Tesla turned in some strong numbers for its quarterly earnings on Monday, posting more than $1 billion in net income — 10 times more than a year earlier — and car sales that nearly doubled for the three months ending in June.
“Public sentiment and support for electric vehicles appear to be at an unprecedented inflection point,” Tesla wrote in its second-quarter letter to investors.
But while there is little doubt that the California-based automaker is benefiting from increased demand for electric vehicles, it does face a number of challenges. Immediately, that includes persistent microchip shortages that have hurt industrial production plans, prompting a number of major competitors, such as Ford, to warn of big profits in the second quarter and beyond.
Tesla already reported production exceeding 206,000 vehicles during the second quarter, despite the shortfall, but CEO Elon Musk issued a cautionary note in June when he said that “the company’s biggest challenge is supply chain, especially microcontroller chips. Never seen before. Fear of running out.” Quantity is causing every company to over-demand — like toilet paper shortages, but on an epic scale.”
In his early years, Musk said his biggest goal was to drive a massive transformation in the global auto industry. There is no doubt that this has happened. In recent months, automakers have lined up to announce massive electrification plans. Mercedes-Benz said last week that it plans to sell something other than battery electric cars by 2030. The giant Stellantis formed from the merger of Fiat Chrysler Automobiles and France’s PSA Group set aggressive goals of its own just the previous week.
Demand is already rising rapidly in Europe and China, the world’s two largest electric vehicle markets. But even in the US, sales of electric cars doubled during the first half of this year, with Tesla dominating the market.
With sales growth expected in key global markets, Tesla was on a hiring spree. And it will obviously need more manpower, not only at its existing plants in Fremont, California, and Shanghai, but also at the two assembly plants it is preparing to open in Texas and Berlin.
The German manufacturer has not been without some controversy. Tesla faced unexpected opposition from environmentalists, who it expected would be its biggest supporters. This has delayed the opening of the facility – which is badly needed at a time when it is facing increased competition across the European Union.
Already, it has fallen behind major competitors such as Volkswagen and Stellantis in the European Union in total electric vehicle sales. Worse, it is watching competitors target their targets in both China and the United States — and with increasing success. Industry data shows that the Ford Mustang Mach-E, Chevrolet Bolt and Volkswagen ID.4 vehicles combined have captured more than a dozen points of market share from Tesla this year. There is a flood of new electric cars in the shadows.
GM is hoping to beat Tesla’s Cybertruck pickup to market later this year with its Hummer EV, and Ford is racing to feature its rival F-150 Lightning by mid-2021.
“To be honest, there’s always a chance that the Cybertruck will fail,” Musk admitted earlier this month, though he suggested that was more likely a result of its bold design than the competition coming after it.
Meanwhile, Tesla faces a number of other challenges:
- A year ago, the company announced plans to bring out a completely new battery, dubbed the 4680, which was supposed to be cheaper to produce and the possibility of offering a greater range and other advantages.
- While Tesla will now report its seventh consecutive quarter, most of what it has earned so far has come from selling zero-emission vehicle credit to competitors. These sales are expected to decline as other manufacturers launch their own electric cars.
- Tesla also faces growing concerns about safety issues related to its autopilot technology, with dozens of investigations being conducted by the National Highway Traffic Safety Administration.
Despite those concerns, Musk remains as optimistic as ever about autopilot, and the recent announcement helps explain why. This technology already has a high price. But, from now on, users of the standalone system will contribute to a steady and continuous stream of revenue. Tesla will start charging you $199 per month for the basic autopilot, and an additional $99 for the more advanced version.
If even half of all new Tesla buyers this year had chosen the platform, it could generate more than $1 billion in revenue annually. This number will grow exponentially every year.