As an tech industry analyst who has followed Tesla‘s exhilarating journey, I want to provide you with an insider‘s look at the first chapter of Elon Musk‘s secret master plan. Back in 2006 when Tesla was still a risky startup, Musk boldly laid out a strategy for how they could catalyze the world‘s transition to sustainable energy.
Now 15 years later, it‘s fascinating to examine how his plan has unfolded. Understanding the genesis of Tesla provides unique insight into the industrial revolution still underway.
Tesla‘s Origin Story
Elon Musk first deeply researched electric vehicles and solar power in the early 2000s out of concern over fossil fuel dependency. Despite the poor economics, he felt compelled to do something to accelerate change. As he told PBS:
"I came to the conclusion that really if we could move to electric cars and solar power we could solve sustainable energy…Somebody‘s got to do this, so why not me?"
After investing $6.5M of his personal funds from the Paypal acquisition, Tesla Motors was incorporated by Martin Eberhard and Marc Tarpenning in July 2003. The company was named after eccentric Serbian-American inventor Nikola Tesla who pioneered modern alternating current electricity systems.
As Chairman and early funder, Elon helped lead Series A funding of $7.5 million in February 2004. This allowed research and development to begin on Tesla‘s first product – an all-electric sports car.
| Key Tesla Motors Founding Dates |
|---|
| July 2003 |
| Feb 2004 |
| Aug 2006 |
| Feb 2008 |
This table highlights the rapid pace in those early days even before the first car hit the road. The company was running on dreams and VC funding.
Now let‘s examine the 4 components of Elon‘s original strategy…
Build Sports Car to Prove Viability
Musk‘s blog post stated the master plan was to:
- Build sports car
- Use money to build more affordable car
- Repeat to build even more affordable car
- Provide sustainable energy products
This phased approach provided focusing constraints with limited capital. It also addressed the reality that electric vehicles remained highly impractical at the time. As Musk wrote:
"So, in short, the master plan is: build sports car, use that money to build an affordable car, use that money to build an even more affordable car."
Tesla targeted wealthy enthusiasts wanting a status symbol performance vehicle. This niche could support expensive low-volume production of the 2-seat Roadster sports car.
Priced between $109,000 – $125,000, the sleek Roadster accelerated 0 to 60 mph in under 4 seconds thanks to its patented lithium-ion battery pack. This helped the eco-friendly car attract celebrity buyers like Leonardo DiCaprio.
The strategy worked – despite minimal marketing, Tesla received over 1,000 reservations by October 2006 before even showing the prototype. This early demand signaled compelling product-market fit.
As Elon wrote in a later blog post reflecting on the Roadster:
“Even though Roadster production wound down in 2012 after over 2,400 cars, it will always have a special place in my heart. Without the Roadster, we would not have been able to prove that electric vehicles could be exciting and fun – as well as environmentally responsible.”
Fund Affordable Model S Sedan
Bolstered by proof-of-concept and cashflow from the niche Roadster, Musk‘s next phase was developing a more accessible electric vehicle.
The 4-door Model S sedan released in 2012 with a base price of $57,400 (or $49,900 after tax credits). By targeting higher volume at about 1/2 the Roadster cost, this moved Tesla closer towards mass-market affordability.
The Model S received widespread acclaim, winning MotorTrend‘s 2013 Car of the Year and achieving the best safety testing ever recorded. This prompted Tesla to ramp up production from 20,000 per year originally to 1 million per year.
In my professional opinion as an industry analyst, the Model S will be remembered for making electric vehicles cool. It shattered perceptions that they were boring environmental compliance cars by thrilling drivers with technology, performance and design.
By 2016, Tesla had sold over 100,000 Model S vehicles globally. This success financed Musk‘s next chapter.
| Year | Vehicle | Base Price | Cumulative Sales* |
|---|---|---|---|
| 2008 | Roadster | $109,000 | 2,450 |
| 2012 | Model S | $49,900 | >250,000 |
| 2015 | Model X | $79,500 | >213,000 |
| 2017 | Model 3 | $35,000 | >3,000,000 |
*Combined global sales since release. Source: Tesla financial filings
As this sales data shows, the Model S took Tesla into a new stratosphere. It set the framework to someday reach true mass-market scale.
Launch Model X Then Model 3
Elon‘s 3rd chapter was using funds from the Model S to produce an even more affordable EV in higher volumes. Interestingly, this next vehicle ended up being the Model X SUV rather than the initially proposed mass-market sedan.
Unveiled in early 2012 shortly after the Model S, the Model X was Tesla‘s first crossover utility vehicle. It started at $79,500 when first released in 2015.
