Elon Musk’s Master Plan Three

By Amy, Tesla Investor | Follow her on Twitter: @SF___Tahoe

Welcome to the beginning. Earth‘s Pax Abundantia—The Age of Abundance. 

I was lucky enough to get an Investor Day invite and was blown away! I have followed Tesla closely since before the IPO and really the most apt word to describe me is that I am “obsessed.” The enormous scale of Tesla’s ambition, while simultaneously having the products and talented team to execute on this vision, will change the world. Being there for Master Plan 3 was one of the most impactful experiences of my life—and I have a very good life! 

Master Plan 3 envisions the world forcibly ushered into the future—started by one company, by one man’s grand vision. Our children’s future, and their children’s future, and their children’s children’s future, is a very different future than imagined. It is not just a new age for humanity, but a new age for all living things on Earth. No coal plants turning blue skies brown. No power outages causing people to freeze in their homes. No wars are being fought over scarce resources. Historians will pinpoint March 1st in GigaTexas as the beginning. Elon stated that Investor Day was for all beings on Earth, and he delivered. Elon Musk doesn’t ever give up. He doesn’t let his dreams for humanity die.

First, they ignore you; then they violently oppose you; then they accept it as self-evident. 

For our children, the climate change crisis will be almost passé—so 1900s, early 2000s. It will be like the new version of the Y2K scare: a very real problem, but also an imminently solvable problem. Just like Y2K, while many made money and sold fear based on it, others quietly were the solution. But solving Y2K, or a sustainable future doesn’t generate headlines. 

Computer programmers in the 20th century coded dates with two digits, as there was real worry about the simultaneous crash of computers at New Year’s 2000. The problem was widely reported, but there were very few reports of a solution. There is similar coverage of the real crisis presented by climate change, and a similar lack of headlines on solutions, like Master Plan 3.

Fear sells; hope doesn’t.

"When something is important enough, you do it even if the odds are not in your favor." 

—Elon Musk

So what is the solution? How does Earth usher in a new era for humanity? Master Plan 3 by Elon Musk and Tesla’s talented team. Credit also to the giants whose shoulders Musk and Team stand on: those scientists, writers, politicians, and other companies that laid the foundation, sounded the alarm, and did the work.

"I think we have a duty to maintain the light of consciousness to make sure it continues into the future."

–Elon Musk

The Problem with Fossil Fuels

"Some people don't like change, but you need to embrace change if the alternative is a disaster."

–Elon Musk

Right now, over 80% of global energy comes from fossil fuels; but only a third of global energy delivers useful work—or heat—which means 70% of the energy produced is wasted. Fossil fuels are dirty—and wasteful. It is a logical fallacy that the amount of fossil fuel products required will be the same for a renewable future. Renewable solutions are much more efficient than the present way of powering the world. Furthermore, oil can only be burned once, while batteries are recyclable, and the sun could power a world far bigger than our own.

In fact, currently, the world consumes a massive 165 PWh of energy per year! Sustainable energy sources deliver almost twice as much useful work. Less than half of the 165 PWh of energy per year—82 PWh per year—is required for a sustainable future using sustainable energy sources. See below for the economics and investment required for a sustainable economy. Takeaway: A sustainable energy future that replaces the fossil fuel-dependent present is in reach, and we should accelerate it!

The Business Argument for Master Plan 3

“Long term, I’m convinced that Tesla will be the most valuable company of Earth.”

–Elon Musk

Venture capitalists, when looking to invest in a startup, look for indications a company will have outsize returns. Let’s review Master Plan 3 with these metrics in mind: 

  • The largest possible target addressable market. For Master Plan 3, this market is the entire planet. Tesla’s role vastly increases addressable markets for Tesla’s existing products: EVs (28 PWh), Energy Storage (240 TWh Energy storage total market), and Solar (30 TWh total market).

  • A clear statement of a large problem. Master Plan 3 is the change from fossil fuels to a sustainable energy future, by using Solar/Wind, Energy Storage, Electric Vehicles, Heat Pumps, High Temp Heat Delivery and Hydrogen, and sustainable fuel for boats and planes.

  • Tesla’s role in the solution. Tesla already has products, factories, and mass production of EVs, energy storage products, and solar. It is possible Tesla branches out to heat pumps and more in the future. Tesla moved forward with its already ambitious and massive goal of 20M EVs/yr. and TWh/yr. of energy from 2030 to ASAP!

  • Disruption of entire industries, with a solution that is an order of magnitude better. Fossil fuels, energy, auto, and HVAC—are all massive industries. Present solutions are complicated and inefficient. 

