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Tesla has to turn potential into real profits

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General Motors earned an operating profit of $1,418 for every vehicle it sold around the world in the first quarter. Ford Motor Co. earned a little less: $1,174.

Tesla, by the same calculation, is in a whole different league, and not in a good way. Its per-vehicle profit comes in at minus-$15,855.

For every car Tesla sold, it lost more than a year’s pay at a minimum-wage job.

But hold on, Tesla groupies: At least read the rest of this first, please. 

Yes, that’s an eye-popping figure, and one that’s not sustainable for a company that wants to be in business for very long.

But no, that’s not, on its own, a fair assessment of Tesla, an automaker that’s essentially still in its infancy.

Still, they’re numbers worth looking at and writing about here. Because they do show an inescapable truth about the auto industry: It’s easy to lose huge amounts of money building and selling cars, but it’s hard to eke out profit margins that would be laughed at in most other industries.

That Tesla has even made it this far is impressive. Its fans — the fact that Tesla has such loyal supporters is a credit to the genius of its founder, Elon Musk — rightly point out that the company has enormous potential for growth in its future.

2018 Tesla Model 3

But at some point, Musk needs to convert Tesla’s potential into profits. No business, no matter how righteous its mission and how ground-breaking its technology, can stay around indefinitely without eventually getting out of the red.

“The expectations for Tesla are sky-high, and the time is coming when investors will expect to see not only sales but profitable sales,” said Jack Nerad, executive editorial director of Kelley Blue Book.

Tesla spends a lot of money on r&d. (So do GM and Ford, though.) It has more vehicles planned. It intends to dramatically scale up production — faster than any automaker ever has before — as it launches the long-awaited Model 3, its most affordable offering yet, later this year.

It’s undeniable that Tesla has incredible potential. It also faces a lot of risks. And the longer that money continues to pour out of the company with every sale, the more those risks weigh on it.

Musk’s vision and determination has carried Tesla farther than most thought it could go. But good ideas can’t pay the bills forever.

Tesla’s good ideas can’t pay the bills forever” originally appeared on Automotive News on 5/4/17.



By Nick Bunkley at Automotive News

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