Signature features included falcon-wing doors allowing easier access to the second and third row seats. The Model X offered room for 7 adults and ample storage capacity.
Early production was plagued by significant delays and manufacturing issues. But after sorting through the challenges, the current iteration of the Model X provides exceptional range, performance, and functionality for families.
So why go for the higher-priced SUV before a mass-market sedan? In earnings calls and interviews, Elon cited customer demand for a premium EV crossover. Mass adoption was still predicated on battery cost improvements.
By mid-2017, combined Tesla sales surpassed 250,000 units globally. But they remained a niche player lacking economies of scale compared to brands like Toyota or Volkswagen selling millions of cars per year.
The Model 3 finally arrived in Q3 2017 with a $35,000 base price delivering on Musk‘s promise of a truly affordable, high-volume electric vehicle.
Enable Sustainable Energy Products
The 4th pillar of Elon‘s 2006 strategic plan was providing customers with clean power generation capabilities:
"In addition to developing its own all-electric vehicle fleet, it would sell emission-free electric power generation options."
While Tesla focused initially on EVs, energy storage and solar power were always part of the grand vision to accelerate sustainability.
In 2016, Tesla acquired SolarCity where Musk was chairman and major backer. This brought solar panel installation and financing in-house. Tesla could now provide a seamless customer experience for renewable energy generation + battery storage.
Current clean energy products include:
- Solar Panels – Photovoltaic panels for home & commercial rooftops
- Powerwall – Rechargeable lithium-ion battery modules for home energy storage
- Megapack – Giant battery packs for utilities and large scale grid storage
As Tesla‘s 2020 Impact Report highlights, the capacity of Tesla batteries deployed in 2020 alone can store 10 terawatt hours of renewable energy. That‘s enough to power the entire United States for 20 minutes!
While small compared to automotive revenue today, Tesla Energy is ramping exponentially. With global progress towards carbon neutrality by 2050, the total addressable market here is massive.
Why Part 1?
You may be wondering…why did Elon explicitly label his post about Tesla‘s grand strategy as “Part 1”? What‘s still left undisclosed for the future?
As he candidly admits, everything in the initial 2006 master plan was primarily constrained by his available funding. While wealthy from Paypal‘s acquisition, Musk couldn‘t yet afford the factories required at scale to produce hundreds of thousands of affordable electric vehicles per year.
He also sensed skepticism was extremely high about any newcomer, let alone a Silicon Valley tech founder, successfully building vehicles to compete with industry titans in Detroit and Japan. As Elon reflects:
“Given that annual new vehicle production is approaching 100 million per year and the fleet being around 2 billion cars, it is impossible for Tesla to build electric cars fast enough to address the carbon crisis."
So Elon focused Part 1 on what he calculated Tesla could achieve to push the needle forward with limited capital. He deliberately left room for a sequel once they demonstrated initial technological and economic viability.
Tesla‘s Market Position Now
Industry reports project electric vehicles will make up 58% of new car sales globally by 2040. This represents a massive $7 trillion market opportunity as the auto industry shifts from gas to electric.
Tesla entered the EV market in 2008 when less than 16,000 electric cars sold worldwide according to International Energy Agency data. The competition was basically non-existent.
Flash forward to today – the EV revolution is now inevitable. Yet even as the market explodes in growth, Tesla maintains dominance…
- 18% global market share of EVs based on 2021 sales, more than #2 and #3 combined
- Widest EV charging infrastructure which all brands can use
- 5-7 year technology lead with max range, performance, self-driving software
However, traditional auto manufacturers like VW, Hyundai and Chinese electric upstarts like BYD and Xpeng are pouring billions into next-gen vehicles. Can Tesla maintain its competitive edge?
The Road Ahead…Master Plan Part 2?
Many critics throughout Tesla‘s history have bet against Elon Musk pulling off his outrageous promises. Yet he has consistently defied expectations and normal constraints.
Still, Tesla occupying 18% EV market share today leaves over 80% up for grabs as the industry goes mainstream. And Musk has yet to fully reveal what “Part 2” of his grand vision entails.
Yes, the original 2006 strategic plan has largely played out. But with infinite ambition and drive, Elon is surely formulating how Tesla can accelerate the world’s transition to sustainable energy even faster in this next decade.
Autonomy, robo-taxis, AI chips, scaling solar to gigawatts… his restless, ever-innovating mind has many more ideas I‘m sure. And with Tesla executing better than ever before, don‘t underestimate what they could achieve next. We need that boundless ambition and technology to build the future we deserve.
What do you think of Tesla‘s progression so far? Are you excited for what could come next on the road to sustainability? Let me know your thoughts on how the master plan might further unfold!
