How Tesla Overcame ‘Fundamental Cost Disadvantage’ through a few different strategies, as pointed out recently by CEO Elon Musk.
Electric vehicles are here to stay, and while many automakers have struggled to turn profits on the zero-tailpipe-emission products so far, Tesla has come a long way to reach profitability and sustained cash flow. Tesla has overcome the cost disadvantages facing most automakers through a few different strategies, as pointed out recently by CEO Elon Musk.
One report from ZT corporate analyst Azhar Hirani showed that global profit margins for major automakers from 2015–2020 averaged 7.5 percent, though premium car brands tend to reap the highest profits. Tesla went from selling the luxury-level Roadster to gradually selling cheaper and cheaper cars to eventually become cash positive, as Musk explained in the company’s first. Musk has also pointed out how difficult production is in the auto industry, let alone production with positive cash flow — a problem many startup and legacy automakers alike are currently facing in the transition to EVs.
“Large incumbent carmakers sell their cars at low to zero true margin,” wrote Musk in September 2021, as was reposted by a Musk fan account on February 11. “Most of their profit is selling replacement parts to their fleet, of which [70-80 percent] are past warranty. Like razors & blades.
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