Flags fly outside of a Tesla Inc. building in Fremont, California, U.S., on Wednesday, June 20, 2018. Tesla CEO Elon Musk said the company needed another general assembly line to reach its production targets for the Model 3 vehicle. “A new building was impossible, so we built a giant tent in 2 weeks,” Musk said on Twitter. Photographer: David Paul Morris/Bloomberg
Pretty much everything has been said about Tesla: it was selling vehicles at a loss and would never be able to make them under the right conditions and fast enough, that its founder was crazy and would lead the company to ruin, while one industry veteran acclaimed the Model S, calling on car collectors to buy one “before the company goes belly up.” But this quarter, Tesla has not only made tons of money, boosting its share price and giving the NASDAQ its best day in months, but has also fulfilled its production and distribution objectives, showing every sign of staying in the black, at least until it has to pay interest on loans in the first quarter of next year.
For once, this third quarter does not seem to be the exception: everything indicates the company has found a stable way to generate profits. What’s more, Tesla is no longer an industry quirk: many have laughed at its production difficulties, grossly underestimating the achievement of moving from a standing start to mass producing 80,000 vehicles per quarter, but the company is now outselling Porsche, Mercedes Benz and BMW, making it the best-selling domestically-made car in the United States, and what’s more with a model that while expensive, is more advanced technologically, as well as cheaper and much safer to run that its internal combustion powered competitors.
This quarter’s spectacular results have confounded the analysts’ forecasts, proving what some of us have been saying for a while now, that few in the motor industry and its so-called experts few understand the strategic vision of a company prepared to take risks to change the world. Virtually everyone was wrong about Tesla’s finances and its future, and many analysts are now scratching their heads trying to understand what happened while still making recommendations of questionable credibility. For one thing, most analysts simply can’t get their head round the idea that a company’s customers would volunteer to help distribute its vehicles, contributing to a project they consider themselves part of. Elon Musk will doubtless be basking in the warm glow of his “I told you so” triumph, because he does understand that people want to be part of a project that is not about selling cars, but changing the world.
Understanding a business model like Tesla’s means understanding that the biggest difficulties aren’t necessarily the ones you imagine. Tesla has shown that difficult challenges can be overcome, as many other companies have done before. It has shown that it’s possible to design long-term strategies and implement them successfully, even if that means having to listen to baseless nonsense from people who don’t understand what it’s are doing. For example, that the company was wrong not to locate in China, that its production costs were unsustainable and would drive it out of business. Yet Tesla’s assembly line is now making progressive savings as production increases, and next year, depending on global demand, it could even consider moving a part of its manufacturing to China: now, not before.
Meanwhile, the company’s profit margin on every Model 3 it sells is now around 20%, well above the industry average in its segment, and overnight its prospects for growth and profitability now seem not only credible, but probable, regardless of the belief in some quarters that Musk is crazy. The world would be a better place with a few more crazy people like him in positions of leadership.
The best thing about all this is that we’re not even talking about an automotive company here. Sure, while some still insist on seeing Tesla as a car manufacturer and now begrudgingly accept that it’s not doing too badly thanks to its road map, it turns out that the price of batteries continues to fall, that demand for solar power installations grows as more and more batteries are produced and sold not only for vehicles but for homes and storage plants, and that hey presto, the company has miraculously found itself in one of the fastest-growing sectors as the evidence shows that long-standing environmental concerns are fully justified. Suddenly, it turns out there are many years of hard work behind Tesla’s overnight success.
In other words, people who say it can’t be done should stop interrupting those who are doing it.