Autos

Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

The problem with Tesla's "Master Plan, Part Deux" is that it reads less like a plan, more like a manifesto.

The original "Secret Tesla Motors Master Plan", unveiled almost 10 years before Wednesday evening's hotly anticipated blog post, was similarly shot through with co-founder and CEO Elon Musk's soaring ambition. But it did at least read like a plan. That was largely because, beneath the objective of transforming the world's energy-consumption habits, it was a fairly standard Silicon Valley play -- namely, sell an expensive gadget to first adopters and use the money raised from that to build a less-expensive version for yet more customers, and so on. As Musk himself put it in that first version:

Build sports car
Use that money to build an affordable car
Use that money to build an even more affordable car
While doing above, also provide zero emission electric power generation options
Don't tell anyone.

Tesla's new master plan ranges far wider. The overarching theme of pushing the world toward more sustainable energy consumption is still there, but the objectives resting on that foundation are much more diffuse.

Tesla now aims to create a seamless panel-plus-storage energy product. It will also expand its range of vehicles to include a pickup truck and some form of bus for "high passenger-density urban transport." Meanwhile, it will keep developing its autonomous driving features until they are 10 times safer than current U.S. driving conditions -- and can be relied upon so effortlessly that you can summon your car or send it hither to earn you money as a robo-taxi.

In short, Tesla will take on the utility industry, an even bigger swath of the automotive industry, and the likes of Uber.

Similar to something Musk said on last month's call laying out Tesla's rationale for buying SolarCity, fans of Tesla's products will likely welcome the new master plan, while "people who are sort of more finance-focused" may be left squinting and scratching their chins.

That's because, unlike the first version of the plan, but much like what you might hear in Cleveland this week and Philly next week, the new one is long on road but pretty scanty on map. There is not even an attempt to demonstrate how Tesla's expanded mission will be funded.

This really matters because even the first plan hasn't scored well on this front. As Barclays analyst Brian Johnson pointed out in a report earlier this month, Tesla's product sales have covered only $1.7 billion, or 27 percent, of its capital expenditure and research and development needs since 2008. Far more important has been the $6.3 billion raised from selling debt and equity securities.

Fuel Injection
Tesla has sold $3.5 billion of public equity since 2010
Source: Bloomberg

And that, along with the broader environmental vision, looks like the unifying principle in Tesla's new plan. Because Tesla's smorgasbord of objectives reads like that of a Silicon Valley start-up, with heavy emphasis on disruption but also the unspoken promise of burning through copious amounts of cash doing it.

The difference is that Tesla is already more than a decade old and has been a listed company for just over six years. As that Barclays analysis showed, access to the public market has been crucial, and the chief selling point has been Musk's vision.

There have always been critics of that vision, and Musk's most effective rebuttal has been to prove them wrong by delivering on the elements of that first plan, especially the Model S sedan.

Yet that issue of burning cash has only intensified over time, and this year there have been unmistakable signs of Musk's aura dimming. There was the about-face involved in kicking off 2016 with a pledge to live within Tesla's means, only to then announce a bigger investment budget and another equity issuance. Then, in just the past month, Tesla announced plans to buy SolarCity -- another Musk vehicle that has been struggling for most of the past year -- and an investigation into a fatal accident involving a Model S using the company's Autopilot driver assistance feature.

And now, amid all this, Tesla suddenly releases another, much more ambitious master plan incorporating elements, such as robo-taxis, that have featured in some of the more overenthusiastic sell-side reports emanating from Wall Street. And it has come with the requisite prologue of teasing tweets from Musk.

elon tweet

But it also contains both a justification for the proposed SolarCity deal and a lengthy explanation of why the company is road-testing the Autopilot feature. These hint at the defensive aspect beneath the vision -- namely, keeping public investors onside with ever more ambitious plans in the absence of more mundane, and tangible, rewards such as free cash flow.

In some ways, it would make more sense if Tesla were, like most other start-ups, unlisted. Then it really could have a secret plan without the need to keep upping the ante on its strategy.

And the thing is, being private wouldn't necessarily constrain Tesla. Take Uber, for example. The ride-sharing company with autonomous-vehicle ambitions of its own has raised an estimated $12.7 billion to date, with the latest investment giving it a valuation of more than $60 billion, more than double Tesla's market cap. And Uber has done that without a single quarterly earnings call, proxy statement or, for that matter, (un)secret master plan.

Tesla, of course, came along a bit too early to benefit from the unicorn craze, so going public was more of a necessity. The price for being too early, it seems, is to be locked in a cycle of burning cash and ever-expanding its horizons in order to justify raising more. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Liam Denning in San Francisco at ldenning1@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net