Apart from R&D and car manufacturing, it also runs several other operations that put additional pressure on its cash reserves. Being an electric car manufacturer, it must create a network of high-speed Supercharger stations. These stations cut down the battery recharge time to approximately 30 minutes, which is essential if electric vehicles are to be popularised. Moreover, Tesla Motors decided to cut out the traditional franchise car-dealers to distribute their product to the end user. The company is using a network of retail stores to sell directly to the customer. This contributes to the large operating costs bill, which is, nevertheless, somewhat offset by the company’s 0$ marketing budget. As a result, due to the fact that Tesla is heavily dependent on the debt and equity offerings as the primary source of capital, an unexpected market turmoil would put the company in a difficult financial situation, much like it did in 2008 when the company was facing an almost imminent …show more content…
According to Goldman Sachs, Tesla is 80% vertically integrated with most of its parts made in-house, which significantly lowers its costs. Additionally, it has almost completed the Gigafactory, a huge battery plant that will supply the batteries necessary for the EV manufacturing and will cut the costs by another 30%. This approach is very different from the one used by the majority of the traditional car companies that mainly run the assembly of the outsourced parts. Furthermore, none of the arguments presented above suggest that the company will go bankrupt soon. Much to the dismay of the return seeking investors, it simply delays the point at which Tesla will start making profit and its high valuations will be justified by the company’s fundamentals, rather than the public sentiment. In other words, there is a certain conflict of interest between the investors and the company’s leadership. The former want to see a healthy cash flow statement as soon as possible, while the latter are making long-term decisions that will push electric vehicle technology into the market. Unfortunately, these goals often misalign. Nonetheless, Tesla Motors is truly a pioneer in the application of the electric power storage technologies. Regardless, of its present investment