Tuesday, December 12, 2017
Written by: John Sandlass
Tesla has been a popular investment for many people around the globe due to their innovations in electric cars and other new technology. However, lately, Tesla’s losses have been at an all time high, even though their revenue has increased exponentially throughout their years of existence. Based on numbers posted on November 1st, Tesla announced a 671 million dollar loss in the quarter, even though their revenue was at an all time high of nearly 3 billion in the quarter. Tesla is losing money on every new car that they produce, meaning that their marginal cost is greater than their marginal revenue. According to economics, this means they should shut down, but founder, Elon Musk, has no plans of doing so. Musk blames the lack of production efficiency as the main reason why they are losing money, saying that every single Model 3 that had been delivered so far was created by hand, which is costing way more than they are selling them for, which starts at $35,000. They are extremely backed up as they have tens of thousands of unfilled orders that people are starting to cancel their orders. If they don’t improve their production efficiency, not only will people will continue to cancel their orders, but they will also continue to lose money on every car they create. Nobody is sure how long they will continue losing almost 1 billion dollars per quarter before shutting down, but it is rumored that they only have 3.3 billion dollars of liquid capital remaining in the company, meaning that they will run out of money in the next year if nothing changes. Another reason that they are losing money at such a high rate is the amount of money and time they are putting in research for new car technology. The opportunity cost of this research is putting that time into working on production efficiency in order to be able to produce cars faster and for less money so that their AVC is no longer higher than their Average Price. Even if they spend more time on production paths and less money and time in research, experts predict that they will lose money every quarter until at least 2020, so many are wondering how they can possibly stay in business losing this obscene amount of money 4 times a year($671,000,000).
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Bhuiyan, Johana. “Tesla posted a record quarterly loss as it ramps up production for its first mass market vehicle.” Recode, Recode, 2 Aug. 2017, www.recode.net/2017/8/2/16080552/tesla-q2-2017-earnings-still-losing-money-model-3.
Megan Geuss - Nov 1, 2017 11:40 pm UTC. “Sales up, revenue up, but still losing money: A Tesla story.” Ars Technica, 1 Nov. 2017, arstechnica.com/cars/2017/11/sales-up-revenue-up-but-still-losing-money-a-tesla-story/.