Elon Musk laid out a vision for the future that most would likely love to see become reality. It's far less certain the plan makes Tesla a company worth investing in.
The Tesla Motors (TSLA - Get Report) CEO on Wednesday night posted an updated master plan for the company, broadening its focus beyond electric vehicles and into other transport segments, ride-sharing and green power generation. Musk said the goal was for Tesla to accelerate "the advent of sustainable energy" toward the betterment of humanity.
"By definition, we must at some point achieve a sustainable energy economy or we will run out of fossil fuels to burn and civilization will collapse," Musk wrote. "Given that we must get off fossil fuels anyway and that virtually all scientists agree that dramatically increasing atmospheric and oceanic carbon levels is insane, the faster we achieve sustainability, the better."
Musk is pushing for Tesla to acquire SolarCity (SCTY) , another company in which he owns a substantial stake, and envisions combining SolarCity's panels with Tesla's in-house battery packs to "create stunning solar roofs with seamlessly integrated battery storage," while bringing to market not just electric cars but electric commercial trucks and buses. Work on autonomous driving also will continue toward the goal of allowing vehicles to make money shuttling customers to their destinations when they aren't being used by the owner.
Not included in the 1,400-word manifesto was any discussion about how to pay for all of this, or what sort of timeline Musk envisions. Given all that Tesla already has on its plate, those sorts of details should matter to investors.
"If part one of Elon Musk's master plan was like putting a man on the moon, part two is a lot more like colonizing the galaxy," said Edmunds.com director of industry analysis Jessica Caldwell. "The plan sounds overly ambitious for now, especially considering that there are already doubts about whether Tesla can meet its goals for the next two years."
Earlier this year, Tesla raised more than $1.4 billion in a secondary offering to finance its already ambitious agenda, which calls for the rollout of its more-affordable Model 3 vehicle next year and an upgauge in deliveries from about 50,000 last year to 500,000 in 2018 and 1 million units by 2020. Some analysts already had doubts about the company's balance sheet prior to its push to acquire money-losing SolarCity, with the company facing huge capex spending in the years to come as it finishes vehicle development and ramps up manufacturing.
Barclays analyst Brian Johnson, who has an underweight rating on Tesla shares, noted that in executing its current plan Tesla "has dug a $4.2 billion hole on the financial side that has necessitated a series of fund raises totaling $6.2 billion." Johnson said the revised plan is similar to "much of what Tesla does -- long on exciting visions of the future and short on financial details."
Shares of Tesla, which traded up 1.38% on Wednesday, fell 1.7% in premarket trading on Thursday.
Tesla has historically had trouble hitting its deadlines, and few take the goal of 500,000 vehicles by 2018 seriously. But in his post Musk seemingly hinted that the Model 3 might be falling behind, saying that a "factory machine" described as "version 0.5" will be ready next year "with version 1.0 probably in 2018."
Factories take time and considerable capital to build. Musk's current production goals already would require Tesla's lone Fremont, Calif., plant to produce at levels well beyond what it has done in the past even without adding new trucks or buses. Musk said both a Tesla truck and bus are "in the early stages of development and should be ready for unveiling next year," but offered no timetable on when these products would come to market or where they would be made.
Margins could also be an issue. Tesla -- at least on a GAAP basis -- loses money on each vehicle sold today. The company hopes that will change over time as its battery factory comes online, bringing down the cost of one of the car's most expensive components, and thanks to other economies of scale as production runs grow. But even if those savings materialize the company's average sale price seems destined to drop significantly in the years to come as the Model 3, to be priced at about half what existing models cost, comes on line.
Meanwhile, competition is brewing in every one of the markets Tesla has identified. In its core automotive market, Tesla will soon face its first serious rivals as General Motors (GM - Get Report) and Nissan (NSANY) introduce their own long-range electric vehicles, with others including BMW not far behind. A consortium of European truckmakers earlier this year demonstrated a convoy of functioning semi-autonomous trucks, and most of those large truckmakers are at least dabbling in their own version of electric powertrains for commercial vehicles.
The ride-sharing part of Musk's vision also seems a good ways away. The CEO talked of the ability to summon a vehicle from anywhere "when true self-driving is approved by regulators," but also admits that will not happen overnight. Musk estimated worldwide regulatory approval for autonomous driving would require 6 billion miles worth of fleet learning, which would take more than five years to achieve at the current rate of about 3 million miles per day.
In short, most of what Musk is planning is still in the early stages and faces competition from much deeper-pocketed rivals, many of whom are already at least as far along if not further down the development road than Tesla is.
It's easy to get caught up in Musk's vision for a green future, and understandable to cheer for that vision to become reality. It is a far different thing for an investor to bet his nest egg that one particular company will succeed in bringing that future to market and profiting from it.
Musk, during Tesla's annual meeting back in May, admitted he and fellow founders put up most of the initial funding for Tesla because they recognized the company's plan was audacious and "we all thought this is probably going to fail." Tesla, to Musk's credit, has come a long way since then, and betting against him so far has been a losing proposition. But his initial analysis remains one that individual investors should keep in mind, even while marveling at his vision for the future.