Tesla's ludicrously ambitious product road map, explained
Elon Musk, CEO of the electric car startup Tesla, is one of the most ambitious businessmen on the planet. Tesla is the first successful American car startup in decades, and its first two cars — the Roadster and the Model S — have dramatically raised the profile and prestige of electric vehicles.
In a Wednesday evening blog post, Musk signaled that he was just getting started. He wrote that he has an even more ambitious project road map to follow next year’s release of the mid-market Model 3.
Musk wants to merge Tesla — which makes batteries in addition to cars — with the solar panel company SolarCity to offer integrated in-home power systems. He wants to expand into self-driving trucks and self-driving buses. And he signaled that he plans to compete directly with Uber by enabling Tesla owners to rent out their cars to other passengers when they’re not in use.
Taken individually, each of these ideas seems like a reasonable direction for an electric car company to go. But Musk isn’t planning to take them individually. He’s planning to pursue all of them simultaneously — at the same time as he faces growing questions about his ability to deliver the Model 3 by its late 2017 target date.
Maybe Musk will surprise us once again and execute on this ridiculously ambitious plan. But there’s also a big risk that he's bitten off way more than he can chew.
Tesla is struggling with what’s already on its plate
While Tesla is known for its innovative designs, it’s not known for its flawless execution. All three of the company's previous vehicles faced production delays before they were finally delivered to customers. And there are mounting questions about whether Tesla can meet the Model 3’s 2017 deadline.
The problem, as industry analyst Edward Niedermeyer told me last month, is that the higher volume and lower price of the Model 3 makes it a much bigger production challenge. Tesla has not had a great track record for quality and reliability, but Niedermeyer argues that high-end customers tend to be more forgiving of quality flaws since they typically have another car to fall back on (or can afford to hail a taxi) if one of their vehicles breaks.
Also, producing cars at mass-market scale requires a ton of capital. Earlier this year, Tesla announced that it would raise $2 billion to fund expanded production facilities for the Model 3 — and the company might need all that cash and more to get its Model 3 assembly line up and running by next year.
All of which means that Tesla doesn’t seem like a company with a lot of spare capacity to tackle additional projects. Musk has vowed to put his desk at the end of the assembly line and sleep there while he sorts out the company’s production delays. That seems like a smart move, but a CEO who is focused on fine-tuning the company’s assembly line does not seem like a guy who will have a lot of spare bandwidth for tackling ambitious new initiatives in home power, ride-hailing, and self-driving.
If anyone can pull this off, it’s Elon Musk
So we definitely shouldn’t expect Musk to deliver on his ambitious vision on time or under budget. There will be setbacks along the way, and there’s a real danger that Wall Street will grow tired of these problems and refuse to give Musk more capital.
That said, the case for optimism here is twofold. First, if anyone can deliver on an agenda this ambitious, it’s Musk. He is already doing something most people would find impossible — running Tesla and another startup, SpaceX, simultaneously — so perhaps his impressive management abilities will stretch to allow him to manage a few additional projects.
Second, the markets are hungry for investment opportunities with high potential returns. One of the biggest problems facing the US economy right now is a shortage of high-return investments for the trillions of dollars Americans (and foreigners wanting to invest in the US) have accumulated. So if Musk can convince the markets that he will eventually deliver on his lofty promises, they might be willing to cut him a lot of slack — and give him a lot more money — along the way.
And Musk has one other advantage: Most of Tesla’s competitors are in an even worse position to deliver on the future of cars than Tesla is. Tesla’s roots in Silicon Valley give the company a leg up over old-fashioned car companies that lack the software expertise that will be required to succeed in self-driving and ride-hailing technology. Meanwhile, technology companies like Apple, Google, and Uber lack practical experience building self-driving cars.
So Tesla’s road map will likely prove slower and harder than anyone thought. But Tesla has unique advantages that could allow it to stay a step ahead of the competition. And as long as Musk is doing that, he should be able to find investors willing to bank on his eventual success.