How Tesla Growth Might Not Sustain


How Tesla Growth Might Not Sustain

From electric cars to solar panels and roofs to energy storage and batteries, the Tesla brand, headed by Elon Musk, has continued to break the mold in the world of sustainable and environmentally-friendly products. However, there are many competitors that will be entering the electric vehicle world Tesla ruled for so long.

Musk recently announced changes in its batteries that could help the company sustain growth, and solar may also grow if they can move past the disastrous acquisition of SolarCity. However, 10 competing vehicle manufacturers are promising to offer all-electric vehicles in the upcoming years.

Tesla cannot rely on solar alone to continue to grow. Musk’s brainchild may need to reinvent its strategy in order to sustain its growth with electric vehicles, solar panels and roofs, and its overall handling of economically-friendly products. Read on to figure out for yourself if Tesla’s growth will or will not sustain over the next years or decades.

Tesla’s Promising 2020 Economics

Despite a pandemic that has caused an economic upheaval of numerous companies, Tesla earned $104 million in the first three months of 2020. By August 2020, Fortune Magazine was reporting that Tesla’s market value soared past Procter & Gamble, the consumer product giant that brings such items as Head & Shoulders and Pampers.

On August 17, 2020, Tesla’s stock closed at a best-ever $1,835.64, up an impressive 11 percent. This rise in stock was in spite of a 24 percent reported a drop in registrations in China. This drop was not attributed to a lack of interest in Tesla or electric vehicles. Quite the opposite – it was because of the competition in the electric-car market.

  • Solar deployed MW: 2Q 2020 – Around 20,000, 3Q 2020 – Nearly 40,000
  • Auto deliveries in units: 2Q 2020 – Around 90,000, 3Q 2020 – Around 140,000

Elon Musk touted the third quarter of 2020 as his company’s best in history, which is an amazing feat during a global pandemic that has shut down businesses all over the world. In particular, their solar battery shipments rose by a whopping 81 percent, compared to a 53 percent increase of automotive shipments that same quarter.

The shipments of solar increased even more 111 percent from the second to the third quarter in 2020. This is more than double the increase during the same time in 2019 and may show that solar could be the industry that keeps Tesla sustainable. Tesla has marketed one item that may turn even the most stubborn shoppers – a Solar Roof.

Solar Panels and Roof Could Sustain Growth

Elon Musk’s recent reign of the solar market may not be a surprise after his somewhat shocking announcement in June 2020. This was when Tesla announced it would be offering the lowest cost for solar panels in the United States, one-third less expensive than the industry average. They also offer a lowest-price guarantee to lure in shoppers.

These low prices on solar panels seem to be working, and they are financially competitive in this market. Musk knows what customers want:

  • Prices on a solar panel system that are easy to understand
  • Lower than the competition
  • Warranties that provide peace of mind

This may also carry over with his Solar Roofs.

The Solar Roof portion of Tesla got off to a rocky start, with delays and broken promises, including taking deposits from customers only to later tell them their Solar Roofs would not be fulfilled. In fact, one Florida man who was an early adopter of the product was left without a roof for two months due to a lack of proper testing by Tesla on products.

Even with these hiccups, Tesla is marketing an aesthetically pleasing, durable, and ecological Solar Roof that could keep the company going at a time when rooftop solar installations are declining due to the COVID-19 pandemic. If customers are willing to pay a hefty price, this portion of the Tesla brand could remain sustainable.

Is SolarCity Still in Business?

SolarCity was a solar panel installer that, in 2016, was acquired by Tesla. Elon Musk had no problem making this unpopular decision in that he was the largest shareholder of both companies at the time. His cousins also served as CEO and CTO of SolarCity, founding the company in 2006, and another five Tesla directors were owners of stock.

  • SolarCity has had some unfortunate incidents since it was acquired by Tesla in 2016 for $2.6 billion (which was presumed to also include the solar panel installer’s $3 million in debt).
  • Tesla investors were doubtful right away of this purchase, and the stock followed this skepticism.
  • Stocks dropped by more than 10 percent after the announcement.

Before the purchase, SolarCity’s stock was already plummeting, and the company was laying off employees. This, along with the connections Musk had to the ailing company and his alleged misrepresentation of SolarCity’s financial health, caused Tesla shareholders to file a lawsuit against Tesla, SolarCity, and Elon Musk for $2.6 billion.

In January 2020, a $60 million settlement was reached by every Tesla’s director – except Elon Musk – to resolve the dispute with Tesla’s acquisition of SolarCity. Tesla officials have defended the acquisition of SolarCity, once a leader in the solar world, but it looks like this will not go well as the court proceedings continue in the future.

