, Tesla seemed to be
laser-focused on this mission. The public has already seen the Model 3 — it was
unveiled in March of 2016 — and Musk and his team has lately been
pointing out that the vehicle will be a logically “lesser” Tesla,
crafted from steel rather than aluminum, with far fewer goodies
than the company’s more upmarket offerings.
This all makes perfect sense. Nobody should expect a $100,000
Model S if they’re buying a $35,000 Model 3.
But on Thursday, Tesla lost focus, at a very bad time to do so.
I’m talking about the semi-truck announcement, which Musk made (naturally) via
Twitter, his preferred product-announcement channel.
The semi is part of his “Master Plan, Part
Deux,” which he composed last year. It’s an ambitious
manifesto, taking Tesla from being a low-volume luxury
electric-car manufacturer to being — as far as its transportation
business goes — a purveyor of semis and pickup trucks and the
overseer of a near-total rethinking of how vehicles are
The manufacturing piece, involving a radical level of automation,
is right in Musk’s wheelhouse. He’s concentrating on revamping
the “machine that builds the machine.” The
truck stuff, on the other hand, is the mother of all
distractions. Especially when it comes to the semi.
Seriously, a semi?
The idea that anyone at Tesla is working on a big
freight vehicle is flatly inexplicable. Tesla is currently
struggling to go from about 100,000 vehicles in annual production
to five times that in about 12 months. GM, Ford, and FCA have no
involvement in big freight trucks; their businesses are
focused on the consumer part of the market.
True, electrified and potentially autonomous freight transport is
one of those big gee-whizzy ideas that Silicon Valley’s
solutionists have latched onto. The environmental positives of
taking thousands of diesel-burning semis off the road are
compelling. Truckers might not be too keen on losing their
positions at the wheels of big rigs, but self-driving trucking
startups like Otto are aiming to make that happen.
space. Increasingly, he thinks of Tesla as a sort of platform,
not as a “carmaker” but instead as a provider of sustainable energy, power
storage, and transportation of every type. What’s admirable
about this is that his view of how Tesla should function is
reversed engineered from a distant future. What’s not admirable
is how that vision gums up the present-day execution of what is
at the moment a manufacturing enterprise that’s still very much a
work in progress.
For example, if Tesla hopes to meet Musk’s goal of producing a
million vehicles a year by 2020, it’s going to need another
factory. The company’s Fremont, Calif. plant, when it was jointly
owned by GM and Toyota back in the 1980s, could produce 500,000
A semi-truck assembly line would require a completely different
manufacturing process from what Tesla is now employing to
construct passenger cars. And we haven’t even gotten to the
actual selling of a semi. Tesla would be going into
a global market that in the US is controlled by freight
specialists and one that’s globally dominated by large-scale
Elon, meet Optimus Prime
A Tesla semi would be unquestionably cool, in an
Elon-Musk-meets-Optimus-Prime sort of way. In that sense, if it’s
destiny is to advertise Tesla’s ambitions, terrific. But given
that Musk is talking about revealing the thing around the same
time this year that the Model 3 launches, you have to wonder why
he is so devoted to his Master Plan that he can’t come down to
Earth and remind himself that taking on the mass-market for
passenger cars is the biggest challenge he’s ever set for himself
As someone who’s followed Tesla for a decade, I’m uncomfortable
with the company pushing in so many different directions. There
have always been two Teslas: the company of today and the company
of tomorrow. Far too often, the tomorrow company has controlled
the story, leaving the today company to bring everything crashing
back to Earth when the gap between the two becomes
The stock rally of the first half of 2017 has greatly intensified
the attention given to tomorrow Tesla — because of course a
$50-billion market cap, unsupported by the actually existing
business, is all about faith in the future. For what it’s worth,
Musk himself may view the stock price with healthy skepticism (he
is, despite his disdain for short-sellers, prone to see Tesla’s
value as something of a financial fantasy), the CEO isn’t backing
off from his world-changing vision.
Not your father’s businessman
A flintier business would have none of this, but a flintier
businessman wouldn’t be running another company that wants to
colonize Mars. With Musk, you have to take what you get. If you
were a stock taker back in 2010 after the company’s IPO, you’ve
been copiously rewarded.
But as much money as you’ve made, you’d be right to sound an
alarm about why Tesla can’t seem to maintain its focus at the
company’s most critical times. It almost seems like a dare. All
eyes were on on the Model 3 rollout plan last year when Tesla
announced that it was going to burden its balance sheet by
acquiring SolarCity, for a grand total of about $5 billion
including a huge pile of debt.
The semi-truck announcement last week was more of the same. I
think Tesla might actually launch the Model 3 ahead of schedule,
but launching and producing are two different things. You can’t
sell 500,000 vehicles if you can’t build them. And let’s not
forget that Tesla already has about 400,000 pre-orders, if not
more, for the Model 3.
I’m not sure that any carmaker in history has even confronted
that much unmet demand with so much unrealized manufacturing
capacity. If customers want to buy 500,000 Ford vehicles and have
paid $1,000 a pop for deposits, you can be sure that Ford would
be racing to build those cars.
Tesla is never less than maddening. But talking about semis when
you’re supposed to be ramping up to take on Volkswagen and Toyota
is downright misguided.