Tesla was profitable in 2023, with a net profit of $14.99B, compared to $12.55 billion in 2022. Tesla has been profitable since 2020. Indeed, Tesla generated $862 million in net profits in 2020. It will further generate $5.6 billion in net profits in 2021.
For all of its history, Tesla has been losing money. Until 2020, it started to post profits.
What happened? And how did Tesla turn from a company losing billions to become the most profitable car maker?
Let me tell you the whole story.
Tesla was launched by Martin Eberhard and Marc Tarpenning in July 2003.
Eberhard, an entrepreneur who had sold his previous company, was the CEO of Tesla until he was ousted, and Elon Musk took over as CEO in 2008.
Tesla has been in a precarious state for most of its life, as Musk tried to ramp up the production of Tesla’s Roadster.
The Tesla Roadster was a high-end sports car that was intended to showcase the fact that an EV vehicle could be built with both performance and aesthetics in mind.
The first path to making the production of the Tesla Roadster was plenty of drama, with Musk sinking millions into the company while also running SpaceX.
By 2006, Musk would lay out the foundation for Tesla’s plan for the next decade. It was a four points master plan structured as below:
Build sports car
Use that money to build an affordable car
Use that money to build an even more affordable car
While doing above, also provide zero emission electric power generation options
After many manufacturing issues, which made the cost of the car spike while almost bankrupting Tesla and Elon Musk, the first Tesla Roadsters were eventually launched.
The Roadster launch showed that it was possible to build an EV that combined performance and aesthetics.
While Tesla ramped up the production of Roadersters, it started to plan – in parallel – the prototyping and launch of new models, which aim was to move to a wider segment of the market.
The Tesla Model S first Tesla tried to move from the innovators to the early adopters.
Also, the path was not linear there, as Tesla faced many near-death experiences.
Model 3: for mass adoption
A four-door mid-size sedan with a base price for mass-market appeal was produced both in the Fremont Factory and at the Gigafactory in Shanghai.
It aims to enable Tesla to become adopted within a mass market.
The real turning point for that happened when in 2020 first, and in 2022 when Tesla managed to open its Gigafactories, first in Shangai and later in Berlin.
These are the manufacturing facilities.
The last piece of the puzzle of Tesla’s ability to scale up manufacturing was its opening of the Tesla Gigaffactory in Texas.
Between 2020-2022 Tesla turned into a transformed company. It reached a scale at the manufacturing level and finally had its supply side pick up with demand.
In fact, for all its life, Tesla’s manufacturing could not meet demand.
Yet, by 2022, things have changed.
Tesla is not only able to produce its EVs at scale but also to do that with wide margins.
Tesla is vertically integrated. Therefore, the company runs and operates the Tesla plants where cars are manufactured and the Gigafactory, which produces the battery packs and stationary storage systems for its electric vehicles, which are sold via direct channels like the Tesla online store and the Tesla physical stores.
The most challenging part for a car company was not the demand side (which is also extremely difficult).
It was the supply side.
Building a vertically integrated car company from scratch, producing only EVs, was one of the greatest challenges of this century.
By 2024, most of Tesla’s shares are still owned by Elon Musk, among the company’s co-founders and the CEO. Elon Musk is the top individual investor, with a 20.6% stake in the company. Musk is followed by Lawrence Ellison (founder of Oracle), with a 1.5% company stake. Ellison used to sit on Tesla’s board of directors. And Antonio Gracias, among the company’s first investors, has over 1.6 million shares. Other institutional investors and mutual funds like The Vanguard Group (6.9%), andBlackrock (5.6%).
Tesla is vertically integrated. Therefore, the company runs and operates the Tesla’s plants where cars are manufactured and the Gigafactory which produces the battery packs and stationary storage systems for its electric vehicles, which are sold via direct channels like the Tesla online store and the Tesla physical stores.
In 2023, Tesla generated $96.77 Billion in revenues. Tesla’s business model primarily relies on automotive sales, $78.5 billion (over 81% of the total revenues); services/others followed with over $8 billion; energy generation and storage generated over $6 billion in revenues.
