Tesla dropped an event bomb. It tries to interfere with more than EVs.


The reaction to Tesla’s March 1st analyst and investor event was, well, meh. Investors may have missed something big.

Analysts and investors wanted concrete details about upcoming vehicles like the long-delayed Cybertruck and a lower-priced electric vehicle for the masses. You didn’t get them. However, CEO Elon Musk said something very important. If he’s right, Tesla (ticker: TSLA) will significantly change the entire auto business for the better.

Also, the new plan has nothing to do with electric vehicles.

Tesla shares fell 5.9% Thursday after the investor event. The stock rallied on Friday to end the week up 0.6%, lagging the respective gains of 1.9% and 2.6%



Nasdaq Composite.

Wall Street later complained that the event was too high profile, too philosophical and too long. Analysts were hoping that Tesla would launch a prototype of a compact Tesla electric vehicle later in the evening. What they got was a short Q&A session to end the evening.

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During that session, Jefferies analyst Philippe Houchois posed a key question about how many different vehicle models Tesla would need to sell to meet its ultimate goal of 20 million vehicles per year.

“Not so many. Actually 10, I don’t know, not that many,” Musk replied.

This is the bomb. It’s an incredibly low number. Volkswagen (VOW3. Germany), one of the largest car manufacturers in the world by volume, has 10 car brands and many, many more models.

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“I mean, what’s happened with conventional cars is that people are running out of things to do. So if you run out of things, you end up just reshuffling the cards and you’ve got pretty much the same thing,” Musk continued. “Look at how things have converged with the phone. I mean, there used to be hundreds of flip phones. Well what do we have? So will it be.”

He has an argument. Today, the vast majority of phones share the same form factor, the so-called candy bar, that supplanted the flip phone.

Cars are not phones. People need vans and trucks along with sedans and SUVs. However, if Musk is right and the number of car models is dropping significantly, it means the auto industry is wasting less money endlessly spent developing and upgrading models in an eight to 10 year cycle.

The smartphone industry does it better. Global automakers spend approximately $110 billion annually on plant and equipment and generate approximately $90 billion in annual free cash flow. Apple (AAPL) and its iPhone manufacturing partner Hon Hai Precision Industry

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(2317. Taiwan), spends about US$15 billion per year on plant and equipment and generates about US$100 billion per year in free cash flow.

Today’s best-selling car models are the Toyota Corolla, Toyota Rav-4, Ford F-Series trucks, and Tesla Model Y. Of these, only the Corolla sells more than a million units a year.

Tesla’s 10-for-20 million equation, which works out to average two million units sold per year per model, is a radical departure from the way things are done today.

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It could happen. Nobody really cares about the shape of their phone anymore. You take care of the functional expansion through software. That’s another thing Tesla essentially built for the auto business.

Tesla updates ride quality, entertainment, and autonomous driving features with over-the-air software updates. Now every other automaker is trying to do the same.

Tesla disrupted the industry when it commercialized and popularized electric vehicles. That was just one of Tesla’s glitches. If Tesla succeeds with its model goals, the rest of the industry might not admit it, but they will be amazed. Spending less can mean everyone is doing a little better.

Regarding 20 million, Musk has pointed out in previous interviews that the number is a goal, not a guideline. Volkswagen plans to deliver around 9.5 million units in 2023.

An automaker selling 20 million units a year would be another thing the world has never seen.

Tesla shares were flat in premarket trading on Monday. So were futures for them


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Dow Jones industry average.

Write to Al Root at allen.root@dowjones.com

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