The Secret Business Model of Tesla | How Tesla earns Money? | Elon Musk | Dhruv Rathee
Tesla has become the most valuable car company in the world. It is more valuable than the next 10 car companies like Ford, Toyota, General Motors, Daimler, BMW and others combined. Its share price has increased exponentially to almost 15 times in the last two years as people invested more and more in the company. And yet the market share of Tesla is only around 2%. How is that possible? What profit margin does Tesla earn while selling the model 3, model X, model S and model Y cars? What are the revenue sources and how much money does Tesla actually make and spend on different things? I explain in this video. Also I explain the secret of Elon Musk’s magic behind making Tesla a successful electric car company.
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00:00Hello, friends!
00:01Today, Tesla is the most valuable car company in the world.
00:04Its market capitalization has crossed $1 trillion.
00:08It is so valuable that if I put Tesla on one side,
00:11and look at the next 10 most valuable car companies,
00:15Ford, Honda, Volkswagen, Toyota, BMW,
00:18the combined valuation of all these 10 companies
00:22is equal to Tesla.
00:23What is so special about Tesla?
00:25What magic has Elon Musk done to make this company so valuable?
00:29In today's video, let's understand Tesla's business model.
00:59The most watched names out there.
01:05At first glance, you'd think that if Tesla is such a valuable company,
01:09then a lot of cars must be being sold by Tesla.
01:11This is not true, friends.
01:12Yes, it is true that the cars that Tesla has sold this year
01:16were a lot more than last year.
01:18So the growth is good.
01:19But if you compare the total number of cars sold by Tesla in 2021,
01:24or how many cars will be sold by Tesla by the end of 2021,
01:28it is less than 1 million.
01:29Here are all the cars sold by all the companies worldwide.
01:3475 million.
01:35Tesla is estimated to sell around 900,000 this year.
01:40So the overall market share of Tesla is only 1.2%.
01:44Such a low market share,
01:45yet such a high valuation.
01:47Let's see which are the main products that are being sold by Tesla,
01:50from which Tesla gets money.
01:52If we talk about cars, there are mainly 4 Tesla models that are very popular.
01:56Model S, Model 3, Model X, and Model Y.
02:00The most expensive among them is Model X,
02:02for around $99,000.
02:04Then there's Model S, for $90,000.
02:06Then Model Y, for $55,000.
02:08And Model 3, Tesla's most sold car.
02:12Tesla's cheapest car, at $42,000.
02:15In India, it is expected that Tesla will soon introduce Model 3.
02:19But in India, it will cost around 70 lakh rupees.
02:22Which is the cheapest model of Tesla.
02:24One thing is for sure that Tesla's cars are in the High and Luxury category.
02:28If you look at this chart, you'll know which cars are being sold.
02:32Usually, Tesla Model X and S are around $10,000.
02:36And Tesla Model 3, $90,000.
02:38This chart shows quarterly deliveries.
02:40To estimate the profit margin that Tesla gets from selling a car,
02:45we can look at Automotive Gross Profit Margin.
02:49Which is basically the overall sales
02:52minus the manufacturing costs.
02:54For Tesla, the percentage is 30.5%.
02:57Which is considered to be a very high profit margin.
03:00In comparison to the previous years,
03:02Tesla used to have around 27%,
03:04now it has crossed 30%.
03:06There's a lot of growth in this as well.
03:08And if you compare it with other car companies,
03:11it is more than most of the companies.
03:13BMW and Mercedes don't get such a high profit margin.
03:17Most of the car companies have a 15-20% range.
03:21In fact, the profit margin of more than 30%
03:25is only available to high and extreme luxury brands.
03:28Like Porsche or Ferrari.
03:31Selling cars is a main source of revenue for Tesla.
03:34Most of the money that Tesla earns
03:37comes from car sales.
03:39But it is not the only source of revenue.
03:41What are the other sources of revenue for this company?
03:43Its sources of revenue can be divided into 3 categories.
03:47The first is Automotive,
03:48where cars are sold.
03:50Other than that,
03:51Sale of Regulatory Credits is also included.
03:54What is the Sale of Regulatory Credits?
03:56I'll tell you about it in the video.
03:58Other than that,
03:59Servicing,
04:00servicing cars is also a source of revenue for the company.
04:03And the third main source is
04:04the energy business of Tesla.
04:06Maybe you already know that
04:08Tesla doesn't just sell cars.
04:10They also sell Solar Roofs.
04:12They also sell Power Walls.
04:13The concept of Solar Roof is very simple.
04:15You have to install solar panels in your house.
04:17You can get Tesla panels installed.
04:19Their Power Wall product is also made from the perspective of renewable energy.
04:22That if you have solar panels installed in your house,
04:24and if there is no good sunlight,
04:26how will you get electricity?
04:28You need a place to store energy.
04:30So their Power Wall is an energy storing device.
04:33It looks like this.
04:35Other than that,
04:36Tesla plans to launch an electric truck.
