Last year around this time, the economy was booming, and everything was looking good, and of course, here we are now in a completely different situation.
However, through this all, Tesla’s appears to be faring very well, Tesla just released their Q2 2020 delivery numbers, and they are looking excellent.
As you can see here from these numbers, Tesla was still able to deliver 90,650 vehicles, even though their Fremont factory was shut down for over a month.
On top of this, Tesla was able to get Fremont producing vehicles in the same number they were before everything shut down.
I believe there are two ways that we can show just how significant these deliveries are. The first is by looking at Tesla’s quarterly deliveries last year.
As you can see from this chart when you look at Q1 2019 and Q2 2019, the total deliveries for both quarters are 158,200.
Tesla was not profitable for either of those quarters, and they were not profitable for the full year. When you add up that same period for 2020 Q1 and Q2, you see that they delivered a hundred and seventy-nine thousand and fifty vehicles during that same period this year.
Q1 for Tesla was profitable, and it appears like Q2 of this year might also be profitable. Tesla will likely, for the first time in company history, post a full fiscal year of profitability.
Even with all the headwinds they have faced this year, Tesla is still ahead of where they were last year. Another big way to show how significant this has been is to compare Tesla’s delivery growth to the rest of the automotive market.
As you can see from this table if you look at the first two quarters of 2019 versus the first two quarters of 2020, Nissan is down 39 percent, BMW of North America is down over 29 percent, Fiat Chrysler is down over 25%, Honda Motors down 23.8% and of course, Tesla is positive by 13.2%.
|Automaker||YTD 2019 vs 2020|
|Nissan North America||-39.3%|
|BMW of North America||-29.4%|
|Ford Motor Co.||-23.4%|
|VW Group of America||-22.5%|
|Hyundai Motor America||-18.4%|
Tesla’s growth stands as a big contrast to the rest of the automotive market and what they are experiencing right now. Let’s dive into different aspects of Tesla’s business model and discuss what is right and what is working.
The first aspect of Tesla’s business model proving to be right is that they started with a battery-electric vehicle only product line.
Many other legacy automakers are trying to switch over to electric because they know it’s the future.
However, they’re having a hard time because they still have the old technology that they have to continue to manufacture.
It’s hard for them to market their EV products too vigorously. Because they can’t kill what is feeding them right now, and that is their internal combustion engines.
EVs are really where the global vehicle demand is going, and because Tesla is already the clear leader in electric vehicles, this makes the company a lot more future proof.
On top of all that, a side benefit of selling only battery electric vehicles is that they benefit from the regulatory credits. One example of this is how Fiat Chrysler is currently paying Tesla hundreds of millions of dollars every quarter to buy their zero-emission vehicle credits.
Fiat Chrysler needs these credits to avoid fines because they’re not making and selling enough electric vehicles. Another big piece of Tesla’s business model that is working well is instead of spending a ton of money paying for advertising, they instead take that money and build a fantastic product.
Products that people like don’t get talked about a lot. But when you love a product, and it goes above, and beyond your expectations, you’d talk about it with your friends.
Tesla has built that product. They are continually updating their vehicles with new software updates, which adds new features and benefits, which are fun and useful.
Elon Musk said recently. “Tesla doesn’t build slow cars; instead, they build very fast, fun, and desirable cars.” Tesla doesn’t need to advertise because their customers advertise for them.
Another part of Tesla’s business model that has been copied by other manufacturers is that they take pre-orders for their vehicles when they launch them.
I believe taking pre-orders is a big reason why Tesla was able to still post very good delivery numbers even during this hard time in our global economy.
When Tesla starts shipping its next vehicle, the cyber truck will have the same benefit because there are seven hundred plus thousand people that have put down deposits for the cyber truck.
That is a massive list of people that Tesla will be able to sell that vehicle to immediately.
Another aspect of Tesla’s business model is that they sell all of their vehicles directly to the consumer without a dealership model.
This gives them a lot of financial flexibility, and they do not have to offer as many incentives or discounts to get a sale.
