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Tesla – Electric Car Manufacturer – Makes a Profit! But What Are the Greater Implications?

| Thursday August 13th, 2009 | 5 Comments

tesla-roadster

This month, Tesla motors (a high-profile U.S. electric vehicle (EV) manufacturer) accomplished the incredibly difficult (for any auto maker nowadays): it made a profit! A $1 million profit, to be exact – a quick turnaround from Tesla’s near-collapse of last year. On top of being a sign of vitality for the auto industry, this profit is considered, by BusinessGreen.com anyway, to be a huge achievement for the sustainability movement: it could signal the commercial viability of the EV sector. While I agree Tesla’s profit is grounds for a big “woo hoo,” I wonder if such conclusions on its implications for the greater EV sector are a bit jumped-to. If I treated two leukemia-positive cats with the same medicine (one cat being prone to the disease and the other not), and the not-prone cat recovered, could I reasonably assume my medicine could conquer feline leukemia in both types?

Tesla reportedly curbed its own demise by securing fresh funding, partnering with another auto firm, and continuing the creation of new Tesla EVs. One of its models, a sports car called the “Roadster” (which can travel 244 miles between charges and is faster than a Porshce) earned $20 million in the sale of 109 vehicles last month – the company’s first profit since its foundation in 2003. It appears Tesla took a multi-medicinal approach – which is why a quote by Tesla Chief Executive Elon Musk (reported, in parts, on both Wired.com and BusinessGreen) caught my attention:

“We achieved bottom-line profitability [with] hard work…, [improved] quality, [and lower costs] on the Roadster…. There is a strong demand for a car that is unique in offering high performance with a clean conscience…. Moreover, customers know that in buying the Roadster they are helping fund development of our mass market of electric cars.”

While no one really knows Musk’s complete internal dialogue on the matter, the quote underscores a leap in logic. While it mentions Tesla’s multifaceted efforts to salvage itself, the quote overemphasizes the role of consumer faith (in the virtue of EV technology) in Tesla’s Roadster-based recovery. How, then, can EV proponents claim Tesla’s Roadster-derived profits speak for the entire EV industry, when that industry has been treated with multiple medicines, with slow-moving success? Looks like the cat that recovered was treated with multiple meds, yet only one med got significant cred. How does this compute?

Wired.com offers another opinion on the matter: don’t expect Tesla’s profit to become a trend. According to Wired, most of the money rolled in after Tesla delivered cars on which customers had already placed deposits. Wired also scrutinizes Tesla’s reported “surge” in Roadster orders, the likelihood of such a surge continuing, and Tesla’s ability to fund both manufacturing and marketing of upcoming models. In other words, the $1 million profit may be a one-hit wonder.

What do you think?


▼▼▼      5 Comments     ▼▼▼

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  • http://www.iwanttobuyanelectriccar.com Sean

    Looking at Tesla in a vacuum, perhaps one could be cynical about the pending explosion of electric cars. Looking at the big picture, however, it’s apparent that Mr. Musk’s opinion carries more weight than Wired.com’s myopic “scrutiny.” Japan, Europe, Australia and yes, even the U.S. are participating in rapidly growing electric car development. Companies you may have heard of like GM, Ford, Nissan, Mitsubishi, BMW, Volvo and Toyota are all building electric cars. Electric cars will dominate. Just briefly take a look outside your little playground to see the bigger world picture.

  • Jim-Bob

    Yeah Sean, I agree!

  • Shel Horowitz – Ethical Marketing Expert

    If my math is right, that’s about $200,000 cost per car. Not exactly a sustainable model or one that has implications for the broader auto industry, any more than Ferrari does.

    Shel Horowitz, award-winning author of Principled Profit: Marketing That Puts People First, http://www.principledprofit.com, and co-author of the forthcoming Guerrilla Marketing Goes Green

  • deano

    For me, the BG article didn’t seem to go way overboard in reaching for broader conclusions, although they did introduce Musk’s quote somewhat disingenuously.

    Looking at the Tesla press release, it seems Musk is speaking specifically to the company’s performance and not saying anything about the broader market appeal of EVs:

    “We achieved a bottom-line profitability thanks to a tremendous amount of hard work by the Tesla team to improve quality, while simultaneously reducing costs on the Roadster,” said Tesla CEO and Product Architect Elon Musk. “This also shows that there is strong demand for a car that is unique in offering high performance with a clean conscience. Moreover, customers know that in buying the Roadster they are helping fund development of our mass market electric cars.”

    Would anyone – even Elon – suggest current Tesla customers are representative of the mass market for autos? Actually, the final line says an influencing factor for buyers is to help fund development – that’s not typical mass consumer behavior.

    Tesla has fresh funding, is opening new retail outlets & is developing more affordable models. The only implication of their profitability announcement that isn’t a leap of logic is… Tesla is currently optimistic about their prospects, at least in their luxury niche. The bigs will have something to say about how they fare in the mass market.

    And yes, whoo hoo.

  • Mark

    I think Tesla is a bit of a special case. Tesla was and is different to previous EV companies in that there was always a plan to make a profit. The save the world motive was simply considered a nice bonus. If Tesla’s success has wider implications it’s that it’s ‘business’ approach has generated others to follow like GM and the Volt, Fisker and the Karma and now Nissan\Renault. I think this kick start of the EV industry will be what Tesla is remembered for regardless of Tesla’s own fate.