Tesla’s 2019 shareholder meeting opened with a list of triumphs. All of them, Tesla chairwoman Robyn Denholm noted, were just fever dreams in 2008, when the business mainly involved a couple of engineers shoving batteries into the body of a red Lotus Elise.
In that sense, the June 11 gathering at the Computer History Museum in Mountain View, California, was a victory lap. Twice in 2018, Tesla turned quarterly profits. The Model 3 outsold most of its competitors in the US—the Mercedes C-Class, the BMW 3 Series, Audi A4—and generated more revenue than any car in the US, out-earning even high-volume cars like the Toyota Camry and Honda Accord.
Overall, Tesla in 2018 delivered more than 245,000 vehicles and a gigawatt hour of energy storage, with the latter number set to double next year. Half of all global electric-vehicle battery production, Musk said, came from Tesla factories. Soon, the new Roadster, Semi, and Model Y will roll off assembly lines. “It’s been a hell of a year, but a lot of good things are happening,” Musk told shareholders.
But all the backslapping couldn’t obscure a sense that the broader narrative around the company has turned deeply negative. “I have intelligent friends that are holding off purchasing Tesla cars because of their concern about the future of the company,” said one shareholder during the question-and-answer session with Musk, transcripts show.
Musk glossed over it, but the brutal reality is setting in: Mass-producing cars profitably is so difficult, and so expensive, only a few massive, multinational firms can do it. And even they are struggling. In the US, the industry is kept alive by the sugar high from profitable pick-up trucks, as car companies race to find footing in an electric future. Smaller rivals are devising ever-deeper tie-ups—such as Nissan, Renault, and Fiat Chrysler—to spread costs and stay competitive. Even Germany’s vaunted Audi is struggling to deliver the first electric vehicle in its E-tron lineup; it’s months behind after battery supplier LG Chem raised prices.
To be sure, Tesla has likely accelerated the global auto market’s transition to electric, pushing it to get started years, perhaps a decade, faster than it would have on its own. Customers adore the brand, and with its Model Y, the company is finally entering the crossover utility vehicle (CUV) segment, the most popular type of car since 2018.
But Tesla enters this arena having burned billions of dollars, much of it unnecessarily, to achieve its current scale at its factories in California and Nevada. Tesla also failed to deliver a profitable first quarter and now forecasts returning to the black in the third quarter (pdf) despite promising in January that it would produce profits “for all quarters going forward.” The stock price has taken a nosedive, too. By May, the shares were at a two-year low, down more than 50% from their peak in August 2017, putting the company’s market value back in third place behind GM and Ford. (The shares have rebounded some this month and are now up about 20% since the start of June.)
Now, Tesla must go global, and bring down costs, to secure its place among the majors just as the competition is getting traction.
Tesla may pull it off. It’s building a massive plant, Gigafactory 3, in Shanghai, China. Another is slated for Europe. Every continent, Musk claimed yesterday, will eventually have one. To get there, Tesla must raise billions of dollars on top of the $2.7 billion in convertible debt and equity it raised in May (despite promising not to raise even that).
Although electric cars are more popular than anyone imagined just a few years ago, demand appears to have softened in places such as the US, where prices remain too high to lure more mainstream buyers. While Musk at the meeting denied any slackening of demand, Tesla lost $702 million in the first quarter (pdf) and saw a 41% drop in vehicle sales attributed to the phase-out of federal tax credits in the US and shipping bottlenecks overseas.
China, the world’s largest car market and the biggest source of electric-car demand, saw electric-car sales overall drop 2.8% in 2018, the first time in two decades demand there has faltered. Only in countries such as Norway, where generous perks and tax breaks have made electrics financially irresistible, is the internal combustion engine being meaningfully displaced by electrics. This March, almost 60% of the country’s new cars sales were electric.
That’s probably why Musk spent so much time yesterday emphasizing how much cheaper, relatively speaking, Tesla’s cars are compared to conventional brands. Even if “it takes a while to educate people on this,” Musk said, consumers save on maintenance and fuel, making it a better deal overall despite the higher sticker price (research backs him up on this for the Model 3). Musk claimed Tesla cars could even become appreciating assets—which would be a first for a recent mass-production car—with software upgrades and self-driving chips that could someday turn Teslas into revenue-generating robo-taxis for their owners. “I think it’s basically financially insane to buy anything except an electric car that is upgradable to Autonomy,” Musk told shareholders.
That brashness kept the mood mostly celebratory at the annual meeting. Even if Musk has been late, or moved the goal posts, he sees himself delivering in the end. “I’m sometimes a little optimistic about time frames,” Musk told shareholders from the stage. “It’s time you knew, it’s time you knew. Yes. Optimism. Would I be doing this if I wasn’t optimistic?”