Why Tesla Will Not Go Bankrupt: A Comprehensive Analysis

Tesla, a stalwart in the electric vehicle (EV) industry, has managed to avoid the financial pitfalls that have led to the downfall of many other electric car companies. This article delves into why Tesla's financial stability is unshaken and what sets it apart from its competitors.

Unique Financial Strategy and Long-Term Planning

Tesla's financial strategy did not focus on immediate profitability but on covering expenses, making long-term investments, and ensuring the sustainability of the company's operations. Unlike many other electric car companies that faced bankruptcy due to financial constraints, Tesla had a clear long-term plan that included:

Ensuring sufficient income to cover expenses Utilizing leverage to cover design, factory improvements, and other necessary costs Prioritizing future growth and product launches

For instance, when Tesla was selling only 20,000 cars per year, they managed to generate more than enough income to cover the costs of building the cars. However, this also required significant investments in research and development, factory upgrades, and other expenses that a company producing a dozen models would not need to cover.

Designing Future Models to Ensure Revenue

When introducing the Model 3, Tesla had been generating sufficient revenue from the Model S and Model X. Conversely, introducing the Model Y with income from three existing models (including the high-selling Model 3) was feasible. Future models are expected to bring in revenue from the current set of four models.

The success of new product launches relies significantly on the revenue generated from existing models. When a product like the Model X's software was mainstreamed into 60,000 vehicles, Tesla incurred losses. However, when the same software was available in a million vehicles, the cost per vehicle was significantly reduced, making the investment more profitable.

Meeting Financial Goals and Solvency

Tesla's key to maintaining financial stability lies in its ability to manage losses while ensuring it can meet its financial obligations. The company's approach to losses during development periods and preparation for future growth is calculated and strategic. For example, when the Model 3 was in early production stages, Tesla was incurring losses, but they expected revenue to increase with production volume.

The assumption that Tesla would go bankrupt due to financial troubles was rooted in misguided information. If the company had indeed reached the verge of bankruptcy, the solution would have been to issue more shares of stock or seek other funding mechanisms. However, in reality, Tesla anticipated these challenges and had plans in place to navigate them.

Financials and Ongoing Growth

The same financial principles that have prevented other growing companies from going bankrupt prove equally effective for Tesla. Solid financials and ongoing growth are critical components of long-term sustainability. Tesla's financial stability is a direct result of careful planning, strategic investments, and a commitment to future market expansion.

Sources:
Tesla Q4 2019 Financials
Image source: Futurists Ray Kurzweil and Elon Musk Could Have Last Laugh Over Barrons