Tesla’s Automotive Competition

Automobile manufacturing companies, large and small, are promising to go all-electric after making gasoline-powered vehicles for decades. At least 10 automakers have assured their customers they will be offering all-electric vehicles starting in 2025. Some have already offered hybrid-electric, but Tesla was the king of all-electric until now.

The automakers below have more than likely seen the writing on the wall in that the United States transportation segment is responsible for 28 percent of greenhouse gas emissions. But it is not just to help the environment, as electric vehicles are continuing to gain popularity amongst shoppers all over the world who want to drive electric.

By 2040, it is expected that 54 million global sales will be electric vehicles. California has claimed it will put an end to gas-powered cars by 2035, and Norway promises this even sooner in 2025. Other countries, from Japan, the United Kingdom, and France, are jumping on the electric bandwagon by promising a stop to gas vehicles.

Tesla has long since been the king of the electric vehicle world. It will be hard to remain sustainable and viable when the following ten major automobile manufacturers put their electric vehicles up against Tesla::

  • Audi
  • Bentley
  • BMW’s Mini
  • Daimler/Mercedes-Benz
  • Ford (in Europe only)
  • General Motors
  • Jaguar
  • Toyota
  • Volvo
  • Volkswagen

The names above are not small, unknown manufacturers but global entities who have ruled the automotive world. They will certainly compete with Tesla in a big way.

Will Competition Affect Tesla’s Sustainability?

The more competitive the electric vehicle industry gets over the next decade, or so, the less Tesla will more than likely be able to sustain in the ultra-competitive market of selling electric cars. On the one hand, Tesla has invested deeply in its battery manufacturing companies, including nearly $5 billion in its Nevada facility alone, to bring costs down.

Tesla is also ahead of the other manufacturers when it comes to the self-driving world and has already tested and compiled real-time data from more than 1.3 billion miles of autopilot-equipped vehicles. Compared to Google’s mere 2 million miles of testing its Alphabet fleet, these numbers are quite impressive and could give Tesla an edge.

However, when competing with larger automotive manufacturers with much deeper pockets, Tesla could have a problem. On the battery side, the company has had to balance improvements with eliminating costs and building scale instead of finding noteworthy innovations in core battery technology. Yet, this may change down the road.

Competition in the Self-Driving World

If the other manufacturers enter the world of self-driving, this could also weaken Tesla’s initial lead. It is one thing to just compete against Google, although Google on its own is a force. If the major auto manufacturers that have decades of experience enter this fold, Tesla will need to ramp up its manufacturing and use its compiled data wisely.

Coming in too early could also hurt Tesla’s growth.

  • The Federal tax credit of $7,500 phases out after a manufacturer sells its first 200,000 all-electric vehicles.
  • Tesla will more than likely reach this number soon, while other manufacturers that are just starting the manufacturing of electric vehicles will have access to these monies.

Incentives like these will surely affect how consumers make purchasing decisions.

Energy Business Not Growing as Expected

Musk has also said he is growing his Tesla brand through its energy business, but this side of Tesla is producing modest profits, to say the least. Not only that, but the margins seem to be decreasing, not increasing as Musk has maintained, which does not look good for this start-up from Tesla helping to grow and sustain the overall company.

If Tesla is going to sustain its growth, this energy side will play an integral role. Why is the company not buying market share at the growth stage? Market share is the calculation of the total number of sales for the company divided by the total sales of the industry, and Tesla could buy a competitor to increase its growth and market share.

Tesla could also stimulate growth with confidence in its energy business by forgoing margins to better establish itself in the energy market. However, when comparing the gross margins of the energy-side versus the automotive-side, there is a clear differential in the growth and the confidence Tesla may have in this side of the company:

Energy gross margins:

  • Quarter 4, 2019 – 11.7%
  • Quarter 1, 2020 – 3.8%
  • Quarter 2, 2020 – 5.7%
  • Quarter 3, 2020 – 3.6%

Automotive gross margins:

  • Quarter 4, 2019 – 22.5%
  • Quarter 1, 2020 – 25.5%
  • Quarter 2, 2020 – 25.4%
  • Quarter 3, 2020 – 27.7%

Buying market share would be a solid business strategy if Tesla truly believed in the growth and future of the energy side of their business. This would also lead to better margins and profits for the company. Yet, as seen by the numbers above, the energy gross margins went down significantly between 2019’s last quarter and 2020.

The Automotive Side vs. the Energy Side

Can Tesla find some sort of common ground between its energy business and its automotive business? Having the energy side catch up to the healthy growth of its automotive side may be difficult or even impossible. This side of the company would need to grow at a much faster rate than the automotive side just to even try to catch up.

