The mainstream financial news media in the last two weeks was filled with news about Tesla and its founder Elon Musk. The news were predominantly negative - from Elon Musk supposedly misleading investors by tweeting he is going to take Tesla private. From him smoking pot on air and lately the SEC charges and the subsequent settlement of Tesla and SEC whereby Elon Musk has to give up his post as Tesla Chairman and remain only CEO.
But these news are wayward of an important caveat. Why actually is Tesla facing so many difficulties in quickly producing a high enough number(>5000 units) of Model 3?
In short, I think Elon Musk underestimated how difficult it is to manufacture cars at scale? Hey, if it was so easy to produce automobiles at scale anybody could start up and become the next Volkswagen or Toyota! Developing the know-how to produce cars is not accomplished by simply reading some books on the matter.
Tesla is simply too young a company. Ford has produced cars for more than a century. Volkswagen and Toyota have produced cars for many decades. Tesla simply does not have the know-how yet to manufacture automobiles at scale. Tesla hired some of the best and most experienced in the car production business to work for it, but still it seems it is not so easy to produce cars at scale. Throwing money at the matter, much of it through government subsidies, simply will not work.
Will Tesla survive? Hardly. Producing electric cars is simply too expensive. One of the reasons is they contain a lot of ferrous metals. The German automakers were basically coerced by Angela Merkel's government to ramp up production of electric cars. And sill the electric car adoption in Germany is very low. Angela Merkel's governments have tried to persuade VW, BMW and Daimler in the virtues of electric cars many times. But the production of electric cars is simply not profitable, even with subsidies. Tesla is the poster child of the elctric car industry. If Tesla fails, this would deal a heavy blow to the whole electric car industry and could even stop it in its tracks. To make electric car production profitable what is needed is a technological breakthrough which would make the manufacturing of electric cars viable.
Will Tesla succeed in disrupting the combustion engine car industry? Without a technological breakthorugh which would make electric car manufacturing profitable, Tesla would fail when governments stop keeping Tesla afloat with subsidies.
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Kind regards,
Petar Posledovich
Conflicts of interest: I may possess some of the securities,currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!
Kind regards,
Petar Posledovich
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