For 15 years, Tesla has been prisoner of The Secret Tesla Master Plan. It called for the development of a number of products and the acceleration of the world’s transition to renewable energy. To achieve those goals, Tesla was forced to travel from milestone to milestone, with a pause to recuperate and then get back to the maximum speed its financial resources would allow.
While reaching the most recent milestone, the financial situation has become such that some observers think that Tesla is locked into a pattern of costs rising faster than revenue.
This last milestone changes this radically, as Musk has noted but many people seem unwilling or unable to see. The Model 3, reaching a production rate of 5,000/week at a positive gross margin, can bring in more money than Tesla is spending. Growing further to even higher production rates, this new financial situation can become permanent, breaking the self-imposed bonds of growth over profit.
In recent weeks, I have spent a lot of time examining Tesla’s long-term financial development while updating “Vijay’s SimTesla Game v1.1” with the newest quarterly data. It becomes really hard to create a quarter with losses after the Model 3 grows to 6,000–7,000/week. When Model 3 reaches 10,000/week, losses are clearly a thing of the past.
The other development of interest is the cash flow. How much money is needed for the capex of the new projects — Semi, Model Y, Pickup — and the factories in which they are built. Servicing the debt and providing all the cash needed for these projects is hard, but not impossible. For sure, it is something Musk has examined and considered at great length.
The big unknowns for 2020 are the revenue and cost of revenue for the Semi and Model Y. I did not model any production in China or a production hell slightly less worse than the Model 3 production hell.
In 2019, Tesla will pass Jaguar in production volume and profit. In 2021, Tesla will enter the top 20 auto brands with sales over 1 million. In 2023, Tesla will reach a comparable size as BMW.
With these prospects, it is clear that the automotive industry will have to reassess Tesla. It is no longer a niche player that only exists because of the financial markets and subsidies. It is in the process of showing that making electric vehicles in high volume can be a very lucrative business.
The turning point for Tesla is Model 3 production reaching a steady 5,000/week. Bloomberg appears to already indicate that. In the coming months, the efficiency and gross margin will see a dramatic improvement.
Many will remember how it was when you moved into your own home and became financially independent. It was freedom.
For Tesla, that moment is now, thanks to its own steady income and ability to leave Wall Street to follow the path it thinks best. No more quarterly conference call with nitwits who think they know better what is good for Tesla, threatening to withhold the allowance if their advice is not followed.
Go, Tesla — become the best Tesla you can be.
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