Tesla CEO Elon Musk has declared that the electric car market is at a global inflection point, as the so-called EV “upstart” delivers its first billion dollar quarterly profitr and establishes itself as both the fastest growing and one of the most profitable car companies in the world.
“It is now clear to the public that electric vehicles are the only way forward,” Musk said in what might turn out to be one of his last appearances at the company’s quarterly investor call, unless he has something “important” he needs to say.
The Q2 result delivered roughly on analyst expectations. It included net income of $US1.14 billion ($A1.54 billion) on quarterly revenue of $US11.9 billion ($A16.2 billion), with auto revenue (sale of cars), beating $US10 billion for the first time.
The EV maker made and delivered 200,000 vehicles in the quarter, and its Model 3 and Model Y have established themselves as the leader in many markets, and its operating margin doubled to more than 11 per cent.
New data shows that plug in electrics now account for 19 per cent of new car sales in Europe, and in June the Tesla Model 3 beat the next three most popular EVs combined.
And the company is going to accelerate production, with new factories to open soon in Texas, from where Musk appeared on the call, and in Berlin.
“We might be fastest growing company in history for a large manufactured item,” Musk said. “Maybe the (Ford) Model T. I’d like to know who did it faster.”
Morgan Stanley analyst Adam Jonas echoed that view in an email to clients after the result: “Tesla is not only among the fastest growing auto companies in the world, it is also one of the most profitable,” he said.
He also noted that Tesla’s profit margin was better than most established German and premium market players, and despite negative contributions from the Model S and Model X, which had production suspended in a significant refit and upgrade earlier this year.
Jonas said he expected margins to increase further once the Austin and Berlin gigafactories were completed, and he suggested more Gigafactories could be in the pipeline, including Australia, India, Vietnam, Scandinavia, eastern Europe and the Middle East.
Jonas believes that most of the value of Tesla lies not in the auto business per se, but in energy, mobility and ride share, as well as insurance, network services and third party power train and battery services.
But Tesla has many short term hurdles to overcome, including the challenge of ramping up production of the Model Y, and getting new products such as the Cybertruck and the Semi to the production line in the face of shortages of battery cells and semi-conductor technologies.
See more on that in Bridie Schmidt’s story: Tesla in race to ramp up battery supply for Cybertruck, Semi
Musk said most people did not understand how “painfully difficult” it was to produce new cars, noting that Tesla and Ford were the only two US car companies that had not gone bankrupt.
“There have been hundreds of car startups in the United States, and outside, the United States. So, the thing that’s remarkable is that Tesla didn’t go bankrupt in reaching volume production,” Musk said.
“That’s the amazing part, because everyone else, because they all thought the prototype for the idea was the hard part, but it is trivial by comparison with actual production. It’s always worth noting that of all the American car companies, the only two that have not gone bankrupt and that is Ford and Tesla.
Right now, Musk says Tesla is inheriting “all the force majeures” on earth, in reference to the supply shortages on cells, chips and other items. “You are only as good as the unluckiest supplier. You are moving as fast as your least good supplier.”
Musk said the Cybertruck could be “the best car” ever, but was a considerable challenge because of the sheer scale of unexplored territory.
But he said there was no doubt about where the future lies – in autonomous, electric vehicles. Tesla has recently focused on camera-only self driving, and said on Tuesday morning that once it proves to be twice or three times safer than human drivers, it would be “unconscionable” not to allow auto pilot.
“We need to make FSD (full self driving) work to make it a valid subscription. Once we have it deployed, the value proposition will be clear. It will be a rare individual who doesn’t use it.
“Things are heading towards a fully autonomous, electric vehicle future,” Musk said. “The value of a fully elecric autionomous fleet is insanely gigantic. It boggles the mind really. It will be one of the most valubale things ever done in the history of civilisation.”
On that note, analysts such as Jonas are agreed. He says that Tesla will not be so much an auto company as a platform for a myriad of services.
And in the short term, in the face of supply shortages, it is also well placed.
“We believe the next two to three years of grwoth will largely be dictated by who has access to the greatest volume of low cost batteries, reliably sourced,” Jonas wrote in a recent report.
“Using a bread truck analogy for batery cells, we think successful EV players will be the ones closdes to the bread-truck. Tesla owns the bakery.”