Tuesday 11 February 2020 5:43 am

How can Elon Musk keep Tesla on the straight and narrow?

Alyssa Altman is transportation lead at Publicis Sapient.
transportation lead, Publicis Sapient

After a rough start to the year, Tesla ended 2019 by delivering on a promise to Wall Street.

The pledge made in the summer of 2019 by Tesla chief executive Elon Musk was to return to profit after months of losses, a string of negative headlines — including his forced resignation as chairman in 2018 — and the dramatic drop in deliveries of the Model 3.

The electric vehicle brand’s strong finish in 2019 has completely rewritten the company’s narrative. At the start of 2020, Tesla announced that it sold more cars in 2019 than in the previous two years put together. Last month, Tesla delivered better-than-expected fourth quarter results and became the most valuable automotive company in the world, with a market cap worth more than General Motors and Ford combined, currently standing at a massive $134bn.

The road to profitability 

Over the last year, Tesla has settled investor nerves by focusing less on stunts (and tweets from Musk) and more on proving itself as a profitable business. 

In 2019, the automotive brand launched the Cybertruck, sold a record number of cars, and built a factory in China, with plans to build another in Germany later this year.

US-AUTOMOBILE-TESLA-CYBERTRUCK
Tesla co-founder Elon Musk unveils the all-electric battery-powered Cybertruck (Photo by FREDERIC J. BROWN/AFP via Getty Images)

Tesla’s turnaround has been remarkable. In under a year, it has restored itself as the automotive company most associated with the growth in electric vehicles.

But Musk’s company isn’t out of the woods yet, and there continue to be questions over its long-term profitability. Tesla has only turned in a handful of profitable quarters since becoming a publicly-traded company in 2010.

The challenges ahead

A major problem for Tesla is hype. While hype can generate excitement and interest in a company, it can also be a double-edged sword and lead to disappointment. 

The downsides of hype were fully on display during the unveiling of the Cybertruck in November last year. 

The new electric-powered truck was first announced to the world on Musk’s Twitter account, via a series of cryptic tweets. The tweets generated mass support from Tesla superfans, who were quick to compare the vehicle to something out of Mad Max or Blade Runner. 

However, once physically unveiled, the Cybertruck disappointed the wider public — with many mocking the vehicle’s design. In fact, the backlash was so severe that Tesla’s stock fell more than five per cent the morning after the unveiling of the truck. 

Another problem for Tesla is overambitious targets. Musk repeatedly sets lofty, groundbreaking goals and promises that he fails to meet. For example, following Tesla’s recent results, he told investors that the company “should comfortably exceed 500,000” deliveries in 2020. 

That target shows that Musk still hasn’t learned his lesson following the company’s debacle around the Model 3. Workers on the vehicle repeatedly told reporters that in order to meet Tesla’s target of 5,000 cars per week, the company cut corners and increased work hours to an unsustainable level. 

Keep the wheels turning

Tesla’s mission is clear. The company must avoid the temptation of setting over-ambitious goals and targets, and should refocus its efforts on creating a profitable and sustainable business. 

Tesla also needs to ensure that it understands the limits of its production and backend operations so it doesn’t cut corners and overwork staff to unsustainable levels. 

Despite turning around its fortunes over the past year, Tesla faces a number of road bumps that could derail its progress — and make its recent success look more like a blip in the rearview mirror.

Main image credit: Getty

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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