If this electric car thing doesn’t work out, it is done — there is no plan B.
Throughout my analysis of Tesla, I have compared Tesla to Apple, the Model 3 to the iPhone, and Telsa founder Elon Musk to Apple co-founder Steve Jobs.
It is run by a relentless founder who is willing to put in hundred-hour weeks and sleep in the factory when needed. Tesla is years ahead of the competition on battery development and software. Then there is the self-driving vehicle , which may provide Tesla a lead that will be difficult for internal-combustion engine car makers and even Alphabet’s Google GOOGL, -0.50% to catch.
If something were to happen to Musk or he was removed from Tesla, what would happen to the company? Would Tesla turn into Apple after it fired Steve Jobs in 1985 or the Apple of 2011 after Steve Jobs passed away? The Apple of 1985 withered because it did not have enough breadth of products or the depth of management needed to replace a charismatic visionary. Jobs left a vacuum of leadership and vision when he was fired.
Just as the iPhone was initially not competing much against other smartphones but was really up against dumb phones, Tesla is not competing with the new EVs but with the 86 million ICE cars sold globally today. If Tesla survives in the short run and turns profitable, then I can see a path by which the company could start producing a few million cars a year.
My personal experience with Tesla’s service has been excellent. But I read that Tesla is experiencing growing pains with its service. This makes sense — its serviceable car fleet has more than doubled over the past year-and-a-half. The Tesla technician who fixed my Model 3 speakerphone told me that his scheduling software still needs work, as he is sent to back-to-back appointments that are 50 miles apart. This doesn’t sound like a permanent issue, though; a quick software fix should resolve it.
If Tesla is able to increase its production, incremental cost per car should decline. Let me explain. The cost of a car has two components, fixed and variable. Variable costs include the battery, tires, engine, etc. These costs don’t usually decrease much as a larger number of cars are produced. If Tesla makes $8,000 per car, that’s a 20% gross margin. Today it is at 18%, though this number is subsidized by environmental tax credits. Toyota and GM are at 18% or so. Musk’s goal is a 25% gross margin.
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