BBC Dialogues: Elon Musk’s Ludicrous Plan for Tesla

BBC Dialogues: Elon Musk’s Ludicrous Plan for Tesla

By Alison van Diggelen, host of Fresh Dialogues

Elon Musk continues to make ambitious plans for Tesla Motors, some even call them “ludicrous.” Not content to make a niche product for electric vehicle enthusiasts, he now wants to conquer the mass market, competing in the major leagues against GM, BMW, Ford et al. Musk is promising an annual production of 1 million cars by 2020, a staggering increase from last year’s paltry: 76,000.  Is he insane?

On a conference call with Musk and media colleagues this week, I learned that Musk is still calm and laser-focused on executing his “Tesla Master plan.” This year is crunch time for Tesla. The future of the company rests on the timely and efficient production of the Model 3, Tesla’s smaller, mass market car. Will demand stay strong, despite intense competition and reservation holders threatening to cancel due to his position on Trump’s economic advisory team? Musk seemed to flounder a bit on this question and refused to disclose the latest reservation numbers, for fear of analysts “reading too much into them.”

During the discussion of  Tesla’s 2016 financial results, some anomalies arose.  Despite continuing to make massive losses (due to capital investment in the Tesla Factory and the Gigafactories), its share price is still in the stratosphere. Tesla might produce a small fraction of GM and Ford’s output, but the company is valued on par with them. What gives?

“The recent run-up in Tesla stock has less to do, in our view, with anything around the near-term financials, and more to do with the nearly superhero status of Elon Musk,” Barclays analyst, Brian Johnson.

Superhero status? More ludicrousness…The superheroes Tesla is focused on are the mighty robots on the factory floor. Musk has named them after X-men superheroes, like Cyclops and Thunderbird (see photo above); and they’re the ones that’ll have to earn their superhero status as manufacturing goes into top gear in the next few month.

“Tesla is going to be hell-bent on becoming the best manufacturer on earth.” Elon Musk

The BBC’s Fergus Nicoll invited me on Business Matters to help explain more.

Listen to the full podcast on BBC World Service (starts at 37:30) or the 5 minute clip below:

Here’s a transcript of our conversation (edited for length and clarity):

BBC Host, Fergus Nicoll: Tesla stock has hit record highs, soaring 50% since December. With investor confidence growing that Tesla will deliver its Model 3 on time. Let’s explore this with Alison in Silicon Valley. Before we get into the nitty gritty of Model 3, and the other numbers, I know you watched Elon Musk do the webcast that go with the Q4 figures. What kind of presentation did he come up with?

Alison van Diggelen: I listened to the (live conference call) podcast. Elon Musk was on the podcast with his (retiring) CFO, answering questions from the media. They were generally upbeat. Elon Musk always over-promises how soon his vehicles will be delivered, but he is confident that they’re going to start deliveries of their Model 3 in July of this year, for employees first…beta testing for employees. He’s hoping for the mass rollout starting in September of this year. They’re pretty bullish about that.

Fergus Nicoll: Here’s the thing: Tesla has a valuation pretty close to Ford. But compared to Ford it makes about five cars! So what are we seeing? A massive future priced into that?

Alison van Diggelen: That’s right. Last year, Tesla delivered 76,000 vehicles (compared to Ford’s 2.5 million), but Elon Musk is very bullish. He’s aiming for the factory to produce 500,000 cars by the end of 2018, and one million a year by 2020. He’s ludicrously ambitious. Brian Johnson, who’s an analyst with Barclays, called this run up in the Tesla stock more “Elon Musk superhero status” than short term financials. What Elon Musk says, he often delivers….eventually.

Tesla merged with SolarCity, the rooftop solar provider, so that is also giving an upside. They’ll be able to cut costs: Tesla showrooms will also become showrooms for the SolarCity solar panels. They’re also doing the other side of the equation: energy storage….

Fergus Nicoll: The household and business batteries.

Alison van Diggelen: Exactly.

Fergus Nicoll: The thing is, Americans drive insane distances. Electric cars have to go a long way….the infrastructure has to catch up with the company?

Continue listening to the podcast clip above, or at BBC Business Matters for more about:

The ambitious supercharger network expansion

The fact that all cars will be equipped to be fully self-driving

Why the market continues to bet on Elon Musk

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For Tesla to succeed in becoming “the best manufacturer on earth,” three big questions remain:

  1. Will the Tesla Model 3 be delivered on time and on budget this year?
  2. Will demand stay strong for Tesla, despite stiff competition from GM, Ford, BMW, Nissan, etc?
  3. Can Tesla make the huge capital investment required (for the Tesla Factory and Gigafactories expansion), without running out of money?

Read more about Tesla and Elon Musk from Fresh Dialogues archives