Today, Tesla Motors Inc (NASDAQ:TSLA) is at a make-or-break time as it ramps up production of its only currently in production car, the Model S. But leafing through Tesla’s history, investors will find Tesla has been living through constant make-or-break moments. For this company, its existence has been less of a series of make-or-break moments and more a general period of high pressure and uncertainty. However, as far back as 2006, Tesla Motors Inc (NASDAQ:TSLA) CEO Elon Musk laid out what he called The Secret Tesla Motors Master Plan (just between you and me). In this highly commented upon blog post, Musk lays out a vision for Tesla and the general strategy going forward. Nearly seven years later, we look back on this Master Plan and see how well Tesla has progressed in meeting its “secret” goals.
Tesla time reference
Investors need to remember when this plan was released. Back in 2006, the Roadster had yet to begin production and the Model S was still six years away. With the Roadster as Tesla’s only offering at the time, the plan is designed to promote the Roadster and the company as a whole. Nearly all comparisons and references are given in terms of the Roadster, largely because this is all Tesla Motors Inc (NASDAQ:TSLA) had to work with. But the automaker was (and still is) very proud of its first offering and that is where we begin in the evaluation of Tesla’s plan.
“… a high performance electric sports car called the Tesla Roadster”
This phrase appears in the first sentence of the Plan and does well to describe Tesla’s situation at the time. The Plan bases itself around using the Roadster to allow Tesla to enter the market at the high end and drive down the price of manufacturing its cars over time. The Roadster also made a great publicity tool as it showed electric cars can fully compete on a performance level with their gasoline-powered counterparts and are not just the compromise the hippie next door drives.
Was the Roadster successful? Well it largely was for what it was intended to do. Much of the attention given to Tesla Motors Inc (NASDAQ:TSLA) today can be attributed at least in part to the automaker’s first sports car offering. Even today, many people know Tesla not for the Model S currently rolling off the Fremont production line in the hundreds per week, but by its iconic Tesla Roadster which the Model S has already past in total units built.
Moving forward
Yes, this is the Toyota Motor Corporation (ADR) (NYSE:TM) slogan but it is applicable in this case due to Tesla’s dealings with the automotive giant. As Tesla moved closer to manufacturing the Model S, the relationship between Tesla Motors Inc (NASDAQ:TSLA) and Toyota began to blossom. A series of agreements helped the start-up automaker whereby Toyota would purchase $50 million in Tesla stock and begin to order Tesla parts and technology. But perhaps the most important was the sale of the NUMMI plant to Tesla which has since been named the Tesla Factory and is the birthplace of the Model S.
Separately, Tesla cut some deals with Mercedes-Benz maker Daimler AG that further strengthened the growing automaker’s ties in the automotive community. Daimler took a 10% stake in Tesla and became yet another customer for Tesla parts and components. Since then, the Tesla equity stake has been sold to an investment fund but Tesla parts are finding their way into Mercedes Benz vans and the electric Smart Fortwo. While these partnerships are significant for Tesla, the amount Toyota Motor Corporation (ADR) (NYSE:TM) and Daimler are putting in is tiny relative to the size of the companies themselves. For the two giants, deals with Tesla are less about trying to profit from Tesla Motors Inc (NASDAQ:TSLA) shares and more about tapping into a rich pipeline of outside research and development. But for a start-up like Tesla, all money looks the same.
“…a sporty four door family car…”
Farther along in the plan, Musk tells the reader about the next car in the Tesla lineup. At the time, the Roadster cost $89,000 and Musk said the sedan would cost “roughly half” of that amount. At $52,400 (after federal tax rebate) the Model S is more expensive than Musk predicted in nominal dollars but since it has been nearly seven years, we should look at this on an inflation adjusted basis. According to the Bureau of Labor Statistics, $89,000 in 2006 is the equivalent of $102,493.92 in 2013. Using this number, Musk is actually fairly close in his price estimate for the Model S.
Reviews of the Model S have also been overwhelmingly positive with nearly all critics being impressed by the car’s performance. Along the lines of sportiness in the car, Tesla checks the box. Tesla Motors Inc (NASDAQ:TSLA) also met the goal of a family car by not only providing the standard five seats of the typical sports sedan but also offering two rear facing small child seats. It’s a rather unconventional feature designed to broader the Model S’s appeal and confront the fact Tesla has not began production of its SUV, the Model X. But as far as sports sedans go, the two rear facing seats are just an added bonus and it will be interesting to see what percentage of Model S buyers opt for the feature.
To the Model S and beyond!
Musk makes it clear in the post that Tesla Motors Inc (NASDAQ:TSLA)’s goal is to one day produce electric cars for everyone who can afford a car now. The automaker had no intention then of stopping at the Model S and has no intention now. Musk has already confirmed his hopes to launch a Gen III car in the $30,000 range in the next three to four years. If this car is anything like the Model S, it should be formidable competition for the high selling BMW 3 Series in the popular $30k sport sedan segment.
Tesla keeps on rolling
Tesla has been a fine example of a great product continuing to propel a company beyond its constant stream of naysayers. While the automaker is not an investment for the faint of heart, there does appear to be light at the end of the tunnel. In the last earnings call, Musk hinted at possible non-GAAP profitability in Q1 2013 and expected profitability in future quarters. Analysts are still in disagreement over Tesla’s financial outcome for 2013 but many are forecasting profits to grow in 2014. For once Tesla Motors Inc (NASDAQ:TSLA) could stand on its own two feet and at last provide its own financing. With a high short interest, many investors are still doubting Tesla’s ability to succeed where so many other automakers have failed. But with the automaker’s goals continuing to be fulfilled, largely as planned, I believe shorting Tesla is a high risk option and if the company’s history is an indicator of the future, a very costly one as well.
The article Tesla’s Progress on Its Secret Master Plan originally appeared on Fool.com and is written by Alexander MacLennan.
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