Elon Musk’s 2006 “secret master plan” was basically to build a fancy, expensive electric car, then build a less expensive, upscale electric car, and then build an even less expensive, family electric car.
“While doing above, also provide zero emission electric power generation options,” Musk wrote, almost as an afterthought. “Don't tell anyone.”
The gist of his “Master Plan, Part Deux”: Save the planet. He just didn’t mention how.
Musk stated that “we must at some point achieve a sustainable energy economy or we will run out of fossil fuels to burn and civilization will collapse,” and then went on to list four primary ways that Tesla plans to promote sustainability:
- Create “stunning” and seamlessly integrated solar-plus-battery-storage products.
- Expand Tesla’s electric-vehicle product line to address all major segments -- this includes the Model 3, a future compact SUV, and a new kind of pickup truck, as well as a heavy-duty truck and high-passenger-density urban transport.
- Develop a self-driving capability that is 10 times safer than the U.S. vehicle average “via massive fleet learning.” And as the technology matures, Tesla vehicles will have the necessary equipment “to be fully self-driving with fail-operational capability, meaning that any given system in the car could break and your car will still drive itself safely.”
- Self-driving Tesla vehicles will be enabled for car-sharing so they can make money for their owners when the owners aren’t using them.
The plan shows that Musk is thinking beyond how to improve on individual products, to how he can disrupt entire systems. He’s thinking about how he can revolutionize the way people consume energy.
In what could be a testament to Tesla’s shift beyond the automotive sector, the company’s website URL changed this week from www.teslamotors.com to simply www.tesla.com.
“With the Master Plan, Part Deux, Elon Musk has shown us a glimpse of what the future of solar plus EVs plus storage could look like,” said Ravi Manghani, energy storage analyst at GTM Research. “It will involve customer turning into a 'prosumer,' not just of energy by deploying distributed solar-plus-storage, but also a prosumer of transportation services. It shows the path that Tesla is daring to take as a technology vendor, a service provider and eventually also as a platform provider.”
The path is daring -- but the plan is also kind of obvious. And Musk offered very little detail.
Solar + storage
It comes as no surprise that offering an integrated solar-plus-storage package is at the top of Musk’s to-do list in light of Tesla’s recent announcement that it wants to acquire SolarCity. Wall Street has been critical of the acquisition deal, but Musk believes major Tesla investors will back it.
There are legitimate concerns about the acquisition. Analysts believe the proposed $3 billion deal could put financial strain on both companies and add pressure for them to raise more capital. Some analysts also believe the overlap between the two companies is limited, view the deal as a SolarCity bailout, and worry the purchase could be a distraction as Tesla battles its own production hurdles.
But, from a consumer perspective, the strategy makes sense. The idea is to build and scale “a smoothly integrated and beautiful solar-roof-with-battery product. […] One ordering experience, one installation, one service contact, one phone app.” Musk also wrote that the fact Tesla and SolarCity are separate companies at all today, given their shared overarching goal of advancing sustainable energy, “is largely an accident of history.”
Musk tweeted a follow up that said, “Both should have been done under the same corporate umbrella from the beginning.”
Since Musk wrote his first master plan, U.S. solar PV system pricing has fallen by more than 70 percent. And since 2010, technological innovation and manufacturing scale have allowed lithium-ion battery costs to drop by more than 75 percent. As technology costs continue to drop, there is a growing opportunity not only to sell more distributed energy resources, but also to aggregate them to offer grid services.
But for all that he has riding on the acquisition, Musk offered surprisingly little detail on what the deal would bring. He just said that Tesla and SolarCity can’t create an “integrated and beautiful solar-roof-with-battery product” if they’re separate. In the two short paragraphs of Musk’s energy generation/storage section, the plan says nothing about the capabilities this product would have, nor about the kinds of customers it would serve.
Earlier this year, Tesla confirmed it had discontinued its 10-kilowatt-hour backup battery and would focus on its 6.4-kilowatt-hour home battery product. A few weeks prior, Musk told Tesla enthusiasts that a version two Powerwall product would be coming to market this summer which would offer a “step-change” in capabilities. The plan makes no mention of what the new product will be.
Musk did say he wants to build a solar-plus-storage system that empowers individuals to act “as their own utility,” which would seem to be at odds with Tesla’s utility-scale storage product strategy that Musk championed at the investor-owned utility annual convention last year. It also seems to conflict with, or at least ignore the grid services energy storage business SolarCity is spearheading.
“At its core, Tesla has been a technology company, and even with the potential acquisition of the increasingly vertically integrated SolarCity, it will continue to be largely a technology manufacturer,” said Manghani. “In order to position itself as a truly sustainable energy company, it will likely have to excel at serving a much wider end-customer base.”
