This is 4th episode in Elon Musk series.
We saw how Tesla was formed and how they successfully manage the 2008 financial crisis in last episode.
In this episode, we will see how Tesla became the market leader in EV segment.
Hi. My name is Vijay Mohan. You are watching - Investment Insights.
Tesla started selling Roadster car from 2009.
After getting 465 million dollars as a loan from US department of Energy, Tesla got ready for the next big step.
Premium Sedan car. Model S.
What do we usually see in a normal petrol/diesel car?
Engine will be in the front. Petrol tank will be in the back. Passengers will be in the middle.
The problem with that is, weight is unbalanced. But with Model S, it is super balanced.
Battery pack is the heaviest part in Model S.
So they installed the battery pack from center in the floor of the car.
That is why Tesla cars are super stable when compared to other cars.
Driving and Handling is better. Also more safer.
These are all advantages that are not visible to naked eye. But only if there are visible advantages, a rich person would buy a premium car, right?
So they brought in an amazing designer and designed an exterior that is better than Benz.
Door handles cannot be like in other cars. It should pop out as the driver approaches the car. The look should be great enough to make people curious when they see the car.
Saying that the exterior design has to be like that, they designed each and every corner of the car with utmost care.
Interior - Elon was very clear that it should not be like any other luxurious car and it should be very unique.
That is when iPhone was very successful in the market.
Let's put a giant 17" touch screen like in an iPhone in the middle of the car.
Instead of having many buttons like in other cars, let's have all the controls in the touch screen - they decided.
"People would like to have many physical buttons..." many said.
Elon replied like Steve Jobs, "People don't know what they want. We have to give them a product that they would love."
If you look at the interior of a Tesla car, you will know their simplicity.
A steering wheel with couple of buttons and a giant screen in the center. That is all there in the interior.
There will be many thousands of moving parts in other cars. But in Tesla, there are only a dozen of moving parts.
That means, the probability of failure of a part is very less in a Tesla.
Also there is no need to take Tesla to a service center for oil change or filter change.
Also because there are only few parts in a Tesla, they have lot of free space.
They put a boot space in the front as well, calling it "frunk".
They changed the way we buy a car as well. If we want to buy any other car, we have to go to a dealer and negotiate.
But not here with Tesla. What do we do if we want to buy an iPhone?
We would go to apple.com and order the phone. Similarly, if we want a Tesla car, we have to go to Tesla.com and order a car. There is no middle men.
We don't have to haggle on the price as well. Everyone has to pay the same fixed price.
Just like how an iPhone gets delivered to the home, Tesla car gets delivered the same way as well.
What if there is a problem with the car?
Just a phone call is enough to get the service crew to our home.
Some of the problems can even be fixed remotely thru online.
The car is running on software. All they have to do is just push the updates to the car. That is all.
It is a big advantage for Tesla.
Just like how our phone gets updated overnight, a Tesla car can get updates as well.
That means, a Tesla car will not go out of date that soon.
It will be upto date thru software updates.
As if all these are not good enough, the car is super fast like a sports car. It can reach 60mph in 4.2 seconds.
With all these features, Tesla Model S was showcased on May 2009.
Impressed by the car, Benz owner Daimler invested $50 million for 10% state in the company.
Tesla was ready for Model S production in 2010.
Their plan was to sell 20,000 Model S every year.
To build 20,000 cars, they needed a big factory with assembly machinery.
If they have to build one from scratch, they would need $1 billion. But they had only 0.5 billion in their hand.
When they did not know how to tackle it, a lucky wind fall came their way.
Toyota/GM joint venture had a manufacturing plant in Fremont, California.
During 2008 financial crisis, they both were pushed to close the plant.
Both GM and Toyota stopped car production from this plant in 2009.
A full auto assembly line factory was collecting dust without any use.
After knowing this, Elon went to Toyota. They were more than happy to give the manufacturing plant to Elon for $42 million.
Toyota also invested $50 million in Tesla for a 2.5% stake.
That meant, Tesla got their manufacturing plant with machinery for free.
But to start the manufacturing of Model S, they needed more money.
So they decided to go public. Tesla's IPO happened on June 2010.
They raised $226 million from IPO. They also started the production of Model S.
Elon brought the same working culture from SpaceX into Tesla as well.
Usually, what they do for car testing is - let's say that they want to test their car in freezing conditions,
They would send the car to the arctic region, test it out, bring back the results to headquarters, analyze them and then make improvements to the car.
They will send the car to the arctic region again and test it again. They will repeat this whole process again and again till they get the perfect results.
But what did the Tesla team do? They sent the whole end to end engineering team with the car for testing. They tested and fixed the problem then and there.
As the car is running on a software, it is easier for them to test and fix the problems.
When it could actually take many months for a successful testing, Tesla team was able to do that in few days efficiently.
Though they were building the Model S with high efficiency, Tesla had many enemies in the stock market.
Many bet that the Tesla will not be able to deliver Model S by shorting the stock.
