I want to share with you some thoughts about Tesla profitability.

Tesla charging station

Looking at the income statement, it is clear the company has not been able to make money from the benefit offered to the customers. The number of customers with the willingness-to-pay is not so large and thus the sales volume does not allow the company to reach the break-even. The lack of profitability is a joint effect of number of customers, cost structure and high price. According to Musk, Tesla will not be able to sell high volumes until the prices decreases significantly. They are relying on decreasing battery costs to lower its cost of production and thus leading the company to price its vehicles more competitively. Battery costs are the biggest cost component for EV manufacturers. But fortunately for Tesla battery costs have been progressively dropping. Musk said by january 2015 (1) that for the company to turn a profit, it will have to sell at least 500,000 units a year, something that the company hopes to achieve in 2020 thanks to the decreasing costs(2). More recently, by february 2016, Musk stated the company will turn profitable by the end of this year(3). The 1.5 billion plan entails to add capacity in order to cover the increasing demand, continue to build the battery factory in Nevada so as to invest in the battery source of revenues and open more showrooms.
Will Musk be able to maintain its promise? We will see.

References:

  1. http://www.bloomberg.com/news/articles/2015-01-14/musk-says-tesla-s-china-sales-fell-no-profit-until-2020
  2. http://insideevs.com/tesla-annual-sales-hit-500000-2020/
  3. http://www.reuters.com/article/us-tesla-results-idUSKCN0VJ2J6
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