ell. I think nobody disagrees that Tesla is a successful car company. It caught the wave of emission reduction at the right time.
But how can it turn profitable, with only 500,000 cars produced in 2020? (Yes, even a million cars produced for a car company is usually not enough to become profitable) Are they real?
Many said their profits were mainly from Bitcoin and tradings. It may be true. Many also point out that they have an exceptionally high-profit margin compared to other car manufacturers.
For a new car company just entered mass production, this is inconceivable.
From the IT Industries
Elon Musk – a nerd when he was young, a tech guy from his root, a computing man when he starts. Coincidently, I do resemble very similar characteristics to him. Luckily, I was not bullied when young.
Being in the computing industry for a long time, I do see how personal computers have revolutionized. Apple (1980s) -> Microsoft & PC (late 80s onwards till now) -> Apple Mac (making a comeback from around 2000 till now).
The Age of Microsoft from the late 80s is a platform expansion, the operating system, and hardware independence. Platform popularity because of the massive number of PC manufacturers joining the market, with various choices, modularity, and upgrades available when you wanted. The superb flexibility is creating unlimited changes in the PC world.
Apple, on the other hand, built on proprietary hardware from themselves. The top-down design with lesser model variations approach makes their computer hardware platform much more profitable than any other PC manufacturers. The simplicity of design is perfect for daily usage right from the OS to hardware, clean, sleek.
I’m not an Apple user, not that I don’t like it. I’ve just been in the Microsoft/PC platform for too long, and hard to switch over.
There are similarities, but differences
Do you see some similarities? Like,
Internal Combustion Engine Cars --> Microsoft/PC platform
Apple and its design approach --> Tesla and its design approach
Of course, Apple outsources production while Tesla builds their factories. Tesla's approach to design and production is very much like Apple’s approach but more complicated. It puts even tighter cost control to achieve.
Hi-Tech Design
When you enter the latest Tesla design car, you see a clean, sleek interior. Dashboard, buttons, nobs are gone; instead, you only find a touch screen computer for the controls. Everything is computerized and controlled via that “iPad”.
A Hi-Tech Electric Car
I would only say it is a “Higher-Tech” electric car unless FSD (Full Self Driving) is ready
Nowadays, cars are electronically controlled already in all aspects. All Tesla has done was take out the nobs, buttons, even the dashboard and show them on a tablet with touch control. Unfortunately, I think some of them might have been over-simplified. Some of the nobs/buttons are created for drivers to control without looking at them. Now you’ll have to look at and control on a screen, away from the road.
Hey, is this against the traffic rule if you touch your phone while driving in your country?
Touch the control screen, or even turn your head to find out where to press on the screen, do distract your driving. 2 secs you turn away from the road may be severely dangerous.
All about Cost-Saving
Yes, it is a cost-saving trick.
Think about it, a simplified interior molding, the buttons/nobs gone, savings on installations, all replaced and controlled by a single touch screen device. New features/future changes were a touch of a software update. This is a clever trick.
What’s more? The whole car was designed and manufactured with cost-saving in mind. The simplified body structure with minimal connections/joints; increase battery density by making it a single large module; most of the covering plastic interiors are single piece molded etc.
Because of this cost-saving and the economies of scale, Tesla could produce cheaper models, like Model 3 and the upcoming under $25,000 model Elon Musk promised.
Elon Musk wants Cheaper Tesla Car
That’s right. While looking modern with high performance, the extreme cost-saving design and manufacturing start right from the beginning. Elon and Tesla want an efficient, practical car brand for everyone’s use. Model X, Model S, and Roadster was just eye-catching gimmick with high performance at a cheaper price. They never aim to build a luxury car brand. They have even wanted to put Solar on EV openly since 2016.
The Model S Plaid, the fastest car on earth, is much cheaper than those traditional expensive ICE supercars but much faster than they are, right?
Efficiency, Efficiency, and Efficiency
I have these habits, improving efficiency all the time. It is probably something rooted in most of the IT/Tech guys. I believe Elon Musk may have the same problem. Once he has achieved something, he’ll start another cycle on efficiency improvements to its extreme.
Just look at where he lives now. A billionaire lives in a tiny $50000 pre-fabricated home rent from SpaceX, which he thinks is sufficient. He sold all his properties, and he thought they were too big for him. I think he is an extremist, probably addicted to improving efficiency.
Their High Profits Margin
It all adds up. Tesla's profit margin is about 30% for every car they made, compared to 20% for Toyota and below for others. This level of margin usually happens to those ultra-luxury super sports cars. No wonder Tesla’s share price skyrocketed, though I think it is overpriced.
The more popular car models create and factories open, the more profits they will make and probably their share price.
The Catch 22
Everything seems well fitted, but what is the catch?
The current ICE cars on the market are similar to the PC on the market. You can upgrade or replace anything because of the modular design.
If you smashed your car and had minor damage to the structure, they’re usually repairable and won’t cost your leg. Replacement to any faulty sub-system parts, says the electrical system, will get your car quickly back on the ground.
However, slight damage to your Tesla car’s structure may result in an unrepairable fault. Minor damage/fault to a battery module may require a total battery replacement. There are similar stories that keep coming up. Tesla said it is to assure of the repairing quality.
This is why Tesla repair is so costly. I think Elon Musk assimilates a lot from Apple. Don’t you agree?
Advanced Manufacturing – to Catch Up
If FSD is the future and becomes mature, many accidents will be prevented and less prone to high-cost repairs, less time needed to make a car, and much lower cost for assembling. Most car manufacturers are lagging because they’re still using the traditional way of prototyping/producing cars. Nevertheless, the way Elon Musk works do prove to bring high-level products at a lower cost.
Tesla is leading the game, not only because it is the leader of the electric car, they are the leader of new advanced manufacturing. Before mass-producing a new car model, the most time-consuming part is designing the car’s manufacturing process, simplifying its components, and reducing time to market, not the car. I believe Tesla will still be the game leader for at least five more years before others catch up. But with Tesla’s speed and efficiency, there is a lot they could have done in the five years' time.
As long as Elon Musk and Tesla can keep their supporter excited, they will still be the industry leader. What will Tesla's share price be by then?