A Detailed Analysis of Tesla’s Revenue Streams and Innovations
By Dr. Brian Scott Glassman
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Where It Started
It is remarkable that Tesla, an American automotive company, has cultivated such a passionate fan base (BusinessInsider.com), while simultaneously generating equally strong negative sentiment from its critics (Teslarati.com). This polarization is distinct from traditional automotive rivalries, such as the Ford vs. GM competition among truck enthusiasts, which were largely driven by marketing efforts (MotorTrend.com). The divide surrounding Tesla extends beyond consumer preferences into the investment community as well (CleanTechnica.com).
Outline of the Article
This article seeks to explore the perspectives of both supporters and critics from business, investor, and innovation standpoints, with the goal of fostering a deeper understanding on both sides. The discussion will be organized around key areas, including leadership, operations, product lineup, financial performance and stock valuation, and media coverage. The author’s goal is to be comprehensive, balanced and grounded.
Leadership
Elon Musk has become a polarizing figure (DalQuestNews.org), particularly in 2022, when his acquisition of Twitter and subsequent political stances alienated a significant portion of the public and affected perceptions of his companies (WashingtonPost.com). Unlike Steve Jobs, who carefully curated his public persona while often displaying pragmatism and, at times, ruthlessness behind the scenes, Musk presents himself more authentically: brilliant yet socially awkward, blunt, outspoken, driven, and a bold risk-taker (TheConversation.com).
Musk’s strengths lie in his unparalleled ability to transform innovative, disruptive technologies into large or mega-cap companies, as demonstrated by PayPal, SpaceX, and Tesla (Time.com). This track record is arguably unmatched by any contemporary business leader (book by Kayla Walker), driven by his keen sense of technological evolution and adoption, as well as his willingness to take on exceptionally high risks for large rewards.
However, Musk’s outspoken nature has proven to be a significant liability. He has faced regulatory challenges, including conflicts and fines from the SEC (SEC.gov), and more recently, has courted controversy by openly endorsing Donald Trump (Politico.com) and engaging in disputes with international leaders via his X.com platform (BBC.com). Additionally, his heavy involvement with SpaceX has raised concerns about the amount of time he dedicates away from Tesla (CNBC.com). These concerns, raised by critics, are entirely valid and warrant attention in the author’s opinion.
Despite these challenges, Musk has a remarkable ability to unite his employees around a singular vision, inspiring them to work long hours and push the boundaries of technological innovation (Inc.com). His deep technical expertise and willingness to engage directly with employees at all levels provide him with a comprehensive, firsthand understanding of the products his companies develop, grounding the strategies he implements.
Within Tesla, the company is supported by top-performing, highly skilled technical leaders in their respective fields (Fortune.com). These leaders build high-functioning departments capable of accomplishing in one year what traditional automakers might require two or three years to achieve (CleanTechnica.com). Even the company’s most ardent critics acknowledge this exceptional level of productivity and innovation (Panmore.com).
Vehicle Manufacturing Operations
Before delving into Tesla’s vehicles, it is essential to first examine the company’s operational model. Tesla has adopted a unique approach within the modern automotive industry by embracing a highly vertically integrated organizational structure. This strategy grants Tesla significant control over all aspects of its business, spanning concept development, design, engineering, manufacturing, implementation, and continuous improvement (B. Benum Medium.com).
For a rapidly growing company developing innovative electric powertrain technologies and managing related advancements, this vertically integrated model is both logical and practical (Benum). However, it also shifts a considerable portion of design responsibility and legal liability onto Tesla. In contrast, other automotive Original Equipment Manufacturers (OEMs) typically rely on their supply chain partners to drive innovation and generate ideas. Additionally, unlike traditional OEMs, Tesla organizes its employees into functional technology groups based on components. For example, powertrain employees (engineers, designers, manufacturing, quality testing, production, and procurement teams) are situated close to each other, reducing inter-departmental communication issues and accelerating the pace of innovation.
