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Tesla’s Secret Sauce — Innovation Enables Hyper-Growth Without Increased Costs

Looking at the Q2 shareholder letter, I notice something that is underappreciated. Elon did say on the conference call that they could build better factories faster and for less money than before.

Looking at the Q2 shareholder letter, I notice something that is underappreciated. Elon did say on the conference call that they could build better factories faster and for less money than before. The fact that they are developing the Semi, Cybertruck, Roadster, Full Self Driving, and expanding production in California, Nevada, Shanghai, and Berlin with just the money allocated for depreciation is amazing. Depreciation is just supposed to cover how much of the existing factory you have worn out. So, it should just be enough to replace equipment that is broken or worn out. Tesla is quickly expanding production with the money that is just set aside for replacing worn out equipment.

Comparison to Amazon

Amazon is a very hot technology company that has really made some large innovations and experienced high growth over the last few decades.  Let’s compare its growth and capital expenditures to Tesla’s.

 

Screen captures from Yahoo Finance

From 2016 to 2019, Amazon has about doubled its annual revenue (up 106%), while Tesla has more than tripled its revenue (up 251%). In order to power that growth, Amazon has more than doubled its capital expenses (up 151%), while Tesla capital expenses are flat (down 0.3%).

Conclusion

How can Tesla continue to scale without spending more money on plants? The key is it takes smart risks. The safe way of doing your job is to not rock the boat and just keep your head down. Tesla has inspired its team to continually go the extra mile and work hard to change things for the better.

 
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Written By

I have been a software engineer for over 30 years, first developing EDI software, then developing data warehouse systems. Along the way, I've also had the chance to help start a software consulting firm and do portfolio management. In 2010, I took an interest in electric cars because gas was getting expensive. In 2015, I started reading CleanTechnica and took an interest in solar, mainly because it was a threat to my oil and gas investments. Follow me on Twitter @atj721 Tesla investor. Tesla referral code: https://ts.la/paul92237

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