With Tesla Motors' (NASDAQ:TSLA) delivery announcement of July 3, it's become painfully obvious that the June quarter is going to be another disappointment, with negative cash flow and more excuses from Tesla management. Elon Musk tweeted on July 10 that he is working on a "Top Secret Tesla Master Plan, Part 2". What Tesla needs most is a plan for profitability, but that's probably not what we'll get.
Source: Tesla Motors
The Big Tease
As I've studied the social media marketing of companies such as Tesla, I've come to realize that it's all about the Big Tease. In Musk's first blog post on the Secret Master Plan, he teased the release of an as-yet-unannounced high-end sedan that would later become the Model S. This was back in 2006.
The Big Tease is so far in advance of the advent of anything real that the Tease can promise virtually anything with impunity. Any subsequent discrepancies will go unnoticed. Thus, Musk stated:
Without giving away too much, I can say that the second model will be a sporty four door family car at roughly half the $89k price point of the Tesla Roadster and the third model will be even more affordable. In keeping with a fast growing technology company, all free cash flow is plowed back into R&D to drive down the costs and bring the follow on products to market as fast as possible.
Notice that this contains not one, but two whoppers. The first is the price point of half of $89K. The second is that there would actually be free cash flow to plow back into R&D.
In addition to teasing the Model S, the 2006 blog post also provided a pitch on behalf of the environmental desirability of battery electric vehicles compared to ICE vehicles - a viewpoint I consider technically sound.
Musk makes the case that electric vehicles are more efficient than ICE, and will produce less effective hydrocarbon emissions than ICE vehicles, even when electricity production is taken into account. Musk's environmental preaching lent weight to the Tease, converting Tesla from a hopefully profit-making enterprise into an environmental crusade.
The Big Tease, Part 2
Given what the "Master Plan, Part 1" consisted of, I think it's likely that the "Master Plan, Part 2" that will be shortly revealed will resort to the same formula. There will be a tease of a new model Tesla.
Most likely, the new model will be a sport crossover variant of the Model 3. After the financial fiasco of the Model X, Tesla badly needs a simple, relatively affordable, smaller SUV, and the Model 3 is the logical platform. The new crossover would be something along the lines of the BMW X1. At a minimum, it would be equipped with dual motors.
How different this model would actually be from the Model 3 is debatable, but the company probably can't afford to make it very different. The changes could be as minimal as incorporation of the second motor and provision for more ground clearance.
The second element of the Big Tease, the appeal to environmentalism, will probably be wrapped in a pitch on behalf of the SolarCity (NASDAQ:SCTY) takeover. Musk will argue that SolarCity provides the final solution to the electricity generation issue he addressed in the first Big Tease.
In fact, he may argue that the SolarCity acquisition has been part of the Master Plan for some time, and it's only just now coming to the fore. There is environmental merit in electric vehicle owners charging their cars via a solar array.
I can even see merit in a package deal in which the Tesla car and solar array are purchased via normal financing. The would forego some the of more "creative" financing schemes that SolarCity exploited, and allow Tesla buyers to achieve full outright ownership of their cars and the solar arrays in a reasonable time period.
However, it's not obvious that's the game plan. In his various defenses of the SolarCity deal, Musk has appeared to favor continuing SolarCity's business model. That would be an utter disaster for Tesla and SolarCity.
In light of the delivery shortfall that Tesla announced on July 3 for the June quarter, the appeal to environmentalism has to be wearing thin. Yes, it's wonderful to support the cause of reducing greenhouse gas emissions, but Tesla won't be able to do that if it goes bankrupt.
To be sure, the delivery announcement was not all bad news. Tesla produced 18,345 vehicles, even though only 14,370 were delivered to customers, with 5,150 "in transit". But the delivery of only 4,625 Model X vehicles in the quarter works out to an approximate production rate of 385 per week. This is a far cry from the claimed 750 Model X vehicles/week that the company claimed as of the end of Q1. Clearly, with half the year gone, Tesla is still having problems bringing up Model X production to the roughly 1000 per week target.
The Model X, once the hope of profitability for the company, has become the centerpiece of the Tesla financial nightmare.
The timing of the Master Plan, Part 2 reveal seems designed to distract investors from what will almost certainly be a terrible earnings report. My fear is that this Model 3 crossover variant will also be used as a pretext for yet another capital raise: we are just so excited by the Model 3 crossover that we want to produce 20,000 a year by 2018, so give us more money.
How long can this go on before investors realize that Tesla is badly in need of adult supervision? I continue to rate the stock a Sell.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.