Catching up to the automotive revenue could take several years at best; just look at the numbers – Tesla’s revenue from its automotive side is nearly 87 percent of the total revenue of the company, while its energy products are less than 7 percent. Below is a list of the total revenue from the first quarter of 2019 versus the third quarter of 2020:

Energy revenue:

  • 1Q, 2019 – 7.1%
  • 2Q, 2019 – 5.8%
  • 3Q, 2019 – 6.4%
  • 4Q, 2019 – 5.9%
  • 1Q, 2020 – 4.9%
  • 2Q, 2020 – 6.2%
  • 3Q, 2020 – 6.6%

These numbers are telling as to how far energy revenue needs to grow to even try to be sustainable with automotive revenue. Although the energy revenue did go up slightly towards the end of 2020, it was still less than the first quarter of 2019’s revenues. These numbers look even more dismal when compared to automotive revenue:

Energy revenue:

  • 1Q, 2019 – 82%
  • 2Q, 2019 – 84.7%
  • 3Q, 2019 – 84.9%
  • 4Q, 2019 – 86.2%
  • 1Q, 2020 – 85.7%
  • 2Q, 2020 – 86.5%
  • 3Q, 2020 – 86.8%

The revenue numbers for Tesla’s automotive side continue to increase even during a pandemic when individuals may not have been thinking about purchasing vehicles, let alone electric vehicles. However, Elon Musk may be looking at innovations in batteries to be the wave of the future Tesla needs to sustain its growth down the road.

Tesla’s Batteries

Tesla has long partnered with the company Panasonic to produce batteries, and this portion of Tesla may be just what it needs to sustain growth in an ever-competitive industry. It had its “Battery Day” on September 22, 2020, which was the moment Musk was revealing the company’s advances in batteries and battery production technology.

The cost of a battery is key to remaining competitive in the electric vehicle market because it helps the vehicle’s cost remain competitive with other electric cars and the less-expensive gas-burning vehicles on the market today. It also has more storage, which allows for the major contemplation among prospective buyers of a higher range.

If the 2020 Battery Day was any indication, Elon Musk does not believe his company’s growth will halt in the future when it comes to Tesla’s latest and greatest improvements in their batteries. Musk addressed Tesla’s shareholders who were in parked cars due to COVID-19, on a variety of hopes for the company’s battery future:

  • Open a new cathode plant to streamline Tesla’s battery production.
  • Introduce tables battery cells that would improve their electric vehicles’ power and range and price the vehicles more competitively with gasoline-powered cars.
  • Develop a million-mile battery that could last the entire lifetime of an electric car’s road driving.
  • Reduce the cost of Tesla’s battery cells to $100 per kilowatt-hour so that the company’s electric cars are priced comparatively to combustion engine cars.
  • Eliminate cobalt in the batteries’ cathodes, which is often mined under deplorable conditions that violate the rights of those involved in the mining process.
  • Unveil a new Plaid powertrain for Tesla’s Model S that could bring the vehicle’s speeds up to 200 mph. This vehicle will cost $139,990 and will have a range between charges of 520 miles and go from 0 to 60 mph in less than two seconds.
  • Develop a $25,000 electric vehicle that will use the new tables battery cells, which should cut in half the price per kilowatt-hour.

Musk has big plans for the company, and it is clear that he is not planning on slowing growth anytime soon.

Will Battery Tech Help Sustain Tesla?

Although there does not seem to be the same confidence in the energy side of Tesla, the September 2020 Battery Day is illustrating that Tesla’s storage business may be the future it needs to continue to sustain its growth in an ever-competitive world. Just looking at the many product enhancements above should help Tesla lower costs.

In fact, the announcements at Battery Day illustrate that Tesla could lower the costs of their major storage components by more than half – 56 percent – within only three years. If this holds true, the company will be able to reduce costs enough to improve Tesla’s energy margins and sustain, or exceed, growth in the near future.

Tesla was founded on innovation, and if the promises Elon Musk made during the September 22, 2020, Battery Day hold, this could be exactly what the company needs to help sustain growth. Tesla has been a leader in batteries or energy storage, and it looks like Elon Musk is putting his money where his mouth is to grow this sector.

Conclusion

Sustaining growth in the world of electric vehicles, energy storage, solar panels and roofs, and batteries is not going to be easy for Tesla. Although Elon Musk may have touted some amazing feats in their storage products that could improve their market share, there are numerous competitors in the automotive industry coming into play.

If what Musk hyped in 2020 holds true about battery storage components, Tesla could sustain its growth. The company also has a competitive edge in solar that will hopefully grow. Yet, its bread and butter – electric vehicles – will need to be priced competitively to go up against the ten manufacturers vying for the top electric vehicle on the globe.

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Greg

Hi, I'm Greg. My daily driver is a Tesla Model 3 Performance. I've learned a ton about Teslas from hands-on experience and this is the site where I share everything I've learned.

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