Tesla’s Profits

7140125881_8368ba22c6_oTesla Motors, Inc failed to earn a profit in the first quarter of 2014 as we covered earlier by my colleague. Automakers, with their high fixed cost structures needed to maintain production capacity, usually make strong profits during market expansions and lose money during contractions. Tesla, a producer of automobiles is losing money, but that may reflect on the mentality of CEO Elon Musk more than it does the company’s long term viability. Musk’s focus is, and has always been technology. Judging Tesla’s performance based on the norms of the Automotive manufacturers will not provide an accurate evaluation of the company. The online retailer, Amazon, also infamously refuses to earn a profit by reinvesting cash heavily into warehouses that improve delivery speeds, and research and development projects that may one day revolutionize urban package delivery. Investors continue to push up the value of the firm based on its potential to earn profits.

Likewise, Tesla lost $50 million but charged $81.5 million of Research and Development toward its operating expenses. Increasing production capacity, conducting research, building out Supercharger and service center infrastructure, opening new stores,  and opening single a ‘Gigafactory‘ capable of producing more lithium batteries in 2020 than were produced the world over in 2013 takes money. All of these investments cost money and it would be irresponsible of Musk to earn a small profit in the first quarter at the expense of the company’s long-term profitability.

Source: http://files.shareholder.com/

Source: http://spectrum.ieee.org/

7 comments to Tesla’s Profits

  • Alexander Dawejko

    Elon Musk knows exactly what he is doing. To set up a firm with such a new product and such high manufacturing costs he will obviously realize a net loss for a while. It won’t be long until Tesla has the facilities, charging network, and lower cost of production. Once they have those things you can say goodbye to the net loss.

  • heardd16

    When we had dinner with the gentlemen from Automotive News, I sat with one for a while to discuss Tesla. He told us that a great deal of Tesla’s revenue came from selling excess emissions credits since they are so far above CAFE standards. I think this is not a good sign for Tesla. It does not seem to be a good sign when you are making lots of revenue from competing automakers instead of consumers.

  • mayolj16

    Tesla is not the only car company making losses. As I wrote in one of my previous blogs, Aston Martin is going through a similar process, which they call investment stage. They do not plan to make any profits until the year 2016, but they estimate that their investment will give them a stable profit for the next years.

  • Kuangdi Zhao

    Perhaps Tesla is intentionally making no profit. It charged $81.5 million of R&D expense. I learned in my intermediate accounting class that there are R&D expenses can be capitalized if they can provide future benefits. I am confident that at least some of those expenses can provide future benefit to Tesla.

  • Zachary Durkin

    As a new company, I think we need to step up and give Tesla a break. You don’t step out of the gate and start making money. I think we need to let economies of scale take over. You have to spend money to make money. Tesla is innovative and once they hit their stride, I think they’ll be just fine.

  • Louis Ike

    Although Tesla is an automotive company, I think that it is unfair to look upon its financial statements as if it were GM of Ford. Tesla is an incredible young and forward looking company who I liken more to a start-up in Silicon valley than a manufacturing giant from Detroit. Many of the start-ups in Silicon Valley consistently run losses, yet see immense public support through investment and eventually see profits. I look forward to seeing the future of Tesla and the electric auto market.

    • reed

      I think ultimately, that’s the question: do we judge Tesla based on the standards of the Automotive industry, or based on the tech industry. Ultimately, both have to be profitable, but the way they accomplish profitability can be very different. Gadgets (cell-phones, tablets, pebble etc) and websites iterate on a much faster cycle than cars and the name of the game is to have a product that is far superior to the competition. Clearly in the electric vehicle market, Tesla has done that, but how well that will translate to success selling cars is still unclear.

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