NEW YORK (Reuters Breakingviews) - Elon Musk has lost his touch, at least that’s one way to read investor reaction to the Tesla boss’s big reveal on Tuesday. His plan to ramp up sales at the $395 billion company by slashing battery costs prompted shareholders to put the stock into a 12% decline during and after regular trading hours. Usually, Musk’s pitches prompt a surge. But both he and shareholders are sharing a rare dose of realism.
Granted, Musk oversold his “Battery Day” event, asserting earlier this year that it would “actually blow people’s minds” and “be one of the most exciting days in Tesla’s history”. For shareholders weaned on big pledges, like last year’s promise to have 1 million robo-taxi-capable cars on the road by now, it set high expectations. That pandemic lockdowns forced the event to be postponed from April to September only added to expectations; after all, it gave Musk and his team more time to work on their plans.
As it happens, it was a good pitch. Musk and Drew Baglino, head of powertrain and energy, took turns to go into some detail about the various steps Tesla is making to cut costs, develop new processes and alloys, and persuade miners to up their game in pursuit of lower battery costs. If it all works, they reckon a $25,000 electric vehicle would be possible. That’s a massive one third less than the cheapest current Tesla model, and a lower price would significantly broaden the company’s potential customer base.
Trouble is, Musk said it will take three years before Tesla can produce these cheaper batteries at scale. It’s a longer target time than investors are used to – even though Musk routinely overshoots his own deadlines. And with the stock trading around a nosebleed-inducing 100 times 2022 estimated earnings, per Refinitiv data, shareholders are already pricing in some exponential growth.
Musk hasn’t ditched breathless optimism entirely. He said he’s targeting selling 20 million vehicles a year, eventually – an almost 60-fold increase on last year and a quarter of all car and SUV sales globally in 2019. But that both he and shareholders appear to be toning down some of the hype is a welcome sign.
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