Tesla didn't invent the electric car. That actually happened back in 1891. Instead, it
did something a lot more interesting: it made the electric car cool. When Tesla unveiled
the Roadster back in 2006, it began a wave of change in the auto industry that still
continues today, with virtually every major automaker now sporting a plan to roll out
EVs at volume in the coming years. In 2010, Tesla became the first publicly traded automaker
to emerge in the U.S. in 54 years, and has delivered incredible returns to shareholders since,
building one of the most loved car brands in the world. Without a doubt,
Tesla has changed the face of the car industry. But how does it make money?
In short, it doesn't. Throughout its history as a public company, Tesla has never been
profitable on an annual basis, and has only recorded a few profitable quarters in its history.
However, Tesla has rapidly grown its revenue, booking $21 billion in annual
sales in 2018. That's up nearly 7X in the past five years, and up 183X since it went public.
Today, Tesla generates 93% of its revenues from automotive sales, and around
7% from energy generation and storage. How has Tesla accomplished such staggering growth?
It had a plan. Tesla's master plan entails four steps. No. 1: create a low-volume,
expensive, high-end vehicle. No. 2: then use that money to develop a medium-volume car
at a lower price. No. 3: use that money to create an affordable, high-volume car. No.
4: provide solar power. Over the course of about a decade, Tesla carried out each step
of its master plan one by one, beginning with the production of its low-volume,
high-end Roadster sports car in 2008. Four years later, Tesla began deliveries of its luxury Model S sedan.
Tesla then began deliveries of its Model X luxury SUV three years later,
after several delays. Three more years after that, Tesla finally introduced its mass-market Model 3 sedan.
In January 2019, the Model 3 passed the Model S to become the top-selling electric
car in the history of the United States. Meanwhile, in 2016, Tesla merged with SolarCity,
completing the fourth prong of its master plan and positioning the company to sell its Powerwall energy
storage units along with SolarCity solar panels and Tesla vehicles, allowing customers to power
their home and vehicles entirely via solar power.
Despite Tesla's incredible growth over the past decade and completion of its master plan,
threats still loom on the horizon. Traditional automakers are aggressively entering the electric
vehicle market, particularly on the high end that Tesla has dominated until now.
Audi, Porsche, Mercedes, Jaguar, and others are releasing new electric vehicles of their own.
Simultaneously, Tesla began losing the benefit of U.S. electric vehicle tax credits at the
beginning of 2019. As competition enters the U.S. market with the benefit of the full EV tax credit,
Tesla's already unprofitable business will face increasing margin pressure.
This may impact its ability to continue investing in future growth in a highly capital-intensive
business like auto making. Tesla will need to find a boatload of cash over the next few
years in order to finance its already announced and highly anticipated upcoming projects,
like the Model Y, the Tesla semi, new Tesla Roadster, solar roof, and construction of
the Chinese Gigafactory. In addition, Tesla faces regulatory scrutiny
from the SEC, tracing back to CEO Elon Musk's fraudulent tweet that the company had funding
secured to go private at $420 per share. That incident, plus another tweet that incorrectly
stated future production estimates, has regulators watching Musk and Tesla very closely.
At best, the back-and-forth with regulators is a distraction at the point when the company
is trying to secure its dominance in the EV market before competitors are able to enter.
At worst, it could eventually rob the company of its CEO and the personification of its brand,
potentially derailing its incredible growth story.
Time will tell whether Tesla can overcome these and other significant challenges facing
the company today and somehow achieve consistent profitability. Regardless, it's indisputable
that Tesla has accomplished its goal of accelerating the move to sustainable transport.
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