The risk of overconfidence for Tesla is now at its highest point since the company was founded.
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 auto industry.
The loss of laser focus
Tesla Model 3
(A Tesla Model 3 sedan.REUTERS/Joe White/File Photo)
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 manufactured.
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?
FILE PHOTO -- An Autonomous trucking start-up Otto vehicle is shown during an announcing event in Concord, California, U.S. August 4, 2016. REUTERS/Alexandria Sage/File Photo
(Otto's self-driving semi.Thomson Reuters)
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.
Tesla Detroit sales vs market cap
(The "Big Four?"Andy Kiersz/Business Insider)
Accordingly, Musk wants to make sure that Tesla plays in that 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 vehicles annually.
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 firms.
Elon, meet Optimus Prime
optimus prime transformers
(Not a Tesla. Yet.Paramount Pictures)
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 or Tesla.
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 apparent.
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
spacex founded 2002 mariachi band elon musk
(These guys will take us to Mars.Elon Musk/SpaceX)
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.
