During the crisis, Tesla bucked the trend as the “seeded seeds” grew in the early stages. Tesla has kept its profits on hold in the face of an outbreak that has hit traditional car companies around the world and plummeted in sales and profits, with its share price soaring about fourfold from its March low. That puts it on the top spot in the world after surpassing Volkswagen and Toyota in market capitalisation in early July.
Not only that, but with Tesla’s record four consecutive quarters of earnings, it is expected to be included in the S.P. 500 as one of the components.
Behind the success is Musk’s series of investment initiatives over the past year that have put the company in a strong position in the afteralls.
Strategic investment spending before the crisis.
In a recent commentary, Gene Munster, managing partner at Loup Ventures, an investment research firm, likened Tesla’s current leadership position in the wake of the crisis to Ford’s 2008 economic crisis.
Before the 2008 recession, Ford turned a profit, raising billions of dollars to focus most lying on core products, cutting costs and closing dealers and some non-core brands. During the crisis, Ford posted its highest profit since 1998, soaring from a low of $1.01 in November 2008 to a high of $18.81 in early 2011.
This time, Tesla is showing stronger momentum, with Adam Jonas, a senior industry analyst at Morgan Stanley, predicting annual revenue selling at more than $170 billion in 10 years from $24.6 billion last year and surpassing Ford’s $156 billion in sales last year.
Gene Munster argues that the key to success is a strategic investment that was consistently laid out before the crisis. He said:
The way Ford became a leader in the car industry during the economic crisis has a central resemblance to the way Tesla became a leader during the crisis: both companies made strategic investments before the downturn, gaining market share and generating cash flow.
If Musk succeeds, he will be able to achieve his long-standing goal of turning Tesla into a mainstream automaker and leading the company out of the epidemic, just as Ford did in a much healthier way than its competitors did in the 2007-2009 recession.
Mr Musk’s long-range goal is to rapidly increase production capacity and continue to launch new models as planned, and he has made a number of aggressive moves, such as the introduction of the Model 3, ModelY models and the creation of a Shanghai super factory.
These investments have put a lot of pressure on Tesla. Last year, after years of investing in the Model 3 compact sedan and the upcoming Model Y compact sport utility vehicle (suv), Tesla’s sales slowed and losses intensified.
But Musk’s bet is that as research and development of a new generation of new vehicles continues to develop, good products are produced, electric cars will soon become popular around the world, and time and money will be realized in the future.
As it turned out, as he had expected.
Investment realization: the benefit of the outbreak time is poor, the Shanghai plant provides a performance buffer.
With Tesla continuing to lose money and major market analysts, including Adam Jonas, who has always backed Tesla, making another bet, it began expanding into China and announcing production at its Shanghai superplant in December.
Musk had no expectation at the time that the Shanghai plant would provide a strong cushion for Tesla’s performance in recent months at a time when it was in a quagmire.
On one side, Tesla was forced to close its plant in Fremont, California, in late March and early May because of the outbreak, and is the only one in the world to produce model S, Model X and Model Y, covering almost every tesla model.
The Fremont plant, which is at the heart of the business, has been slow to resume work, and the exasperated Musk even threatened in early May that Tesla would immediately move its headquarters and future projects to Texas/Nevada and file a lawsuit against Alameda County, California.
On the other hand, shanghai factory sales were boosted, offsetting a number of losses. As China’s epidemic prevention and control in place, affected by the outbreak suspended work, many enterprises re-opened, Tesla Shanghai plant officially resumed on February 10, making Tesla one of the earliest domestic companies to resume work, also means that the operation of the Shanghai plant has not been affected by the outbreak.
Daniel Ives, an analyst at Wedbush, said that while Tesla did not release regional figures, China was the main source of growth for Tesla in the second quarter, based on their analysis and industry data.
Tesla’s revenue in the U.S. fell 11 percent in the second quarter from a year earlier, while revenue in China more than doubled, according to data.
Tesla also benefited from the Model Y model, which went live in March. Tesla’s large backlog of orders before the outbreak also helped Tesla cushion the decline in sales.
Earlier, a report by Societe Generale showed that Model 3 and Model Y delivered 80,000 vehicles in the second quarter, up 5.1% YoY and 3.2% YoY, with year-on-year and high-growth growth mainly contributed by domestic Model 3 and Model Y in the U.S.
Make a mess of the mess, focus on creating profits.
In addition, Musk said, the impact of the outbreak, to focus on maintaining Tesla’s recent earnings momentum, as it told investors last month:
We want to make micro-profits, maximize growth, and make cars as cheap as possible, and that’s what we’re trying to achieve.
In order to achieve second-quarter profits, Musk has made a number of problems, such as lower wages, give employees a holiday to mobilize enthusiasm, seek rent relief, price cuts to boost sales.
Tesla’s Model S, Model X and Model Y SUVs have recently cut prices. In mid-July, Tesla cut the price of the Model Y by $3,000, and from late May to early June, the Model S and X were cut by $5,000 and $2,000, respectively.
Tesla is also expected to develop mini-cars for the European and Chinese markets to drive profitable growth more effectively.
How long can the winner win?
But Tesla’s critics point to a decline in revenue in recent quarters and questions about the sustainability of profits.
They say financial incentives introduced by some governments to encourage people to buy electric cars are disappearing, especially in the United States. While Tesla has lobbied Washington for tax cuts at home, its effectiveness may depend more on the outcome of November’s election than with Musk’s ability to lobby.
Toni Sacconaghi, an analyst at Sanford C. Bernstein and Co., downgraded Tesla last month. He said that while there was still optimism about the future of electric cars and Tesla’s advantages, “Tesla’s current valuation is incredibly high.” “