Edition 74 – Why Your Business Shouldn’t Emulate Tesla?

I get the innovation.

I get the design.

I get the alternative way of selling.

I get how modern it is.

I get that it is ground breaking.

But I don’t get the numbers!

How can Tesla be valued more than Ford and as much as GM?

Tesla has generated profit in only one quarter in the past four years. That’s for 90 days out of almost 1500.

It is racking up debt. It needs to go back to market and keep seeking new investors to pump new capital into the business.

It is not making money from selling cars – so it needs capital to fund its everyday business.

It also needs capital to build factories and invest in the infrastructure of being in manufacturing.

Yet, somehow, the market has valued it as high as GM based purely on blue sky.

Here’s my prediction – Ford and GM’s electric vehicles will overtake Tesla. They have a wider dealer network from which to service and sell their product.

Ford and GM are going electric in a contemporary way. By 2020, Ford USA will have Hybrid F Series trucks (the US’s largest selling vehicle for over 30 years) and, heaven forbid, a Hybrid Mustang. They will have higher and lower price points at which the consumer can access the electric vehicle market.

Tesla needs to lift sales volume quickly – and not just at the Model 3 level, which is their soon to be released BMW 3 Series or Mercedes Benz C Class competitor.

It needs to generate sales dollars at a higher level to repay the level of capital employed in the business. It needs to sell at a premium.

From a Family Business perspective, Tesla has a number of important lessons that everyone involved in Family Business should be watching with great interest.

1. You need to sell product.
2. You need to generate profits.
3. You need to reinvest profits back into the business to fund future growth.
4. If you consistently make losses, there must be something wrong with your business model.
5. You need to achieve critical mass in whatever area you specialise in.
6. You need to not be distracted by other shiny objects.
7. If your growth is funded by outside shareholders, you will start to lose control.
8. If your growth is funded by the bank, the debt burden could eventually weigh you down. The bank is like a shareholder, but with its own rules and controls.

Tesla is an interesting business. But is it merely a phenomenon?

This Week’s Tip

Only profit can build value. Only profit can repay debt.  Only profit can build a sustainable business that contributes economically and socially.