Will Tesla Ever Make Money?
Sure, Elon Musk makes great cars, but investors are wondering when his company will turn a profit.
Tesla purchased its Fremont, California, factory from Toyota for $42 million in 2010. The company is gearing up for the mass market by increasing automation.
Misha Gravenor/Bloomberg Markets
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(Bloomberg) -- Chris Ziegler presses the pedal of his Tesla Model S. It surges forward silently and instantly -- unlike gas-powered cars that roar and gulp for air before accelerating. Driving in the hills north of Los Angeles, he whips through hairpin turns without worrying about flipping over. Thirteen hundred pounds of batteries under the floorboard make that nearly impossible.
Ziegler loves everything about his all-electric, $107,000 Tesla, including that he recharges its batteries using solar panels in the trees above his house. That lessens his contribution to climate change and his dependence on oil from the Persian Gulf -- which Ziegler patrolled as a Navy gunnery operator in 1983.
“I’m stunned major automakers haven’t fired back with a product to compete with Tesla,” says Ziegler, 49, a real estate project manager in the L.A. suburb of Monrovia. The license plate on his Model S reads “Waat Gas,” Bloomberg Markets magazine will report in its April issue.
Ziegler is so convinced the Tesla is the car of the future that he and his wife, Barbara, a sales executive for an institutional investment firm, sank 90 percent of their liquid assets in its shares beginning in 2010, when the stock sold for $16. Barbara also earned hundreds of thousands of dollars trading options against investors who thought Tesla would fail, she says.
Tesla, of course, hasn’t failed. Rather, Chief Executive Officer Elon Musk says it’s leading the world into a future without gasoline. Already going toe-to-toe with competitors such as BMW and Mercedes-Benz, he wants to take Tesla cars to the mass market -- and push forward the process of freeing the world from its dependence on fossil fuels.
Eventually, “all cars will go electric,” Musk said at a press conference in January
Yet there are plenty of skeptics who question whether Tesla will ever be capable of competing with the Toyotas and General Motors of the world -- or get out of the red any time soon. Since its founding in 2003, the company, which went public in 2010, has earned a profit in just one three-month period. In 2014, it lost $294 million on $3.2 billion in revenue.
Some $217 million of that revenue came from the sale to its competitors of zero-emission-vehicle, or ZEV, credits and other pollution allowances.
“You’re talking about a company with no cash flow,” says Matthew Stover, an analyst at Boston-based Susquehanna Financial Group, which in the three months ended on Jan. 31 sold more than half its 1.5 million Tesla shares. “One hundred percent of the value of the shares is associated with some view of the future that has not manifested itself in the past.”
In a Feb. 11 conference call with investors after releasing Tesla’s fourth-quarter financial statements, Musk, 43, predicted the company would have positive cash flow by the third quarter of this year. He has also forecast that Tesla will be making a full-year profit under generally accepted accounting principles by 2020.
Stover isn’t the only investor skeptical of Tesla’s prospects -- and of its stock price, which at $199.6 on March 3 valued the company at $25.1 billion. (That’s almost 40 percent of the market capitalization of Ford, which last year sold 6.3 million vehicles, almost 200 times as many as Tesla.)
As of Feb. 13, 26.8 percent of Tesla’s shares had been sold short, with more investors betting on their decline than for any other company in the Bloomberg Intelligence Global Automobiles Valuation Peers Index.