- 1. Elon Musk revealed the 'D' with much fanfare in Muskville, greeted with yawns by outsiders.
2. Musk follows adventure and fame, not sound business practices
- 3. Musk may never develop the mass market EV
On Oct 1st, 2014, Tesla (TSLA) CEO and Chairman Elon Musk tweeted:
"About time to unveil the D and something else".
That mysterious tweet was enough to set Tesla stock on fire as it skyrocketed 8% in a matter of days, as hype built around the tweet. There were all sorts of conjectures surrounding the meaning of 'D', including some as absurd as 'Diesel' or 'Distraction'. In retrospect, this tweet was timed very carefully, right after the quarter close. This allowed Tesla to offload many of its inventory vehicles before the quarter ending at reasonable discounts, all in an effort to meet its Q3 delivery numbers. It also gave Tesla some time to gauge the 'D' demand before its Q3 earnings call scheduled at the end of October.
Tesla stock price during the last 3 months. The red line shows the 'D' bubble burst. Source: money.cnn.com
However, the blogosphere figured out very quickly that 'D' meant 'Dual Drive', and something else meant 'Driver's Assist' of some sort. Many people were also aware of the benefits of dual motors, which include higher power, longer range and probably more durable motors as the torque is split between two motors. While these were definitely very good improvements in making Model S better and competitive in its class, the market expected more. It was clearly looking for some updates on Model X and the car for the masses.
But does Elon Musk care about the masses? When asked about the mass market car by Bloomberg, Elon didn't want to talk much about it, and shrugged off the question with a short answer:
"This particular event is really about showcasing what electric cars are capable of…."
And then, he went on bragging about how the 3.2 s of 0-60 mph acceleration puts Model S in the league of supercars. It became very obvious, that Mr. Musk is really not interested in solving any problem for the masses, but rather is more interested in creating exotic products that fulfill the fantasies of a superrich niche; a niche that also wants to show off their green side. Mr. Musk knows very well, that these clients with deep pockets are the ones that can drive Tesla share price higher, both by buying its expensive cars and by buying and holding Tesla stock. As long as he can find a soft corner in the hearts of this group of people, he has no need to solve the real world issues of reducing pollution and reducing dependence on fossil fuel.
The more I think about the Tesla business model, the more it appears to be a Ponzi scheme. A few early adopters buy the Tesla stock, and spread the hype. This leads to some share price gain. Then, some of the initial investors sell parts or whole of their investments, and order Model S cars. That boosts revenues for Tesla, and drives the share price higher, and aids the second batch of investors to offload shares at a profit, to place new Model S orders. This game goes on for a while, till the share price is too unreasonable, or the market has run out of such people who actually want to buy, and can afford such an expensive car. Then, the music stops, and new entrants to the game vanish. At that point, the vicious positive feedback loop collapses and the last round of players get burnt badly. We have seen this game played out time and again in many fields of life. The nature of positive feedback is that it is never stable; it either collapses or explodes depending on the sign of the feedback.
Tesla has collected millions of dollars in California ZEV credits, sometimes falsely showcasing their battery swap station as a "fast refueling" option. Yet it has contributed very little towards the adoption of EV by mass market. The super charger travel remains impractical and an expensive option for rare needs. While other EVs, PHEVs and hybrids serve as primary commute vehicles for hundreds of thousands of people, thus reducing every day emissions significantly, Model S serves more as a thrill ride and a road racer. The 394 million miles collectively driven by Model S owners is significant, but pales in comparison to 567 million miles driven by Nissan Leaf drivers and a billion miles driven by Chevy Volt drivers. Spending taxpayer money and government incentives to promote these joy rides seems like a massive waste. Unfortunately, that's what seems to be Tesla's focus. Bringing a practical mass market product requires a lot of due diligence in terms of market study, quality inspections, expectation management and organizational skills. Tesla seems to be severely lacking in those areas. These tasks can be too mundane for someone seeking extreme challenges. I think we will never see the mass market EV from Tesla while Mr. Musk is still Tesla CEO. He will find it extremely boring to launch and demonstrate how a common car with very common specs can be used by a common mortal every boring day of his life.
Conclusion
It is apparent, that Mr. Musk is more an innovator and visionary than an executor. He is engrossed in creating fun products, not the products that are affordable to masses and solve real issues. Some bulls compare Musk to Steve Jobs and Jeff Bezos, and Tesla to Apple and Amazon. One distinct difference of Tesla from the other two is that while they created products keeping hundreds of millions of people in mind, Tesla creates products for mere thousands. Will these thousands of folks be sufficient to sustain Tesla sales and its stock price going forward? Some of these people will give up sooner or later, which can lead to a downward spiral of this company.