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The whole new world of automobiles with clean energy resources was introduced to people by the American multinational company Tesla. Right now, they are holding a revenue of 53,823 million US dollars. But, you may wonder how Tesla makes money. Well, this article will tell you all about it.
How Tesla Makes Money (Jump To Section)
The World Of Tesla
Tesla Inc. is an automotive and clean energy company based in the United States. Tesla is headquartered in Austin, TX. Tesla is widely known for designing and manufacturing electric vehicles. In addition, Tesla also is popular for providing energy storage solutions, solar roof tiles, etc. Right now, this multinational company is one of the most valuable companies across the globe.
The market capitalization of Tesla Inc. is 930 billion US dollars (August 2022). As Tesla continues to increase its dominance, a Bloomberg report suggests that the market share of Tesla might fall down to 11% from the current 70% in the Electric Vehicle segment.
By installing 3.99 gigawatt-hours (GWh) in 2021, Tesla became one of the largest global suppliers of battery energy storage systems. You may be wondering how the name of the company Tesla came. It was a tribute to the inventor and electrical engineer Nikola Tesla. The company started its official journey in July 2003. Martin Eberhard and Marc Tarpenning incorporated the company.
In the next year, in February 2004, Elon Mask became the largest shareholder of Tesla, and he invested 6.5 million dollars in this company. Musk has been serving the company as a CEO since the year 2008. Elon Musk has described that the company is running with the purpose of helping expedite the move to sustainable transport and energy powered by electric cars & trucks and renewable energy such as solar power.
To understand how Tesla makes money, you must first understand this company. Here is a brief detail of this company.
History Of Tesla As A Company- How Did Tesla Get Funds?
Tesla Inc. was incorporated as Tesla Motors in 2003 on the 1st of July. Two engineers named Martin Eberhard and Marc Tarpenning started this new journey. Martin Eberhard was the Chief executive officer(CEO) of Tesla, and Marc Tarpenning was the chief financial officer (CFO). According to Martin Eberhard, he dreamt of “a car manufacturer that is also a technology company”, with its core technologies as “the battery, the computer software, and the proprietary motor”.
The company got its third employee named Ian Wright. Within February 2004, Tesla collected a fund of 7.5 million US dollars, which was the company’s series A funding. In case you do not know, a series A round is the name typically given to a company’s first significant round of venture capital financing. This funding also included Elon Musk’s huge funding of 6.5 US million dollars.
Before funding this much to Tesla, Elon Musk received $100 million from selling his interest in PayPal. Soon, he became the board of directors chairman and Tesla’s largest shareholder. Later, Jeffrey Brian Straubel joined the company Tesla in May 2004. He served the company as Chief Technical Officer. Later, he moved to an advisory role in July 2019.
There was a lawsuit that Martin Eberhard and Marc Tarpenning prepared. According to this lawsuit settlement, Martin Eberhard, Marc Tarpenning, Elon Musk, Ian Wright, and Jeffrey Brian Straubel are allowed to call themselves the co-founders of Tesla Inc.
Elon Musk started taking an active role in Roadster product design at a very detailed level. Though the company started producing premium sports cars, the aim also moved on to mainstream vehicles. These include sedans and other affordable compacts. In February 2006, Musk again led Tesla’s Series B venture capital funding round of $13 million. In the third series of funding in May 2006, Tesla received a funding of 40 million US dollars.
In this funding, there was the contribution of Google co-founders Sergey Brin, Larry Page, and former eBay President Jeff Skoll. Another fourth series of funding was added worth 45 million US dollars. The total private financing investment covered 105 million US dollars.
After this, Tesla started to face disputes. In August 2007, Eberhard was forcefully asked to leave the CEO post, and Elon Musk led the board. Eberhard took the title of “President of Technology” but left the company in January 2008. Also, Co-founder Marc Tarpenning left the post of the Vice President of Electrical Engineering of the company. In December 2007, Ze’ev Drori became the CEO and President. Ze’ev Drori was an American technology entrepreneur.
By early 2009, Tesla was able to produce 147 cars and raise 187 million dollars. In the same year, Tesla got 465 million dollars in loans from the United States Department of Energy in the month of June.
- IPO, Model S, and Model X (2010–2015)
In 2010, Tesla purchased a new place for the Tesla factory in Fremont, California. They were successful in purchasing this place from Toyota for about $42 million. In October 2010, Tesla started using that factory and produced the Model S. This company finally became a public company via an IPO (initial public offering) on NASDAQ, the first American car company to do so. The company issued a total of 13.3 million shares of common stock for $17.00 per share, which raised $226 million.
