When the going gets tough, focus on the future.
Tesla Motors Inc. Chief Executive Officer Elon Musk, amid a sustained downpour of bad news, tantalized customers, investors and his more than 4 million Twitter followers last weekend by saying that he’s close to releasing “Top Secret Tesla Masterplan, Part 2.”
Analysts suspect the new corporate manifesto will connect the dots between Tesla’s myriad projects, including its proposal to acquire solar installer SolarCity Corp. Tesla’s website, which historically has focused on clean transportation, now says the mission is to “accelerate the world’s transition to sustainable energy.”
Speculation about the future of the company--a potential green conglomerate that integrates rooftop solar, energy storage and increasingly autonomous, fully electric cars--has sparked imaginations of analysts and boosted confidence. Tesla shares, which plunged more than 10% when the SolarCity plan was first announced June 21, have since regained all that, and then some. That’s despite a customer using Tesla’s Autopilot driver-assist technology being killed in a horrific Florida crash, subsequent safety and possible securities investigations, the defection of a manufacturing executive to Facebook and missing yet another sales target.
“Despite negative headlines around Federal investigations, Tesla created a positive news cycle around the weekend tweet from Elon Musk promising a new ‘secret master plan,’” wrote Brian Johnson of Barclays in a research note published Wednesday. Johnson has an underweight rating and $165 price target on the stock. “We envision part two including a more detailed rationale for SolarCity (that is, creating the renewable energy conglomerate), an expanded ‘personal owned’ Tesla product line, and some sort of ride-sharing business.”
Moving Forward
While every new report of a Tesla crash--the latest involved a driver in Montana--generates headlines because of the possibility that Autopilot was engaged, Tesla is moving forward with product announcements and events, from a lower-priced Model X to a three-month Electric Road Trip around the world and the July 29 party for customers at its gigafactory east of Reno, Nevada. The SolarCity acquisition is far from a done deal; a two-person committee of SolarCity’s board is evaluating the offer.
“The Elon Musk effect is alive and well,” said Ben Kallo, an analyst with Robert W. Baird & Co. “When they came out with the SolarCity announcement, everyone cried foul and said he’d lost credibility and the stock fell. Then he tweets about a second master plan, and the stock is up.” Investors, he added, are “willing to shrug a lot of this bad news off.”
Adam Jonas, an analyst with Morgan Stanley, reiterated his call for a Tesla Mobility business, arguing that the Palo Alto, California-based company has the combination of technology and automaking skills to lead in ride-sharing, especially as cars achieve the ability to drive themselves.
“We believe the missing piece could be an on-demand mobility service that complements Tesla’s skills in electric and autonomous vehicles--a prerequisite for transportation as a utility where vehicles are used with maximum efficiency,” he wrote.
Future Potential
Many investors view Tesla through the lens of future potential instead of current challenges. Electric cars represented less than 1% of light-duty vehicle sales last year, but could be 35% of global new car sales by 2040, according to Bloomberg New Energy Finance.
“We believe the vast majority of institutional investors that have a long position in the stock are valuing the company based on what will happen five years from now and beyond,” said Charlie Anderson, an analyst with Dougherty & Co. “For them, the Tesla story has barely begun to play out.”
In August 2006, Musk published “ The Secret Tesla Motors Master Plan,” which laid out the rationale for building increasingly affordable electric cars while also providing zero-emission electric-power generation options. But it’s not just about the cars. Tesla has always focused on the fuel as well as the vehicles--in this case their growing network of Supercharger stations and efforts to increasingly clean the electric grid that powers them.
Shifting Mission
And while the mission of the company has historically been to “accelerate the advent of electric transportation,” Tesla’s website now says the mission is about sustainable energy.
“Tesla is not just an automaker, but also a technology and design company with a focus on energy innovation,” says the website.
In a call with analysts last month, Musk talked about the need for the Tesla Powerwall for the home to be designed in tandem with solar panels, as one integrated, Tesla-branded system. He was as bullish on solar as he has been on electric cars.
“Like, only about 1% of U.S. homes have solar, so you have a massive addressable market that’s unserved and there’s at least 40 million to 60 million households where they could do solar if they wanted to,” said Musk. “So if the economics were right and they like the aesthetics and it was easy to do, then they would do it. So the future market there is really gigantic.”
