Tesla nearly went bankrupt 3 times on its road to a $1 trillion company
How Elon Musk turned Tesla into a $1 trillion company
The start
It is widely believed that Tesla was founded by Elon Musk, but that isn’t true. It was actually founded by Marting Eberhard and Marc Tarpenning.
They encountered Elon Musk and immediately knew that he was the guy to start this ambitious business venture.
Elon Musk plowed $70 million of his personal wealth into the project.
When PayPal was acquired by eBay, it gained a total of $150 million.
The Roadster
The Roadster was their first car. It’s a fast and luxurious sports car with a price tag of $109.000
At the time a car that could drive 200 miles on a single charge was revolutionary. The fact that it could drive at 250 miles per hour made it even more famous.
The only problem: the development cost was too high. It was first expected that the development of the Roadster would cost $25 million but it ended up costing nearly $140 million.
The Roadster was clearly a niche luxury car because they only delivered 2500 of them.
Funding
Tesla nearly went bankrupt in 2008. Their cash reserves were burned up due to the expensive development of the Roadster. They only had $9 million left to run the entire company.
During that time, Elon slept with friends because he literally wanted all of his money to be plowed into his startups. In order to keep the company alive, he even fired 25% of Tesla’s workforce.
Despite the ongoing financial crisis, Musk managed to obtain $40 million from an investment in Everdream which was bought out by Dell.
Even though it survived 2008, Tesla still needed more funding. In May of 2009, they secured a $50 million deal with German automaker Daimler in return for a 10% stake in the company.
They finally had enough cash when the Department of Energy loaned them $465 million.
With these investments Tesla was back on track to accelerate the world’s transition to sustainable energy.
Model S
Tesla amazed the world when it started delivering the Model S sedan. The car could drive 300 miles on a single charge and was far more affordable than the Roadster, but still expensive.
Even though the Model S was a great vehicle, there were complaints about the interior and the earliest versions didn’t even have parking sensors or cruise control.
This made clients who put down deposits hesitant if they should continue with the purchase.
Tesla was again facing bankruptcy.
“We were operating with maybe one to two weeks of money” Elon Musk
Tesla employees were in charge of calling up every hesitant client to convince them to go through with the purchase.
Musk even convinced Larry Page, the CEO of Google to acquire Tesla if they went bankrupt.
But Tesla managed to survive. On May 8th, 2013, Tesla reported its first profit of $11 million after having sold 4900 Model S. This sent the stock soaring.
Model 3
In 2016, Tesla announced it would start taking pre-orders for its mass-market affordable model called the Model 3. In the first 24 hours after the announcement, 115.000 pre-orders were placed. This number later grew to over 400.000 pre-orders.
With so many pre-orders, Tesla needed to produce fast. Their goal was to deliver 5.000 Model 3's per month, but they fell short.
They wanted to revolutionize the manufacturing process too. Tesla had tried to automate every single process of building the car. But it turns out you can’t replace everything with robots.
Once they removed most of the automation, the production speed increased.
“The difficulty and value of manufacturing is under appreaciated. It’s like relatively easy to make a prototype and extremely difficult to mass manufacture a vehicle reliably and at scale” Elon Musk
During the Model 3 ramp-up, they nearly went bankrupt for the third time. Due to inefficiencies in the supply chain, Tesla lost $1 billion in the first half of 2019 trying to increase production.
Elon Musk said that Tesla was single-digit weeks away from bankruptcy.
SolarCity
When Elon Musk merged X.com with Paypal which was later bought by eBay for 1,5 billion, Musk received $150 million.
He put $100 million into SpaceX, $70 million into Tesla, and $10 million into SolarCity.
While busy with the production ramp-up of the Model 3, Elon Musk announced that Tesla was going to acquire SolarCity.
Theoretically, it was a genius plan. He was going to use SolarCity to increase the sales of solar panels and green adoption which would also increase Tesla’s sales. But since the acquisition, SolarCity hasn’t announced any new products and hasn’t made much profit.
Many people believe that the acquisition of SolarCity was nothing more than a bailout.
Other problems
While they managed to deliver an enormous amount of cars in a very short period of time, there have been various complaints.
The first one is the paint job. Many cars had several spots where the car wasn’t well painted. This has upset many customers but it’s understandable due to the vast amount of cars that Tesla needed to deliver.
The second one is the service. While there are way more Tesla’s on the road, they haven’t increased service in tandem with that.
For the Roadster and other models, there aren’t many parts available. There is also a lack of service centers. Many people need to drive hours in order to reach one.
They came up with a great solution for this, the mobile ranger service. A car would come to you for small repairs.
Other individuals say that it’s normal for early tech companies not to have service. Google, Microsoft, and Apple didn’t have customer service for years.
Elon Musk
In August of 2018, Elon Musk tweeted:
Tesla soared from $345 to $390 immediately after the tweet, but in September, the stock plunged 10% after the Security and Exchange Commission sued Elon Musk for fraud due to the tweet.
The SEC claims that Elon Musk made false and misleading tweets in order to influence the stock price.
A month later, the SEC and Musk came to an agreement. Musk needed to give up chairmanship for 3 years, a $20 million fine was imposed, and a committee that took oversight of Elon Musk’s tweets was created.
In the program 60 minutes, he even said:
“I do not respect the SEC”
Final Thoughts
Tesla has overcome many struggles, ramped up production, and even survived the 2008 financial crisis. It’s likely that the company will continue to accelerate the world’s transition to sustainable energy. They have plans for full-autonomy self-driving, robot taxis, and a 1 million mile battery.
I hope you learned something new by reading this article. Have an amazing day! And consider joining the Medium Community 😉
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