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The Economics of Tesla

Sameeran Khamamkar inspects the future of transportation technology by studying Tesla and their influence on the automobile industry.

Elon Musk, CEO of SpaceX and Tesla Motors, has been taking the world by storm with his innovative and ultramodern ideas to drastically improve both land and space travel. It is he we credit with the current trend of implementing space-age technology into cars, but is his vision for Tesla and the rest of the automobile industry economically feasible?

Electric Cars
Until recently, electric cars were perhaps viewed as novelty items, toys for the high net-worth individual who wishes to demonstrate their desire to be ecofriendly and modern. The average consumer has never considered them a viable option when shopping for a new car. This niche market is where Tesla developed their name into a luxury brand: The Tesla X Model sells for over £80,000. Although they began and thrived here, where their innovation was unmatched and competition was low, they wish to spread to the mass market by introducing the Tesla Model 3.

Although cheaper and more affordable, the Model 3 still manages to retain the technology that goes into the more expensive models, including the electric power. As markets continue to rise and the uncertainty following the financial crash diminishes, more and more people are willing to spend money on cars. In fact, the past year was record-breaking in terms of cars sales in the United States. Additionally, China, India, and other emerging markets are also experiencing significant growth. As the consumer class expands in these emerging markets, those who are successful will be looking to up and coming brands such as Tesla to flaunt their newfound wealth.

Tesla and other electric car manufacturers have spent vast sums of money to keep themselves afloat in hopes these trends continue and have a snowballing effect, making a society that runs on electric cars a possibility. Tesla themselves have only been profitable in one quarter since its Initial Public Offering (IPO) in 2010, but Elon Musk is confident he can sell 500,000 cars in the year 2020 even though he has only sold 50,000 cars to date.

Tesla Tech
Among all the CEOs of car brands, 53% have said they are uncomfortable with the rate at which technology is increasing in cars. The X Model includes a touchscreen panel, falcon wings, and most impressively, autonomous driving capabilities. It goes without saying that these base specifications already outshine those of other luxury brands. Only the Mercedes S Class rivals in terms of technology and even that has taken over a decade to refine.

As of now, Apple computers are in the process of creating their own new smart car. Additionally, luxury brands such as Mercedes, Porsche, Jaguar, and Aston Martin, will soon be releasing their own technologically advanced cars to compete with Tesla’s most expensive models.

The Future
It is safe to say that Tesla is a rare phenomenon. It is once in a blue moon that a company can enter a highly competitive market and manage to hold its own against the likes of Porsche and Mercedes. In addition, Tesla has not only survived but grown despite logging negative cash flows for almost the entirety of its lifespan. It requires large injections of capital which have come from SpaceX, SolarCity, and a volatile yet rising stock price. It also requires faith in the company, which Elon Musk and his employees clearly have. They believe Tesla will reach positive cash flows in the 3rd quarter of 2020, eventually overtake Apple for the company with the highest market cap in the world, and in the process, make Elon Musk one of the world’s richest men.

Tesla has provided the injection of technological innovation that a stagnating car industry required, and in doing so have sent out a wakeup call to the market incumbents. Most CEOs fear such drastic change, but they must embrace it if they are to remain relevant. Despite a net worth of over $14 billion, the continual injection of more capital is not a viable long-term solution; Tesla must become profitable to survive in the long run. Nevertheless, Elon Musk has forced upon us an exciting and tentative future in the world of cars.

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