Among growing concerns of halted environmental policies, Tesla has been the ultimate promise of a sustainable future to many. However, times have been tough as of late. While Tesla CEO Elon Musk has recently been in the spotlight due to a string of controversial public showcases, culminating in his resignation as Chairman, Tesla’s unsteady share price remains its biggest problem, casting doubt upon whether it’s meeting its objectives as a public firm. With other global automakers investing a massive $255bn into R&D for electric vehicles, will Tesla’s grand vision for sustainable energy ever meet its demise?
With that in mind, let’s look at the main themes surrounding Tesla’s current status.
Tesla – all things grand and fast.
Elon Musk has always been associated with high risk, in both his style of financial management and investment. In the first quarter (Q1) of 2018, Tesla made $3.4 bn in automotive revenue, as well as $300 mn in solar energy revenue. This increased to $6.8 bn total revenue in the third quarter of 2018, a promising statistic to any investor. Even better, production of Model 3s nearly doubled in Q3 compared to Q2, with 55 239 Model 3s joining the market. However, $2.2 bn of debt has been accumulated since the birth of the company, and will very likely delay future profits. As far as finance is concerned, shareholders need not be concerned but must remain wary.
Model 3 – the promise we’ve been waiting for, and are still waiting on…
Since the birth of the 2008 Tesla Roadster, the first practical electric vehicle to legitimately rival the gas-guzzlers in terms of performance, Musk’s ‘master plan’ has been simple:
- Produce an exclusive and expensive low volume car (Roadster)
- Reallocate those profits to produce a medium volume car selling at typical German Saloon prices (Model S)
- Use the gains from resulting economies of scale to fund a high volume, affordable EV (Model 3)
The beauty of this plan is that it reaps the benefits of lower production costs and improved scalability for mass production, while developing the brand image and funds of a luxury automotive brand. Tesla sold 53 000 Model 3s straight from the production line, helping it to achieve the status of 5th best selling car of 2018, truly a landmark in EV history. Despite Tesla’s enormous $2.2bn of debt, due in November 2019, they have successfully reached phase three of this plan – to some extent. A plethora of setback issues involving the production line setup quality control issues resulted in consumers eagerly waiting for their new car (and Elon Musk effectively sleeping in his own factory).
Elon Musk – Iron Man who likes to Tweet.
The internet has always likened Elon Musk to Tony Stark as eccentric billionaires who both love cars, technology and women. However, we experienced a particularly untethered version of the former on Twitter in 2018, attracting media focus throughout the year.
This began with Musk’s infamous April Fool’s Day Tweet, a joke about taking Tesla private, which resulted in the U.S. Securities and Exchange Commission filing a Civil Lawsuit against him regarding his misleading of shareholders. Shareholders saw this sarcastic joke in poor taste, and Tesla’s share price suffered as a result as expectations plummeted.
This was followed by Musk’s appearance on the Joe Rogan Experience Podcast, where he openly smoked marijuana on air, ignoring the potential concerns of his shareholders. Unsurprisingly, he was subsequently lambasted by the press, one of the many factors towards his resignation as chairman at the end of the year.
Yet possibly his least popular tweet in 2018 was during the Tham Luang Cave rescue operation in Thailand, when Musk described the leader of the rescue (Vernon Unsworth) as a ‘pedo guy’ for questioning his motives in providing a custom submarine as aid. The conflict may still be ongoing, following Vernon Unsworth’s demand for $75 000 in compensatory damages.
Gigafactory and battery bottlenecks
Undoubtedly, the greatest limitation of most electric vehicles lies with their terrible range; for Musk to realise his master plan, it was obvious that the mass market electric car would require cheaper cells and greater energy density, leading to the birth of the Gigafactory. Planning to be the largest building in the world by surface area once fully complete, this partnership with Panasonic has set the standard for lithium ion batteries, achieving a rate of production faster than the human eye can see. With the upcoming 2020 Tesla Roadster boasting 1000km of range on a single charge, it is clear that the Gigafactory has accelerated Tesla’s domination over the global EV market.
Emerging market
A series of incidents as mentioned earlier led to Musk resigning as Tesla Chairman during the latter half of 2018. It is thus clear that although he is integral to their success, Musk is not completely responsible for the company. As the vast majority of Tesla’s revenue is from car sales, it is clear that the EV market will explode, putting Tesla at a huge advantage. The Model 3 development has been arguably their greatest achievement as well as a fundamental part of their brand ambition, bringing sustainable energy and transport to the masses. However, the later release of the BMW I3, the Jaguar I Pace and the Audi E-Tron threaten to destabilise Tesla’s throne over the mid-luxury saloon market.
What lies ahead?
Ultimately, the main question explored in this briefing is the longevity of Tesla’s long term plans. The author feels that the events and actions of 2018 were perhaps not a fair representation of the future, as these included autonomy failure, production setback issues… the list goes on. So long as Tesla can repay dividends to shareholders to control debt and consumers don’t lose faith in Senior Management, then they will be able to keep releasing new products to maintain steady sales and no foreseen disasters should occur.
