Tesla (TSLA +3.93%) may be in big trouble.
Its sales numbers have plummeted around the globe. Profitability is suffering. Its Cybertruck seems to be a dud. Its share price is more than 25% off its highs.
NASDAQ: TSLA
Key Data Points
But those problems are minor compared to my big worry, which could cause Tesla -- the stock and the company -- to tank, permanently.
Focus on the future
Tesla's recently released Master Plan Part 4 practically ignores its core automotive business. Apart from a section on the company's automaking history, the phrase "electric vehicles" only appears once. The solar roof and battery storage businesses are also barely mentioned. Instead, the Plan focuses on autonomous driving, artificiall intelligence (AI), and humanoid robots.
After the Plan was released, CEO Elon Musk suggested that about 80% of the company's future value could come from its line of Optimus humanoid robots. He's previously said that Optimus robots could give Tesla a $25 trillion valuation. Clearly, robotics and AI are what Musk is passionate about.
What doesn't he seem passionate about? Electric vehicles. And that's what's got me worried.
Yesterday's news
Elon Musk has always been a futurist. When an affordable, mass-market EV was just a pipe dream, he was clearly invested in making it a reality. But he's been there and done that with the Model 3 and Model Y, which were the best-selling cars in the world in 2023 and 2024. Now that nearly every other carmaker is also cranking out EVs, where's the cool factor?
For Musk, it's not in selling his existing EV lineup; it's in developing fully self-driving EVs, or possibly even flying ones. His excitement around the Tesla Roadster redesign centers on how un-carlike it will be, and in 2024, he said that Tesla is "an AI/robotics company" as opposed to an electric car company.
Of course, a working autonomous humanoid robot or a true self-driving taxi service would be a technological marvel. But none of the progress being made on these innovations -- which are years away from deployment, at least -- will improve Tesla's slipping EV delivery numbers, stalled revenue growth, or tanking profitability. That will require the unglamorous, routine, boring work of running a car company, which Musk seems totally uninterested in doing. He's a bit like the dog that caught the (electric) car and now is looking for something new to chase.
That's a big problem for Tesla, because if Musk stays at the helm, he seems likely to continue the recent trend of underinvestment in Tesla's EV business, ceding further market share to competitors, while focusing on speculative ventures with unproven ROI. But if Musk departs, the company's stock will almost certainly tumble. It's a no-win situation for shareholders.
Image source: Getty Images.
Pay to stay
The proposed compensation package that was just released by Tesla's board, if adopted, might encourage Musk to at least pay some attention to the core business.
The EV-related operational milestone in the plan is actually quite ambitious: reaching a total of 20 million Tesla vehicles delivered. As of the company's most recent quarter, its cumulative delivery total is less than 8 million, which means deliveries would have to increase substantially to reach this goal within a decade.
A further milestone would require 10 million active full self-driving subscriptions. Since these may not be possible for many of the Teslas already on the road, meeting this milestone would also require a big increase in EV sales.
Lastly, the package contains a series of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) benchmarks, which would require Tesla to be bringing in more money than it spends on developing its new Robotaxi and Optimus robot lines.
Will this package be sweet enough to convince Musk to stay at Tesla? And if so, will it be enough to get him to focus on the critical yet unexciting work of rebuilding Tesla's core EV business? We just don't know.
But if the core auto business deteriorates far enough, the company may not be around long enough to introduce its next big innovation. As a Tesla shareholder, that's what keeps me up at night.
