Tesla is a very young company. It was born in 2003 with the mission of producing luxury electric cars capable of competing and defeating combustion engines. Since then, it has managed to launch four models onto the market: The Tesla Roadster, the Model S, the Model X and the newcomer, the Model 3.
In 2010, the company went public, and Tesla has become one of the EV market’s stars ever since. In these years the price of their shares has multiplied by 18. Yep, just like that. If in 2010 you had invested $1,000 in Tesla’s shares, today you would have $18,000! An amazing investment. All this growth has led Tesla to fight for first place among the most valuable companies in the United States.
Tesla is currently the most valuable American car company, worth around $53.5 billion — about $3 billion more than General Motors despite having just 1 percent of its sales. Tesla sold just over 22,000 vehicles this quarter. That’s a little more than 1 percent of Ford’s 1.7 million in sales this quarter and a little less than 1 percent of General Motors’ 2.3 million.
General Motors sells 10 million cars each year, and Ford exceeds 6 million. But in 2016 Tesla managed to sell just 76,000. And while General Motors’ sales in 2016 were almost $170 billion, Tesla remains well below at just $10 billion. In fact, since the company was founded, it has never earned any profit yet.
So why then is this ridiculously overpriced company that we call Tesla worth so much on the stock market but barely selling any cars and yet to make any profit?
Well, the answer has a lot to do with marketing and the electric and autonomous vehicles revolution in the automobile industry. Technological advancements have cut the price of this type of cars and made them feasible to the public. A forecast by Bloomberg New Energy Finance said that electric vehicles would become cheaper than conventional cars without government subsidies between 2025 and 2030. And on the other hand, many countries including China are betting on this technology as a way to reduce air pollution in cities and also as a way to reduce their dependence on foreign oil.
Tesla exploited the emerging EV revolution, and through brute advertisement campaigns attached itself to this revolution just like how Coca-Cola managed to connect its brand to Christmas or how Pepsi associated its brand with soccer. And in the same way that Coca-Cola cannot reasonably claim that it invented Christmas but can still argue that it popularized it, Tesla and its CEO have no claim whatsoever over the EV revolution other than marketing it for monetary profit.
To an extent, Tesla indeed succeeded through wealth-depleting marketing campaigns to marry itself to the EV movement. Today, Tesla is the great reference point in this emerging industry and has attracted investors who likewise understand the future monetary profit behind the EV revolution.
The company’s forecasts expect that production will increase from 100,000 cars in 2017 to 500,000 in 2020, and more than a million by 2022. It almost seems like we are talking about the Apple of the automotive sector, right? Well, wait a moment, because not everything that surrounds Tesla is sunshine and rainbows.
Tesla has a problem, a severe problem: it is a money-burning machine. Today the business is not profitable, and the company loses money every day. Not only that but it also has to make a lot of investments to compete — for example, its factories need constant pumping with loads of money to stay afloat. If we look at the money that comes in and out of the cash box at Tesla, we can say that from when it went public in 2010 onward, the company has swallowed everything that has entered it. It devoured all the revenues from car sales and about $10 billion more from its investors. And the truth is that 2017 was far from its best year. In the first nine months of 2017, it spent around four billion dollars from its bank account. Yes, 4 billion dollars and not only that but also its non-financial debt — for example, suppliers that have not been paid — has skyrocketed. For this reason, lights are beginning to flash red.
But it doesn’t stop there, at all. Tesla is also having many quality problems with its latest model and it dismissed a significant portion of its staff — Which, by the way, is a little bit weird when they need to be making more cars!
Tesla’s other problem is that it is not the only player in this game and the competition is amassing quickly. The Renault-Nissan group overall global sales still dominate the EV’s market share. The Nissan Leaf is the best-selling electric car in the world. If you’re talking about mainstream electric vehicles, the Leaf has been it for years. More than 300,000 Leafs have been sold worldwide through January 2018, making the Leaf the world’s all-time best-selling highway-capable electric car in history.
And yet there is also China, a country where more electric vehicles are sold each year than on the rest of the planet combined, and its government has distinctly opted for this technology. A look at the performance of the significant EV companies shows that Chinese brand BYD led global plug-in vehicle sales in 2015, thanks to a strong EV market in China. BYD sold 61,722 plug-in vehicles globally in 2015, while Tesla sold 50,580 and BMW said it produced more than 30,000 of its I-Series electric cars. And while competitors are making good money out of their EV sales, Tesla hasn’t earned any yet.
Tesla’s competition is not only limited to the existing giants in automobile production but will soon involve Silicon Valley’s tech companies as well. All big companies such as Apple, Google and Uber are already working on electric vehicles and autonomous cars. That is a dangerous competition for Tesla!
The last problem for Tesla comes from Washington. It seems that the fiscal reform of the Republican Party is going to finish public aid for the purchase of electric cars. We will see how the matter ends, but when Hong Kong did something similar, Tesla’s sales fell considerably.
Does this mean that the future is already written?
Am I suggesting that Tesla is a company doomed to failure?
No, of course not. Saying such a thing is not my intention because the future is, by definition, uncertain.