Can Tesla ship 20,000 Model S electric sedans next year at a profit? Its future depends on it. Credit: Tesla Motors
Elon Musk is considered one of today’s most audacious technology entrepreneurs. But even he recognizes that Tesla Motors is entering a challenging period for the electric vehicle company.
Musk, who founded Tesla and space exploration company SpaceX, spoke last week at the Clean Energy Summit where he sounded a cautionary note with regards to Tesla’s near future.
“The challenge Tesla faces over the next several months, which is a very difficult one, is to scale up production and achieve enough of a gross margin on the product that we get to a situation where we’re cash flow positive. If we aren’t able to do that we will join the graveyard of all the other car company startups of the last 90 years,” he said according to an article at AOL Energy.
Telsa began shipping its Model S electric sedan earlier in June, a car targeted at consumers looking for an alternative to more established luxury models. The base price is just under $50,000 after factoring in a $7,500 tax credit. But models with a large enough battery to allow for a 300 mile range will be priced at $87,900 after the tax credit.
At an event where Tesla delivered its first Model S, Musk boldly predicted electric vehicles would represent half of new car sales in 2020, far exceeding the low percentage most auto analysts forecast for all-electric vehicles.
The company expects to meet its target of selling 5,000 cars this year. How Tesla fares in attracting buyers beyond those who already reserved their Model S’s will determine whether Tesla will survive and in what form. It projects selling 20,000 cars next year, which is a relatively high number among luxury brands. Tesla also needs to make a profit on those shipments. If it can become cash-flow positive, Telsa can pursue its long-term plan to make a more affordable electric vehicle, Musk said.
At the same time, competition for plug-ins is heating up. The major automakers, including Ford, General Motors, Nissan, and Toyota, have all released plug-in vehicles which, although more expensive than comparable gasoline cars, have a lower price than the Model S. Tesla is also meeting competition from hybrids and EVs in the luxury category as well.
Musk last week said the company can’t afford to make many mistakes over the next six months.
“We can show that it’s technologically possible to other manufacturers. If Tesla doesn’t make it I hope we have nonetheless served that purpose. I don’t want to sound dour but it’s definitely going to be a tough six months,” he said, according to AOL Energy.
If sales of the Model S and Tesla’s Model X SUV don’t materialize as hoped, Tesla does have other sources of revenue. It currently supplies electric powertrains to other automakers, including Toyota for its RAV4 Electric. It is also working with SolarCity, another company Musk has invested in, to supply batteries to back up WalMart’s solar panels at 90 stores. Tesla could also become an electric brand within a larger automaker. (See, Can Tesla Survive?)
But for Tesla to live up to its lofty ambitions, it will need to convince thousands more people on the benefits of electric vehicles and once again prove the naysayers wrong.