    “Disruptive technology where you really have a big technology discontinuity... tends to come from new companies.”–Elon Musk

  • Possible investment requires less than future profit. Businesses can be profitable and even better if they can start self-funding growth. Master Plan 3 can be funded with 1% of the world’s GDP/yr. for ten years. Tesla is already profitable with $22B in cash and is self-funding Tesla’s first priorities expansion, which means new factories and new products.

    “If something has to be designed and invented, and you have to figure out how to ensure that the value of the thing you create is greater than the cost of the inputs, then that is probably my core skill.” –Elon Musk

  • Proven founder with a world-class team. Elon Musk and 16 world-class executives/engineers took the stage at Investor Day. 

    “Talent is extremely important. It’s like a sports team, the team that has the best individual player will often win, but then there's a multiplier from how those players work together and the strategy they employ.” –Elon Musk




A Sustainable Energy Future

Musk opened the presentation of Master Plan 3 by laying out the global needs for a sustainable energy economy. Some key numbers (all Tesla estimates): 

  • 240 TWh energy storage

  • 30 TW renewable power

  • $10T manufacturing investment

Tesla's bottom line? A sustainable global economy is 1) doable, and 2) potentially more reasonable to achieve than most people think.

TESLA’S FIRST STEPS

Expand Energy Storage

Energy Storage is moving to the forefront. Tesla is not just an auto company! The market for renewably powering the existing grid is enormous (46 PWh/yr). Tesla has two business areas with proven products: Energy Storage (24 TWh required a year, vs. Tesla’s goal of 1 TWh/yr. which leaves room for enormous expansion). Tesla’s Megapack—deployed across 16 countries—has a best-in-class energy density and the lowest cost to install. Exponential growth is required in energy to meet MP3 goals.

Energy storage—Megapacks, Powerpacks (for commercial businesses), and Powerwalls (for residences)—represent 35% of the Master Plan 3 goals to eliminate fossil fuels. Tesla’s Lathrop factory (and announced GigaNevada expansion) will produce 10,000 MegaPacks (40 MWh/yr); GigaNevada will expand this output with a reported two-year order backlog. For the foreseeable future, the demand for Tesla’s Megapack production will vastly exceed supply—quasi-infinite, according to Elon Musk. Expect Lathrop and GigaNevda to be prototypes of the primary Tesla product: the Machine that builds the Machine -> the Factory as the product. Once these factories hit production benchmarks, expect massive replication (combined with innovation) of MegaFactories around the world. As noted, by Tesla President Tom Zhu, Tesla has the bandwidth to build multiple factories at once now. And Elon Musk has said Master Plan 3 will be on a massive scale. 

Solar also plays an important role (10TW) with products like Tesla’s solar panels and solar roofs. 

Ramp EVs, FSD, Robotaxi, and Semi

“Tesla's audacious efforts on vertical integration are about to pay off. EVs far too expensive today. Tesla gave a number of drivers a 50% cost reduction for its next-gen platform. In a race to the bottom, we seriously question how the competition can keep up.” 

Adam Jonus, Morgan Stanley

The world switching to EVs represents 21% of the solution of Master Plan 3 for moving the Earth to a sustainable future. Right now, the global fleet of new and used vehicles is approximately 2B. Tesla estimates that the future needs of the global fleet will be fewer vehicles, with 1.4B EVs, including Robotaxis, playing a large part in reducing total vehicles on the road. Tesla broke out estimates of the global fleet in the chart below. When asked how many vehicle types Tesla thought they needed to produce to get to 20M EVs/year, Elon’s feeling was about ten segments/models. This plan requires ramping up Tesla’s existing offerings—Model X, Model S, Model Y, Model 3, and Semi—plus new vehicle models. New vehicles include the Cybertruck, which is expected this summer with volume production in 2024, and the Gen 3 Platform. GigaMexico announced the hope to commission a plant in 9.5 months or less from breaking ground. It normally takes at least a year to ramp to full-volume production after commissioning. 


Heat Pumps?

It is possible that Tesla gets into the heat pump market. Heat pumps represent 21% of the Master Plan 3 solution. Analysts have speculated it is a natural fit with Tesla Solar, Battery Storage, and EVs. Tesla CFO Zach Kirkhorn is focused on Tesla being disciplined about running parallel development projects. So it may be a future opportunity, while Tesla focuses on the low-hanging fruit of the core competency of EVs and battery storage to make the quickest possible change. Tesla already produces heat pumps for Tesla EVs. Heat pumps could replace current forms of heat, such as natural gas furnaces. Heat pumps work by transferring heat from outside to inside, or vice versa.

Air conditioners work as follows: a gas is compressed, which is heated in the process. That gas is run through a heat exchanger—like a radiator—that transfers the warm air into your home. The gas is cooled in the process, but it is still under high pressure. That pressure is released through an expansion valve and is cooled further in the process and is then run through another heat exchanger—this one is outside—which cools it even more. The gas is then run through the compressor again to repeat the process. The process is reversed to cool your home. 

