Tesla Motors Inc (NASDAQ:TSLA) CEO Elon Musk announced a grand new Master Plan this week on the company’s website, but it landed with a thud. TSLA shares are off 2% in Thursday’s trading as a result.
Don’t get me wrong: No part of the broader plan is without appeal. TSLA has a vision of solar panels powering self-driving cars — a low-carbon economy that saves the Earth.
But the problem is in the details, and the fact that it distracts from the original master plan that has guided Tesla to this point.
And there is a number in the way: 18,345. That is the number of vehicles Tesla produced during the second quarter of 2016. TSLA insists it can produce 100,000 cars this year, but the number 18,345 shows that the company has a long way to go.
Tesla’s Performance Depends on Execution
“Having just a vision’s no solution, everything depends on execution,” wrote Stephen Sondheim in his musical Sunday in the Park With George. “Putting it together, that’s what counts.” This is as true for making cars as making musicals.
Elon Musk is no fool. He knows the game. Musk has reportedly been sleeping in a sleeping bag at the end of his production line. Tesla’s two top production people have left and been replaced by a former Audi executive.
In short, TSLA stock is in trouble, and Musk knows it.
The Value of TSLA Stock Has No Relation to Performance
The market decided early this decade that making cars is passe. Most car companies are selling for bargain-basement prices. You can get Ford Motor Company (NYSE:F) for six times earnings, and General Motors Company (NYSE:GM) for five times earnings. Both have strategies to deal with the need for electric cars and autonomy.
The world’s car companies produce over 68 million cars each year. Yet Tesla is worth almost 75% of GM and Ford while hoping to make 100,000 units?
Changing the Subject
Musk has responded to these market realities by changing the subject. Suddenly SolarCity Corp (NASDAQ:SCTY) — the money-losing solar panel maker run by cousins Lyndon and Peter Rive — is an integral part of the Tesla plan.
Musk wants to create a “smoothly integrated and beautiful solar-roof-with-battery product that just works,” then bring it to a large scale. The problem?
“We can’t do this well if Tesla and SolarCity are different companies, which is why we need to combine and break down the barriers inherent to being separate companies. That they are separate at all, despite similar origins and pursuit of the same overarching goal of sustainable energy, is largely an accident of history. Now that Tesla is ready to scale Powerwall and SolarCity is ready to provide highly differentiated solar, the time has come to bring them together.”
Suddenly it all makes sense!
Bottom line? There’s a reason TSLA stock is down today, and that’s because the new master plan doesn’t appear to address many of the problems investors were more concerned about.
So look at that production number closely, and when it starts meeting the company’s claims, then you might consider the new vision, and decide whether to buy Tesla.
Meanwhile, let TSLA stock fall to Earth, and see if it has a parachute.
Dana Blankenhorn is a financial journalist who dabbles in fiction, his latest being The Reluctant Detective Travels in Time. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn.
