Tesla crushes rivals with first full-year profit, redefines future of car industry

Electric vehicle maker Tesla has posted its first full-year profit – not just beating analyst expectations but also cementing its position as the most valuable automaker in the world and highlighting the huge advantage it holds over legacy car makers.

The key numbers being watched by analysts were revenue and profit, and Tesla easily beat them both – posting $US6 billion in revenue, net income of $US104 million, and a small profit of US50c a share.

But beyond the simple financial numbers was another indicator that underlines the significance of this story – a graph that shows that over the first six months of 2020 Tesla sales increased from the same period a year earlier, while for every other leading manufacturer they fell significantly.

Nothing can better explain the monumental shift that is happening in global auto markets. Increasing numbers of consumers are holding off on buying new petrol and diesel cars, but they are buying EVs.

The sales figures from all key global markets show a slump in petrol and diesel sales – driven mostly by the impacts of Covid-19.

The sales figures in the table above from all key global markets show a slump in petrol and diesel sales – driven mostly by the impacts of Covid-19.

But amid this, the sales of electric vehicles, and Tesla’s in particular, have held strong. And the market is beginning to understand that this is just as much a tech story than an auto industry story.

And investors do love a good tech story, which is why Tesla shares have shot into orbit this year. It is now worth more than $US300 billion. And it explains why Amazon, and its rivals Google and Apple are also planning big plays in what should probably now be known as the e-mobility market, rather than just an auto market.

Legacy car makers plan to spend half a trillion dollars over the coming years to make the transition from petrol and diesel cars to electric, and try to catch up with Tesla. But with cars now becoming more than just offering a mode of transport, but an iPhone on wheels, and a potential energy storage solution, the question is how they can keep ahead of the world’s tech giants.

This market re-appraisal is so dramatic that on some days Tesla’s share value has added the equivalent market cap of legacy car maker Ford in a single day. It is now worth three times more than all the big three legacy US automakers combined. And it is now bigger than Toyota, VW, and every other global car-maker, despite delivering a fraction of their sales.

The world has turned, and it will turn further and more rapidly. Founder and CEO Elon Musk says the real value in Tesla may be in its Full Self Driving capabilities, and the software sales that go with it.

“It think it will go down as the biggest asset value increase in history. That’s a step change,” he says. Musk explained that he personally tested the FSD software on his own vehicles.

“It is really, I think, profoundly better than people realise,” Musk said. “It is amazing. So it’s almost getting to the point where I can go from my house to work with no interventions despite going through construction and widely varying situations. So this is why I am very confident about also driving and functionality being complete by the end of this year.”

Of course, local regulators will decide when and where that technology can be deployed at scale. But Musk says it is inevitable and will not just increase value for the company, but also individual cars – possible a five-fold increase in the value of the cars.

And Musk says the value of this is still not appreciated. “I think it’s because they can’t imagine that a computer could be way smarter than them. But that’s the flaw in their logic. They’re just way dumber than they think they’re.”

And Tesla is also in the energy business – through solar and battery storage – and he says this will be worth as much as its auto operations over time. It recently luanched the Megapack, a bigger version of its grid-scale storage, and its automoated trading system when he described as “autopilot” for the grid business.

“Tesla Energy will be up to roughly the same size as automotive,” Musk said. (It currently has less than one-tenth of the revenues). Read the full story on this, here.

“The (global) energy business collectively is bigger than the automotive business. And in order to achieve a sustainable energy future, we have to have sustainable energy generation, which I think is going to primarily solar and, you know, followed by wind …and they need to have a lot of batteries to store energy.

“So there’s like three elements of the sustainable energy future wind and solar, sustainable energy generation, battery storage and electric transport. And the mission of Tesla to accelerate sustainable energy.”

In the conference call to analysts, Musk paid tribute to the Tesla team, which he said had overcome challenges “too numerous to name” in the first half of the year, when production was curtailed due to restrictions caused by the Covid-19 pandemic.