Tesla has been losing money for six years, but the company is asking its investors to be patient.
The electric car company has enjoyed rapid growth, selling luxury vehicles that compete with BMWs and Mercedes sedans in 35 countries. Their vehicles are both fuel efficient and environmentally friendly.
“It is a premium vehicle, but it’s cheaper to operate than petrol powered cars,” said Martin Paquet, Tesla’s manager of Tesla sales for eastern Canada
“People buy our cars because we sell a product that’s way ahead of the industry.”
While the cars they build are technologically advanced, Tesla’s most recent financial statements suggest that their business model is inefficient.
The company lost $186 million dollars through the first three quarters of 2014. This was not an isolated trend. Tesla has consistently operated at a loss through that same nine-month time period in each of the six years it has been publicly traded.
A look at their yearly figures shows similar results. In 2011, the company reported net losses of $254 million dollars. In 2012, the losses grew to $396 million. In 2013, this number reduced significantly to $74 million..
Tesla has limited their losses recently because they sold more cars in foreign markets. They have also been making it easier to own their vehicles. Networks of superchargers capable of one hour charges have been installed strategically in the countries where Tesla’s are sold.
“We’re investing in our networks,” said Paquet, “The electrical infrastructure is everywhere.”
Investing money to make money is normal business. However, Tesla has to lose money to even sell its cars, and its losses are increasing again
Through three quarters in 2014, Tesla spent 72 per cent of its total income getting its vehicles to the show room.
The rest of its revenue was spent on research and development, leaving nothing for profit.
This has been the case from the time Tesla began its operations.
Following this pattern, Tesla will continue to lose money even as it expands globally and sells more cars.
This is causing concern amongst Tesla shareholders who may not be comfortable making such a long term commitment to a company that is yet to make any money. After peaking at $291 per share in 2014 the price of Tesla stock has decreased steadily over the past 4 months. It currently sits at $203/share.
This trend does not surprise Ian Lee, a business professor and financial strategist at Carleton University.
“The car industry is capital intensive.” he said, “It takes a lot of money to produce a car from start to finish, and Tesla is losing money hand over fist”
Executives at Tesla recognize that in order for it to become profitable, it will have to lower how much it costs to produce the cars it sells.
In 2014, the company broke ground on the Tesla Gigafactory. The facility will allow Tesla to develop and produce the batteries that will power its vehicle at a significantly reduced cost. This will allow the company to make cheaper vehicles.
Crucially, it will allow the company to mass produce their vehicles, and sell them to average people.
Currently, Tesla vehicles range from $82,000 – $140,000 in price. This makes it a very exclusive vehicle.
“It’s currently a niche product,” said Lee, “It allows people who have enough money who want to make a statement to make one. Tesla has only been able to crack the elite market”
Tesla founder Elon Musk is confident that the Gigafactory will make his vehicles affordable and his company profitable. In addition to building the factory, Tesla is designing the model 3, which they hope will retail for $35,000.
The factory won’t be completed until 2020, however, and without it, Tesla will continue to lose money.
But Musk is confident in the company’s future. He needs his investors to wait for the future to arrive.