Musk's new Tesla 'master plan' comes with big price tag

Elon Musk's latest "master plan" for Tesla Motors Inc. to develop an electric commercial truck, a public bus, a pickup and systems to enable fully autonomous driving, could cost $2 billion to $3 billion or more, experts and analysts said Thursday.

Musk did not lay out a budget for his latest strategy to expand Tesla into a broader range of vehicle markets as well as ride services and solar energy systems. The Tesla CEO also did not explain how the company planned to pay for the new products he envisioned.

However, analysts said it is likely Tesla will have to go back to investors for more capital to fund the plan, despite the company's success in raising about $1.7 billion with a sale of shares in May.

"It's beyond us how much fundraising Tesla will need to carry out this master plan," Barclays Capital analyst Brian Johnson wrote in a note to clients.

Standard & Poors Thursday cut its rating on Tesla to "sell" from "hold" saying "while we think Tesla's new master plan may build a long-term technological monument, we think it will create a short-term cash flow sink hole."

Tesla shares fell 3.4 percent to close at $220.50 on Thursday.

Up to Wednesday's close, the company's shares had risen 5 percent since July 8 after Musk tweeted that he was working on a second master plan for the company he founded in 2003.

Musk on Wednesday sketched out a vision for Tesla to become an integrated carbon-free energy enterprise offering products and services beyond electric cars and batteries.

The most expensive elements of the plan were his proposals for Tesla to develop a compact pickup truck, an SUV, electric semi trucks and buses.

The SUV and pickup could cost $500 million to $750 million each for components and production equipment, assuming they borrowed elements from the automaker's current vehicles, said Michael Tracy, a manufacturing expert and president of The Agile Group in Detroit.

Development and production of an electric semi truck and bus could cost up to $500 million, according to Mark Wakefield of AlixPartners.

A four-year-old Salt Lake City startup, Nikola Motor Co., plans to unveil in December a working prototype of a natural gas/electric heavy duty semi-trailer truck designed for road haulage.

Nikola CEO Trevor Milton told Reuters on Thursday he respects Musk, but "Tesla better be willing to round up $5 billion and be willing to spend it" to develop an electric semi truck that can compete in the over-the-road market. The effort could take five to nine years, Milton said.

Nikola plans to begin producing its Nikola One trucks within 36 months, and has 7,300 orders, he added.

Playing catch up

Tesla would be playing catch up in the commercial truck market with established players such as Daimler AG and PACCAR Inc. Daimler and PACCAR are among the participants in a U.S. Department of Energy "Super Truck" program to build a more efficient heavy truck. Daimler said it has matched a $39.6 million federal grant as part of the program.

Analysts questioned whether a fully electric long-haul freight truck would be practical. "Imagine the battery needed to make a cross country trip," UBS Securities analyst Colin Langan wrote in a report Thursday.

'Intelligent' trucks?

However, Morgan Stanley analyst Adam Jonas said "intelligent" trucks that use automated driving technology to enable vehicles to run around the clock, and operate in closely-packed platoons, could cut shipping costs by 30 to 50 percent from current levels.

Another expensive element of Musk's strategy is developing technology to pilot fully self-driving cars, trucks and buses. Musk said he wants self-driving cars that are ten times safer than a human driver. Analysts estimated that effort could consume $400 million to $800 million or more.

Musk and Tesla CFO Jason Wheeler told investors in May that Tesla planned to accelerate the launch of the Model 3 sedan, aiming to build 500,000 a year of the affordable sedans by 2018. They said capital spending for the coming year would rise 50 percent from previous forecasts to about $2.25 billion.

Following its share sale, Tesla said it had nearly $2.9 billion on hand, including cash drawn from its credit line. Musk has said he expects Tesla to stop burning cash by the end of this year. Analysts are skeptical Tesla can fund the previous plan to accelerate Model 3 production, and the new ventures, without taking on more debt or launching another share sale.

$4.2 billion hole

In delivering on its original master plan, Tesla "... dug a $4.2 billion hole on the financial side that has necessitated a series of fund raises totaling $6.2 billion," Johnson said.

Of the 17 brokerages covering Tesla's stock, four rate it "buy" or higher and eight "hold", while five recommend "sell". The median price target is $234.