It’s official: Tesla has produced its one-millionth car. CEO Elon Musk on Monday announced the milestone to his 30 million-plus followers on Twitter. While making a million units of anything is an achievement worth celebrating, the company’s journey to this point is particularly impressive given its turbulence. In the 17 years since its inception, few American firms have been subject to more scrutiny than Tesla, now the world’s largest manufacturer of electric vehicles (EVs). Even fewer have achieved the level of relevance it now enjoys with consumers and investors alike.
Though founded in 2003, Tesla—then called Tesla Motors Inc.—didn’t release its first production vehicle until 2008. In the intervening five years, it faced a gauntlet of engineering and design challenges in bringing that first car to market. Modifying a chassis designed for a combustion engine to accommodate Tesla’s battery back and electric powertrain was a prerequisite to even early prototypes. It was also vital to the founders to arrive at a design that would appeal to more than just the eco-conscious consumers of the mid-aughts.
Hindsight reveals that the young company found suitable answers to these questions, but that five-year gap from inception to production is worth remembering. Building cars, particularly truly novel concepts like the earliest Teslas, is hard. That the company was able to commercialize an EV at all remains a tremendous feat. The Roadster, the company’s first marketable car, began shipping in 2008.
Engineering brilliance or not, the financial means to make a real run at EV productionn early eluded the original founders. Many potential early investors balked at what then seemed a dicey proposition at best. A few, however, saw the potential. The best known of this group, PayPal cofounder Elon Musk, led Tesla’s first two funding rounds and co-led the third. Musk first invested in the company in 2004. He wasn’t named chief executive until 2008.
Today, Musk is one of corporate America’s most recognizable CEOs, as wells as one of its most colorful personalities. Some see him as a truly visionary “product guy” along the lines of Steve Jobs or Bill Gates. Others bill him as egotistical, volatile and ill-equipped to run a company of Tesla’s scale. He and the company are now seen as extensions of one another in a way rarely seen between mega-cap companies and their leaders. For better andfor worse, however, Musk has been the lead author of the story of Tesla—from 0 to 1,000,000.
His grand plan, even from the early days of the firm, was always about bringing EVs to market at a price point accessible to the average car shopper. By accelerating adoption of EVs, Musk saw Tesla as playing a vital role in saving the world from the effects of climate change. The Roadster, however, didn’t quite fit. At a retail cost north of $100,000, Tesla’s first EV was a sports car. It certainly wasn’t configured for the mass market. Neither was its next attempt, the popular Model S, clocking in at over $60,000 (base) when it hit the market in 2012. Today, starting at around $80,000, the S remains positioned more like a luxury vehicle than one for the average consumer.
The real mass-market story, the one that vaulted Tesla to truly widespread cultural significance, didn’t unfold until the summer of 2017. The Model 3, a fully electric, mid-size sedan with a range of over 250 miles, debuted at just $35,000. That price point had the intended effect of juicing EV demand nationwide. Tesla took 400,000 pre-orders for the car before the first one rolled off the line.
Those lofty sales numbers shifted the focus to an area that’s been an Achilles’ heel for the company ever since: production. Musk got the Model 3 initiative off on the wrong foot by overpromising in the early days. He initially announced that the company expected to be making 5,000 cars per week by the end of 2017, the year it hit the market. That proved to be wildly optimistic. Tesla churned out just over 800 cars weekly at year-end. In an attempt to recalibrate, he promised 2,500 Model 3s per week by the end of the first quarter of 2018. That target also went unmet.
The production goals set by the company have been seen as essential for its financial viability since it went public in 2010. Wall Street still tracks them obsessively. Large-scale automotive manufacturing is an extremely high-leverage business model. The capital requirements to even begin production are enormous. If unit volumes don’t produce sufficient cash flow, those investments can quickly become “dead money.” Tesla can’t trickle its way to a profit. The sales numbers have to be big because the fixed costs are.
Fortunately, for Musk and Tesla, those rosy early projections did eventually come to pass. Bloomberg estimates that Model 3s finally began rolling off the line at a rate of 5,000 per week sometime in late 2018. Since then, production has continued to ramp, clocking in at over 8,000 vehicles weekly in the fourth quarter of 2019. The company has successfully brought online its new gigafactory in Shanghai, with a new facility under construction in Berlin.
Investors have reacted favorably to the increased volume. Tesla last reported earnings and delivery numbers in early January. Less than two months later, the stock had more than doubled to a high of over $900 per share on Feb. 19. The stock has since sold off in line with the broader market, but the fervor it generated on Wall Street during its run-up was without precedent in the automotive industry. At one point, Tesla sported a market cap over $170 billion—bigger than the rest of the U.S. auto sector combined. Musk announced in February that the company would take advantage of the recent price surge by issuing $2 billion in additional common stock, adding to Tesla’s war chest.
For some of those other carmakers, the frenzy surrounding Tesla stock has highlighted the rapidly changing dynamics of the EV market. While EVs still represent just a small portion of total new car sales, that share is poised to grow dramatically over the coming years. Consumers and investors both recognize this, as evidenced by the outrageous valuation gap between Tesla and other large vehicle manufacturers. General Motors delivered 20 times more vehicles than Tesla in 2019. With a market cap hovering around $50 billion, GM is valued at one-half to one-third of Tesla, depending on market fluctuations.
Some of Tesla’s big lead in the EV market, however, could be on track to evaporate in the months ahead. Some analysts see a problem with its market share dominance in what remains a nascent field. As the size of the EV opportunity grows, new entrants from legacy automakers will undoubtedly hit the market. Ford plans to bring an electric Mustang to showrooms by the end of this year. GM, already a player with its Chevrolet Bolt model, plans to sell a million fully electric options annually by 2025. And those are just Tesla’s domestic competitors.
The world’s largest automaker by market cap, Toyota, will build a $1.2 billion facility exclusively for EV production in China this year. Daimler AG’s website touts that “all systems are go” on its plan to have 10 new EVs on sale by 2022. It will also provide electric options on all existing Mercedes-Benz models, increasing its arsenal to a whopping 50 possible offerings. Today, U.S. consumers only have access to a grand total of 15 electric models, four of which are Teslas. In this context, it’s no wonder some industry-watchers expect Tesla to bleed market share as competitive models begin rolling out.
For his part, Elon Musk doesn’t seem worried. He congratulated Ford on Twitter on the launch of its new Mustang, indicating his belief that an acceleration of EV adoption can only be a good thing for Tesla. Maybe he’s right. The company’s cars still maintain a clear performance advantage over anything else on the market today in terms of range and charging time. Even if Tesla’s utter dominance doesn’t hold up, it seems almost a foregone conclusion that the first mover will continue to enjoy a sizable piece of the pie. Given that some analysts project that the number of EVs on the road in the U.S. alone will eclipse 18 million by 2030 (up from 1 million last year), it’s a big pie.
In the 12 years since the first Roadster sprung to life, Tesla has delivered more EVs than any other manufacturer, even those with far more existing infrastructure. Despite the massive investment pouring into the space from dozens of would-be competitors, it will likely continue that trend through 2020. Until a legacy car manufacturer brings measurable performance to go along with all that investment, Musk and Tesla look poised to keep their perch atop the electric car totem pole.