Tesla raises the game

Tesla’s Q3 2016 earnings have not only surpassed the market expectations, but have sent a strong message to its investors and, more importantly, to competitors according to Anjan Hemanth Kumar, program manager, powertrain and EV, mobility, Frost & Sullivan.

Commenting on Tesla’s reported $2.3bn revenue, representing an 85% year-on-year growth, Anjan said, ‘Telsa seems to have effectively utilised learnings from their experience curve. Telsa Roadster (built by Lotus) was to test the waters of performance premium luxury segment and learn the art and science of building a great mobility product. The Model S is more of a core product built to give them sustainable competitive advantage. With Model X and future cars Tesla intends to demonstrate operational efficiency in ramping up the production to match demand. Elon Musk of late has been emphasising on cutting cost and ramp efforts to shoulder profitability.

‘Tesla was always the blue-eyed boy of the automotive industry in the perception of the consumer, but was never making the same cut with investors. The company’s ventures such as Gigafactory, high capital investments and initial supplier terms never let them make profits since early 2013. This financial result is a huge booster for investor confidence, especially when the company’s shareholders are to vote for a merger of SolarCity in November 2016.

‘This financial result also comes as an answer to critics and competition who have always criticised Tesla for its financial performance in the past. Elon Musk emphasised that the company will ramp up efforts on Gigafactory and Model 3 which are capital intensive; but will not need to raise capital at least until the first quarter of 2017. This is the first step of the company towards financial self-sustainability.

‘However, it will be challenging for Tesla to continue to show profits continuously. Heavy capital investments in the form of Gigafactory, SolarCity (provided it will be acquired) and R&D investments (to realise innovations such as fully autonomous feature) are due for the future. It would be overwhelming to say Tesla will repeat this feat and run into a hot hand showing profits. But for a company like Tesla, it will be reasonable to say, this is just a beginning.’