How Tesla Went From Near Failure To Stunning Profitability In Just A Few Years
REUTERS/Robert Galbraith
Tesla shares were up 2% Friday morning after the electric car manufacturer reported adjusted earnings and revenue ahead of expectations.
It was only the 17th quarterly filing in the company’s history.
But in the past two years, the firm has seen some remarkable milestones: It’s now sold tens of thousands of cars, employs nearly 6,000 people around the world, and has plans to double the world’s supply of lithium-ion batteries. Meanwhile, shares have climbed over 1,000% since its IPO.
The company hasn’t always looked this good.
It nearly collapsed during the financial crisis and had to settle with one of its cofounders. A negative review from The New York Times last year prompted CEO Elon Musk to take to Twitter and appear on CNBC and Bloomberg TV to criticize the review. Its stock was battered at the time.
Here, we take a look at the company’s origins, the drama among its founders, its near collapse, and the development of its Roadster, Model S, and Model X cars.
Tesla Motors was founded in 2003 by five Silicon Valley entrepreneurs.
Marc Tarpenning and Martin Eberhard founded Tesla Motors in 2003. Elon Musk came on board in 2004 and they collaborated after trying to commercialize the T-Zero prototype electric sports car created by AC Propulsion. The company was named after electrical engineer Nikola Tesla, and aimed to “accelerate the world’s transition to electric mobility with a full range of increasingly affordable electric cars.”
The Tesla Roadster prototype was introduced to the public in 2006 and general production began in 2008.
Tesla raised $60 million and spent about $25 million developing its two-seat Roadster, which sold for $109,000. The Roadster went from zero to 60 miles per hour in 4 seconds and can go 250 miles on a single charge.
The Roadster came 10 years after General Motors introduced its two-seat electric car, the EV-1, which GM eventually withdrew because it had a 100-mile limit on one charge.
Source: The New York Times
Tesla’s initial plan to make it to mass market was to sell to rich people first.
Martin Eberhard, former CEO of Tesla, was quoted by The New York Times:
“Cellphones, refrigerators, color TV’s, they didn’t start off by making a low-end product for masses,” he said. “They were relatively expensive, for people who could afford it. The companies that sold those products at first, he said, did so “not because they were stupid and they thought the real market was at the high end of the market,’ but because that was how to get production started. His company and others that have tried electric cars, he said, are too small to produce by the tens of thousands anyway.”
And Elon Musk has always maintained that its goal is to create a mass-market electric vehicle that could be as cheap as $20,000 in third-generation cars.
Until 2008, most car sales were done in person, over the phone or online.
Source: The New York Times
The company nearly folded in 2008 during the financial crisis.
The company “almost collapsed” according to Bloomberg, under delays and cost overruns. Tesla announced it would cut about 24% of its staff
It began to struggle to raise the $100 million to fund its Model S. At the time Elon Musk put his last $35 million into the company.
Source: The LA Times
Tesla was able to secure $465 million in low-interest loans from the government in 2009.
Courtesy Twaro
It came from a $25 billion auto-loan program approved by the government during the financial crisis.
$365 million of that money was put toward building the Model S car and the remaining $100 million was used for a powertrain manufacturing plant.
Tesla’s loan from the DOE was, however, contingent on Musk holding at least 65% of the company. If he were to lower or sell his stake the loan would technically be in default.
Source: Information Week
Eberhard left in 2007. He later filed a lawsuit against Elon Musk and Tesla Motors.
Martin Eberhard said he was pushed out by Elon Musk, who was brought in as an investor, and sued the company. Eberhard accused Musk of causing delays.
“Musk took persistent and distracting interest in random details of marginal importance, such as wasting valuable resources and time on research on installing electronic door latches, rather than conventional door latches. The results were ever increasing delays in the Roadster’s production, as well as sky-rocketing expenses.”
Musk followed that up with a long retaliation on Tesla’s website calling Eberhard a liar.
Then, out of nowhere, the two settled their legal woes in September 2009. Details of the settlement were not disclosed.
At the time, Musk issued this statement: “Industry-changing efforts are virtually impossible. Without Martin’s indispensable efforts, Tesla Motors would not be here today.”
Source: Business Insider
Tesla had to recall cars once in 2009 and once in 2010 for safety concerns.
Tesla Motors
In 2009, Tesla had to recall 345 of its Roadsters made between March 2008 and April 22, 2009, over concerns that the rear hub was “under-torqued” and could come loose. This could cause the driver to lose control of the car and cause it to crash.
At the time it was reported that this was a problem with the Lotus assembly line and that Tesla would send technicians to the homes of owners to fix the problem. In 2010, it recalled 439 Roadsters involving the 12V low-voltage auxiliary cable.
Source: Business Insider
Finally, on June 29, 2010, Tesla went public.