04:38A Cybertruck.
04:39They're already working on it.
04:41Tesla is also planning to launch a low-cost car model in the future.
04:45They haven't disclosed the name yet.
04:47It will cost up to $25,000.
04:49Even middle-class people in America will be able to afford it.
04:53Now, if we add up the total revenue of the Tesla company,
04:57in 2020, it was around $32 billion.
05:00In 2021, it is estimated to be around $45 billion.
05:05In this chart, you can see
05:07the growth in their revenue.
05:09Revenue is basically the money that comes to the company.
05:12The money that the company is earning.
05:14In this chart, you can see the projection of the future.
05:16You can see how much is being estimated by the Tesla company.
05:19In this, you can see the breakdown.
05:21The red color shows how much money is coming from car sales.
05:25From automotives.
05:26The orange color shows the revenue from selling energy products.
05:29Products like Tesla, Solar Roof and Power Wall.
05:32And the yellow color shows the revenue from servicing.
05:35So around 80% of the company's revenue comes from car sales.
05:39Now, if we compare this with a company like General Motors,
05:42how much revenue is coming from General Motors,
05:44in this chart, you can see that Tesla is still far behind.
05:47In terms of revenue generation,
05:49Tesla has not reached the level
05:51where it can compete with other big car companies.
05:55But you can see the growth in the chart.
05:57So Tesla is catching up very quickly.
05:59So in the coming years, it is possible that
06:01Tesla can overtake companies like General Motors and Ford.
06:04Now, the interesting thing is that
06:06the more money Tesla is earning,
06:08the more money it is spending.
06:10You'd think, how is this possible?
06:12The profit margin of Tesla was quite good.
06:15That is, the cost of manufacturing a car,
06:18more than that, it gets a profit.
06:2130% was a good profit margin.
06:23So where is the money being spent?
06:25The simple answer to this is, friends,
06:27on research and development.
06:29Tesla is spending billions of dollars
06:31on research and development of good technologies.
06:35And for exactly this reason,
06:37Tesla was a loss-making company for many years,
06:39until 2019.
06:422020 was the first year when Tesla made a net profit.
06:46And do you know what is more interesting than this?
06:48On one hand, other car manufacturing companies
06:51spend a lot of money on advertising,
06:53marketing, promoting their cars.
06:56On the other hand, Tesla's advertising spending
07:00is $0.
07:01$0!
07:03Tesla does not spend any money on advertising its cars.
07:06Look at this chart.
07:07It shows a good comparison.
07:09How much money do different car companies
07:11spend on research and development per car
07:14and on advertising per car.
07:16For Tesla, the advertising spending is $0.
07:18But research and development spending
07:20is almost three times more
07:22compared to other car companies.
07:24You'd think, how is this possible?
07:26How can a company sell its products without advertising?
07:30The simple answer to this is,
07:31Elon Musk's popularity.
07:33Elon Musk himself is so popular
07:36that he tweets once
07:38and the Dogecoin price goes up and down.
07:40So you can imagine,
07:41such a popular person
07:43does not need to spend on advertising
07:45to promote his company.
07:47There is so much hype for Tesla
07:50that all the media companies automatically cover it.
07:54There are so many exciting new features in their cars.
07:57They present so many new and unique things
08:00that people become curious
08:02and write about it on social media.
08:04And other media companies publish it in the newspapers.
08:07And talk about it on TV and news channels.
08:09This is called Word of Mouth in marketing.
08:12If you like something so much
08:14that you tell your friends and family members about it.
08:17And they like it so much
08:19that they tell their friends about it.
08:21This can increase the promotion.
08:23You can say that the promotion of my YouTube videos
08:25is through word of mouth.
08:27If you like it,
08:28you tell your friends and family members about it.
08:31They watch these videos.
08:33And more people watch these videos.
08:35And I don't need to spend money on advertising.
08:38Apart from this,
08:39there are many other unique things about Tesla
08:42that make it unique and special
08:44compared to other car companies.
08:46Another example is
08:48their car dealership model.
08:50Other car companies sell their cars
08:52through car dealers.
08:54A third party is involved here.
08:56When you go to buy a car,
08:58there is always a dealership involved.
09:00Tesla doesn't do that.
09:02If you want to buy a car from Tesla,
09:04you can order it directly from their website.
09:06Or you can go to their showroom
09:08and buy a car directly from Tesla.
09:10Because of this, there is no middleman.
09:12There is no need to negotiate.
09:14And there is no waste of money in the commission for Tesla.
09:17The disadvantage of this model is
09:19that the cost increases for Tesla.
09:21It has to open its own delivery centers.
09:23The staff has to be hired there.
09:25Maintenance has to be done.
09:27They have to be taught.
09:28So the rest of the car companies don't have to bear all these costs.
09:31But the advantage is that Tesla has total control
09:34from start to end.
09:36You can compare it with Apple.
09:38Apple does the same.
