“I have a dream…” - Elon Musk and Tesla's Master Plan

Peter Els
Posted: 08/10/2016

Almost fifty three years after Martin Luther King’s “I have a dream” speech, another American has captured the world’s imagination with his dream of a better world. This modern day prophet, Elon Musk, first shared his latest vision, simply titled “Master Plan, Part Deux”, on the Tesla blog on July 20, 2016.

With part 1 of the dream less well known, Musk was careful to point out that the reason he had to start off with step 1 was that it was all he could afford after having sold PayPal. 

Ever mindful that the list of successful car company startups in North America is short, Musk was determined that Tesla would survive and grow as an independent OEM. Interestingly, as of 2016, only two American car companies haven't gone bankrupt; Ford and Tesla. 

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“Starting a car company is idiotic and an electric car company is idiocy squared.”

With this in mind Musk formulated the original master plan explaining how a seemingly random business would form part of the larger objective, which has always been to accelerate the advent of sustainable energy. “That's what sustainable means. It's not some silly, hippy thing, it matters to everyone,” he enthuses.

Driven by this vision of a sustainable energy economy Musk finally penned his first masterplan setting out the following objectives:

  • Create a low volume car, which would necessarily be expensive
  • Use that money to develop a medium volume car at a lower price
  • Use that money to create an affordable, high volume car
  • Provide solar power

Somewhat unexpectedly, this little startup headquartered in Palo Alto, California, has managed to overcome fiery crashes, the first fatal self-driving accident and resistance from several dealers, claiming unfair sales practice, to begin chapter two of the revolution. 

Sustainable master plan, Part Deux!

While the first master plan mostly dealt with fairly straightforward goals, creating low-volume electric cars and selling them, the second part of the plan aims for more tenuous goals, some of them even unrelated to designing and building cars.

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In a post on the Tesla blog on July 20, 2016 Musk summarised the objectives of chapter two as follows:

  • Expand the electric vehicle product line to address all major segments
  • Develop a self-driving capability that is 10X safer than manual via massive fleet learning
  • Enable your car to make money for you when you aren't using it 
  • Create stunning solar roofs with seamlessly integrated battery storage

While Musk was light on detail, his goal of expanding the EV lineup to include a SUV, a pickup truck and a semi-truck and bus, has the industry abuzz with speculation around the viability of this grandiose vision.

According to Michael Tracy, a manufacturing expert and president of The Agile Group in Detroit, the costs of developing this model lineup would be crippling: The SUV and pickup could cost $500 million to $750 million each for components and production equipment, assuming they borrowed elements from the automaker's current vehicles. Moreover, the development and production of an electric semi-truck and bus could cost up to $500 million, according to Mark Wakefield of AlixPartners.

Furthermore, being known as a disrupter Tesla would be in the unusual position of having to play catch-up to the likes of Daimler AG and PACCAR Inc., both of which are participating in a U.S. Department of Energy "Super Truck" program to build a more efficient heavy truck. 

However not all analysts agree: Morgan Stanley’s Adam Jonas believes "intelligent" trucks that use automated driving technology to enable vehicles to run around the clock, and operate in closely-packed platoons, could cut shipping costs by 30 to 50 percent from current levels, thereby allowing a manufacturer to rapidly ramp up production to meet demand.

With autonomous driving technology being pivotal to the master plan, Musk plans to continue development of fully-autonomous vehicles with regulatory approval. Acknowledging that this may take some time, Musk explained why Tesla has taken the decision to deploy partial autonomy now, rather than waiting until some point in the future: “The most important reason is that, when used correctly, it is already significantly safer than a person driving by themselves and it would therefore be morally reprehensible to delay release simply for fear of bad press or some mercantile calculation of legal liability."

Looking at a scenario, perhaps ten years from now, when true self-driving is approved by regulators, Musk believes it will be possible for a passenger to summon a Tesla from pretty much anywhere and be delivered in safety and comfort to any chosen destination.

This part of the plan echoes a direction that a number of other automakers have started moving toward: making money from your car when you are not using it. In the Tesla model owners will be able to add their car to the Tesla shared fleet simply by tapping a button on the Tesla phone app and have it generate income for the owner while at work or even on vacation, significantly offsetting and at times potentially exceeding the monthly loan or lease cost. Since most cars are only in use for 5% to 10% of the day, the fundamental economic utility of a true self-driving car is likely to be several times that of a car which is not.

The costs attributed to dreaming of a better future

Although the benefits of autonomous technology are clear these do come at a cost: Analysts estimate that costs to develop and perfect this technology could exceed $400 million to $800 million.

While these plans may seem radical at least they are aligned with Tesla’s perceived core business of building technically advanced EVs. But this perception does not fit with the maverick tech-industrialist’s proclaimed objective to accelerate sustainable energy: To realise this part of the vision Musk is in $2.6 billion talks to buy SolarCity Corp., which would ultimately transform the youngest U.S. carmaker into a clean-energy and transportation juggernaut.

Nevertheless this move has left many industry observers sceptical; citing Tesla’s heavy capital investments for the future, including completing its massive Gigafactory battery plant in Nevada, as the reason why shares fell 3.4 percent to close at $220.50 shortly after the announcement. Prior to this, the company's shares had risen 5 percent after Musk tweeted that he was working on the second master plan for the company he founded in 2003.

The reaction to “Part Deux” possibly best sums up Musk the visionary and the company he has created: The markets love his dream, but the established financial regime battle to grasp the concept of a new socially responsible economy built on long term profits and eternal sustainability…

Peter Els
Posted: 08/10/2016

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