Tesla master plan fails to impress investors, analysts

Michael Wayland
The Detroit News

Challenging, vague and void of any clear strategy to become profitable are some of the criticisms of Tesla Motors Inc.’s new “Master Plan” released Wednesday night by CEO Elon Musk.

Auto analysts and Wall Street investors, many of them friendly to Tesla’s leader in the past, responded largely with skepticism to “Master Plan, Part Deux”.

“The main thing that was missing was any type of commitment to shareholder return or to actually become profitable,” said Dave Sullivan, AutoPacific manager of product analysis. “If you have shareholders, you have an obligation to them. ... There was no discussion on how to become profitable.”

Tesla shares were down all day Thursday, closing at $220.50 per share, off 3.4 percent.

The plan, which Musk had teased on social media for more than a week, included expanding its vehicle lineup into all major segments including pickups, SUVs, mass-transit and heavy-duty trucks — all of which would eventually be self-driving. He also said Tesla’s plans include its consumer vehicles working as autonomous taxis when the owner isn’t driving.

Musk further announced his intentions to combine the automaker with SolarCity — a solar panel company of which Musk is chair and leading shareholder — into a cohesive company delivering solar power and energy storage.

The SolarCity plans were met with skepticism when announced last month. Tesla has never reported a net profit selling high-end luxury electric vehicles, and there is doubt that a move to solar will help get Tesla into the black.

“Separately, while we think Tesla’s new master plan may build a long-term technological monument, we think it will create a short-term cash flow sink hole,” Efraim Levy at S&P Global Market wrote in a research note to investors. “Musk’s new plan changes the investment thesis from an automotive technology leader heading to the mass market with self-driven sustainable profitability, to a company that will continue to dilute value for existing shareholders.”

S&P Global, formerly McGraw Hill Financial, lowered its 2016 earnings per share estimate by 30 cents to 40 cents and next year’s by 70 cents to $2.90, due to reduced revenue expectations.

Not all analysts responded negatively to the plan. Morgan Stanley’s Adam Jonas, a longtime bull on Tesla, said the plan did not change his views or $245 stock price target.

“Given the company’s rate of cash consumption, to put this innovation into action, Tesla must fund the plan with large amounts of external capital,” Jonas wrote in a note to investors. “Tesla management have demonstrated a strong ability to convince investors of the validity and scope of its business and technological ambition.”

Jonas said the plan “is pretty darn down the middle of the fairway of our expectations. With one exception: Tesla Semi.”

Musk said Tesla plans to unveil its “heavy-duty trucks and high passenger-density urban transport” in 2017. He said both are in early development.

He did not give a time line for the products. It’s been 10 years since Musk released the company’s first plan in August 2006 that loosely outlined its current products and the Model 3, which is due out by the end of next year.

The new plan does not address how the company will fund its ambitious strategies or any update on how the automaker plans to increase production to 500,000 vehicles annually by 2018 — two years ahead of schedule and a more than five-fold increase in its expected production for 2016.

Tesla, which has been notoriously late on product launches, has had to fight with several states to even sell its current Model S sedan and Model X. The company has a direct-sales structure that forgoes franchised dealers; that practice is illegal in Michigan and several other major sales markets.

“How are you going to sell it? This is the single biggest thing that nobody has the answer to,” said Kelley Blue Book senior analyst Karl Brauer. “I just don’t see how, even if he can scale production to half a million, I don’t know how you scale sales.”

Tesla, Brauer said, has been in a “rarefied air.” That is eroding as more automakers with already-established national and global dealership networks — including General Motors Co. — offer more all-electric vehicles with 200-plus mile ranges.

Tesla missed delivery targets in the second quarter, making it unlikely to meet expectations for delivering 80,000 to 90,000 vehicles this year. The company will release second-quarter earnings Aug. 3.

The new master plan follows weeks of negative publicity for Tesla involving its beta Autopilot system. A fatal accident in Florida prompted federal officials to open investigations into the semi-autonomous driving feature that uses cameras, radar and computers to detect objects, automatically steer and adjust speed, and brake if necessary. At least two federal agencies have opened investigations.

“A lot of this plan, timing and discussion seemed to be a potential effort to distract some of the negative headlines the company has suffered the past two months,” Brauer said.


Twitter: @MikeWayland