Tesla: A Case of Supply Versus Demand

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By Thursday Review staff

Billionaires can afford to lose some money, and sometimes it makes perfect sense—especially if what they seek is a game-changing result for all that toil and investment.

Elon Musk’s automotive division, Tesla Motors, just closed another unprofitable quarter, reporting to investors a loss of about $74.6 million for the third quarter of 2014. This is about twice Tesla’s loss when compared to the same quarter in 2013. But that’s only the bad news for the unconventional car maker: Tesla has seen its overall sale steadily increase.

More importantly, Tesla’s sales figures topped the industry analysts’ estimates, confirming Musk’s vision as being less risky than some have suggested. Tesla has been selling its cars at a healthy clip, and figures indicate that it may reach $1 billion in overall sales by the end of this year. Currently, Tesla is reporting nearly $932 million in sales for the first nine months of 2014—up from about $600 million for the same period last year.

Musk and his team at Tesla explain the discrepancy this way: production of cars cannot keep up with demand, and, as a direct result, lots of extra cash is being spent trying to find a way around the production problems. Tesla, which is plans to invest billions to open a massive battery plant in partnership with Panasonic, has been hampered by the inability to produce its innovative lithium-ion batteries fast enough. Though demand for the pricey cars continues to rise, the battery problem remains intact.

Still, industry experts see fortune on the road ahead for Tesla. Battery partner Panasonic—convinced of the potential profits for Tesla’s green cars—has committed to a long-term investment in producing lighter, more efficient batteries. So sure is Panasonic of future earnings, the Japanese conglomerate recently announced plans to begin ramping down its production of many other consumer products, redirecting its energies toward smart batteries and green car components.

Tesla also plans to revamp its current factories to improve production of its cars, which include its bigger seller, the Tesla Model S Sedan. In addition, Tesla hopes to be ready no later than one year from now to be selling its newer Model X.

Musk does not see demand as the central issue, and many automotive analysts agree. Musk’s problem, ironically, is producing the vehicles fast enough. The factory retrofit may help, as Tesla intends—if at all possible—to reach an output of 100,000 new cars during 2015.

“Despite losing almost a month of production due to factory retooling,” Musk said in a press statement posted on the Tesla website, “we delivered the highest number of Model S vehicles ever, with several new records set in North American and worldwide.” Tesla also hopes to continue its rapid construction and maintenance of its recharging stations, which are currently located in about 126 locations across North America (about 123 of these are in the contiguous 48 states). Tesla hopes to roughly double that number by the end of 2015.

Tesla car-owners can use Tesla’s Supercharger stations at no cost, and cars can typically be recharged between 20 to 30 minutes, depending on the life left in the battery when charging begins. The Tesla website says that “optimal” charging takes about 40 minutes. Tesla currently has its stations located in strategic spots along major highways and interstates, and its marketing material invites car owners to consider taking the time to get a meal or shop while the vehicle is being recharged. Tesla cars can also be charged overnight in a driveway or garage.

Delays rolling out the new Model X, which is a small SUV, have also hampered some of the sales estimates. On this point Musk accepts responsibility personally, telling reporters that he sometimes lets his perfectionist side interfere with the calendar and timetables. But most auto analysts and green energy analysts see Tesla’s long range plan as solid, and cite Panasonic’s massive investment as evidence that others in collateral industries must agree wholeheartedly with the positive outlook for the California carmaker.

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