Tesla Motors (NASDAQ:TSLA) CEO Elon Musk has outlined the next phase of his company's future. But will investors buy it?
The new plan outlines how the company will move from being an automaker to a more broadly based sustainable-energy company. Its business lines will include several new Tesla consumer vehicles (including a pickup), an integrated residential solar offering, a heavy truck, a bus of some kind, and an automated ride-hailing service that will rely on privately owned self-driving Teslas.
Along the way, according to the plan, Tesla will also completely reinvent auto manufacturing, driving its factory (or maybe factories; it's not clear) to output levels far beyond anything any other automaker has yet attempted.
It's incredibly ambitious. But there's one big thing missing from the new secret master plan: a price tag. How much will this cost?
Tesla's first master plan has already cost more than $6 billion
Before we look at the new plan, let's back up: How much has Tesla spent on its original plan? For that, we'll turn to Barclays auto-industry analyst Brian Johnson, who helpfully summed it up in a note for investors this past week.
Since 2006, Johnson wrote, Tesla has earned roughly $1.7 billion from the sale of its vehicles, along with another roughly $500 million from the sale of zero-emissions credits to other automakers. That's a total of about $2.2 billion. But over that same period, it has spent $2.1 billion on research and development, and another $4.1 billion on capital expenditures.
That's a roughly $4 billion deficit for master plan part one -- so far. Many analysts think that Tesla will have to raise money again before it gets the Model 3 into full production: CFO Jason Wheeler said in May that the company's plans to "accelerate" the Model 3 production schedule would force the company to spend about $2.25 billion in 2016, much more than it had planned.
Part deux will cost more -- maybe a lot more
For starters, the plan tells us that Tesla will eventually offer a line of five consumer vehicles: the big Model S sedan, the Model X SUV, the upcoming Model 3 small sedan, a small SUV, and what Musk described as "a new kind of pickup truck." Tesla will also build and sell a big "Tesla Semi" truck, and a small bus of some kind.
How much will Tesla have to spend to get all of those vehicles into production?
If Tesla's engineers are smart (and they are), that small SUV will share much of its architecture under the skin with the Model 3. That will keep engineering and tooling costs down. But its body panels will be different, and that's still an expensive difference.
Assuming that the SUV's body panels will be made of sheet metal, Tesla will need specialized stamping dies to make them. Those dies are expensive. Together with the other factory tooling that will be unique to the model, and the costs of engineering, prototyping, and testing, Tesla will probably spend at least $250 million before the first production model rolls off the line.
I don't know yet what Musk means by "a new kind of pickup truck." Assuming that it's anything like the full-size pickups that dominate the U.S. market now, it'll need a unique heavy-duty architecture unlike any other Tesla so far. Between design, engineering, testing, and that expensive factory tooling, Tesla could easily spend $1 billion or more before the first truck is shipped.
The Tesla Semi may be even more expensive to create. Tractor-trailer trucks are very different from luxury sports sedans. Tesla will have to acquire a lot of new expertise to create an electric heavy truck that will have a chance of gaining wide adoption in the market. It may also have to break new ground in battery technology (or rethink Musk's opposition to hydrogen fuel cells) in order to create a truck with the range and capacity of a diesel 18-wheeler. The CEO of Salt Lake City-based Nikola Motor Company, which is developing its own natural-gas-and-electric semi truck, told Reuters that Tesla should be prepared to spend five to nine years and $5 billion on the effort. Tesla's expertise may allow it to shave some time and money from those estimates, but it still won't be cheap.
If Tesla needs to build a new factory to make these trucks, add another $1 billion. The plan also promises a small bus, but it may be mechanically related to the pickup or to the heavy truck. Either way, that's another $250 million at least, probably more.
Fold in another $2 billion to $3 billion on general Tesla research and development, to cover systems unique to the trucks, the ongoing work to turn Autopilot into a full-blown self-driving system, and some of the work needed to create the promised ride-hailing service.
The steep costs of developing the new Tesla vehicles are only part of the story
There will be more. Musk's promised extreme efficiency improvements in manufacturing will almost certainly have a steep price tag -- again, one that will have to be paid before the improvements are realized. And if Tesla needs more vehicle factories, at $1 billion or so each, that will add up quickly too.
We haven't even talked about the money Tesla has already committed to the Gigafactory. Or the R&D and production capacity that might be needed -- over and above what will come with the SolarCity (NASDAQ:SCTY.DL) acquisition -- to build those integrated residential solar-power systems. Or the fact that this plan could take a decade to execute, and Tesla will also have to cover its ongoing fixed costs (which will grow as the company grows) throughout that time.
These are very vague estimates based on what Tesla has done so far, and what other automakers spend on their product programs. But you get the idea. Tesla will need to spend at least $10 billion -- and possibly much more -- over the several years it will take to realize the vision laid out in "part deux."