In July 2020, after shares grew 495% in the last year, Tesla surpassed Toyota to become the world's largest automaker, with a market cap of +$200B.
In this post, we'll talk about how the company, which collects fans and haters, has grown and has changed the auto market forever.
In 2003, the automobile market had been totally dominated for decades by the same companies, such as Toyota, Ford, Chevrolet, among others. In the late 1990s, as a result of a California state regulation that forced companies to produce a small portion of clean vehicles, some automakers launched models of electric vehicles like GM's EV1. In the end, due to the very low demand, the cars were completely eliminated from the market.
Enter Martin Eberhard and Marc Tarpenning, 2 engineers who had recently sold ebook company NuvoMedia for $187M. The idea was clear: to produce an electric sports car. Then comes Tesla Motors, and the first model to be manufactured: The Roadster
However, starting an automobile company requires a lot of money. 1 year after founding Tesla, to actually be able to start producing the Roadster, Martin and Marc needed larger capital contributions. However, most people and funds contacted thought it was crazy to try to enter the auto market – a segment in which no new company had been successful for decades.
Here came the legend, the genius: Elon Musk. After all, convincing someone who already invested in rockets and who intends to colonize Mars that electric cars are the future of world mobility doesn't seem all that difficult.
Musk had founded Paypal, which in 2002 was sold to Ebay for $1.5B. Attracted by the idea of creating a sustainable car, Musk invested US$7.5M in Tesla and became chairman of the board, with Martin and Marc still leading the day-to-day running of the company.
The strategy was clear and ingenious:
Produce an expensive, high-margin sports vehicle and show the world that an electric car can be as good as or even better than a gasoline-powered car;
With the money, produce a cheaper premium car for everyday use;
With the money, produce an even cheaper model, really accessible to the population.
The First Adventure
With capital contributions and development partnerships, in 2006 the Roadster was launched, costing US$100k. The world saw for the first time what an electric vehicle can be capable of: from 0 to 100km/h in less than 4 s and a range of 350km.
In 2 weeks, Tesla sold 127 Roadsters, becoming the first truly successful auto industry startup in decades.
However, Tesla soon learned that more difficult than designing and building a prototype of a car was actually making it. Delivery of the roadsters sold was promised for the end of 2007. However, production could not actually start until March 2008.
The Elon Musk Era
With many problems, tensions between Musk and the founders only grew. Elon Musk removed Marc and took over in 2008 as CEO of Tesla, which already suffered from a series of production difficulties, consecutive delays in the delivery of sold Roadsters and back wages.
Musk, who by that time had invested US$70M, needed to raise money to save Tesla from bankruptcy. And the period couldn't be worse: the 2008 global financial crisis.
In the end, Musk had to invest his last $20M, raise $20M from other investors and another $50M from Daimler to save Tesla. In addition, the company secured a US$465m loan from the US government in a program to save automakers after the crisis.
Passed near bankruptcy, Tesla delivered 2450 Roadsters and in 2009 announced the next part of its grand plan: The Model S - an executive sedan that would start at $50k.
Also, Tesla made its IPO in 2010, with its shares trading on the stock exchange at a starting price of $17, raising $226M. It was the first American automaker to make an IPO since Ford, in 1956. More capitalized, Tesla buys a former Toyota factory in Fremont, Calif., to start producing its cars.
In 2012 - Tesla officially launched as the first units of the Model S, which was voted Car of the Year by the leading US car magazine. The S model was a success and the company's shares soared.
As the Model S was produced, Tesla was already announcing the Model X - designed to serve the growing SUV market - and began building charging stations across the United States.
Until then, the 2 main steps of Tesla's grand strategy were fulfilled. The brand was already admired, the vehicles were extremely desirable, leaving behind the negative stigma of old electric cars. But the cars available are still premium, at a price point that only a small, wealthier portion of the population could access.
For Tesla to be able to produce a truly mass car, it needs to gain a lot of scale in order to drastically reduce the production costs of the main component of an electric car: the batteries. To solve this problem, the company announced the construction of Gigafactory, in Nevada - a giant factory, which when completed will be the largest in the world.
With the Gigafactory under construction in 2016, Tesla announced its first affordable model to the majority population, the Model 3. The launch is a huge success, with over 325,000 advance orders of the model in just 1 week, far exceeding as everyone's expectations.
With the promise of delivering the first Model 3 as early as 2017, Tesla's great challenge began. The company that until then suffered to produce ~ 20,000 vehicles per quarter and loses money after month needed to quintuple production.
Founded 14 years ago, Tesla has never made an annual profit. By the end of 2017, the company should already be mass producing the Model 3. But the company's ability to build cars was a disaster.
A series of errors in the production plant, such as the excessive automation of some tasks, did not allow the company to release the absurd amount of cars it needed to produce to fulfill the orders that had been placed.
In addition to production difficulties, the company continued to lose money like never before and Elon Musk began to get involved in cases that harm the company. Ultimately, Musk ends up having to step down as Tesla's chairman of the board for 3 years.
Finally, Tesla went back and started using humans to carry out processes that had previously been automated, increasing production speed. Also in 2019, the company announced the model Y, an affordable SUV that promises to sell even more than the model 3.
Over time, Tesla has been able to increasingly improve its capacity to produce vehicles, reaching a peak of more than 100,000 cars produced in the last quarter of 2019. The company's evolution strategy involves three main points:
1. New model launches
Launching a new version of Roadster;
Cybertruck: pick-up truck that promises to sell a lot, especially in the United States;
The Semi electric truck that can revolutionize the product transport industry as well;
A vehicle even cheaper than the model 3 is expected in the future, one that can penetrate developing countries, such as Brazil itself.
2. Expansion to other countries
China is the world's largest global electric car market. Until then, Tesla vehicles sold in the country were much more expensive due to taxes for importing vehicles from the United States. To get around this problem, the company announced in 2019 the construction of a gigafactory in Shanghai. The factory was built in less than a year and has already delivered its first cars in 2020, surprising analysts;
In addition to China, Tesla has also announced the construction of a Gigafactory in Berlin scheduled to go into production in 2021.
3. Evolution of the autopilot system
Tesla now has the most advanced autonomous vehicle system among vehicle manufacturers. The car can already drive itself in a number of situations. And the best part for vehicle owners is that, as the system evolves, all Tesla vehicles can be upgraded, not needing to buy a brand new car.
Despite being the world's most valuable automaker, Tesla still manufactures far fewer cars than traditional automakers. Ford, for example, produced 15x more cars than Tesla in 2019. GM and Toyota produced 21x and 25x more cars, respectively. This disparity between value and production makes many investors question the value at which Tesla's shares are trading.
On the other hand, looking at the growing electric vehicle market in the US, 80% of cars sold were Teslas. The competition should get fiercer. Traditional automakers are increasingly releasing electric vehicles such as the Porsche Taycan, Ford Mustang and Audi e-Tron.
Will the upcoming competition be able to derail Tesla's incredible growth in recent years? Does Tesla's future really justify the price at which it is trading today?
Nobody knows that yet. What is known is that, whatever happens, Tesla changed the auto market forever.