Cars and Drivers

Musk Still Has To Make Tesla Profitable

Douglas A. McIntyre

Published: August 26, 2018 7:10 am

Last Updated: January 11, 2020 6:49 pm

After days during which investors were whipsawed by decisions about Tesla Inc (NASDAQ: TSLA) future, Elon Musk announced the company would remain public, largely because, he claimed, it was in the best interests of shareholders. Whether he actually believes that or not, what is best for shareholders now is that Tesla becomes profitable, which reflects another promise Musk has made.

The short, bruising course of the last two weeks has run from a tweet by Musk that he might take Tesla private and that he had the funds to do so. This was followed by a debate about whether his claim about taking the company private was actually true, and whether a money-losing public corporation could raise the billions of dollars necessary to do so (Musk publicly debated how much capital was necessary). Whether Musk’s latest decision holds, he faces shareholders who expect Tesla to make money in the second half of the year.

In his comments about the decision to stay public, Musk wrote:

Moving forward, we will continue to focus on what matters most: building products that people love and that make a difference to the shared future of life on Earth. We’ve shown that we can make great sustainable energy products, and we now need to show that we can be sustainably profitable. With all the progress we’ve made on Model 3, we’re positioned to do this, and that’s what the team and I are going to be putting all of our efforts toward.

And, profits were also front and center in his letter to shareholders which accompanied second quarter results:

For the rest of this year, total non-GAAP operating expenses should remain relatively stable at Q2 levels excluding restructuring costs, as a result of our overall drive towards operating efficiencies. The higher import duties on Chinese components and unfavorable currency movements are likely to cause negative pressures. That said, we still expect to achieve GAAP profitability in Q3 and Q4.

Almost everyone who watches Tesla’s financial future carefully believes that Musk has to get production of the inexpensive Model 3 to 10,000 unit per week. The car is his path to the mainstream car market, based on its price. And, it is the test about whether a large number of people will buy an electric car. If so, the revenue that the sale of 500,000 Model 3 units a year would create should prove with little argument that Tesla has become financially viable and that product development and innovation will be the factors that drive Tesla forward.

Musk has only one task in the near term. Show the world that Tesla is not an experiment. It is a company which shareholders can called to account for its profits