Conventional horizontal supply chains often result in profit-sharing between the OEM and its partners (Fohlio.com). Tesla’s vertical structure, on the other hand, allows the company to retain a larger portion of the profits, enhancing its overall profitability (Benum). It is important to note that horizontal supply chains, with their specialized partners, offer distinct advantages, including expertise, cost efficiency, lower capital outlays, and faster scalability (Fohlio.com). However, these benefits come at the cost of reduced control over the final product.
Furthermore, Tesla’s non-unionized workforce provides greater operational flexibility compared to traditional automotive OEMs (D. Bradley, ScholarWorks). This allows for swift changes in production processes, schedules, and job roles without the need for lengthy negotiations or contractual constraints. The absence of union-mandated job classifications, work rules, and union voting fosters a more fluid and collaborative environment, which can enhance creativity and problem-solving and number of patents. While this approach is not without controversy, due to its limitations of employee’s collective bargaining rights, it clearly enables Tesla to innovate and iterate more rapidly than its unionized competitors.
Tesla also places significant emphasis on automation and the adoption of new manufacturing processes. In 2018, the company encountered challenges in its attempt to maximize robotic automation in its plants (B. Buchel IMD.org). However, since then, Tesla has found a balance, minimizing labor while maximizing the quality of work performed by robotics.
Lastly, Tesla is introducing a new automotive manufacturing process called “unboxed manufacturing,” which aims to achieve a pseudo-parallelization of the production line (AssemblyMag.com). Elements of this process have already been implemented in the production of the Cybertruck. When fully realized (expected by the end of 2027), this process is projected to increase Tesla’s profit margin per vehicle by 10% to 30% (NextBigFuture.com).
The combination of extensive automation, vertically integrated supply chains, non-unionized facilities, and advancements in manufacturing processes is expected to contribute to increase in manufacturing profitability compared to competitors. Given the company’s operational improvements and strong profit margins, Tesla’s critics find it challenging to identify substantial weaknesses.
Tesla’s Products — Energy Storage Market
Tesla revenues are largely split between the power utility energy storage market and automotive vehicles. Power and utility providers primarily acquire Tesla’s Megapacks for electricity energy storage and grid balancing purposes. This technology proves particularly valuable in markets experiencing substantial demand fluctuations due to daily temperature variations, or for customers with significant solar or wind energy installation that require daily storage. As of July 2024, Tesla had deployed 9.4 GWh of storage capacity (Energy-Storage.news), establishing itself as the de facto industry leader with $3 billion in year-to-date revenues, with CATL occupying a distant second place (WoodMac.com).
Given that battery costs are the primary expense driver in this sector, it is anticipated that major battery manufacturers such as Tesla and China’s CATL and BYD (NoteBookCheck.net), leveraging their manufacturing cost advantages, will emerge as dominant players in this market. Critics argue that Chinese suppliers benefit from lower production costs due to labor and localized mineral refining. However, these advantages would be offset by worldwide shipping expenses, and for the us market U.S. import tariffs (AutomotiveLogistics.media), and potential European tariffs (Reuters.com). This author does not see a profitable path for traditional automaker to compete in this market due to the ramp up time and cost to compete in the battery manufacturing market.
The energy storage market is projected to reach 512 GWh or $500 billion USD by 2030 (GrandViewResearch.com). Currently, Tesla maintains a clear lead, while Chinese competitors are rapidly increasing their market presence (Forbes.com).
Finally, Tesla’s charging network, an often overlooked segment of its business, has significant revenue potential following the U.S. automakers’ adoption of the Tesla plug as the universal standard and Tesla’s decision to open its charging network to all EVs. Bloomberg.com projects this could generate $7 billion in additional revenue to Tesla by 2030.
