War is hell — worse than what Musk has already often described as "production hell," which if you haven't been keeping track of for past year or so is simply shorthand for business-as-usual at Tesla. War is also foggy. There's chaos on the battlefield ...
It would be an understatement of the highest order to say that Tesla has been in any way boring for the past 12 months. What we're dealing with here is basically a total war on numerous fronts, ranging from automobile manufacturing to experiments in robotics to financial speculation to 21st-century media relations.
The whole combative saga lurches from violence to truce to melée to retreat, often in the same day, and usually in the same week. CEO Elon Musk is smack in the middle of it, taunting short-selling hedge funds one minute and rallying the troops the next, retiring to his giant tent in the parking lot of his factory in California for a few hours of sleep before blasting out some tweets and then starting all over again.
War is hell — worse than what Musk has already often described as "production hell," which if you haven't been keeping track of for past year or so is simply shorthand for business-as-usual at Tesla.
War is also foggy. There's chaos on the battlefield, and nobody is entirely clear what's going on or what's happened until it's time to tend to the wounded and count the bodies. I'm not going to stick with this bloody metaphor, so don't panic, but in times of extreme conflict it's useful to think about fundamentals. And that's something that in its present configuration, Tesla has gotten away from.
Profit ... or bust?
The Tesla Model 3.
Hollis Johnson/Business InsiderMusk has decided that Tesla must notch a profit in the second half of 2018. The last time the company was in the black, was in the third quarter of 2016. Since then, the losses has been staggering. But even though Tesla was down to less than $3 billion in cash at the end of Q1 2018, it seems clear that Musk directed everybody to throw whatever was needed at the goal of achieving a weekly production rate of 5,000 Model 3 vehicles.
And Tesla basically did it, establishing a single-week total of just over 5,000 in the waning days of June. The carmaker had to deviate, I assume expensively, from all manner of industry best-practices, most spectacularly the construction of a giant tent outside the confines of its actual factory. We'll see what the bill was over the next few months.
That's Tesla's reality: a $50-plus billion market capitalization absurdly awarded to a company that's in fact incinerating billions while celebrating a stretch milestone that nonetheless falls woefully short of some long-forgotten, more ambitious targets.
Andy Kiersz/Business InsiderThe properly mass-market, $35,000 Model 3 shows no signs of arriving anytime soon, perhaps a good thing as Tesla needs the fatter margins of a $78,000 high-performance version to deliver Musk's second-half profitability. The CEO is under siege. Executives are leaving. The dreams of a whole new way of making cars is fading as Tesla labors under its debt-heavy balance sheet and confronts the capital-intensive nature of the car business.
There's an alternate reality, however, where Tesla is worthless, but is also under much less pressure. Call it Elon Musk's Paradise Lost, exchanged for the Inferno he now inhabits.
Back in 2017, I thought Tesla and Musk should think twice about the Model 3— at least as a high-volume, mass-market play. Why undermine a modest yet possibly quite lucrative business selling pricey luxury electric vehicles to enter the cruel slog of being a company cranking out millions of lower-margin cars every year? Why be Ford, with its sub-10% annual profits on global production in the millions, when you could be the electric BMW or Porsche, with margins far higher and customers more loyal?
The short answer is that Musk wants to save the world. The longer answer is that he's not very good at the car business, at least at the global scale it now operates.
But let's run with the counterfactual for a minute, the Muskian "What if?"
The "What ifs?" that might have been
The Model X.
Benjamin Zhang/Business InsiderWhat if Tesla had presented the Model 3 as an entry-level luxury car and priced it accordingly, admitting that the market for cheap EVs is currently tiny and instead looking to acquire buyers who wanted a smaller, cheaper version of the Model S, a Tesla version of the BMW 3-Series to BMW's larger 5- and 7-Series?
What if Tesla had accepted that in 2018, 150,000 as a production target could have been easily achieved? Tesla could have aimed to build just 50,000 Model 3s, about 1,000 per week, pricing them between $50,000-$80,000 leaving the mass market to the more manufacturing-skilled Nissans and Chevys of the world.
What if Tesla had concluded that a share price well above $300 per share was a fluke, and that it should have been running itself like a company at maybe $150, with significant cash demands in an industry notorious for being a money furnace? After all, it's worth noting that Musk, who owns 20% of Tesla, could remain a billionaire on paper even if the automaker were worth far less than it is now.
What if Tesla had downplayed the Model 3 in 2017 and 2018, reminding itself that both the Model S sedan and Model X SUV had suffered difficult births, with assorted delays and predictable early build glitches?
What if Musk hadn't dreamed a crazy dream about reinventing automaking and had instead simply adopted industry norms for building in the Model 3 what is essentially an electric Toyota Corolla?
What if Tesla had considered a semi truck and scotched the idea, to remain focused on the core business?
What if Tesla found itself in a position where its core business — the Model S and Model X — was running at a steady clip of 100,000 in yearly deliveries? What if Tesla decided to manage that business adroitly for a year or two, before taking a blind leap into the Model 3?
What if there had been no Boring Company, no flamethrowers, no Muskian side projects? What if Musk had merely devoted half his time to running a sustainable and profitable Tesla and the other half blasting rockets into orbit at SpaceX?
The story wouldn't be epic — but it's wouldn't be bizarre, either
Mike Blake/ReutersObviously, alt-Tesla would be vastly less exciting (or maddening) than what we have in the real world. But it would still be the first new American car company to come along in decades and survive several valleys of death and near-death. Would we take 150,000 in sustainable, low-drama EV sales every year, rather than fraught projections of a million that everybody now knows are unlikely to materialize?
Plenty of people would, and the auto industry would take note and still be rolling out new electric designs to hammer their own stakes in smaller yet perhaps very profitable niche market.
Tesla would be doing OK, Musk would still be a superstar and quite rich, and the planet would still be spinning on its axis. Heck, if Tesla's stock price weren't surging in the way that some investors want it to, the company might even think about paying a dividend.
Instead, we have the insanity before us: a needless Silicon Valley thrill-ride, with Tesla's future at serious risk.
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