Spotlight on Tesla

Introduction

Tesla is the world’s biggest Electric Vehicle maker also the largest automobile manufacturer by Market Capitalization for that matter. It’s CEO aka “Technoking” Elon Musk is one of the most influential people in Twitter these days, so influential that the CEO of Volkswagen, had to start an account in Twitter of his own. Apart from all that, Tesla is an interesting business. We’ll look at the beginnings, the Q1 2021 earnings report and some other stuff in this thread.

Beginnings

Founded in 2003 by Martin Eberhard and Marc Tarpenning, took 5 years to release their first car – Roadster – in 2008, the same year Musk was named the fourth CEO. The original Roadster cost around $100,000 – in line with luxury cars.

In 2011, it stopped the production of Roadster(a total of 2500 was produced) to concentrate on more budget friendly models and those that could be mass produced. It introduced Model S sedan in 2012. Also, starting in 2012, Tesla built stations called Superchargers in the United States and Europe designed for charging batteries quickly and at no extra cost to Tesla owners. Later on, these were renamed to Tesla Stations.

From there on, there has been constant innovation and improvements at Tesla that has culminated in it being the biggest automobile manufacturer in the world!

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Q1 2021

For the first quarter of 2021, Tesla made a profit of $438 million on a revenue of $10.39 billion which itself is about $100 million above Wall Street’s expectations. According to CFRA senior analyst Garrett Nelson, of the past 7 quarters, Tesla beat analyst expectations for 6 of them! Revenue grew 74% Year over Year.

During the quarter, Tesla produced just over 180,000 vehicles and delivered nearly 185,000 vehicles. Tesla is now aiming to produce 2,000 Model S and X vehicles per week later this year. Its unit sales increased by more than 100% year over year!

It also recorded a $101 million positive impact from sales of bitcoin during the quarter.

Quarter-end cash and cash equivalents decreased to $17.1B in Q1, driven mainly by a net cash outflow of $1.2B in cryptocurrency (Bitcoin) purchases,

Q1 report, Tesla
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This together with sale of regulatory credits was a significant part of its first quarter.

Regulatory what?

Regulatory credits. Automakers in the US are required to meet a certain level of emission standard. These are to be complied by holding a stipulated level of emission credits. If an automaker doesn’t have enough credits by the end of the year, it could face punitive actions by the authorities.

These credits are given to companies that produce Electric Vehicles(EV). Companies that don’t produce EVs will have to purchase them from those producing EVs to stay in business.

Since Tesla only produces EVs, it racks up way more credits than it needs to meet the minimum regulatory requirements, so it turns around and sells the excess credits to other automakers so that they don’t invite any penalties.

This is like free money for Tesla. Revenue from regulatory credits for Q1 increased 46% to $518 million! Perks of being eco-friendly, eh?

Leading The “Pack”

According to a report by Sam Jaffe, of energy industry advisory firm Cairn ERA, Tesla will maintain a lead in procuring and installing EV battery packs at the lowest possible cost till at least 2030, followed by General Motors.

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According to Cairn ERA, Tesla pays an average of $142 per kilowatt hour (kWh) for battery cells purchased from its suppliers while GM pays an average of  $169 per kWh for its battery cells and the industry average runs at about $186 per kWh.

Cairns data estimates that Tesla’s battery packs cost(i.e. the cost to put the cells into a pack on each individual car), on average, $187 per kWh while GM’s packs cost $207 per kWh and the auto industry spends an average of $246 per kWh for battery packs.

This mostly comes down to economies of scale according to Jaffe.

They see this as the crucial period and they’re building out their capacities,

Look at what they’re doing in Shanghai and in Berlin and now in Austin, Texas. They’re just piling factory upon factory.

Sam Jaffe, managing director of Cairn ERA.

Closing Comments

Tesla being the first EV to scale has created a personal moat by having large troves of data, giant battery plants and just huge volume of production. But now with other car makers making pledges about converting a significant part of their fleet with EVs and substantiating that with some huge investments, It will be interesting to see how Musk and Tesla plays out this space in the future!

ICYMI

Elon Musk hosted yesterday’s Saturday Night Live. Checkout the playlist below!

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Shreesha S
Shreesha writes about Business, Finance and Tech for The Snippets Journal. He is also the Founder and Head of Content Development.
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