Ever since Tesla broke the internet with its groundbreaking car designs/functionality, many haven’t really paid attention to how much Tesla was actually making off of their products. Prices for the Model S start at $44,000 and the Model X starts at $82,000. The actual cost of manufacturing these cars comes to 73% of their asking price. This leaves Tesla with a 27% profit margin.
However, Tesla needs to sell a certain amount of each car every quarter in order to keep up with all of the money it costs them in operations. In October of 2018 Tesla was in the middle of their third quarter and saw a loss of $274 million. This loss was due to insufficient sales of their Model 3 and Model X. While Tesla remains valiant in their effort to market their products to customers all over the world, they are still experiencing losses every quarter.
Tesla has a few options in front of them regarding what to do in order to increase overall profit. They can either raise the asking price for all of their cars, or they can try to dramatically reduce the cost in operations. They have a great profit margin for each car, but shipping out the cars completely drains any sort of profit that they were expecting. Even with the highly innovative technology that Tesla possess, they cannot keep selling cars at their original asking price.
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Operating expenses have stayed consistent over the last year which shows that they have not made an attempt to aggressively cut their expenses. The only way to counteract their lack of profitability is to raise the starting prices of each car. Without raising the prices they will remain stagnant and continue to see their efforts go to waste.
Another big issue that Tesla has is that they are spending a large amount of their revenue on research and funding for other projects. Not only is Tesla experiencing great loss with shipping out their cars, but they are deciding to continue large scale research instead. This is very interesting because instead of trying to figure out how to save money in every step of manufacturing they seem to be more focused on finding the next big breakthrough in the motor vehicle industry.
While it is important to always find new ways to make the cars better, at this point in time a large amount of their money is going to something that is not going to help with the task at hand. Until Tesla has another historical breakthrough, they are going to continue to see a loss at the end of each quarter.