In September 2013, This car company came on top of the list of new car sales in Norway. In addition to that, Model S was also the top-selling plug-in electric car model globally in 2015 and 2016. Apart from this, the Model S also received the 2013 Motor Trend Car of the Year. In 2014, Tesla finally announced the first driver-assistance system named Tesla Autopilot. After introducing this system, all Tesla cars started shipping with sensors and software to support the auto-pilot feature. This feature is also known as “Hardware Version 1”.
Tesla also started producing the luxury SUV Tesla Model X in September 2015, and most importantly, it got 25,000 pre-orders.
- SolarCity and Model 3(2016-2018)
In 2016, tesla started its new journey by acquiring SolarCity in a deal of 2.6 billion US dollars. This business was merged with the existing battery energy products, and the concept was under the Tesla Energy subsidiary. Since 2017, Tesla Motors was officially known as Tesla Inc because Tesla was not just evolving around motor cars. Rather, they started expanding into the fields of battery energy storage systems, electric vehicles (plan for trucks), and solar power generation.
In July 2017, Tesla started their new venture with the Model 3 Sedan. Though this vehicle was cheaper than any other previous, it was intended for the mass market and no doubt for the globe. By August 2017, the Model 3 Sedan got 455,000 prebookings.
- Global expansion and Model Y(2019- Present)
In 2019, Tesla first inaugurated their Gigafactory outside the United States of America in Shanghai. The next year, Tesla also went for new constructions in Berlin(Germany) and Texas(United States of America). The following year, Tesla produced their fifth vehicle model, the Model Y Crossover.
At the start of 2020, Tesla had a market capitalization of 90 billion US dollars and suppressed the total capitalization of BMW, Daimler, and Volkswagen. Soon after, Tesla also surpassed Toyota’s market capitalization.
In January 2020, Tesla made a charitable donation of $700,000 to China’s CDC to combat the COVID-19 pandemic. In 2021, Tesla experienced a few disputes with California officials; Tesla needed to move their headquarters from the old one. The old headquarters were situated in Palo Alto, California. The new one is situated in Austin, Texas.
In October 2021, Tesla got a market capitalization of 1 trillion US dollars.
People Behind Tesla- Martin Eberhard And Marc Tarpenning
Do you know only two engineers started Tesla? Two engineers named Martin Eberhard and Marc Tarpenning are the founders of Tesla.
Martin Eberhard, also known as Martin Forest Eberhard, is an American engineer, inventor, and entrepreneur. He is popularly known for being the co-founder of Tesla Inc. He is Tesla’s original chairman until 2007. Eberhard started taking higher education at the University of Illinois at Urbana-Champaign. From the University of Illinois, he received his B.S. in computer engineering in 1982. He also did his M.S. from this university in 1984. Later he started his career at Wyse Technology, where he was hired as an electrical engineer. He co-founded Network Computing Devices in the year 1987.
In 1996, he also founded Nuvomedia along with Marc Tarpenning. Together they developed the Rocket eBook. This was the first eBook that came with secure internet delivery of content. Eberhard was passionate about sports cars but also cared about the global warming situation. He tried to find out a solution. Eberhard started following a few principles like proper designs, battery cars, and electric cars with designed technology. He co-founded the company, Tesla, along with Marc Tarpenning. Due to any dispute, Eberhard was stepped down from the CEO chair of Tesla.
In the year 2010, Eberhard started working with Volkswagen. In 2016, he founded stealth-mode startup inEVit in a bid so he could supply major OEMs with electric drivetrains and power storage solutions. He served as the chief Innovation Officer until 2018. Later that year, he founded Triveni. Triveni was founded to make “intelligent EV battery systems.”
Marc Tarpenning is also an American engineer as well as a technology entrepreneur. He is the co-founder of Tesla with Martin Eberhard. He was serving Tesla as a Chief Financing Officer. He was also the Vice President of Engineering at Tesla. Marc started his higher studies at the University of California, Berkeley. In 1985, he received his B.A. degree in computer science.
He started his career in Saudi Arabia. He also developed software and firmware products for several companies like Seagate Technology and Bechtel. Later, he took charge as vice president of engineering at Packet Design, a network technology company. In 1997, he, along with Martin Eberhard, founded Nuvomedia. They also created the Rocket eBook, the first eBook that came with secure internet delivery of content.
In the year 2003, again, this team paired up and founded Tesla Motors. Both of them made the fund till 2004. After that, Elon Musk funded this company with 6.5 million dollars. He served the company as the Chief Financial Officer until 2008. After leaving Tesla, Marc became an adviser or member of the advisory board of several companies.
Journey Of Tesla With Various Products
If you are eagerly waiting to know how tesla makes money, you need to know the products and services they are offering now. Here you can divide Tesla’s products into two main types. Those are automotive products and Tesla Energy Products. Apart from these, there are other services like charging, connectivity, software upgrades & updates, vehicle servicing, insurance, etc. let’s talk about their products and services as of now. Tesla makes money with its following services:
As of now, Tesla is dealing with four types of car models that are in production.