Tesla filed for a $100 million IPO in early 2010 and became the first car company to go public since 1956. The company had priced its IPO at $17 per share but opened at $19 per share and closed at $23.89 per share.
Source: Business Insider/Forbes
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Tesla began designing, manufacturing, and selling electric vehicle parts for other companies.
In 2009, Tesla Motors entered into an agreement with automobile manufacturer Daimler for research and development into a battery pack and charger for Daimler’s smart fortwo electric drive. This was followed by another agreement in 2010, for a battery pack and charger “for a pilot fleet of its A-Class electric vehicles to be introduced in Europe during 2011.”
In 2010, they announced an agreement with Toyota to draw on its expertise to develop the Model S and develop an electric powertrain for the Toyota.
In 2012, they received an initial purchase order for the full development of an electric powertrain system for an additional Mercedes vehicle from Daimler.
Source: Tesla 10-K
The Roadster was retired in 2012 as Tesla shifted focus to its Model S.
REUTERS/Noah Berger
Consumer Reports gave it a 99/100 — the highest score ever.
Consumer Reports gave Tesla’s Model S a 99 out of 100. This is the highest score of any cars tested. It said the car was “truly remarkable” despite its price and range limitations.
“The Tesla Model S takes everything you know about cars and stands it on its head. It’s a very agile, super-quick electric luxury sedan (with a hatchback!) that seats seven and gets the equivalent of 84 mpg. Got your attention yet?”
Source: Consumer Reports
Tesla reported its first-ever quarterly profit in Q1 2013.
Tesla posted earnings of $0.12 per share, beating expectations of $0.03 per share. Sales were up 83% from the last quarter to $562 million.
One of the biggest criticisms leveled against Tesla was that its margin was dependent on government subsidies, but Musk said Tesla’s margin does not assume credits for zero emission vehicles (ZEVs).
Source: Tesla
In February 2012, Tesla sued the BBC for a 2008 review on its show ‘Top Gear’ and lost.
Tesla argued that a 2008 “Top Gear” review of the Roadster’s range being only 55 miles was defamatory, since Tesla had claimed that its range is about 200 miles.
The libel claim was tossed out and the judge ruled that the malicious falsehood claim would have to be amended. A second attempt to sue was also rejected. “Mr Justice Tugendhat ruled that Tesla’s amendment was ‘not capable of being defamatory at all, or, if it is, it is not capable of being a sufficiently serious defamatory meaning to constitute a real and substantial tort.’”
Source: Top Gear
They sold 22,450 Model S’s in 2013, beating a company target.
Tesla
Elon Musk got into a spat with John Broder of The New York Times over Tesla’s range.
In a New York Times piece, John Broder wrote that Tesla’s battery life wasn’t as good as claimed and that it didn’t last the length of a trip from D.C. to New York.
Musk went on CNBC and took to Twitter to criticize Broder’s review. He tweeted that the piece was “fake.” “Vehicle logs tell true story that he didn’t actually charge to max and took a long detour.”
The New York Times responded, saying, “The Times’s February 10 article recounting a reporter’s test drive in a Tesla Model S was completely factual, describing the trip in detail exactly as it occurred. Any suggestion that the account was “fake” is, of course, flatly untrue.
“Our reporter followed the instructions he was given in multiple conversations with Tesla personnel. He described the entire drive in the story; there was no unreported detour. And he was never told to plug the car in overnight in cold weather, despite repeated contact with Tesla.”
Source: Business Insider
Last year, the company announced a new financing scheme for Model S cars that guarantees the highest resale value of any luxury sedan brand.
Tesla also announced a new lease-buy financing scheme. The new scheme guarantees the highest resale value of any luxury sedan brand. “Buying a Model S through the Tesla financing offering now comes with a guarantee that the resale value will be higher than that of BMW, Audi, Mercedes, Lexus or Jaguar.”
Source: Business Insider
At the end of 2013, Musk announced plans for its third-generation vehicle.
ASSOCIATED PRESS
It will have a range of 200 miles, look like a Model S and cost about $30,000. They hope it will be ready by 2017.
Source: InsideEVs
Tesla also announced plans to build a Gigafactory to double the world’s supply of lithium-ion batteries by 2020.
Tesla Motors
No site has been chosen yet.
Finally in June, Tesla announced it was releasing its patents.
Associated Press
This could of course indirectly boost sales. But in his blog post announcing the decision, Musk said the world was not moving fast enough in adopting low-emission vehicles that would help address climate change. “Our true competition is not the small trickle of non-Tesla electric cars being produced, but rather the enormous flood of gasoline cars pouring out of the world’s factories every day,” he wrote.
Tesla now employs over 5,800 employees worldwide.
Tesla Motors
