BYMOF - Tesla's Master Plan 3 Looks Like A Flop

Summary

• Tesla had its widely-anticipated investor day on March 1.
• The company talked about its Master Plan 3, but that did not include many specifics.
• Broad claims about the need for more EVs on the road did not inspire investors.

Article Thesis

Tesla ( TSLA ) had its investor day on March 1. The company and its CEO had previously talked a lot (and generated some hype) about the release of the so-called Master Plan 3, but from what we have seen at the presentation, Master Plan 3 looks like a flop. There are no new models, no meaningful news about its autonomous vehicle tech, and so on. Not surprisingly, shares reacted pretty negatively to the underwhelming presentation.

What Happened?

Prior to the event, CEO Elon Musk had talked about how this would redefine things, how Tesla would lay out the company's vision for a fully sustainable future, and that the event would be about Tesla's strategy of scaling up operations. That's why many investors and analysts expected that Tesla would showcase a new model (Model 2), priced below Tesla's current cheapest vehicle, the Model 3. The introduction of such an inexpensive model would have improved Tesla's outlook when it comes to becoming a mass-market manufacturer eventually. For a company that plans to sell more vehicles than any other automobile company in the future, expanding the market potential is extremely important, of course. After all, the market for vehicles priced at $50,000 and more is rather limited.

Master Plan 3 Looks Like A Flop

But Tesla didn't showcase any new model, no Model 2 nor any other new automobile. Instead, the company showcased some other things, although none of these seem like an especially large deal.

Tesla talked about seeking to produce the next generation of its vehicles for considerably less money on a per-vehicle basis. The cost reduction seemingly will be in the 50% area, but Tesla did not get too specific about how this will be achieved. It also should be noted that Tesla hasn't been great at delivering on cost promises in the past -- the Model 3, for example, is more costly relative to what the company had guided for before the release. It's also widely accepted that the Cybertruck will not be sold for less than $40,000 (which was what Tesla had guided for) when it eventually will be sold. The 50% cheaper claim also seems somewhat questionable when we consider that input costs have been rising, e.g. for lithium, which has exploded upwards as more and more companies are moving into the EV space. Likewise, steel has been getting more expensive as well in the recent past. It seems doubtful to me that input costs will fall drastically, and while Tesla will surely find ways to become more efficient over time, a 50% reduction in production costs is hard to achieve for sure.

When it comes to the Cybertruck, Tesla has stated that the vehicle will go into production later this year. While this is several years behind the original plan, it would still be positive for Tesla if it finally manages to enter the electric truck space. Competitors such as Ford ( F ) and Rivian ( RIVN ) have now been active in this market for a while and have established themselves as viable electric truck makers, which will be a new situation for Tesla, as it had previously been a market leader with its models. Success with the Cybertruck is thus not guaranteed, but when the vehicle comes to the market this year, a first step in establishing a market presence is done.

Tesla also talked about its new planned Gigafactory in Mexico, near the industrial town of Monterrey. There had been rumors about a new Gigafactory in Northern Mexico for some time, and those have now been confirmed. And building a plant there makes sense - labor costs are considerably lower compared to the US, for example, and yet, the plant will be close to the important US market. Many other automobile companies have operations in Mexico as well, including Audi, BMW ( OTCPK:BMWYY ), Ford, GM ( GM ), Toyota ( TM ), and so on. Skilled and experienced labor is thus available, and suppliers are available as well. Last but not least, supply chains are likely less vulnerable to disruption for a company that manufactures in Mexico, relative to producing halfway around the world, e.g. in China. From a strategic perspective, the plant in Mexico thus makes a lot of sense, although it's hard to see how this will be a competitive advantage for Tesla, as most of its peers have factories in the country as well.

Tesla also talked about its robot, which is making some progress tech-wise. But when it comes to specifics about pricing, market entry, market potential, and so on, the presentation was underwhelming. To me, it does not look like the robot business will be a meaningful source of revenue or profits in the foreseeable future. Critics have argued that the robot business is more of a distraction for the company anyway and that Tesla should focus on its core auto business and its energy business instead of wasting resources on a robot. Based on what we have seen and heard when it comes to the robot so far, I tend to agree with those that do not see any near-term value in this business.

What's Missing?

Seeking Alpha reports that the new master plan "includes repowering the existing grid with renewables and a switch to all-electric vehicles by consumers and businesses." This isn't really a new thing, however. In fact, many companies, governments, and institutions around the world have been talking about the need to expand renewable energy production, and many automobile companies have communicated that they will be selling EVs primarily, or exclusively, in the future. Tesla thus hasn't really come up with a new and innovative strategy here - instead, they're saying what almost everyone else is saying as well. That's a little underwhelming for a presumably high-tech innovator like Tesla, I believe. And it looks like the market agrees, as Tesla is down 8% at the time of writing - clearly, the company didn't deliver what the market and the investor community had been anticipating.

To me, it seems pretty clear that the market is missing specific facts about near-term growth drivers. There was no model 2 announcement, there was no meaningful news about the new Roadster, there was no meaningful news about robotaxis and FSD, there wasn't meaningful news about solar tiles and other energy business products, and so on. While Tesla has broadly talked about the need for renewable energy and EVs, Tesla failed to convince the market and its investors that Tesla will be the leading force of these trends in the future. In fact, BYD ( OTCPK:BYDDY ) looks better positioned to bring EVs to the masses - it offers cheaper entry-level models relative to Tesla, and unsurprisingly has way better growth in terms of deliveries, relative to Tesla, as it addresses a much larger market. As a battery supplier to other EV manufacturers, including Tesla, BYD also will help the broad industry in expanding the EV market. Tesla, on the other hand, does not look like it will have explosive growth in deliveries in the near term, and it also grew less than the market in 2022. Thus while Tesla's vision of a renewable-powered world where most people drive EVs is one that many agree with, it does not look like Tesla will be the biggest force in powering that future in the near term. Its subdued growth and the fact that it continues to sell only higher-priced vehicles prevent it from being the Toyota or Volkswagen (VLKAF) of the EV universe. BYD, however, has a better chance of achieving that status. Likewise, while Tesla's energy business is growing, there's no good reason to believe that growth will explode upward in the near term, I believe. Other companies offer solar panels and battery storage systems as well, and Tesla didn't really inspire investors to believe that Tesla will be the deciding factor in the global renewable energy revolution.

Takeaway

Past master plans included the introduction of new models, huge goals for self-driving tech (that have not been achieved so far, however), and so on. The Master Plan 3 included a lot of broad statements about the need for more EVs on the roads etc., but Tesla did not manage to inspire the market or its investors. There was no Model 2 announcement, and while the Gigafactory in Mexico makes sense, it hardly is a reason to buy Tesla -- many other companies have plants in Mexico as well. The market reaction to the event was pretty negative, but Tesla is still up considerably from the lows, which is why it does not look like a great value right here, at least to me.

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