Tesla’s Products — Current Vehicles
Tesla’s product portfolio consists entirely of electric vehicles (EVs), currently comprising cars (two models), SUVs (two models), a pickup truck (one model), and semi-trucks (two models). Among these, the Model Y was the global best-seller in 2023 (CarExpert.com), with the Model 3 ranking tenth (GreenCars.com).
Critics argue that while Tesla vehicles are well-regarded, they lack the luxury and aesthetic appeal of recent competitors from BMW, Mercedes, Lucid, Polestar, and Genesis, and so on (SlashGear.com). They also correctly note that Tesla’s relative lack of significant exterior and interior design changes in recent releases and apparent stagnation over nearly a decade (BusinessInsider.com). However, these critiques often overlook Tesla’s substantially lower recall rates (NotesLapp.com), high product quality as reported by owners, and lower total cost of ownership (GreenCarReports.com). Additionally, Tesla’s highly rated mobile application and onboard software contribute significantly to the overall user experience (TeslaRati.com). Furthermore, Tesla’s autonomous driving AI software (FSD) is expected to bolster the company’s lead when it exits Beta, which is projected for 2025 (TeslaRaiti.com).
Tesla has explored the possibility of licensing its technology to other automakers, a strategy that could significantly enhance its revenue streams and maximize returns on its initial investments as it can also be used on internal combustion vehicles specifically sedans and SUVs (ElecTrek.co). The company’s leadership in technological and manufacturing innovations cannot be overstated, as these advancements have consistently driven up per-vehicle profitability while simultaneously improving performance and comfort (Asia.Nikkei.com).
As of August 15, the CyberTruck has become the best-selling pickup truck in the over-$100,000 segment (Teslarati.com). Critics and this author concur that its aesthetic is unconventional and unappealing. The vehicle is projected to achieve profitability by 2025 (Teslarati.com), and has introduced several technological innovations, steer by wire and 48 volt architecture. Critics accurately note that, given its current manufacturing costs, the CyberTruck is unlikely to penetrate the high-volume affordable or mid-value truck segments (HeadLight.news). However, its position as a high-cost, high-profit pickup truck may prove advantageous for Tesla’s bottom line (Trefis.com).
Semi-Trucks
The Tesla Semi is available in two commercial configurations: a regular cab and a sleeper version (NotATeslaApp.com). Currently, Tesla’s production rates for the Semi are low, at an output of approximately five units per week (Electrek.com). The semi-truck market presents unique challenges for electric vehicle adoption, as fleet managers must undertake significant tasks such as upskilling drivers for EV operation, updating maintenance practices and technician training, and installing charging infrastructure at their facilities. These factors, not manufacturing velocity, contribute to a slower and more protracted adoption timelines. Nevertheless, the economic benefits of electric semi-trucks are compelling, with estimated fuel cost savings of roughly $200,000 per vehicle over the first three years of operation (Yahoo.com). This will take a decade to playout, and critics are right when they discount this vehicle lines impacts on revenues.
Future Products
Apple does not foreshadow its next-generation products until it is confident in meeting delivery targets. In contrast, Tesla takes a more open approach, exposing itself to criticism when publicly announcing future products in its development pipeline, often accompanied by overly ambitious delivery dates. For institutional analysts who scrutinize missed delivery milestones, this approach is viewed as a significant negative. However, loyal retail investors see tremendous potential in these announcements. Of particular interest are the recent developments in RoboTaxi, Robovan, and Tesla Robots.
Robotaxi
The Robotaxi, potentially marketed to retail customers as a personal autonomous vehicle, depends fully on Tesla’s Full Self-Driving (FSD) software capabilities as it has no drivers wheel or peddles. The recently unveiled design highlights Tesla’s ability to manufacture lower-cost electric vehicles (EVs), with a stated Manufacturer’s Suggested Retail Price (MSRP) of $30,000. This positions Tesla to tap into the ride-hailing and taxi markets currently dominated by companies like Uber and Lyft. In the United States, Uber reported 2023 revenues of $37.2 billion (BuinessofApps.com) while Lyft reported $13.8 billion for the same period (Investor.Lyft.com). Although Tesla’s Robotaxi business model remains unclear, making it challenging to estimate potential revenues, it is conceivable that within a decade, the company could generate tens billions in revenue from this sector (MarketsAndMarkets.com) through directly offering the vehicles, partnering with Uber and Lyft, or some hybrid business model.
