The visionary CEO gave the most obvious hint that he is contemplating consolidating the different business interests of his vast business empire under a roof. Since Elon Musk admitted last week that he had been hard working on Tesla Company’s 3rd Master Plan six years after the “Part Deux” investors have been buzzing with speculation about what this could mean.
On Monday morning, he raised the veil to let the world know via Twitter the fact that SpaceX, along with The Boring Company, would play an important role in Tesla’s plan in the future.
Elon Musk added that he will be expanding the car manufacturing business up to “extreme size,” which could mean formalizing his goal of selling 20 million vehicles each year by 2030. Representing more than what industry top players Volkswagen Group and Toyota Motor Corporation together sell globally, the staggering number is Musk’s plan to yearly replace 1% of the world’s existing fleet of two billion combustion engine vehicles.
Furthermore, according to Elon Musk, artificial intelligence is expected to play a significant role in the future. This could indicate that the Optimus robot project was his main focus in the year, despite a lack of proof of concept after the idea was first proposed in August 2021.
On the other hand, Elon Musk was silent when leading Tesla influencer Sawyer Merritt inquired on Twitter what role Musk’s controversial brain-implant business Neuralink would play; however, there was no answer from the mysterious CEO. Neuralink, which expects to undertake its first clinical test of a brain-computer interface this year, has been frequently in the news for various reasons, including misleading regulators, killing Chimpanzees, and even company culture issues.
$3 trillion Market Cap
Elon Musk’s hints at Part Three of his strategic plan confirm, at least partially, specific predictions by Morgan Stanley’s staff of Tesla Equity analysts. Last Thursday, they had assumed in a research note that the two privately owned branches of what they called the “Muskonomy”-those involved in tunnel-building and spacefaring- could dock onto the automaker.
About the ties between SpaceX’s Starlink unit and Tesla, which offers broadband Internet via a network of satellites located in low earth orbit, the company stated: “We have long seen the connection between LEO satellite communications and the next-generation transport networks.”
Discussions about a holding company connecting the different aspects of Musk’s commercial empire are in the air since the centibillionaire declared in December 2020 that it was a great idea.
For Musk bulls, an X holding company might fetch valuation multiples of 50 times earnings, typical of high-growth corporations, potentially putting X as the world’s second $3 trillion market value company following Apple.
Musk’s search for a new corporate narrative to promote is yet another proof that the product Musk sells is not entirely autonomous cars, not rockets to Mars, nor humanoid robots. While work has been done on the four pillars of the second master plan set out in 2016 was made, arguable that none have been met. Furthermore, Boring Company’s hyperloop plans for Las Vegas have been significantly scaled back- from the initial futuristic idea to a primary underground tunnel operated by human-driven Tesla automobiles.
Break the Mold
The merging of various businesses has been a trend within the company. In 2017, Tesla removed the word “Motors” from its title to better reflect its growth into other services, such as its much-discredited acquisition of the photovoltaic roof maker SolarCity.
Despite Musk’s claims that Tesla is much more than an automaker, passenger car deliveries and related software sales accounted for 88% of its revenue last year, including non-deferred money from its FSD (full self-driving) option.
In addition, automobiles account for the entirety of the company’s gross earnings. All of Tesla’s business, such as its solar rooftops and energy storage facilities, remains losing money when taken together.
In the previous day’s note, Morgan Stanley argued that automobiles should give way to other projects to justify the company’s high valuation multiples or increase them.
The investment bank anticipates Tesla to shake off the traditional ownership model by shifting towards more recurring revenue generated via software sales, like monthly subscriptions, to the automated full self-driving feature.
The ownership model utilized by the old car manufacturers is based on the single delivery of a car as the primary income source. In this model, the following revenue opportunity comes when the buyer trades in their vehicle of choice for another one a few years after.
“If the share prices of Tesla were to increase from now, we think it would not have much to do with the fundamental business of manufacturing and selling vehicles in the conventional model that is well-known to auto analysts.” Morgan Stanley stated.
Many investors will have to wait until Musk’s next tweeter message to learn the details of Master Plan Part 3 because he is not expected to be present at the earnings call held at the end of the following month.
Devoted my whole life to words - reading, writing and trying to be original on social media. Got certified in digital marketing - still not cool enough to be an influencer. Finished a master’s degree focused in Literature, Publishing, Mass Media. Hobbies include traveling, reading and hoping that yoga will be the thing to finally teach me some patience. Would like to take over the world at some point, but that’s an optional dream. Maybe modern tech can help me do that?