New plants produce millions of electric cars. Sales go up, profits increase – but sharp price increases make them a luxury. CEO Elon Musk fantasizes about driverless taxis because he wants high profits instead of a cheap entry-level model.
One of the first Tesla Y models from the Tesla factory in Grünheide
80 percent more sales and seven times more profit than in the previous year – what may seem impressive seems rather boring to Tesla boss Elon Musk. He obviously prefers to deal with the potential takeover of Twitter or the introduction of electric robo-taxis in two or three years than with the operating numbers of the first three months of this year. For one simple reason – the CEO of the Texan electric car manufacturer has invested heavily in modern production capacities in recent years and is now reaping the harvest by ramping up the new plants in China, near Berlin and in Texas when demand is clearly robust.
Huge production increases expected
“Our factories have been running below capacity for several quarters as the supply chain has become the main constraining factor, which is likely to continue through the end of 2022,” the company said. Nevertheless, management is confident that it will be able to deliver 50 percent more vehicles each year in the near future, after delivering 930,000 vehicles last year.
“Shanghai is coming back with a vengeance,” Musk said when presenting one Quarterly sales of $18.8 billion and earnings of $3.3 billion – to which the sale of environmental certificates to competitors contributed a fifth.
Tight supply – high price
The demand for Tesla vehicles is obviously high. Experts in the USA report waiting times of up to eight months for a sporty Model Y. The company promptly took advantage of this fact to raise prices by up to 30 percent, citing the high rate of inflation and the difficulties in the supply chain. “Some parts cost 20 to 30 percent more than they used to,” argues Musk, and points out: “The official inflation rate underestimates the problem”.
The eccentric company boss is still certain that he will sell more software packages and become more profitable than conventional car manufacturers. By the end of the year, he wants to offer an advanced driver assistance function in the USA, which is currently being tested by around 100,000 users. It’s designed to help drivers navigate cities, but the $12,000 system doesn’t make vehicles autonomous. So Musk is again not keeping the promise he made years ago that autonomous driving will soon be possible.
Research firm Guidehouse Insights ranks Tesla in its ranking of automated driver systems (ADS) for 2021 and soberly states: «Tesla needs to thoroughly rethink its approach to developing ADS. The company promised too much with its marketing for almost five years and delivered far too little in return.” But that doesn’t stop Elon Musk from pursuing the idea. Recently he has been talking about introducing so-called robo-taxis without a driver, steering wheel or pedals in two or three years. A trip will be cheaper than buying a bus ticket, he predicts and is probably secretly thinking about using it under precisely defined framework conditions.
Where’s the $25,000 model?
In this way he probably wants to revive the long-held dream of a cheap, generally available electric vehicle, which is diametrically opposed to the recent price increases, the expensive vehicles and, above all, the high profit margin for an ordinary car manufacturer. In any case, the idea of the $25,000 model has long since disappeared into the dustbin.
In the past few hours, there has also been no more talk of grandiose considerations about opening up our own mines and setting up capacities for further processing in view of the sharp rise in raw material costs. In fact, the balance of power in this area seems to have shifted in favor of the suppliers in recent years. After all, competing automotive companies such as Ford, Volkswagen or newcomers such as Rivian also want to secure the necessary inputs to achieve their own ambitious production goals in the electric vehicle business.
In fact, a look at the data shows that Volkswagen is changing rapidly and is on a similar growth path to Tesla in the production and sale of electric vehicles with a slight delay. The competition is increasing. After all, the Germans sold about 450,000 hybrid and electric vehicles from March to December last year, while Ford, General Motors and Stellantis are even ahead of Tesla with high-margin electric pickups on the market and their shares in this high-margin and prestigious segment could defend.
Competition occupies lucrative segments
Ford’s electric F-150 has 160,000 reservations. This suggests that the big, traditional American automakers have plenty of room to ramp up EV manufacturing in this important space before innovative rivals like Tesla and Rivian reach volume. Fleet sales could even prove to be a key advantage for the incumbents as they pull out all the stops to defend their market position in the lucrative pickup truck business.
While Tesla investors have so far acted as if the Texas company only needs to roll up the market, almost all established car manufacturers are now doing everything they can to participate in the hoped-for, subsidized e-car boom in the industrialized countries. But how will the Texans under Elon Musk’s leadership ever make as many vehicles and sell them at such high prices as investors seem to expect given Tesla’s market cap? Because if they are right, Tesla would not only have to sell two-thirds of all electric vehicles in the future, but would also have to play in the same league as Apple in terms of earnings. If not, Tesla shareholders would have to reckon with hardship.