Friday, May 31, 2013

(Business) Tesla Motors: on the up?

The last few years have not been kind to the electric automaker as noted in The Carnage Report article published last year titled “Tesla Motors: revenge of the electric car” but with the news of Tesla Motors posting their first profit since its inception and a vastly improved performance in the stock market have had many thinking that Tesla may just make the electric car work.

Tesla have also managed to buy back a huge loan they took out to keep them going in 2010 nearly a decade earlier than planned which is great news as there is signs[1]. This is great news as it looks like the company can pay for itself. Tesla is now growing to a point that it is now eclipsing established carmakers with its share price now above Fiat[2].   

While the difficulties noted in an carnage report article written a year ago have not abated, Tesla are clearly following the right strategy if they are going to make the electric car a mainstream mass product for a wide range of consumers. Tesla Motors CEO Elon Musk yesterday announced the company’s plan to expand its number superchargers across the US which would help deal with one of the main weaknesses of the electric car; that it needs to recharge thus affecting long distance travel[3].

However, for all its progress, it still is not making money from it main business activity, namely, “designing, building, and selling the Model S all-electric luxury sport sedan”[4]. It has been making its money by selling “Zero-Emission Vehicle credits”… to other automakers”.  While Musk and Tesla Chief Financial Officer Deepak Ahuja may contest this point insisting that their “financial planning assumes that revenue from selling emission credits would fall to zero by the end of the year”, it does reveal the fact that current profits are crucial to its continued growth[5].

It quests to make its main profitable may hit a snag as it has run up against state laws which dictate “how its vehicles can be sold”[6]. Tesla Motors direct selling business model online and elsewhere has seen the company fall foul of car dealers and politicians at state level as many states require “manufactures to sell their vehicles through dealerships” rather than cutting out dealers and selling to customers directly. This conflict between Tesla and car dealers reveal a major weakness in Tesla as they have been out-muscled politically by the car dealer who used their lobby groups to act against Tesla direct selling model that cuts them out of the equation.

In sum, it has been a long road to profitability for Tesla Motors and they have finally reached it its goal but it cannot stop as they must continue their long term strategy of making their models affordable and accessible to the mass market but they now may have to increase its political influence as it faces challenges from state level politicians and auto dealers who threaten to thwart its long term business model.

[1] R. Koronowski, 2013, Tesla Motors Pay Back Energy Department Loan 9 Years Early,
[2] Agence France-Presse, 2013, Tesla Motors now more valuable than Italian auto giant Fitat
[3] Reuter, 2013, Tesla Motors CEO says supercharger network to triple by end of June,
[4] J. Voelcker, 2013, Tesla Motors made a preofit in Q1, but not on it electric cars,
[5] Ibid
[6] Fox News, 2013, Tesla Motors’ cut out the middleman approach could spell trouble in North Carolina,

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