Tesla Motors, with Elon Musk at its helm, clearly has ambitious plans to permeate the market with viable electric cars. But, investors wonder, is the financial basis for Musk’s far-flung plans sound?
As reported in The New York Times, when Elon Musk announced Tesla’s future plans last week, he did so in a glass-walled conference room surrounded by the auto factory that is changing the world’s perception of electric vehicles. The manifesto consisted of a new strategic plan for Tesla that features provisions for electric buses and car sharing networks for driverless cars, among many other things.
His vision involves the use of solar power, combined with batteries that can store solar and wind power, thereby making the energy generated available for use anytime. The Tesla agenda is fueled by Elon Musk’s sense of urgency over global warming, as quoted in the NYT.
“It’s the most serious thing that humanity faces. It’s the biggest problem in the world. The faster we can transition to low carbon, maybe, ultimately, to a negative carbon economy, the better.”
Tesla Setbacks And Criticism
Elon Musk’s path to a clean energy world, however, has not been without its setbacks. In June, an accident involving a Tesla Model S that crashed into a tractor-trailer while on auto-pilot prompted the launch of a federal investigation.
Critics of the system say the name “Autopilot” is a misleading one, since the driver does have to remain alert to correct the system when something goes awry. Musk, however, notes that the accident represented a single fatality over the 140 million miles that Tesla says have been driven collectively on its Autopilot system.
Some industry observers are less than impressed, however, with Elon Musk’s plans for Tesla overall. A Bloomberg News report headline reads, “For Elon Musk, Tesla’s Impresario, the latest Act Falls Flat.” The article goes on to note that after the media event launching his 1,500 word manifesto for the future, shares in Tesla stock dropped by about 3.4 percent. What’s troubling investors, according to the report, is a lack of attention to the bottom line and no clear plan towards profits.
Tesla’s Gigafactory – And Some Answers
The so-called Gigafactory, currently under construction in the Nevada desert, is a joint project of Tesla and Panasonic. The Gigafactory will produce batteries designed to store solar energy for homes and businesses along with electric cars in a stationary form.
At about $35,000, the upcoming Tesla Model 3 will be more moderately priced than its current offerings, which are focused on the luxury car market. The key to the growth and continued success of Tesla’s electric cars relies on the availability of power to recharge them. That’s the gap the Gigafactory is designed to fill. Elon Musk claims that the factory will be able to support up to 1.5 million electric cars.
On Tuesday, during a media event in Nevada at the Gigafactory factory site, Musk did provide some details on the finances involved. According to a report by CNBC, Musk said the Gigafactory factory – with costs estimated at about $5 billion – will be funded by revenues from the sales of Tesla Model S and X cars, along with some outside capital. The idea of financing more affordable Tesla models based on profits from the luxury models is one that Elon Musk had in mind from his first “Secret Master Plan,” as released a decade ago in 2006.
Elon Musk put the potential profits for Tesla’s upcoming Model 3 auto at $5 billion per year out of overall revenues of $20 billion.
A piece in Forbes Magazine points out that Musk’s figures for Tesla’s profits rest on being able to produce 500,000 cars a year by 2018, and that those production levels depend on the batteries being produced at the as-yet-unfinished Gigafactory.
Ramping up production is key to attaining those goals, and the Gigafactory schedule has been accelerated as result. Part of the factory has already been building batteries since earlier this year. J. B. Straubel, chief technical office and co-founder with Elon Musk of Tesla Motors, spoke to reporters at the media conference.
“There’s a sheer business need for it. Compressing the schedule tends to make things cheaper.”
Elon Musk’s plan is to build similar factories everywhere that Tesla cars are sold, including Europe and China.
[Photo by Rich Pedroncelli/AP Photo]