It also helps when times are tough, and certain regions are always hit harder by economic tough times. For example, Nevada has the highest unemployment rate in any state in the United States.
According to the US Bureau of Labor Statistics, Nevada, the worst unemployment percentage of the entire United States, Hawaii’s number two, Michigan’s number three, and California Massachusetts and Rhode Island have a tie for the fourth-worst unemployment rate of May 2020.
The unemployment rate does affect vehicle sales directly because if people around with a job, they’re less likely to buy a new vehicle, and as you can see, certain areas are hit harder than others.
With a dealership model, manufacturers have to push a lot harder to make sales and put a lot more incentives for that area and dealers to keep those dealers from going out of business.
If demand for Tesla’s vehicles gets a little weak in one area, they can ship those vehicles to anywhere else in the United States, and often to other parts of the world.
Another significant benefit of this direct-to-consumer sales model is that they don’t miss out on margin when they sell a vehicle.
With a dealership model, the manufacturer has to sell the vehicle to the dealership; the dealer has to make a little bit of profit from that vehicle, so they have to mark it up a little further for the customer. With Tesla’s model, they’re able to capture the entire margin of the vehicle.
This principle also plays out when it comes to Tesla’s parts and service. For a traditional dealership, most of their money is made in the service department.
I’m not saying that Tesla is out to make a bunch of money from their service department, but this is a potential benefit for them where they could make some profit.
Another aspect of Tesla’s business model that has become increasingly important during these tough times is that they have an online-based sales model that does not rely on physical stores as much as a traditional dealership does.
Many dealers have been scrambling and figuring out ways to sell their vehicles online and get them delivered to your home. Still, Tesla’s business has always been set up like this, and they can very quickly do touch-free delivery because it’s a natural byproduct of the way they do business.
This online sales model also allows Tesla to have fewer showrooms, and it lowers their expenses when it comes to paying a sales staff. Another significant aspect of Tesla’s very successful business model is that they are very technology-focused and have software-based vehicles.
This allows Tesla to update their vehicles with new features continually, and while most of those updates are entirely free, Tesla does offer some paid upgrades as well.
Tesla’s full self-driving package is one example of something that can be purchased after you buy the vehicle a year or two down the road. Right now, it’s currently selling for $8,000.
Tesla could have sold a car in 2019, and somebody in 2020 could have decided they wanted full self-driving and paid Tesla an extra eight thousand dollars, which is, of course, $8,000 of margin added to that vehicle sale.
Recently, Tesla offered a special deal for the basic autopilot for those vehicles that did not have it included early on. Several months ago, Tesla also offered a software upgrade that increased the performance of the Model 3.
Tesla also gave the Model 3 standard range plus owners a chance to pay a little extra to get heated rear seats. These are all examples of ways that Tesla can realize more income and more profit just with a software update.
The last piece of Tesla’s business model that has been validated and proven to be right is that they love to integrate when it comes to manufacturing vertically.
The more that Tesla can manufacture themselves, especially as they reach scale like they currently are, this allows them to lower the price of those parts and ultimately lower the price of their vehicles.
When Tesla can lower the vehicle costs while still providing a great product, it makes their product a lot more competitive in the market. It is tough for another automaker to compete with that product.
This vertical integration has led to Tesla being able to release a vehicle like the standard range plus Model 3 for only $38,000, and still make a profit on that vehicle.
In the future, the base model of the cyber truck is the single motor version for $39,990. It will be tough for the competition to release an electric vehicle with anywhere near the stats of the cyber truck for that price.
Once again, I believe there are great things ahead for Tesla. Over the next several years, I believed Tesla sales would continue to grow, and I’m very excited to see what Tesla’s future holds.
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Thanks to a very informative forum post on the Tesla owners Club of Western Australia and data from owners across Europe, it seems that Teslas software update appears to be throttling some Tesla...
Tesla just announced a five billion dollar capital raise to strengthen its balance sheet further. This will be the third time that Tesla has done a capital raise this year.