Tesla hasn’t announced plans to produce heat pumps, but Elon Musk has speculated about heat pumps in the past. 

High Temp Heat Delivery and Hydrogen? Sustainably Fuel Boats and Planes?

At the moment, Tesla has announced no plans towards these two parts of Master Plan 3, which together account for 22% of the solution. There are companies that are presently working on advancements in these areas. It is possible that Tesla’s decision over time on if Tesla enters these businesses will be similar to Tesla’s decisions to vertically integrate—Tesla avoids vertical integration unless their suppliers can’t meet Tesla’s targets. Then Tesla will vertically integrate rather than not meet the growth goals. 

At Investor Day, it was noted that Elon Musk told employees: “You can waste materials or money, but not time.”

Massive Scale

Tesla will grow production capacity as quickly as possible to help meet Master Plan 3 goals. Competitors are welcome. These are massive markets. Massive scale requires massive amounts of raw materials and supply. Tesla embeds supply engineers in Tier 1 and Tier 2 suppliers, closely monitoring the supply chain down to Tier 6. It will require fewer raw materials for a sustainable future than continuing with fossil fuels. The raw materials supply required for a sustainable future is available and doesn’t have to come at the expense of destroying natural habitats.

“There are really two things that have to occur in order for new technology to be affordable to the mass market. One is you need economies of scale. The other is you need to iterate on the design. You need to go through a few versions.”

–Elon Musk

See subsequent articles on Gen 3, Energy, and other Investor Day presentations. A revolutionary new process of assembling vehicles was unveiled. The unboxed method where four sides of the EV can be simultaneously worked on at once is more efficient than an assembly line where only a few can simultaneously work on the car before being assembled. This innovation will reduce both production costs and time.

Tesla announced a clear pathway to their Gen 3 Platform, including a 50% reduction in a new unboxed method of assembly plus new technological advancements and innovations, some already in use, which should lessen the pain of “Production Hell” during the Gen 3 platform ramp. Amongst them are 48V architecture (it will be used first on Cybertruck and will allow for Ethernet over the wires); a new hairpin permanent magnet motor with no rare Earth elements, reduced silicon carbide in inverter; and dry electrodes/4680 batteries; castings, etc.

“The Gigafactory is the Product.”

–Elon Musk

Tesla’s new product announcement—missed by many—was GigaMexico. GigaMexico will be the first site where Tesla manufactures the new Gen 3 platform. It is the EV prototype for the machine that builds the machine. The MegaPack prototype is Lathrop, and the Battery/Semi prototype is the expansion at GigaNevada. Once these factories meet production benchmarks, expect Tesla to start executing its massive growth plans by possibly replicating these production lines in waves of simultaneously produced GigaFactories and MegaFactories. Are TeraFactories (combining many products under a roof) in the future? Tom Zhu noted in the keynote, that Tesla is vertically integrated and has the bandwidth to build factories simultaneously.

Note: While Zach Kirkhorn mentioned the term “copy and paste” in regard to factories, Tesla is constantly innovating. The Model 3 production line of today looks nothing like the production line at the beginning. Tesla’s agile structure allows for constant improvement. Even though factories will be built as products, likely in continuous waves, don’t expect the advances in the machine that builds the machine to stop.

IS MASTER PLAN 3 POSSIBLE?

Economic Investment

It will cost less to bring the world to a sustainable energy economy (60% less!) than continuing fossil fuel investments. $14T is the estimate for 20 years of investment in fossil fuels, vs. $10T cost if that money is instead spent on sustainable energy. Sixty percent less! A sustainable energy future is possible in most of our lifetimes, by 2050! 

"Persistence is very important. You should not give up unless you are forced to give up."
–Elon Musk

Tesla had an impressive parade of executives present keynote speeches. A common theme was the constant drive to reduce costs via innovation and efficiency while simultaneously improving products. Tesla has $22B in cash and little debt, driven by its deep discipline to fund growth through free cash flow. As Tesla ramps through tight operating expense control, Tesla will have an ever-increasing operating cash flow to invest in ever-increasing expansion goals. This is just the beginning. The majority of Tesla’s Plaid-level growth is still in front of the company.

Here are some links to analyst responses to Investor Day. Contrary to mainstream media, analysts that attended Investor Day in person were impressed. 

Jeffries raises price targets on Tesla: ‘We saw tangible progress on 4680 and dry electrode production, being critical to lower battery cell cost towards S70/Kwh and further roll-out of casting. We assume NextGen SOP with streamlined ‘box process’ assembly as early as H2 24, given timeline of the Mexican plant.’