Tesla Moving Towards Apple Like Profit Margins

Tesla’s Battery Day outlined a path for the electric car maker to reduce its battery costs by as much as 56% over the next few years. Granted, achieving this milestone will likely take some time as per the company’s executives during the event, but if Tesla were to accomplish its targets, the electric car maker could end up achieving impressive gross margins, rivaling even industry leaders like Apple.

Data research and analytics firm Trefis recently shared a post about the electric car maker and how its battery technology could enable the company to widen its lead over its competitors in the automotive sector. As noted by the firm, Tesla’s 56% reduction in battery costs could boost the company’s Automotive Gross Margins by 800 basis points.

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ricks0me - 10/8/2020 8:37:16 PM

0 Boost

Tesla Moving Towards Apple Like Profit Margins

I hope that is correct. They will need that money to pay off debt, loans, etc.

mre30 - 10/9/2020 9:49:49 AM

+2 Boost

Big difference between Tesla (never consistently profitable and 'cash from operations' don't fund Tesla's working capital needs - hence the need for continuous new debt as well as additional stock offering financing rounds) and Apple/Amazon.

Apple - consistently profitable, demonstrated competitive advantage, TONS of Cash (more cash on hand that then economies of most nations in the world), no real need for financing or equity offerings.

Amazon - (KEY DIFFERENCE) - from the get-go, Jeff Bezos was so smart to create a business with an unheard of working capital cycle. Amazon basically takes payment from customers immediately but it has always negotiated paying its suppliers very late (i.e. 60 to 90 to 120 days, when 'net 30' is the norm).

Amazon 'buys' items into its inventory (under net 60 terms) but then sells the items to consumers in 15-45 days - which means that it has use of the cash to reinvest in its business for about a month before it has to pay suppliers. Genius.

The working capital cycle (WCC) is the amount of time it takes to turn the net current assets and current liabilities into cash. The longer the cycle is, the longer a business is tying up capital in its working capital without earning a return on it.

Tesla on the other hand, has poor credit (not sure what its payment terms are - but its likely net 15 or net 30) and it has to 'sit' on both the parts inventory, the Work in Progress (WIP - which is payroll paid out to the production employees as well as payments to support the production overhead [buiding, etc.]), and the finished vehicle inventory. Tesla NEEDS cash in a way that neither Apple nor Amazon ever encounter.

That simple financial fact (putting aside that most of the Tesla technology is 'open source') will eventually doom Tesla once it behaves cyclically like all automakers do.

ctsang - 10/9/2020 10:31:41 AM

+1 Boost

why not?