Elon Musk says buying a gasoline car is like "riding a horse and using a flip phone"
Can Tesla be profitable in the long term? That was one question lobbed by a shareholder at the electric car maker's latest annual meeting, famous for the traditional freewheeling question-and-answer session CEO Elon Musk holds with investors.
And there are many questions as the electric car and battery company comes off a tumultuous year. Tesla had two profitable quarters followed by a slowdown in the first quarter of 2019, when the company lost $700 million and was forced to raise cash. That comes on the heels of aggressive tweeting hyping company results by CEO Elon Musk, which led the Securities and Exchange Commission to fine the company $20 million and remove Musk as board chair. The company's stock fell to a three-year low last week after longtime shareholders sold off piles of their shares and an influential analyst downgraded the company, saying Musk was too distracted with "sci-fi" projects.
Musk's response to the investor: Don't count on profitability in the short term, he suggested, pointing to the company's rapid growth. "We made as many cars last year as we made in our entire history. It's hard to be profitable with that level of growth," Musk said. "But I think we could be cash-flow positive despite having a very high growth rate," he noted.
Currently, Tesla's problem remains driving demand for the Model 3, its newest and cheapest model, priced at about $35,000. Sales of the car this year started slow. The federal tax credit for Tesla vehicles dropped by half, to $3,750, effectively making the cars pricier. The carmaker laid off 7% of its staff in January.
"We continue to believe that Musk and Tesla are facing a 'fork in the road scenario' with Model 3 demand needing to rebound significantly into the next few quarters for the company to deliver sustained profitability," Wedbush analyst Daniel Ives said in a note before the meeting.
At Tuesday's annual meeting, at the Computer History Museum in Mountain View, California, Musk entertained investors with stories of milestones reached and extolled the popularity of the Model 3, which he said is the fourth-best-selling car in the U.S. by volume. In terms of revenue, Musk said, the Model 3 is No. 1.
"I want to be clear—there is not a demand problem," Musk said. "Sales have far exceeded production, and production's been pretty good."
"We have a decent shot at a record quarter on every level," he added.
Musk also said that public policy was on his side, with country after country moving to phase out combustion engines in cars. "It's basically financially insane to buy anything other than an electric car that can upgrade to full autonomy," he said.
"If you buy a gasoline car that is not self-driving, it's like riding a horse and using a flip phone," he added. "Hello—it's not wise."
Musk also shared the following details about what he called Tesla's upcoming products:
- A pickup truck in development that is intended to compete with the bestselling Ford F-series will have towing capacity that is "as good or better" as the F-150, he said.
- Tesla has an aquatic car design, which he compared to a model from "The Spy Who Loved Me," although he predicted that the market for such a car would be small.
- The Model Y and Model 3 would be completely vegan -- leather free -- by the time of next year's shareholder meeting. Musk vowed. Currently, the steering wheel and seats of many models are covered with leather—which, as a PETA representative at the meeting pointed out, is an industry responsible for climate-warming emissions.