The master plan offers little information on this aspect of Musk’s energy company strategy.
Autopilot + sharing
Another obvious topic Musk addressed is autopilot. The new plan comes as federal officials investigate an accident that took place in Florida on May 7, when Tesla enthusiast Joshua Brown was killed while driving his Model S in autopilot mode. It’s the first fatal accident to involve a vehicle with self-driving features. After two subsequent crashes took place involving the autopilot system, the U.S. Senate asked Musk for a briefing.
This series of events has put Tesla on the offensive. The company recently challenged an article by Fortune and dug into its data trove to prove that autopilot was not enabled in one of the crashes.
Musk has expressed his condolences for the accidents, while fiercely defending Tesla’s technology. In his new plan, Musk noted that Tesla’s autopilot technology is still in its early stages, but contends it is “significantly safer than a person driving by themselves.” The plan doesn’t offer much more than that.
Musk has commented via Twitter on how autopilot could continue to improve. But given that consumer groups are actively lobbying to get Tesla to disable its autopilot program, the master plan seemed like a good opportunity to discuss the upgrades coming to Tesla vehicles in more detail.
Assuming the technological hurdles are overcome, Musk teased that Tesla would make self-driving busses and offer a shared-car service -- a dream for young urbanites, many of whom would prefer to avoid car ownership and skip driving altogether.
Before Part Deux was published, analyst Adam Jonas wrote, "We believe the missing piece could be an on-demand mobility service that complements Tesla’s skills in electric and autonomous vehicles.” Jonas anticipates that Tesla will launch a 5,000-vehicle “mobility service” by 2018, as personal cars continue to fall out of favor, Bloomberg reports.
“The auto industry is in the early metamorphosis from [a] privately owned model to a public transport utility," Jonas wrote.
Other automakers are also getting in on the public mobility trend. General Motors has invested in Lyft, Ford is testing car-sharing technology, Apple invested $1 billion in the Chinese ride-sharing company Didi Chuxing Technology Co., and BMW is believed to be pulling back from its i series electric vehicles to focus on making Level 4 autonomous driving cars.
Jonas was right -- Musk’s master plan addressed the topic of Tesla becoming a public transport utility. But with growing competition in the space, how will Tesla differentiate? How will the company make money? What will Tesla’s shared car look like? Mercedes notoriously designed an autonomous concept car that’s set up like a living room; what does Tesla have in mind? How will Tesla start to engage with the car-free community as it focuses on building out hundreds of thousands of Model 3s?
The factory
Another eyebrow-raising tidbit in Musk’s master plan pertains to manufacturing. The CEO noted that Tesla has transitioned to focusing heavily on “designing the machine that makes the machine -- turning the factory itself into a product.” A disruption in the manufacturing space could be the key to realizing Musk’s master plan given the company’s big ambitions and repeated setbacks. But the blog post only hints at what Tesla is trying to do.
Tesla’s focus to date has been on speed, and that approach hasn’t always worked well for the company. Tesla has repeatedly struggled to meet its production timelines. Musk has admitted that the complex and “perfectionist” Model X design has been the source of several issues. Some question whether Tesla has the ability to produce 500,000 vehicles in 2018 -- two years earlier than originally planned.
Last quarter, Tesla delivered 14,370 vehicles, missing its forecast of 17,000. Tesla says production is back on track. Still, the miss makes it difficult for the company to meet its target to deliver 80,000 to 90,000 vehicles this year, and could cause some to question if the company has the bandwidth to take on a solar installer.
In response to Tesla's Q2 results, Deutsche Bank’s Rod Lache maintained his price target of $290 per share, but adjusted his 2016 estimate from a profit of $0.09 to a loss of $0.42.
"At a high level, while we are modestly disappointed by the number, we are not shocked,” Lache wrote. “This is not the first time Tesla has missed an aggressive target. Tesla has admitted to over-reaching on the complex design of Model X, and they are paying the price. Aggressive plans (for expansion, production, vertical integration, new markets, and features such as Autopilot) are part of Tesla’s DNA.”
Interestingly, when Lache wrote his investor note earlier this month, he remarked that better insight on Tesla’s business strategy is central to the company’s stock performance.
“We currently see at least three significant drivers for the stock: 1) Increasing visibility into TSLA’s business plan; 2) Re-focusing Tesla’s strategy on execution of this plan (most investors, and we suspect most Tesla customers, have not yet signed up to all aspects of management’s plans for a broadly defined sustainable energy company); and 3) Achieving execution milestones (i.e., production, cash flow),” he wrote.
Following the release of the master plan, Tesla’s stock ticked up in after-hours trading then dropped when markets opened. At midday Eastern Time, the stock is down roughly 3 percent from Wednesday's close.