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Tesla – Elon Musk’s juggernaut

Elon Musk Tesla

Tesla has shown exceptional share price growth over the last few years but has come under fire following lower-than-expected vehicle sales and a revived Twitter deal.

Tesla Motors was founded in 2003 by engineers Martin Eberhard and Marc Tarpenning and was named after inventor Nikola Tesla.

Musk, which has been the face of Tesla for over a decade, joined the company in 2004 as chairman after investing $6.3 million in Tesla stocks during a Series A round of investment.

He has served as Tesla’s CEO since 2008 and has been the driving force behind the company’s success.

Tesla generates most of its revenue from selling, servicing, and leasing its electric vehicles.

It also makes money from selling automotive regulatory credits and renewable energy generation and storage.

Automotive regulatory credits are credits received by businesses from regulators for having a low carbon footprint.

If a company has a surplus of these credits, its surplus credits can be sold to companies that do not meet the requirements.

The chart below indicates how these segments have contributed to Tesla’s overall revenue since 2016.

Over the past few years, Tesla focused on expanding its footprint and its production capabilities.

It stated that it wanted to become the best manufacturer in the world, which it relies on to meet the demand for its vehicles and to make them affordable.

In recent years, Tesla expanded its operations by constructing gigafactories in China, Texas, and Germany. The Germany and Texas gigafactories were opened in 2022.

By June of this year, the German gigafactory had already managed to reach production of 1 000 vehicles per week, with the Texas factory expected to reach that same target in 2022.

Tesla currently has six primary manufacturing plants.

  • Gigafactory Texas in Austin, Texas
  • Fremont Factory in Fremont, California
  • Gigafactory Nevada in Sparks, Nevada
  • Gigafactory Berlin in Grunheide, Germany
  • Gigafactory Shanghai in Shanghai, China
  • Gigafactory New York in Buffalo, New York

Tesla CEO Elon Musk said during its Q2 earnings release that Tesla’s manufacturing capabilities are its greatest competitive advantage and that it would continue developing that part of the business.

Tesla was able to cut 70% of the robots in its body shops in 2022 due to improvements in the size of car body castings, requiring much less welding. These improvements increase efficiency and productivity.

The increase in production capacity can be seen in the number of cars Tesla has produced and sold.

The chart below shows this increase by considering annual figures with a quarterly step.

An important point to note from this graph is how the increase in production is matched by units sold. It suggests that the demand for electric vehicles is still very strong.

However, Tesla’s recent sales data announcement did not sit well with investors.

The manufacturer recorded vehicle sales of 343,830 – lower than the expected 364,000.

It was the largest gap between the number of cars produced in a quarter relative to the units sold in the quarter since 2019.

The lower-than-expected sales affected Tesla’s stock. Following this announcement, the share price fell by 8.6% – from $265.25 to $242.40.

Tesla explained that these figures were not due to faults from the company.

A press release stated that it has run into logistical capacity constraints as the end of the third quarter was marked by peaked shipping volumes.

Although Tesla did not meet its sales expectations, the 343,830 units sold are by far the most in a single quarter and mark an impressive new record for the company.

Tesla recorded net profits for the first time in 2020, and in 2021 improved its net profits by 665%.

It has significantly improved its production capacity and continues to improve its quarterly units sold.

Tesla’s share price has decreased significantly in the 2022 year to date, but many investors still feel the share price is significantly overvalued at a current P/E ratio of 91.31.

Tesla will release its Q3 earnings on the 19th of October, and investors are eagerly waiting to see what impact the sales miss had on the company’s financials.

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