Elon Musk recently tweeted about the difficulties of electric vehicle (EV) production. Twitter fans commented about Tesla's achievements and compared it to Dyson's earlier attempts to revolutionize EVs.
Many are probably familiar with the American electric vehicle and clean energy company Tesla Inc. Its headquarters is based in Palo Alto, California, United States. The company sells solar panels, solar roof tiles, battery energy storage, and other related products and services. Most notable, however, is its EVs.
Statista records from 2020 show how Tesla dominated sales with over 499,535 units sold. The company was followed by Volkswagen with 220,220 units sold and BYD Auto with 179,211 units sold.
In the years that followed, Tesla continued its dominance on the electric vehicle market. It currently has four models, namely Model X, Model S, Model 3, and Model Y.
However, behind its resounding success, Elon Musk admitted difficulties with the industry.
Harsh Reality of Electric Car Production: Dyson's Design
The Twitter thread started from Anthony Smith, who posted the inside story of James Dyson's $700 million quest to design electric cars.
Dyson was arguably one of the earliest entrepreneurs in EV technology and industry. According to BBC, he first revealed plans to build the car in October 2018, aiming to complete production by 2021. However, in the production process, Dyson encountered financial difficulties. A radical and different vehicle, as the first in the market, received harsh criticism while creating expensive costs.
Dyson lost $500-700 million in the process before he finally stopped the project.
To emphasize, the user Anthony Smith said Dyson had to sell his car at $210,000. The cost is approximately twice compared to the Tesla Model S starting price of $79,990. Smith concluded that it made "Tesla's achievements all the more astounding..."
Great read. Still gutted they canned this.— Anthony Smith (@anthonyisonline) September 6, 2021
“At a relatively low volume, we would have to sell the car at $210,000”
Makes Tesla’s achievements all the more astounding…https://t.co/cWkRln9xew
Surprisingly, Elon Musk replied to the sentiment. He said, "Production is hard. Production with positive cash flow is extremely hard."
Elon Musk Tweets Tesla EV Production and Difficulties
Musk revealed the money-making strategy behind car manufacturers. He said "large incumbent carmakers sell their cars at low to zero true margin." In truth, the company makes its profits by selling replacement parts that are 70 to 80 percent past warranty.
Large incumbent carmakers sell their cars at low to zero true margin. Most of their profit is selling replacement parts to their fleet, of which 70% to 80% are past warranty.— Elon Musk (@elonmusk) September 6, 2021
Like razors & blades.
New car companies lack this advantage. Also lack sales & service infrastructure.
Note, however, that EVs and new car companies lack this advantage. Therefore, any EV company, including Tesla, once suffered with the lack of sales and service infrastructure in terms of monetary profits.
The tweet also emphasized that EVs manufcaturers do not create retail price based on market trends and profits. Instead, the companies only recieve "low to zero" margins.
This tweet introduced a fascinating new perspective to investors and Tesla fans. Apparently, the automotive giant also has its fair share of difficulties in production. The idea is worth considering for Tesla's ongoing services, such as its Autopilot and Full Self-Driving (FSD) program and Cybertruck.