Robovan
The Robovan’s unveiling on October 10th drew critical attention due to its apparently minimal ground clearance and look of a train not a road vehicle (NotaTeslaApp.com). This author believes, based on his decades of engineering experience, that substantial engineering and design modifications are needed to make it competitive in the bus and transport van sectors. This has raised questions about the vehicle’s intended applications and its ultimate market positioning.
Tesla Robot
Tesla’s humanoid robot represents an entirely new and uncharted product category (BuiltIn.com). Enthusiasts tout its tremendous potential, citing advantages such as the need for smaller manufacturing facilities to produce high volumes of robots opposed to vehicles and the use of significantly smaller battery packs (LifeWire.com). Because of this manufacturing ramp-up would be quicker than that of EVs. However, the limiting factor lies in the development of AI software for language processing and spatial interactions, which is still in development and testing.
This author sees initial applications for Tesla Robots in factories, where safety exclusion zones can be established to protect human workers from robotic mishaps. Furthermore, factories have the budgets to purchase dozens of robots focused on high-volume, repetitive, monotonous, and backbreaking tasks. Finally, these facilities have the technical expertise to work through the implementation challenges associated with these new technologies.
Now critics, however, could easily challenge the Tesla Robot business model, technology development timelines, and proposed applications of this brand-new technology without much defense from fans. Further, given the unprecedented nature of the Tesla Robot, it is unlikely that institutional analysts would consider it a concrete revenue stream until tangible sales and adoption materialize.
Tesla’s Financial Performance and Stock Valuation
Given the extensive analyst coverage and discussions surrounding Tesla’s fair valuation, it is challenging to provide novel insights. Therefore, a summary of the two opposing perspectives is warranted.
Cathie Wood’s ARK Invest, a prominent Tesla supporter, along with like-minded analysts, argues that the current period of high inflation, economic uncertainty, and elevated interest rates has exerted downward pressure on the stock since the pandemic (Fool.com). They anticipate a breakout period when fully autonomous driving is released, CyberTruck sales increase, and global interest rates decrease reducing leasing and finance rates for Tesla’s vehicles (Fortune.com).
Critics, on the other hand, cite several shortcomings, including reduced sales due to increased EV competition and weaker-than-expected demand resulting from economic conditions (InsideEVs.com). Analysts largely discount Tesla’s autonomous technologies, as well as initiatives like Robotaxi and Tesla Bot (SeekingAlpha.com). Critics also factor in concerns about Elon Musk’s lack of succession plans (LaTimes.com), his increasingly political profile, and potential lack of focus due to his involvement with SpaceX, and X.com, formerly Twitter.
While Tesla’s performance ratios are excellent compared to peers (Investing.com), with increasing profits, critics primarily express concern over the company’s high P/E ratio and lack of mega-growth as seen previously (Investors.com). Supporters highlight Tesla’s excellent technical teams imbued with Musk’s vision, design ethos, and Tesla’s clear market leadership in energy storage, EVs and semi-trucks, and the potential for their upcoming Robotaxi to dominate the ride-sharing market.
The fundamental question for investors becomes one of time horizon: Tesla clearly represents a long-term play. Those with a short-term investment strategy may view the stock differently than those willing to maintain their position over an extended period (Finance.Yahoo.com).
