Can Tesla Make It?

By Paolo von Schirach

February 9th, 2020

WASHINGTON – Tesla’s recent massive stock price rise has no rational explanation. Believe it or not, electric vehicles (EVs) manufacturer Tesla now is worth more than the combined value of General Motors, Ford and Fiat Chrysler. It is worth almost the same as Volkswagen and BMW combined. And yet the company produced only 500,000 cars last year, and has yet to be consistently profitable for at least a year. How is this possible? Clearly many of those who buy and hold Tesla’s stock are part of something akin to a cult, rather than savvy, rational investors. And yet, Tesla is no cult or joke. Far from it.

There is something there

There is definitely something “there”, there. But the something is not what most normal people are looking for: that is a well-structured manufacturing company that has a credible business plan that demonstrates when and how this car maker will become consistently profitable, this way rewarding its investors.

With Tesla, the usual parameters do not apply. And yet, at some point the company will have to become profitable. Yes, of course; but it is not clear when this will happen. Thus far, Tesla’s faithful investors are willing to believe that this will happen “soon”. Even though they do not know when, they are willing to believe this. So, is this EVs manufacturer a hallucination, a dream, or –worse– a hoax?

The fact is that nobody knows for sure what Tesla is.

Musk broke all the rules

That said, what we do know for sure is that Elon Musk, Tesla’s co-founder and CEO, successfully broke all the rules, and single handedly upended the entire automotive industry. And this is most welcome.

All analysts would agree that, before Tesla, electric vehicles were a dream, at best a concept, something we could think about, but whose time had not come yet.

Making EVs a reality

Well, Elon Musk made the EV dream a reality. Starting from scratch, his company designed and made appealing, interesting electric vehicles that people actually wanted to buy. Sure enough, he smartly took advantage of politically motivated subsidies in the form of federal and state tax brakes that increased the appeal of EVs. That was a big help, especially at the beginning.

Still, it is a fact that Tesla over time managed to design and produce models that are becoming cheaper, more efficient, with increased mileage per battery charge. In other words, thanks to Tesla, EVs are much closer to becoming truly competitive vis-a-vis even the most efficient, traditional internal combustion engine vehicles.

The battle is still on

I realize that the epochal battle for market dominance has not been won yet. Especially at a time of very low oil prices, and consequently cheap gasoline, the challenge to make EVs that are more cost-effective than traditional gasoline powered cars is huge. But it seems that Tesla is constantly working on refining its products. Can they make better, cheaper, more efficient batteries? Can they further reduce production costs? I have no idea. And I truly believe that nobody really knows for sure.

Musk is a genuine innovator

But I would like to bet on Elon Musk’s abilities. Whatever you can say about his bluster, braggadocio, exaggerations, wild predictions and what not, this successful South African immigrant is an extremely welcome addition to an uninspiring American industrial scene made out of unimaginative leaders who in most cases are at best capable of tweaking and fine tuning old stuff.

Think about it. The internal combustion engine is a more than 100 years old invention. It is most disappointing that no truly radical innovation has been produced by the major brands that have been designing and producing cars for decades.

It took Elon Musk –an immigrant and a complete outsider, with zero prior experience in the automotive sector– to shake up the entire industry. For that alone Musk deserves a great deal of credit.

Tesla opened a new chapter

Tesla opened a new chapter. It creatively linked renewable energy, automotive technology, sophisticated electronics, and more into a new way to think about personal transportation. Whatever your opinion about Tesla’s viability as a profit-making company, we should all welcome bold innovation.

Of course, being bold and daring does not always mean being right. Eventually the numbers will have to validate the new formula. However, for the time being, most Tesla investors are willing to suspend judgement. They are willing to believe the seemingly impossible, if not outright absurd. And, in the end, they may be proven wrong.

But, whatever Tesla’s future, I still believe that Elon Musk is a genuine trail blazer. With zero assurances of success, he dared to go where no one else would. That by itself is a great achievement, and (I hope) a powerful source of inspiration for all the would-be innovators in the United States.

Same old, same old does not do it anymore.

The views and opinions expressed in this issue brief are those of the author.

Paolo von Schirach is the Editor of the Schirach Report He is also the President of the Global Policy Institute, a Washington DC think tank, and Chair of Political Science and International Relations at Bay Atlantic University, also in Washington, DC.

 

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