Tesla, when being the pioneer can become a curse
Tesla boss Elon Musk has a “bad feeling” about the economy, and that could cost 10% of the jobs at the $735 billion electric carmaker. According to Reuters, that is what Musk claimed in an email sent on Thursday. [Musk aclaró el viernes que el recorte afectaría al personal de oficina, no a toda la empresa].
There are some good things about being the first to grab a new business by taking down an old one. American consumers are taking a hit from rising prices everywhere, and big purchases of items like cars could take a hit. But Tesla, the first in the electric vehicle business, has 75% of the US market, which suggests that it will be able to resist some competition. Even as chip shortages and commodity inflation have slashed output and increased costs, analysts expect operating cash flow to rise more than 40% this year, according to Refinitiv. Free cash flow, even after accounting for investments, is expected to more than double.
By contrast, Detroit rival Ford Motor is still in the early stages of starting its electric-vehicle business, and investing heavily. On Thursday, the company said it would add 6,200 new jobs and commit $3.7 billion in new investment, in part to support production of its main electric vehicle, the F-150 Lightning. Chief Jim Farley’s task is to take the nearly $16 billion in operating cash flow his combustion engine business produced in 2021 and use it to build a new electric vehicle business. But Farley has neither market share nor secular tailwinds to back his plans.
Tesla’s ability to downsize is, in a way, a validation of its more established electric business. But it is also a kind of warning. The sharp ax shows that Musk only has a limited number of levers that he can pull. While Farley is starting an electric vehicle business from scratch, Musk has fixed costs that he can’t control. Tesla’s factory in Shanghai, responsible for more than 40% of its production capacity until new plants come online, faced lengthy stoppages under China’s Covid-zero strategy. China also contributed to more than a third of Tesla’s sales in 2021, according to Reuters data. If Beijing sticks to its lockdown and the economy suffers, Tesla will be vulnerable, and there’s not much Musk can do.
Also, while Tesla became a leader in electric vehicles by turning its back on combustion engines, that doesn’t mean it doesn’t have a legacy business to fall back on. This makes the company less diverse in the event that parts and supplies for electric vehicles are too expensive to produce cars at a reasonable price. With Ford and GM aggressively trying to steal market share, even cutting prices, Tesla becomes the tired leader that is easiest to break. Musk may find that his leadership position becomes more of a curse than a blessing.