The Media Views
The centrist and left-leaning media have not been kind to Elon Musk, largely due to his political support of Trump and his acquisition of the traditionally left-leaning Twitter platform (Signal-Ai.com). This negative sentiment has extended to Tesla as well (WSJ.com). The United Auto Workers Union (UAW), which currently is not representing employees in Musk’s plants, wield significant influence in Washington through their lobbying and media efforts. UAWs influence, coupled with the Biden administration’s support for unions, has resulted in Tesla’s odd exclusion from White House-sponsored USA EV leaders’ summit events despite Tesla being a worldwide leader in EVs (BusinessInsider.com).
Finally, Tesla with its limited investor relations, marketing, and branding departments, is ill-equipped to counter these pervasive voices with campaigns of its own (Marketer-UX.com). Additionally, Musk’s consistent interviews, in which promised release dates for new products have been repeatedly postponed, have further complicated the situation (Sherwood.news). As a result, in the traditional media landscape, the voices and arguments of critics have become the most prominent and persuasive.
Investors
In February 2024, Delaware Judge Kathaleen McCormick denied Elon Musk his executive compensation package of $56 billion, ruling it excessive (AP.news). Subsequently, in June 2024, Tesla shareholders voted 63% in favor of reincorporating the company in Texas and reinstating Musk’s pay package (KXAN.com). This development dealt a significant blow to Delaware’s reputation, as it involved a judge overruling a shareholder-ratified compensation plan (CNBC.com). Other CEOs are likely to view Delaware's moves as a potential risk to their own interests (TheHill.com).
Nevertheless, this episode demonstrated the overwhelming investor support for Musk and his vision for Tesla’s future (ElecTrek.com). Despite this backing, short-term investors and short sellers remain prevalent (Nasdaq.com). The media polarization surrounding Tesla has extended to the investor community, with the company at one point Tesla becoming one of the most heavily shorted stocks in August 2023 (Reuters.com).
On the Balance
To summarize, critics are correct in their assessment of CEO Elon Musk’s leadership, suggesting it should be less politically focused and his managerial efforts less divided across his portfolio of companies. However, there is no denying Musk’s technical prowess and willingness to take risks to open new markets and develop disruptive technologies. As well, Tesla’s top management tier is filled with industry-leading experts.
Operationally, Tesla’s excellence can be summed up in one metric: their industry-leading profit per vehicle. Currently, they have produced world-favorite EVs by essentially all customer metrics except styling, and their leadership in energy storage solutions is expected to continue and solidify. Their charging network is poised to become North America’s de facto profit leader and generate sustainable, low-risk cash flow.
Future products in the pipeline are still discounted, in this authors opinion, correctly by critics due to their immaturity and Tesla’s propensity to extend timelines. The media and UAW are highly biased against Musk and are extending their animosity towards Tesla. Due to limited investor relation and marketing departmental staffing, Tesla is struggling to effectively counter the traditional media’s criticisms.
However, the vast majority of Tesla’s investor base seems to support Musk’s vision for the future, voting to reward him and move away from hostile Delaware. Short sellers, motivated by media coverage and their unclear view of Tesla’s future, are looking to make quick profits, and may get burned, as Waren Buffet famously mentioned never short a market leader.
Consequently, the conflict between critics and supporters is likely to persist for the next five years. The dispute may not be resolved until Tesla can demonstrate widespread adoption of its autonomous driving software and humanoid robotics technologies.
Comments
I value your feedback and encourage you to engage by clapping, bookmarking, or commenting to help shape our future content. Your support is greatly appreciated. Further, this is not investing advice.
About the Author
Brian Glassman Ph.D.
Dr. Brian Glassman, Ph.D., has a background in management and engineering and possesses 20 years of leadership experience in commercializing disruptive technology in enterprise software, having led large engineering and product teams. He is currently the Chief Product Officer for a Generative AI products and consulting firm. An alumnus of Purdue University and Duke University, Dr. Glassman is also a former professor at NYU. Learn more about him at https://DrBrianGlassman.com and feel free to connect on Linkedin. His family members hold a position in Tesla.
