Tesla has just announced its first-quarter financial results, and I’m surprised to see the headline figures aren’t good: a loss of $702 million, and an expectation that the company will bear further losses in Q2 (before, it claims, returning to profit in the third quarter). Reading deeper into the detail, Tesla’s cash reserves plummeted by $1.5 billion by the end of March, partly down to the repayment of a near-$1 billion bond. But mercurial chief executive Elon Musk is predictably bullish, and has already raised his eyes to the horizon of more sophisticated technology and the advent of autonomous driving. It’s optimistic, but, in fairness, it’s a lot more positive than some of the headlines that Musk makes.
I’ll lay my cards on the table. I’m a Tesla driver, and I love my Model S. It’s a great car, genuinely, and it’s not just me. The Telegraph declared it the most important car of the last 20 years, and one consumer magazine really loaded on the praise, declaring it a “technological tour de force”. So people who drive and buy Teslas are getting a good product. That’s half the battle.
The problem is the other half. The company promises to deliver between 360,000 and 400,000 units this year. Bear in mind that in its first five years of production, the Model S only sold 118,817 cars. So rapid growth is pretty much a fundamental part of Musk’s strategy to achieve profitability. And big promises are very much his schtick: going to the moon, or using submersibles to rescue trapped children. All of this means that he’s not taken entirely seriously - his persona diminishes his professional standing.
Time will tell whether that’s short sighted of the automotive industry and the wider business community. There’s little question that Musk has an inquiring and creative mind, and has done more to bring plug-in electric vehicles into the mainstream market than anyone since Tesla was founded 15 years ago. His presence has been transformative, and, in a sense, so what if he’s quirky and unpredictable? Innovators often are. I don’t know if Gottlieb Daimler ever smoked marijuana on a radio programme but you often see words like “stubborn” and “determined” whenever his name is mentioned.
To be fair to Musk and Tesla, sector analysts have pointed out that the wider car market is not in the best of health. One talked about the “less than glowing trend for profitability in car manufacturing”, and there are problems across the spectrum: the future of diesel, the consolidation of platforms, the economics of engineering, and – whisper it softly – Brexit. So we shouldn’t judge Tesla too harshly just at the moment. In any case, I think received wisdom would suggest that EVs are the most likely way out of the current crisis for the automotive industry. Tesla have been pioneers, of course, but Jaguar Land Rover are openly discussing making their Jaguar range all-electric, and major manufacturers are introducing electric technology at every turn. Even Porsche will introduce an all-electric model next year.
I want to close with a more general thought about market development. I’ve been in business for 20-odd years now and I’ve seen a lot of things. But I don’t have a crystal ball. So I don’t know if Elon Musk will succeed in making Tesla a leading player not just in the EV market, but in the car market as a whole. As a customer, I kind of hope he does. But, given that he’s worth north of $20 billion and is still in his 40s, I think he’ll be okay. But it may just be that Tesla becomes another example of the trend that the true innovators tend not to be those who reap the eventual rewards. When you think of the steam engine, you think of James Watt, not Thomas Newcomen. Musk has made a brave stab at automotive construction, in a sector which is notoriously difficult to disrupt. Maybe the big manufacturers, for all their current woes, will swoop in and cash out on his pioneering efforts. Or maybe he’ll buck the trend. Either way, he’s talking a good game at the moment: now he just needs the solid figures to back that up. Let’s see what Q3 brings.