Tesla and the Struggle to Make a Profit

Tesla and Elon Musk's Twitter* are both pretty big deals, but the deals that are being made aren't good. Tesla recently came out with a $35000 car -- their cheapest yet. While they keep trying to make cars more affordable, the company itself is losing money. Despite being a little over 10 years since its first car (the Tesla Roadster) was sold, Tesla still does not have a viable profit model. Just this week, Musk announced that they still wouldn't be able to make a profit in this first quarter of the year. Tesla had two consecutive quarters of profit in 2018. The company had its first profit with a net profit of $139.5 million in the 4th quarter and $311.5 in the third. In the same period last year, Tesla had lost $675 million. Evidentally, the company is moving in the right direction. During this time, Elon Musk also tweeted "Model 3 was the best-selling car in the US in terms of revenue and the 5th best-selling car in terms of volume". However, this success may be shortlived. Stock plummetted after Musk conceded that these profits may not be replicated in the first quarter of 2019.

An interesting distinction about Tesla compared to other car companies is that Tesla's stock is (on balance) higher than what it should be considering their lack of product. Investors keep buying Tesla stock -- at one point it was higher than Ford's. However, Tesla stock is extremely volatile -- Elon Musk's tweets and behavior have often sent investors scrambling to sell.

Sales are increasing quickly, but profit is still lagging behind. It might be surprising that such a large company can't make a profit consistently, but exporting and selling cars into foreign markets costs just as much as it makes.

How is Tesla trying to increase profits?


  • All sales will be online, with no in-store purchasing available
  • reaching out to foreign markets (though arguably this costs more than it makes)
  • Cutting down staff sizes 


*He got sued for some of his tweets

Sources
https://www.forbes.com/sites/neilwinton/2019/02/01/tesla-consecutive-profit-fails-to-dispel-investor-doubts/#a7e18085d8b3

https://www.cnbc.com/2019/02/28/elon-musk-tesla-not-profitable-in-q1.html

https://www.cnn.com/2018/10/24/tech/tesla-earnings-profit-elon-musk/index.html

https://www.washingtonpost.com/technology/2019/01/30/teslas-profits-disappoint-renewing-concerns-about-growth/

Comments

  1. AnonymousMarch 2, 2019 at 11:09 AM

    I agree with your opinion on Tesla's struggle to make profits. However, I believe that Tesla may not try to make profits in the first few years (since it is difficult to do so when the company just started), but what it tries to do is that creating a new way of transportation using solar energy which is arguably much more efficient (faster speed) and cleaner than using the traditional fossil fuel. We could see the subsidization from the federal and state government to encourage these kinds of transformation in transportation industry. In detail, Tesla is able to maintain a proper functioning as a company because of the federal electric vehicle (EV) tax credit, the California Air Resources Board (CARB) policies, State & Local Incentives For Gigafactory 1 & Gigafactory 2, and incentives in foreign country. More specifically, these policies incite buyers to buy clean-energy cars and for some local policies even seem to benefit Tesla only, like CARB policies. In other words, I believe these taxes relieves for consumers and the local policies that aid Tesla could help Tesla to make profits later on in a long run. (Source: https://cleantechnica.com/2018/02/18/tesla-subsidized-whats-truth-claims-tesla-spacex-elon-musk-wealth-exist-subsidies/)

    ReplyDelete
  2. AnonymousMarch 2, 2019 at 5:55 PM

    It's very interesting to see how such a large company can struggle to make a profit, and I agree with most of the points that you made. One thing that really stuck out to me is the fact that Elon Musk's tweets have often worried investors and motivated some to sell their stocks. The impact of social media on businesses today has evolved quickly in the past few years as technology has become more prevalent. However, it can be used for both beneficial purposes, helping spread the name brand of a company or sell items online, and harmful purposes for companies. One example of those harmful purposes is Elon Musk's tweets. If one member of a company (especially one who is the co-founder and CEO of Tesla!) says something that looks bad about that company, it can be passed around quickly and stays on the Internet forever. As such, one has to be especially careful in how they portray themselves online and Musk needs to do a better job of that in order to keep the Tesla stocks and image from becoming ruined.
    Source: https://www.singlegrain.com/blog-posts/impact-of-social-media-in-todays-business-world/

    ReplyDelete
  3. AnonymousMarch 3, 2019 at 4:44 PM

    I actually thought that Tesla was making a massive profit; I didn't know about this at all! This is super interesting considering the sheer amount of Tesla cars we see in the Silicon Valley and around the world. As an added bonus, Elon Musk being the head of Tesla seems to me like a huge selling point. You listed points about how Tesla is trying to increase profits, but what are they doing wrong to not have profits in the first place? This is what I'm more curious about... what are they doing differently than other motor companies to get this kind of net?

    ReplyDelete
  4. Anny T.March 3, 2019 at 6:33 PM

    In this day and age, I think the fact that Elon Musk's problematic tweets caused some investors to withdraw their business with him is decently reasonable. The power of social media in this society has enabled companies to present the values they believe in, whether it be more out front or subconsciously. When a company like Tesla has a representative who provokes some communities, it makes the investors feel uneasy because their involvement makes the consumer believe in that the investor is also just as problematic to those communities-- which may lead to a drop in consumers. An example of how the values a company represents affects the consumerism would be In-N-Out. In-N-Out burger recently donated a large sum of money towards the Republican party and sparked boycotts from the Democratic party. Investors want to stay away from getting on the "bad sides" of consumers because the objective of being an investor is to make the most amount of money possible!

    Source: https://www.forbes.com/sites/forbescommunicationscouncil/2018/05/11/how-social-media-can-move-your-business-forward/#63a433b14cf2
    https://www.usatoday.com/story/money/nation-now/2018/08/30/n-out-burger-donates-25000-republican-party-sparks-boycott/1147103002/

    ReplyDelete

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