Tesla Predictions

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Some predictions about Tesla and other Elon Musk companies.

#1 Tesla will acquire or merge with Elon Musk’s promising start-ups

We got a preview of this with Solar City. Personally, I was and still am a little skeptical of that acquisition – it felt a bit like a bailout. But, I think we got insight to Elon Musk’s long-term plans for his other start-ups. He will use his own money, venture capital, and leadership to launch startups and if those prove to be viable or synergistic with Tesla, they will be acquired or merge. If they flop, Tesla shareholders are spared.

#2 Tesla will become a futurist conglomerate

Think General Electric for the 21st century. Thomas Edison’s legacy lives on with General Electric. One key to Edison’s success was financial backing from investors and bankers like JP Morgan. This allowed Edison’s R&D to branch out eventually into all aspects of our lives.

There are parallels here with Elon Musk. His ability to raise capital, willing investors, and eagerness to take on big tasks with fresh approaches. Tesla very well could become the new GE for the 21st century.

#3 Tesla and SpaceX will merge, keeping the Tesla name

Elon Musk has stated SpaceX won’t go public until they have more reliable earnings and revenue that stockholders prefer. Certainly, becoming the world’s largest ISP may help. I predict Tesla and SpaceX will merge during SpaceX’s campaign to launch ~4500 communications satellites once revenue starts coming in from that project and it appears to be on a good trajectory (pun intended).

#4 Tesla/SpaceX will send Godot to Mars

The Boring Company will be acquired by Tesla ostensibly to make tunnels for cars on sleds and hyperloops. That in itself will be very cool. But, check out the payload capacity of the Falcon Heavy rocket. I suspect one reason Elon Musk wants smaller tunnels isn’t just for the economics (which is a great reason!) but also because it looks like it may fit on a rocket to Mars. Much easier to fit a 14′ cylindrical drilling machine on a 12′ rocket than it would be to fit a 28′ cylindrical drilling machine.

  • 14′ diameter tunnels are quite livable, especially if you can drill quickly to build out nice facilities
    • Natural protection from harsh conditions above ground before terraforming
  • The Boring Company FAQ page mentions wanting to make bricks from waste dirt
    • Martian soil can be made into bricks from water and compression
  • He wants to build electric boring machines
    • Makes sense on its own, but also not much diesel on Mars. Solar or nuclear powered boring machines make sense

#5 Ride sharing will not be as popular as people think

Might get some hate mail for this one. The world is not going to convert to “no one owning cars” – it won’t happen. I can see why people who live in mega cities with robust public transport may think this, but it won’t happen in any large metro area where people need to commute to work. There are numbers thrown around about how cars are idle 92% of the time. That’s true. Because people mostly use cars to get to and from work and mostly work similar schedules. Hence, rush hour. Until we culturally shift away from the concept of working in a communal building at a set time – something we can technically get away from today already – we will still have rush hour. The minimum number of cars that are needed will only be reduced slightly by ride sharing.The one reservation

The one reservation I have about my claim is that if hyperloops and tunnel sleds get so cheap that you can effectively build out subway systems throughout suburbia, then there would likely be a higher adoption of riding an autonomous car for the final mile to and from the subway tunnel. But I think we’re a long way off from that.

  • Miles driven will go up because cars will drive empty from one delivery to the next passenger pickup
    • But routing/consolidation of passengers into carpooling!
      • Most people do not want to carpool
        • Parents with children, especially with child safety seats
        • Women
        • People who want privacy to be on the phone or work
        • Cars are tight intimate spaces
        • People who don’t want their address known by strangers
      • A bus or train is much less personal than sitting next to a stranger in a car
      • I don’t want to take the extra time to get to work waiting for passengers getting in and out of the car and going off my route to accommodate them
    • This means more congestion – but fortunately, accidents should decline due to autonomous vehicles which may counterbalance the effect. Imagine traffic with more cars but zero accidents. Congested, but flowing.
  • People will still own cars, but also lend them out
    • I’ll certainly let my Model 3 be available to shuttle people around while I am at work if the compensation is right
    • I won’t expect to make a fortune off it
  • Weren’t you going to be 3D printing your cars by now anyway?

Testing The Boring Company car elevator

A post shared by Elon Musk (@elonmusk) on

#6 Capital raises forever

Tesla may never be “profitable” in the traditional sense. Building factories and R&D costs money. If Tesla were to limit themselves to only reinvest their own profit to fund their growth, they would not be able to grow so fast.

Tesla has 20-25% gross margins on the cars they build, in line with Porsche profit margins. Unlike Porsche, which only produces ~100,000 cars per year in established factories, Tesla wants to produce millions of cars per year, new models of cars, 18-wheelers, hyperloops, batteries, solar, etc. Building a gigantic factory takes a lot of money upfront. If you build a giant factory and start building cars from it, that shows negative cash flow in the beginning because the cost of the giant factory is divided across the early low volume production and the cost has to be funded through financing or secondary offerings.

If Tesla has a solid business case for a new product, they should seek to fund it to execute now instead of waiting. As long as a Tesla product is reasonably profitable, that profit along with shareholder contributions should be used to fund the next product to be first to market.

Shareholders and the businesses they own are supposed to have a symbiotic relationship. Far too often, shareholders want to sit back and collect dividends and lose sight of what investing really is – putting money into a business widely so that it can make more money and this doesn’t stop at IPO. Sometimes that means “white knight” investing and “turnaround” investing – concepts people easily understand: a struggling company that could recover or thrive with some restructuring and funds. So, why do people freak out when a growth company wants some money to grow even faster than their profits would normally allow?

#7 Tesla Model 3 will be better than most expect

The Tesla Model 3 being unveiled this Friday (7/28/2017) will exceed expectations in performance and value and leave other automakers scrambling to ramp up their EV production. This means they too will have to do similarly large capex to try to catch up (billions of dollars), at the same time as they are losing market share to Tesla. Large spending + sales slump = the current low stock prices for legacy automakers seem justified. We’re talking wrecking the market share of many high volume flagship cars of legacy automakers, similarly to what Tesla did to the high-end sedan and SUV market.

So, what do you think?

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