Tesla

Tesla fascinates me, first, as a company and secondly, as a stock.

I wrote this back in Sept 2018.

Seems to me the question is, if Tesla stops all R&D and focuses on producing and selling the high end Tesla 3 (you can forget about the $35,000 version) can Tesla turn a profit?

Even if they can and can stave off their debt issue by 2020 they will have lots more competition and will be producing cars that are 3-5 years old.

Currently Tesla, like Apple, has brand name appeal that will attract buyers even if the product is not competitive (see Mac PCs).  What I've read about the Tesla 3 is mixed.   Great car but some material quality issues.  If they focus on the Tesla 3 they should be able to correct the quality issues.

Worse case is that the Tesla 3 even at $70,000 is not sufficiently profitable.

So what happened:

Tesla overcame the challenges in 2019.  They became profitable Sept 2019 and remained profitable for the next 3 quarters making 2019 the first year of profitability in their history.  They reduced R&D but did invest in a new plant in China funded by a bank loan from a Chinese bank.  So they staved off the financing issues.  They raised $2 billion by issuing new shares in Feb 2020.  

Competition did not arrive in 2019.

However Tesla did not make a profit by selling Model 3s.  They made a profit by selling energy credits.

Current company analysis: Pros

Tesla remains the technology leader in EVs.  The Model S remains the best EV in the market.  The Model 3's quality issues do not seem to have impacted sales though they have had to reduce prices to retain sales.   The Model Y which is a modified Model 3 is now available.  The low-end Model 3 now sells for $38,000 so we are finally close to the promised $35,000 EV.  

Reviews about the driving experience of Teslas are very positive. 

China production is fully online and they will be exporting cars made in China to other markets including Europe.

Tesla may have a big lead in battery technology and in autonomous driving.

Current company analysis: Cons

Competition did not arrive in 2019 but has arrived in 2020.  Volvo now outsells Tesla in Europe.  In fact sales in Europe are down and overall sales are flat.  VW is about to launch a competitor in the US.  Lucid is getting close to selling a high end competitor to the Tesla S.  

Growth is slowing or perhaps non-existent.  They sold 90,000 cars Q4 2018 and 90,000 cars Q2, 2020.  Revenue has plateaued at $25 billion TTM.   

Tesla does not make money selling cars!  The company is now 17 years old - founded in 2003.  Went public in 2010.  Has received billions in government subsidies.  Has had a huge technology advantage and still do not make a profit selling cars!  They made a profit in 2020 only because they were able to sell energy credits which they get for free to other car makers.

Tesla reduced capital investment.  Some analysts have claimed that they have accounting issues related to underfunding their warranty offset account.  This combined with the sales of the energy credits cast some doubt on the companies income statement. 

Prognosis

Tesla may become a profitable car maker with domination in the EV market.  They need to start making money selling cars which means they either need to scale up despite the increased competition, improve their operational efficiency or develop a new high-value cars.

Tesla may become a successful niche car manufacturer.    They turn profitable but not dominant.  Sales grow sluggishly and are highly dependent on the economic cycle like the rest of the industry.

On the other hand they may completely fail as a car maker if they do none of the above of if GM or VW or Toyota develop competitive cars with scale that Tesla can't match.

Tesla may succeed as a company even if they don't succeed as a car maker.  Other possibilities are to develop and license autonomous driving or to develop battery technology.  They are about to make a "battery day" announcement.  I will be tracking that though Tesla has frequently over-promised and under-delivered, e.g. full self driving by 2019, $35,000 Model 3 in 2018.  

Still waiting on both.