Automotive sales are the most critical segment for Tesla, with over $82.4 billion in revenue from automotive parts; most of the gross profits come from automotive sales, with over $16 billion in gross profits, or a 19.4 % gross margin. However, the “energy platform” (generation & storage) is contributing more and more to it. With revenue of $6 billion, a gross profit of over a billion dollars, and gross margins of 18.9%, this might become a critical component of the business model, thus changing its whole strategy.
Tesla didn’t have an official advertising budget until 2023, to spend on advertising, as it has almost been null over the years. Indeed, Tesla leveraged a combination of Elon Musk’s ability to generate significant media coverage and build a product that sold via word of mouth and directly to consumers.
Tesla was profitable in 2023, with a net profit of $14.99B, compared to $12.55 billion in 2022. Tesla has been profitable since 2020. Indeed, Tesla generated $862 million in net profits in 2020. It will further generate $5.6 billion in net profits in 2021.
Telsa’s profit margins moved from negative 3.15% in 2019 to over 15% in 2022. As Tesla scaled up manufacturing and improved its economies of scale (with new facilities) and scope, the company became extremely profitable by 2022.
Tesla’s profit margin per car in 2023 was $8,279, compared to $9580 in 2022, over $6000 in 2021, and over $1700 in 2020. As Tesla was working toward mass manufacturing in 2020, the company’s profitability per car increased massively between 2020 and 2023, though in an attempt to gain market shares, it decreased in 2023 compared to 2022.
Tesla R&D’s costs have doubled in absolute number, from almost $1.5 billion in 2020 to nearly $4 billion in 2024. Yet they have decreased as a percentage of revenue, from 5% in 2020 to 4% in 2022 and 2023. These R&D expenses primarily comprise costs associated with personnel for teams in engineering and research, manufacturing engineering and manufacturing test organizations, prototyping expenses, contracts, and professional services.
In the peak of 2020 and 2021, Tesla reached a market cap revenue multiple of 21x and 18x, respectively. This means that Tesla was valued at 21X over its revenues in 2020 and 18X over its revenue in 2021. By the end of 2022, this multiple decreased to 4.7X. And by February 2024 the multiple increased to 6X.
Elon Musk, seen as one of the most visionary tech entrepreneurs from the Silicon Valley scene, started his “career” as an entrepreneur at an early age. After selling his first startup, Zip2, in 1999, he made $22 million, which he used to found X.com, which would later become PayPal, and sell for over a billion to eBay (Musk made $180 million from the deal). He founded other companies like Tesla (he didn’t start it but became a major investor in the early years) and SpaceX. Tesla started as an electric sports car niche player, eventually turned into a mass manufacturing electric car maker.
Founded in 2003 by Eberhard and Tarpenning, eventually, the initial co-founders left the company, and by 2004, Musk first became the main investor. After that, by 2008, he took over as CEO of the company. Tesla would go through many near-death experiences until 2018. And yet, by 2021, Tesla will become a trillion-dollar company.
Tesla is vertically integrated. Therefore, the company runs and operates the Tesla’s plants where cars are manufactured and the Gigafactory, which produces the battery packs and stationary storage systems for its electric vehicles, which are sold via direct channels like the Tesla online store and the Tesla physical stores.
As an electric automaker and builder of sports cars and now trucks, Tesla’s competitors comprise companies like Ford, Mercedes-Benz, Porsche, Lamborghini, Audi, Rivian Lucid Motors, Toyota, and more. At the same time, Tesla is an electric energy production and storage company (SolarCity); it competes with Sunrun, SunPower, and Vivint Solar. And as an autonomous driving company, it competes with companies like Zoox, Waymo, and Baidu with self-driving software.
A real-time insurance business model enables Tesla to build its insurance arm by dynamically adjusting the premiums based on real-time driving behavior. Reduced insurance premiums hooked with the leasing arm enable Tesla to scale its demand side of the business.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
