Tesla Inc (NASDAQ:TSLA) CEO Elon Musk is great in limited production. His SpaceX rockets are first rate. His Boring machines are anything but. His battery back-up systems can win their bets. Believe it or not, the problem for Tesla stock is its cars.
He’s still behind his own mass production plans, and it’s increasingly apparent that there’s a contradiction at the heart of the offer. Autonomous cars, it turns out, are anything but.
Tesla brought in $9.64 billion of automotive revenue during 2017 — $8.5 billion from sales and $1.1 billion from leases. The entire gross profit, $2.22 billion and more, was consumed by sales, general and administrative expenses of $2.476 billion. Research costs of nearly $1.4 billion went on top of that. Overall the company lost $675 million, $4.01 per share in the fourth quarter.
Tesla Stock: The Runway Is in Energy
If Tesla has a runway toward profitability, it lies with energy, not cars.
The success of his giant battery farm in South Australia, maintaining the electric grid there, has been followed by a contract to install 50,000 home batteries and a new business managing electrical grids on a grand scale.
Tesla is using its batteries to maintain the quality of power in Canada, ostensibly in support of renewable energy production but in fact maintaining the quality of grid output from every source. Tesla may soon have such a contract for New York State. The Trump solar tariff is also giving Tesla stock the space to make money on solar roof tiles.
The problem is the tail is wagging the dog. Energy generation and storage brought in just $1.12 billion for TSLA in 2017, services another $1 billion. These revenues declined between the third- and fourth-quarters. There’s a runway in energy, not just in solar shingles, but in eliminating brownouts and mini-spikes that force every desktop computer owner to keep a back-up battery under their desk.
But it’s not enough. Musk should meet his 5,000 car per week production target by the second quarter of this year, but TSLA is still expected to lose $6-per-share. Some analysts have lost faith in Musk scaling at all and have put a sell rating on Tesla stock.
No Tesla in Cities
As cars become autonomous, they become utilitarian. A Tesla is the car you take to your mountaintop lair … it’s a Batmobile.
We have now reached the manifesto stage of the autonomous car market and there’s no place there for a Batmobile. Instead, security and safety concerns could force all owner-operated vehicles out of cities, according to a recently published “shared mobility principles for livable cities” document signed by Uber, Lyft, Didi and a host of environmental groups.
As Tesla ramps production, it is also losing its hypercar cachet. A Japanese electric just did 0-60 in 1.9 seconds, even faster than the Tesla’s “Ludicrous Mode.” Electric cars are much simpler, in principle, than those that burn gas, so other competitors are jumping in, like Dyson, the vacuum cleaner company.
Second Mover Advantage
In everything Elon Musk does, he grabs “first mover advantage.”
But the market is won by the company that has “second mover advantage,” that learns from the mistakes of the first mover and focuses relentlessly on that business. Think of how General Motors Company (NYSE:GM) overhauled Ford Motor Company (NYSE:F) early in the 20th century, or how Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) beat Yahoo early in the 21st.
Elon Musk is a bit like Nikola Tesla himself, a rare genius whose inventions created the modern electric grid and who predicted the smartphone in 1926.
But Nikola Tesla died poor.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in F.