Ever the one for grabbing the headlines, Elon Musk recently announced that Tesla is working on an electric truck and an electric bus. While you could argue that the technology used in the electric cars of today can be readily transferred to electric trucks and electric buses, is there an argument for suggesting that Tesla should just stick to electric cars for now? Is the introduction of new products going to put pressure on the company’s cash flow and quality of products?
Planning for the future
There is nothing wrong in planning for the future and there is no doubt that Tesla has some major plans for the months and years ahead. This comes at a time when the company is looking to roll out its new Tesla Model 3 and has faced some criticism from analysts regarding its autopilot system. In some ways we may be falling into the old trap of seeing Tesla as an automobile manufacturer when indeed it is a technology company. If we look at the likes of Apple, it has managed to transfer its technology to various platforms with the type of success many companies can only dream of.
On the other hand, should Tesla just wait until its vehicles have hit the mass market before looking to branch out into new areas?
Cash flow is vital
Tesla has been cash flow positive and profitable in isolated quarters over the last few years and while a reduction in research and development investment would likely push the company into profitability today, investment is an integral part of the business model at the moment. Cash flow is most certainly king amongst technology companies and the recent flood of deposits for the company’s new Tesla Model 3 will certainly have improved the company’s cash flow in the short to medium term. However, the fine print of this deposit arrangement would suggest that customers can request a refund with no questions asked – prompting the question, how much of the funds currently on deposit will remain with the company?
One other issue which will come into play in the short to medium term is the additional investment required to actually build an electric bus and electric truck. The technology may be there, the company may have detailed plans but actually transferring the electric car power system to a bus and a truck will require time, money and effort. Is this money which could be better spent ensuring that Tesla’s current range of electric vehicles is more affordable and hits the mass market quicker?
Spreading yourself too thinly
Even though Tesla currently has a multibillion dollar war chest this will not last long at the current burn rate. There may well be opportunities to raise further funds on the stock market but the reality is that very soon Tesla will need to deliver profits and value for shareholders. There is a real danger that the company is trying to be a jack of all trades but a master of none. This would be a disaster for a company which has prided itself on attention to detail and groundbreaking technology.