At that time, Tesla was the stock with the biggest short percentage.
Model S delivery started in 2012 June.
Motor Trend declared that Model S is the car of the year.
Consumer report went one step ahead. They gave 99 out of 100 to Model S and said that this is the best car that has been manufactured so far in the history.
Car sales rocketed after those rave reviews.
Charging station is the biggest roadblock for anyone who wants to buy an electric car.
If we are going on a long drive, we can easily go to a petrol bulk (gas station) for refilling the petrol.
But what can we do with an electric car? Tesla introduced a solution for that as well.
Tesla announced their first charging network in September 2012.
Anyone who bought a Tesla car at that time can charge their car for free in their network.
Today the network has expanded to more than 1600 charging stations in America.
When everything was going well for Tesla, they ran into a problem in 2013.
Many who reserved the car, did not come forward to take the delivery.
If the car is not delivered, inventory will build up. Tesla will not get any money and so they will not be able to run the company too.
When everyone was scrambling around for a solution, Elon brought the whole team together and said, "Everyone's job for next two months is just selling cars and nothing else."
Everyone including software engineers, mechanical engineers were on sales call.
Elon did another back up plan as well. He convinced the google founder Larry Page to buy Tesla for $6 billion and to take the company private.
Elon also had a condition saying that he will be the CEO for the company for the next 8 years at least.
Elon's plan was to be the CEO of Tesla at least until Tesla makes a car for mass market.
But for his good time, he did not needed any of this. His sales call strategy worked out lot better than everyone hoped.
People who reserved the car, got doubts about the resale value of Tesla and so they were hesitant to move forward with the buy.
But the engineers who made the sales call were able to easily convince the people to take the delivery.
2013 first quarter turned out to be a blow out quarter for Tesla.
They delivered 4900 Model S in that quarter.
Sales - $562 Million and Profit - $11 million. That was the first profit for Tesla.
After that the sales of Model S increased every quarter and so their revenue and profit.
Realizing that the Tesla team is not messing around, Tesla short folks started covering their shorts.
That lead to big raise in Tesla share price.
When the share price shot up, Tesla gained more confidence from the market.
More folks started buying Tesla confidently.
That lead to raise in sales and profit. This is the perfect example for "flywheel effect".
Chrysler was started in 1925. Since then, Tesla is the first automobile company to be successful in America.
In 2014, Model S was upgraded with dual motor.
The speed of the upgraded Model increased to 60 mph speed in 3.2 seconds.
Tesla introduced autopilot in the same year.
Today it has developed into Full Self Driving.
If you are not familiar with Tesla's full self driving, search for that in YouTube. The car can drive by itself taking care of lanes and signals.
It is totally unbelievable. This FSD has come a long way.
Tesla introduced their first SUV, Model X in 2015.
"We cannot be like just another SUV in the market. We have to be unique.
"So let's build our SUV with falcon wings door" - Elon said.
But the engineers and designers were like, "that design will not be practical as it could hit the cars on the side, or the wall and the ceiling in the garage."
When Elon asked, "Are you saying that it cannot be done?", the team went ahead and came up with the wonderful falcon wings door that we see in Model X Today.
X again? Of course. How can Elon let X go?
As Model X turned out to be a success as well, Tesla got lot more money in their hand.
Now they are ready to get into mass market.
They had Model S and Model X. They though it would be cool to have Model E in the middle and so they named Model E as their next car.
As Ford folks were already mad at Tesla, they blocked Tesla from using that name as they have already registered that name for them.
So if we cannot name Model E, let's flip it and name it as Model 3. And so the car was called Model 3.
Model 3 came for sale in 2017.
Model S and Model X were premium cars with a price tag above $100K.
They set the price of the Model 3 less than $40,000 to target the mass market.
Model 3 became the best selling electric car in 2018.
In 2019, Tesla opened their first manufacturing plant, giga factory in Shanghai, China.
They introduced Model Y, the cross over version of Model 3 in 2020.
They chose the name Model Y because, they already had S, 3 in the place of E, and X. So Y would complete their SEXY lineup and so they chose the name Model Y.
Already Model 3 was the best selling electric car. Model Y had more demand than Model 3.
To increase the manufacturing capacity, they started building two more giga factories in Berlin, Germany and Austin, Texas.
With the raise in sales, Tesla's share price went up as well and it reached $206 billion by 2020.
As it was consistently showing profits, Tesla was added to S&P500 index. That actually raised the stock price even further.
By Jan 2021, Tesla's market cap reached $848 billion.
That value was bigger than the next 9 big auto companies combined together. Tesla reached that high.
They did not stop in Model Y. With Cybertruck and Semi, their pipeline still looks interesting.
A company that was toying around with a small car has grown up this big. Elon Musk is the big reason for that rise.
He has achieved everything he has said. Just that it gets done bit later than he promises. That is all the difference.
He might have 1000 bad characteristics. But let's just focus on his good ones and get inspired.
We will soon meet again in another episode. Thank You.