Musk and his investors share a rare dose of realism

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Brian Adam
Professional Blogger, V logger, traveler and explorer of new horizons.

Elon Musk has lost his spark – at least that’s one way to read investors’ reaction to Tuesday’s big reveal from Tesla’s boss. His plan to increase the company’s sales of $ 395 billion by cutting battery costs led shareholders to drop the stock 12% during and after regular trading hours. Usually Musk’s pitches cause a high. But both he and the shareholders share a rare dose of realism.

Granted, Musk oversold his Battery Day event, claiming earlier this year that it would break “people’s schemes” and be “one of the most exciting days in Tesla history.” For shareholders who have grown accustomed to big promises, like last year’s one million robotaxi-capable cars on the road, high expectations had been set. Confinement due to the pandemic forced the event to be postponed from April to September, which only increased expectations; after all, it gave Musk and his team more time to work on their plans.

Actually, a good approach was made. Musk and Drew Baglino, head of powertrain and power, took turns going into detail on the various steps Tesla is taking to cut costs, develop new processes and alloys, and persuade miners to step up their search. lower battery costs.

If all of this works, they think a $ 25,000 electric vehicle would be possible. That’s a third less than Tesla’s current cheapest model, and a lower price would significantly expand the company’s potential customer base.

The problem is, Musk said it will be three years before Tesla can produce these cheaper batteries at scale. It’s a longer term than investors are used to, although Musk routinely exceeds his own deadlines. And with the stock trading around a whopping 100 times estimated earnings for 2022, according to Refinitiv data, shareholders are already pricing in exponential growth.

Musk hasn’t completely abandoned lofty optimism. It said its goal is to sell 20 million vehicles a year over time – a nearly 60-fold increase from last year and a quarter of all car and sport utility vehicle (SUV) sales worldwide. in 2019. But the fact that both he and shareholders appear to be toning down is a welcome sign.