What stocks to invest in
Last week, Elon Musk issued his second master plan for TSLA as a blog post on the company website.
The plan has four parts:
—autonomous driving, with the goal of making self-driving cars 10x as safe as those operated by human drivers. The main issue here is, according to Musk, compiling enough safety date to convince governments to allow autonomous driving on public roads
—expanding the product line, to include pickup trucks and compact SUVs, plus heavy trucks and urban buses.
Although what he writes on this topic is not 100% clear, one goal under this heading seems to be to reinvent the auto manufacturing process in a way that the new/improved factory is 5x – 10x as efficient as current ones. One ambiguity I see is whether this means 10x the efficiency of, say, a Toyota plant, or 10x the efficiency of the current TSLA operation. I presume he means the former.
Another is exactly what “efficiency” is. I’m taking it to mean that Musk intends to create factories that, for the same capital investment, will produce 5x – 10x as many cars in a given time as current factories do. My cursory inspection of auto 10Ks (other than TSLA, I don’t think I’ve owned an auto stock since the 1980s) tells me this won’t mean a huge jump in unit profits for any auto firm, including TSLA, since most of the costs of making a car are in materials and labor, not capital equipment. Greater efficiency would boost overall profits, however, as well as allow TSLA to dramatically increase its vehicle output.
—sharing. Musk thinks that in an era of autonomous driving, some people won’t own cars themselves anymore. They’ll simply call for one from a sharing service when they need it. Other people will own cars but will allow their vehicles to be used in a sharing service when they don’t need them. TSLA intends to organize sharing services for its vehicles.
This is a much more revolutionary statement than it seems.
The average car is used only 10% – 15% of the day, according to Musk. If sharing boosted that usage figure to, say, 30% in highly populated areas, then those regions would need only half the cars they do today …maybe fewer. At some point, this would mean an implosion in demand for new autos–and the end of the car manufacturing industry as we know it.
—merger of TSLA and SolarCity (SCTY). In his Master Plan, part deux, Musk says he wants to create a “smoothly integrated and beautiful solar-roof-with-battery product that just works, empowering the individual as their own utility, and then scale that throughout the world. One ordering experience, one installation, one service contact, one phone app.”
He says this can’t happen while TSLA and SCTY are separate companies, something he describes as “an accident of history.”
I’m not sure I buy this. I do think that Musk created clear economic superiority of TSLA over SCTY when he decided to place the Gigafactory for solar batteries inside TSLA. To my mind, that makes SCTY radically dependent on TSLA today. Merging the two companies would put SCTY back on an even footing. For TSLA shareholders, arguably the main benefit of the combination is obtaining SCTY at a cheap price.
– What stocks to invest in