- Model S (five-door liftback sedan, hold the names of the 2013 Motor Trend Car of the Year, the 2013 “World Green Car”, Automobile magazine’s 2013 “Car of the Year”)
- Model 3 (four-door fastback sedan)
- Model X (mid-size crossover SUV)
- Model Y ( compact crossover utility vehicle)
Apart from this, tesla’s future products include Roadster’s second generation, Tesla Semi, and Cybertruck.
Tesla Energy Products
Tesla’s energy products include developing, building, selling, and installing solar energy. It also includes battery energy storage products for residential, commercial, and industrial places. Tesla Energy’s generation products include solar panels, the Tesla Solar Roof, and the Tesla Solar Inverter. Other companies produce solar panels, but those are produced under the name of Tesla. Apart from these, Powerwall, Powerpack, and megapack are quite noticeable. These three are large-scale energy storage systems. There is also software designed by Tesla to track and control systems.
Tesla’s other services include charging, connectivity, vehicle servicing, and insurance. By providing these extra services Tesla makes money.
In 2012, Tesla first started a network of 480-volt fast-charging supercharger networks. Across 2100 supercharger stations, Tesla has a network of 20000 superchargers. All Tesla cars, except the first-generation Roadsters, are available for supercharging systems. The navigation software in Tesla cars can go for the fastest route for long-distance travel, incorporating charging stops.
Apart from these, Tesla has also introduced the “Destination Charging location” network by providing chargers to hotels, restaurants, shopping centers, and resorts. This service provides on-site vehicle charging at twice the power of a typical home charging station. These new versions of destination chargers are installed free of charge by Tesla-certified contractors.
- Software updates and upgrades
Whenever there is a new version of software and firmware, Tesla provides an over-the-air update service. It helps cars to stay up to date. Also, it helps in improving the cars after purchase. As of now, there are a few upgrades like basic Autopilot, Full Self Driving, acceleration boost, and rear-heated seats.
- Vehicle services
Tesla is also providing an upgraded version of vehicle servicing. Tesla gives vehicles remote diagnosis and repair. If the issues are not solved immediately, the client will be referred to a local Tesla-owned service center.
Tesla has partnered with Liberty Mutual Insurance Company since October 2017. This partnership aimed to provide US customers with an insurance plan, especially for Tesla owners. In July 2020, Elon Musk announced they would create their own major insurance company. Tesla claims the insurance uses individual vehicle data to offer personalized pricing. Till July 2022, Tesla has offered insurance in Arizona, California, Colorado, Illinois, Nevada, Ohio, Oregon, Texas, and Virginia.
How Tesla Makes Money
We are moving here to the core point of this article, how Tesla makes money. Here are the detailed financials of the company Tesla which will give you a better picture. Have a look at it.
- Revenues(in millions of US dollars)
|Automotive regulatory credits||354||279||314||679||344|
|Total automotive revenue||10,206||12,057||15,967||16,861||14,602|
|Energy generation and storage||801||806||688||616||866|
|Services and other||951||894||1,064||1,279||1,466|
- Cost of Revenues (in millions of US dollars)
|Total automotive cost of revenues||7,307||8,384||11,085||11,322||10,521|
|Energy generation and storage||781||803||739||688||769|
|Services and other||986||910||1,048||1,286||1,410|
|Total cost of revenues||9,074||10,097||12,872||13,296||12,700|
- Operating expenses (in a million dollars)
|Research and development||576||611||740||865||667|
|Selling, general and administrative||973||994||1,494||992||961|
|Restructuring and other||23||51||—||—||142|
|Total operating expenses||1,572||1,656||2,234||1,857||1,770|
Tesla is, again and again, creating thoughtful products and services. It is already on the list of the most valuable companies. We hope, with the help of this article, you now have a better understanding of how Tesla makes money. Stay tuned to us to read more articles like this.
Frequently Asked Questions
- How does Tesla make money?
Tesla makes money by developing and selling all-electric vehicles. Generally, these vehicles are sold in the US, China, and Europe. The main source of income for Tesla is automotive sales. Besides this, Tesla has other services like vehicle servicing, insurance, connectivity, etc.
- How does Tesla spend its money?
As Tesla is a multinational company, it has a huge department of research and development where Tesla needs to spend more.
- What are Tesla’s main costs?
Tesla’s annual operating expenses for 2021 were $47.3B, a 60.11% increase from 2020.
Tesla’s annual operating expenses for 2020 were $29.542B, a 19.86% increase from 2019.
Tesla’s annual operating expenses for 2019 were $24.647B, a 12.81% increase from 2018.
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