Tesla fans and critics both need a reality check (TSLA)


elon musk

The reality of Tesla’s business is far more modest than the war over its stock price and market cap would suggest.
Tesla is ultimately a small car company operating in a small market for electric vehicles.
It’s possible that business boredom is driving the up-and-down Tesla story.

In over a decade of covering both Tesla and the auto industry, I’ve never seen anything like the past 12 months.

The feeding frenzy around Tesla has been unreal: Wall Street longs and shorts fighting it out; an intense focus on the 15-year-old company’s ability to execute on the fundamentals of making cars; CEO Elon Musk flipping out on earnings call and taking to Twitter to engage in extended fracas with anybody and everybody.

At times like this, it’s worth it to step back and consider some actual numbers.

For example, Tesla delivered about 41,000 vehicles worldwide in the second quarter. I’m not even going to worry about whether they were Model S’s, Model X’s, or the much-vaunted and obsessively scrutinized Model 3. At this rate. Tesla should post a somewhat better year in 2018 than it did in 2017.

Tesla has also added about $200 million in revenue growth every quarter, although it shifts around; in the first quarter, the topline was $3.4 billion. There have rarely been quarterly profits, but the trendline is obvious and should continue to ascend until Tesla maxes out its existing production design (at its single assembly plant in California). If you build more cars and sell more cars, it follows that more money will flow in.

In the same period, an established automaker — General Motors — sold 760,000 vehicles in the US alone and globally brought in $36 billion in revenue. And that’s just GM. The rest of the industry also moved a staggering amount of product and raked in billions in cash.

One more data point: electric-vehicle sales increased by 50% in early 2018, bringing the EV share of the market up to a still thoroughly unimpressive 1.6%.

The numbers don’t add up to what Tesla is worth

Now let’s add it all up. Tesla’s global sales in the second quarter were 5% of GM’s sales in the US alone and a tiny fraction of overall US sales. Tesla had a nice quarter by its standards, but in the US it’s moved only around 200,000 vehicles in a decade and a half (once it sells vehicle number 200,000 in the US, a $7,500 federal tax credit will begin to phase out).

On the revenue side, as long as Tesla continues to make more cars than it did in the previous quarter and sell them, it will continue to see revenue growth. The ceiling is limited only by sustainable demand for its vehicles and Tesla’s production capacity.

And as far as market share goes, Tesla holds something like 30% of that quite small pie.

You’ll note that I haven’t addressed the profit challenge or the cash-burn, the former being zero and the latter being in the billions. These are distractions for the …read more

Source:: Business Insider

      

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