So many car companies lose sight of the single most important aspect of running a business: keeping cost low and profit high, while maintaining good quality control. This has ultimately landed many start-up companies into early closure and even some juggernauts, like Pontiac and Oldsmobile, into shutting their doors for good.
Tesla CEO Elon Musk really seems to have his finger on the pulse of his business, as they slowly start bringing more mainstream cars – as mainstream as an EV can be – into the market, with its new Model S and upcoming Model X. To help control overhead, each Tesla Model S is built to order, so there aren’t any leftovers on the shelves, but this also poses the risk of not being able to keep up with demand.
At this point, Tesla is manufacturing at its capacity and needs to push out another 5,000 Model S units by December 31st to hit its goal and stay in the black. This is a tall task that will likely not be possible without increasing production, but Tesla’s CEO also knows that increasing production also increases cost, so there needs to be a delicate balance. Musk was quoted saying that “The challenge that Tesla faces over the next few months is scaling production enough to achieve a certain gross margin on our product so we can be cash flow positive. That’s extremely important,” and “If we’re unable to do that, we’ll enter the graveyard with all the other car company startups of the last 90 years.”
Clearly, Musk is willing to take this challenge head-on and he understands what’s at stake. We love the Tesla line and want to see it succeed, and seeing a CEO that is willing to admit the challenges ahead and ready to take them on is a promising start. We’ll keep a close eye on this to make sure Tesla can actually hit its goals for the year and stay afloat.