What Elon Musk's company has been able to create is nothing short of amazing, but it seems that its days of leading the race might be over.
Is Tesla running out of power?
The vultures are circling that's for sure. If you believe the rumours, Tesla is running out of money and on the brink of collapse.
In an email to Tesla employees from Musk that was leaked to the media earlier in May, the CEO said that the latest $2.7bn offering of stock injected enough cash to give “Tesla only 10 months to achieve breakeven.”
Latest earning results state that the company lost nearly $700 million in the first quarter of this year and that tied with more recent rumours imply that Musk is likely to have to merge Tesla with SpaceX to keep things alive, things don’t look promising.
Even Tesla chief financial officer Zachary Kirkhorn at the time of those earnings reports in April described the latest quarter as “one of the most complicated… in the history of the company.”
Then there is the suggestion that Apple tried, but failed, to buy the company in 2013 for $240 a share, a premium even today’s shareholders would have been over the moon about; at time of writing Tesla stock is around the $195.
For the company to turn things around it really must improve its profitability in the second half of this year, however, things aren’t looking great there either. The company does supposedly make a profit on every car it sells, the costs of the manufacturing infrastructure and R&D means that it is still losing money as a business at an incredibly fast rate. Even if it is successful in boosting production, it still unlikely to be able to solve its cash problems in the near- to long-term unless something drastically changes.
The combination of these factors has led to the stock price plummeting over the last couple of months, with some critics evening going as far as to suggest that the stock will fall from its height at $370 in December to as low as an eye-watering $10 a share, according to Morgan Stanley, in a “worse case scenario” for the car maker.
The industry is catching up
If that wasn't enough of a worry, the car industry - which until recently has been slow to react to consumer demand for electric cars - is quickly catching up. Tesla with its Model S, Model X, and now Model 3, has enjoyed the market mostly to itself.
Car behemoths like VW have been slow to embrace electrification, and while car makers like Nissan have been in the game just as long as Tesla, the company hasn’t been able to compete against the "marketing cool" of Musk and his electric cars.
But that's quickly changing.
Audi, Jaguar, Hyundai and others have woken up to the consumer appetite for electric cars, and are now powering ahead and launching new models, as well as engineering their older models to conform with what customers want.
Come 2020, most of the major car manufacturers will have either hybrid, electric (or both) offerings flooding the market with choice - and choice that doesn’t come with long waiting times or such high prices.
That's going to be problematical for Tesla for a number of reasons. Whether it’s as simple as Tesla no longer being the only choice when it comes to buying an electric car, or customers being able to opt for companies that have a vast infrastructure in servicing customers' needs and desires, things are starting to look worrying for Tesla and its future road map.
The future and Tesla
Like the proverbial oil tanker (and yes we're enjoying the irony) large companies are always going to be slow to turn, but once they do they are hard to stop. Car makers like the VW Group have economies of scale on their side. They have vast manufacturing and distribution channels to be able to efficiently deliver electric cars to consumers day in day out. And once delivered, they have the infrastructure and support mechanisms in place to keep customers happy. It’s what’s kept them in business for the last 80 years and is likely to continue to work in their favour for the next 80 years too.
Tesla, on the other hand, is an agitator. It has been able to ruffle the feathers of the industry to great effect, but sadly doesn’t have the resources or the operational experience to successfully fight the big companies over a protracted and prolonged timeframe.
Full of amazing ideas, it has struggled to meet demand and cope with the vast number of orders it has received for its Model 3 car, leaving customers waiting and disappointed.
That’s likely to leave it facing more battles than it can win, and more battles that will leave it battered, bruised, and bogged down, without the resources to get out of any fight cleanly.
It’s unlikely that traditional car companies will be interested in buying Tesla, especially with Elon Musk at the helm. Although a visionary, he is a danger to the tried and trusted approach of traditional business, and is too much of a name to be able to integrate into a car maker like BMW or Audi.
Furthermore car makers believe that time is on their side, and that given time, Tesla will simply run itself into the ground. The situation echoes a smaller and lesser known company called Pebble. The creator of the first mass market smartwatch, it pioneered the idea of wearing a watch that was connected to your phone to receive messages and run apps. It gained huge notoriety in the wearable space and is still considered by many to be the fore-bearer of the technology.
But like Tesla, it believed it had the capability to take on the giants of the industry that were slow to react to the idea of a smartwatch.
Batting aside offers to buy the company and buoyed with confidence of consumer praise, the company eventually struggled to cope against the might of Apple and others in the space. It ended up selling for a fraction of its market value at the height of success, and is now nothing more than a cautionary tale amongst those that have followed the industry longer than they care to admit.
Could Apple buy Tesla?
Apple is still one of the best suitors for Tesla. The company’s efficiency in production lines and supply chains combined with Tesla’s futurist thinking could catapult the success of Tesla above any concerns it currently has.
Add that to Apple’s interest in autonomous cars, and its previous interest in buying the company, and you could have a match made in heaven.
Of course there are caveats. Elon Musk doesn't really fit into the Apple mould - he is too enigmatic, too “Steve Jobs” for a company that likes to run things sensibly and seriously.
A Tesla under Apple’s stewardship would be hard to ignore, and it would give the company the long-term security it would need.
Tesla as it stands knows it can be beaten over time, but with the power of Apple behind it, that could be a very different kettle of fish.