09:39Apple tries to control as many things as possible.
09:42Whether it is the operating system,
09:44the software of the phone,
09:45or the chip manufacturing.
09:47This direct sales method of Tesla
09:49is banned in some US states.
09:51Like Texas.
09:52For this reason,
09:53Tesla cannot sell cars directly in Texas.
09:56People living in Texas have to buy cars in other states.
10:00Another important thing about Tesla
10:02is their Gigafactories.
10:04They have established huge factories
10:06to establish the Economies of Scale Principle.
10:09The concept in Economics is
10:11the Economies of Scale.
10:13The higher the production of something,
10:16the lower the cost per item.
10:19For many years, the problem with electric cars was
10:22that the cost of the batteries was high.
10:25So Tesla introduced the concept of Gigafactories
10:28to build such huge factories
10:30to manufacture the batteries of their cars
10:33so that their costs are reduced.
10:35Today, there are 6 Gigafactories in the world.
10:384 of which are functional
10:40and 2 are under construction.
10:42Apart from all these,
10:43the most important thing about Tesla
10:45is the technologies they use in their cars.
10:48The self-driving technology they have used
10:52has not been seen in any other car before.
10:55Their Autopilot Mode.
10:57A driver can drive the car
10:59almost without doing anything.
11:01The car can drive itself.
11:03The safety features in their cars
11:05are one of the best in the world.
11:07The credit for popularizing electric cars
11:10goes to Tesla.
11:11In 2 years,
11:12the stock price has increased 15 times.
11:15In December 2019,
11:17if you invested ₹1 Lakh in Tesla's stock,
11:20today, the value of ₹1 Lakh would've been ₹15 Lakh.
11:24And so many people invested in Tesla's stock
11:27is the reason that today,
11:29Tesla has become the most valuable car company in the world.
11:32But there's another side to it.
11:35Many people believe that
11:36Tesla's stock is overvalued today.
11:39They think that
11:40it shouldn't be such a valuable company
11:42if we look at the data and statistics realistically.
11:46What is the reason that some people believe
11:48that Tesla is overvalued?
11:50Let's look at these reasons.
11:51First, other car companies
11:53have also entered the electric vehicle market.
11:56And Tesla's market share is decreasing.
11:59In 2020,
12:01in the first 6 months,
12:02Tesla's electric vehicle registrations,
12:05the total in the US,
12:06Tesla's market share was around 79%.
12:10But in the first 6 months of 2021,
12:12this market share fell to 66%.
12:15Other car companies' market share is increasing.
12:18Audi's market share has increased to 3.3%.
12:21Ford's market share has increased to 5.2%.
12:24Chevrolet's market share has increased.
12:25Almost all of these companies
12:26have introduced their electric car models.
12:29And in many cases,
12:30they are cheaper than Tesla's models.
12:32The second important reason is
12:34Regulatory Credits.
12:36I talked about this in the previous video.
12:38Regulatory Credits is actually a very important tool
12:41which is helping Tesla to become profitable today.
12:44It is a revenue source for Tesla.
12:47What are Regulatory Credits?
12:49Actually, in America,
12:50there is a point or credit system.
12:53The companies that don't spread pollution
12:55or meet a minimum pollution emission standard,
12:58the US government will give them credits
13:01or points.
13:02These are called Regulatory Credits.
13:04The companies have two options.
13:06Either they manufacture cars
13:08that don't spread pollution.
13:09Or if they manufacture cars
13:11that cause pollution,
13:13these companies will have to buy Regulatory Credits.
13:16Either from the government or from other companies.
13:19And Tesla has received a lot of Regulatory Credits
13:22because they manufacture electric cars
13:24that don't spread pollution.
13:25So the other car companies
13:27have to buy Regulatory Credits from Tesla.
13:30And they pay Tesla in return.
13:32And this is a big revenue source for Tesla.
13:35According to the 2020 Annual Report,
13:37almost $500 million that Tesla has earned
13:40has come from these Regulatory Credits.
13:42In fact, if Tesla doesn't get the money from these Regulatory Credits,
13:45in 2020,
13:47Tesla wouldn't be a profitable company.
13:49It would go into net loss that year.
13:51In this chart, you can see
13:52how much the net profits of Tesla would have been affected
13:55if Tesla didn't get the money from the Regulatory Credits.
13:58Many experts believe
14:00that in the coming years,
14:01this revenue source won't be left for Tesla.
14:03Because the other car companies
14:05will start manufacturing more electric cars.
14:08Or they will almost completely switch to electric vehicles.
14:11So they won't need to buy Regulatory Credits from Tesla.
14:15And this money will go to Tesla.
14:17In the coming years,
14:18will Tesla remain a successful company?
14:20Or will it fail?
14:21Only time will tell.
14:23But I've told you both sides of the argument.
14:27What is your opinion on this?
14:29Tell me in the comments below.
14:30Thank you very much.
14:41Transcribed by ESO. Translated by —