Hello! Today we’re checking in on Tesla, the revolutionary company that risked it all to charge headfirst into electric vehicles — and inspired a wave of competition as it found success.

Objects in mirror may be closer than they appear

‍The eyes of the automotive world were on Tesla last week. The world’s leading electric vehicle maker reported its Q3 amidst a backdrop of strikes and layoffs at the three automotive giants of General Motors, Ford, and Stellantis, as well as rising competition from Chinese competitors like BYD.

‍Tesla reported a 9% jump in revenue, a fraction of the staggering 56% year-over-year growth the company achieved during the same period last year, as price cuts and production difficulties squeezed the company’s margins, sending its shares down ~15% over the last week.

‍The long road

‍To understand Tesla today, it helps to revisit its beginnings. Since its founding 20 years ago, by Martin Eberhard and Marc Tarpenning, Tesla has been shocking an industry resistant to change into action. The duo, disheartened by General Motors' recall of its EV1 electric cars in 2003, wanted to create their own electric sports car.

There weren’t just a few things they had to figure out how to do differently, there were a few hundred. More than a century since Carl Benz built the Benz Patent-Motorwagen — cars have changed dramatically, but the core mechanics remain similar: fuel goes in, combustion in the engine powers the crankshaft and drives the gears, and eventually, the wheels. Going electric meant starting from scratch — and that meant enormous expense.

The company set out to secure funding, eventually finding it in part from Elon Musk, a PayPal co-founder who was awash with cash after selling to eBay. Musk saw the promise in accelerating a transition away from fossil fuel dependence, investing ~$6m, joining as chairman of the board of directors and, eventually, becoming the company’s CEO in 2008.

Although the vision was to produce mass-market EVs that could rival internal combustion engines, Musk and co. decided to begin at the higher-end of the market, launching the Roadster, a 2-door sports car, in 2008. The desire to keep prices towards the premium end of town has been one that, until very recently, the company had maintained.

In its early days, Tesla could command such high prices because it had the EV market largely to itself. Today, motorists can choose from around 500 EV models, with over 200 estimated to have launched just this year. All told, Tesla’s average selling price has fallen from more than $85k in early 2018, to just over $40k in its latest quarter, after the company’s latest round of heavy discounting.

Electric enthusiasm

‍Although Tesla’s competition is working hard to catch up, the company remains unique.

In the years that followed the financial crisis, leading up to the launch of the Model S, Tesla found itself in need of funding, eventually debuting on the New York Stock Exchange. That made it the first new US auto company to do so since Ford in 1956, valuing the company at $2bn. That valuation grew small in Tesla’s rear view mirror quickly, with the company entering the exclusive club of companies valued north of $1 trillion — a group that’s only ever had 8 members. Although Tesla’s market cap has since fallen to the ~$680bn mark, it’s more than the next 7 most valuable carmakers, combined.

Much of that meteoric rise has been down to everyday investors that Musk has converted into a legion of loyal, often loud, devotees — who aren’t afraid to put their money where their mouth is.

The presence of retail investors, and more than a few funds looking to bet against the company, adds a unique dynamism to Tesla's stock. On a typical day, more money will change hands in Tesla than any other. Indeed, data from Koyfin reveals that so far in October, of the 10 biggest trading days of any stock, 9 were Tesla, 1 was AI powerhouse Nvidia. Indeed, the typical trading volumes of Apple and Microsoft, the two biggest companies in the world, rarely break $10bn: Tesla is averaging $29bn worth of shares changing hands every day so far in October.

Burn baby, burn

‍Tesla's trading frenzy is, of course, attributable at least in part to the company’s controversial CEO, who has sent traders into a spin with tweets (Xs?) on many occasions, including the infamous “funding secured” tweet that landed him in hot water with the SEC, and led to multiple class action lawsuits. But, controversies and broken promises aside, Musk has presided over a stunning 15 years at Tesla, taking the company from cash burning startup to cash flowing giant.

Money motivation

‍Environmental reasons have always existed, but nothing motivates like money, which is why Tesla’s recent profitability has spurred the efforts of older rivals. Volkswagen is investing a staggering $193 billion in electric cars and software, General Motors has made a bold commitment to cease the production of gas-powered cars by 2035, and Ford is gearing up to produce EVs for the masses. The startup scene has exploded too, from electric truck manufacturer Rivian to the Vietnamese EV powerhouse VinFast, which hit a valuation of $86 billion on its first day of trading.

Even with this surge in competition, Tesla remains the front runner, with a commanding 61% share of all fully electric cars ever sold in the US, a dominance greater than that of Apple in smartphones. But globally, Tesla's supremacy is teetering, as Chinese manufacturer BYD is on the brink of outselling Tesla in the all-electric vehicle segment.

Low batteries and long roads

Despite the technological leaps made in the sector, the vast majority of drivers haven’t made the switch from gas to electric. High costs and "range anxiety" have fueled hesitation, leading many to opt for hybrids, which have outpaced EV sales this year. Perhaps surprisingly, just 8.6% of all auto sales in Q3 in the US were all electric. Tesla sees this as an opportunity, with an ambitious target to manufacture 20 million cars annually by 2030, double the current output of today's top manufacturer, Toyota.

It’s easy to think of a sudden technological change, that we’ll wake up one day and everything will be electric, but the reality will be very different, as combustion engines and electric motors are likely to co-exist on our roads for many decades to come. If the future is all electric, it is taking its time to get here.

Thanks for stopping by, enjoy your Sunday!

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