Tesla Motors CEO Elon Musk finally released the much-anticipated part two of his masterplan for the EV manufacturer, and there was pretty much only one surprise: an electric semi. In general, the sell-side isn’t too impressed with the plan, with some noting that the plan still lacks color around the planned acquisition of SolarCity. Even one of Tesla’s biggest bulls wonders whether investors will be convinced to dig in for many more years of losses as all of these plans will take billions and billions of dollars.
There were four major points highlighted in Musk’s big masterplan, “part deux.”
Tesla Semi: the one surprise
Analysts agree that the one surprise from Tesla’s new masterplan is the goal of entering the trucking industry with the Tesla semi. However, while bulls and bears agree that most of the plan was worth yawning about, they disagree (unsurprisingly) about the implications of the Tesla Semi. UBS analyst Colin Langan, who has a Sell rating and $160 price target on Tesla, raised an excellent question about range because “imagine the battery needed to make a cross-country trip,” especially when hauling a heavy load.
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However, Morgan Stanley analyst Adam Jonas, who has been one of the automaker’s biggest bulls for quite some time, notes that the plan for a Tesla Semi highlights how management aims to be in every part of the transportation industry. Even he has some concerns about it though as expanding into trucking and freight just increases the company’s execution risk and funding burdens. His colleague, Freight Transport analyst Ravi Shanker, believes the Tesla Semi will trigger “an arms race for intelligent trucks and accelerate the transformation of the trucking industry.” The EV manufacturer expects to unveil its electric semi sometime next year.
Other items included under this point are other new vehicle models, including a compact SUV and consumer-targeted pickup truck, plus a passenger-density bus to target urban areas. Musk has talked about a pickup truck years ago, so there’s really nothing surprising about these suggestions. An electric bus also makes sense, although Tesla faces some very tough competition in the form of Chinese electric bus maker BYD, which already has quite a large head start in the U.S.
Tesla Energy to integrate with solar energy
Musk also said they aim to integrate their Tesla Energy storage products with the solar panel products offered by SolarCity following the merger. This announcement was no surprise, but what was surprising was the lack of details. Since the bid was announced, Wall Street has been clamoring for more color on this combination, especially in terms of synergies, of which there do not appear to be many, if any at all.
Goldman Sachs analyst Patrick Archambault noted that Tesla is still lacking in details on improving the costs associated with storage plus solar products. He said he believes the lifetime cost of solar plus storage will stay above grid prices until the costs associated with storage decline “dramatically” or policy changes such as net metering speed up this transition. He believes it will be five to ten years before the economics on this become “attractive” for residential customers.
UBS’ Langan agrees that the economics of energy storage just don’t make sense for residential customers because of net metering.
Tesla Mobility for vehicle monetization
Morgan Stanley’s Jonas finally got validation on his long-term expectation of a mobility offering from Tesla via Musk’s latest masterplan. Tesla plans to enable owners to monetize their vehicles during the 90% to 95% of the day when they’re not being used. The automaker also plans to build its own fleet for the purpose of ride-sharing, but as Goldman Sachs notes, fully autonomous driving technology will be the driver of both of these ideas.
Jonas noted that Tesla’s CEO didn’t give a lot of details on its plans for a ride-sharing fleet, so he doesn’t have a lot to say about whether it will work. However, he doesn’t believe that an individual vehicle owner “turning his vehicle over to a shared platform to offset costs of ownership” can become “a sustainable part of public transportation.” He noted that a fleet of only one car won’t be able to compete with a fleet of 5, 10 or 50 million cars. He believes “shared autonomous networks” such as the one Musk may be envisioning may end up being a “highly regulated” utility at a large scale.
Goldman’s Archambault also expressed a lack of belief in the part of the plan that involves individual owners renting out their vehicles. He pointed to his firm’s recent survey of about 2,000 drivers who said they wouldn’t even think about lending out their vehicles as part of a ride-sharing program.
Autonomous driving still a focus at Tesla
And finally we have the topic of self-driving cars, which has become an even hotter topic lately in light of the accidents involving Tesla vehicles that were reported to have had the company’s Autopilot system engaged. One of the accidents claimed the life of the driver, and the National Highway Traffic Safety Administration is investigating.
It should be noted that autonomous driving plays an important role in two of the three points listed above. Of course one is the ride-sharing fleet, and the other is electric buses. The automaker believes autonomous driving technology will make buses more efficient by smoothing out traffic flow and allowing for greater passenger density.
How will Tesla fund all of these efforts?
While there were few surprises in part two of Musk’s masterplan, there is a lot of ambition in it, and completing ambitious efforts takes funds. As such, Jonas questions how Tesla will be able to fund all of these ideas, particularly because of how quickly it already consumes cash. He describes the automaker as “a crowd-funded R&D innovation effort focused on transforming two of the world’s largest markets: Energy and Transportation.”
Some would say the first half of that description isn’t exactly flattering, but Jonas noted that Musk has demonstrated a remarkable ability to convince investors to fund his ambitions. He predicts that all of these efforts will likely result in “many years of up-front losses” to bring them all into reality.
For example, he estimates that it takes more than $1 billion to develop just a single new product line. For Tesla Semi and its related infrastructure, it could take multiple billions of dollars, and a small public bus network would require a lot more than that. And let’s not forget that the company still wants to absorb all the losses generated by SolarCity, just adding further to the investment burdens. He questions whether public investors are ready to keep funding all of Tesla’s efforts despite the expectation of many more years of losses, but he thinks the eventual rewards could end up being worth it.
Shares of Tesla Motors declined by as much as 2.89% to $221.76 during regular trading hours on Thursday as investors expressed disappointment by the lack of the “wow” factor in last night’s masterplan unveiling.