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The Secret Business Model of Tesla | How Tesla earns Money? | Elon Musk | Dhruv Rathee - YouTube
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Hello, friends!
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Tesla is the most valuable car company in the world now.
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Its market capitalization has crossed $1 trillion.
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It is so valuable that if I keep Tesla on one side,
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and look at the next 10 most valuable car companies,
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Ford, Honda, Volkswagen,
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Toyota, BMW,
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the combined valuation of these 10 companies,
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would be equal to Tesla's.
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What is so special about Tesla?
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What is Elon Musk's magic that has made this company so valuable?
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In today's video, let's understand Tesla's Business Model.
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"The market value of Tesla,
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the manufacturer of high-end electric cars,
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has actually surpassed that of Ford and General Motors."
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"The electric-vehicle maker's stock speeding this year."
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"Musk's wealth skyrocketing thanks to the surge in Tesla shares.
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Making him wealthier than Warren Buffet."
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"This summer, Tesla became the most valuable auto company in the world."
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"It's just become one of the most controversial names,
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and one of the most-watched names."
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This video is powered by Vested Finance.
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At first glance, you'd think
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that if Telsa is such a valuable company,
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it must be selling a lot of cars.
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This isn't true, friends.
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Although it is certainly true that the number of Tesla cars sold this year,
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is much more than last year.
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It has good growth.
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But if you compare overall,
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the number of Tesla cars sold in 2021,
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or rather the number of Tesla cars that will be sold by the end of 2021,
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it will be less than 1 million.
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Here we have all the cars sold by all the companies worldwide.
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75 million.
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It is estimated that around 900,000 Teslas would be sold this year.
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The overall market share of Tesla is only 1.2%.
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A meagre market share,
but an enormous valuation.
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Come, let's look at the main Tesla products that are being sold
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that form the revenue of Tesla.
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Talking about cars,
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mainly, there are 4 very popular models of Tesla.
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Models S, 3, X, Y.
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The most expensive of them is the Model X.
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Around $99,900 for this car.
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Then, Model S at $90,000.
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Model Y at $55,000.
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And Model 3, the most sold Tesla car,
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it's also the cheapest Tesla car,
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at $42,000.
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It's being expected that Tesla would soon introduce the Model 3 in India.
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But in India, it will cost around ₹7 million.
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It will be the cheapest model of Tesla.
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One thing is for sure,
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that Tesla cars come in the high-end luxury category.
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If you look at this chart you'd know
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the volume of sales of each model.
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Generally, the Tesla Model X and S
are around 10,000.
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And Tesla Model 3 at 90,000.
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This chart is for the quarterly deliveries.
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What is Tesla's profit margin in selling one car?
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To have a fair estimate, we can look at
the Automotive Gross Margin.
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It is the overall sales
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minus the manufacturing cost.
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For Tesla, this is at 30.5%.
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It is believed to be a very high profit margin.
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In comparison, in the past, it used to be around 27%.
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And now it has crossed 30%.
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It has seen good growth too.
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And if you compare it to the other car companies,
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it is more than in most companies.
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Even BMW and Mercedes don't get such a high profit margin.
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For most car companies, it is in the 15%-20% range.
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In fact, this margin of more than 30%,
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is only for the high-end extreme luxury brands.
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Like Porsche or Ferrari.
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Selling cars is the main source of revenue for Tesla.
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Most of the revenue earned by Tesla,
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is from the car sales.
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But it is not the only source of revenue.
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So what other sources of revenue does Tesla have?
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Its sources of revenue can be divided into 3 main categories.
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First is the automotive.
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that includes the car sales.
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Apart from it, the Sale of Regulatory Credits is also included in it.
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I'll explain the Sale of Regulatory Credits later in the video.
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The second is Servicing.
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Servicing the cars is also a source of revenue for the company.
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And the third main source is the energy business of Tesla.
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You might already know that Tesla doesn't sell cars only.
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It sells Solar Roof and Power Wall as well.
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The concept of the Solar Roof is quite simple.
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If you have to install solar panels in your home, you can get them from Tesla.
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The Power Wall has also been created with the perspective of renewable energy.
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If you have solar panels in your home,
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but if there isn't much sunshine,
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where would you get electricity from?
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You need a place to store energy.
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Their Power Wall is an energy-storing device.
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This Wall looks like this.
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Additionally, Tesla has plans to launch an electric truck.
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Cybertruck.
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They're already working on it.
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There are also plans to launch a low-cost car model in the future.
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They haven't disclosed its name yet.
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It will cost around $25,000.
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Even the middle-class people of America would be able to afford it.
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Combining all the revenue of Tesla,
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in 2020 it was around $32 billion.
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It is being estimated that in 2021, it will be
around $45 billion.
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In this chart, you can see their revenue growth.
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Revenue is the amount of money
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that a company earns.
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The earnings of the company.
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In the same chart, you can see the future projections
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of the estimated revenue of Tesla.
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In the chart, you can also see the breakdown.
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Red shows the revenue from car sales and automotive.
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Orange is for the revenue from selling energy products.
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Products like Tesla Solar Roof and Power Walls.
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And Yellow shows the revenue from Servicing.
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Around 80% of the company's revenue is from the sales of Tesla cars.
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If we compare this with a company like General Motors.
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The revenue of General Motors,
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in this chart, you can see that Tesla is lagging.
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In terms of revenue generation, Tesla is yet to reach the levels
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at which it can compete with the other car companies.
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But you can see it grow on the chart.
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Tesla is catching up with them fast.
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In the future, it's possible that Tesla would overtake companies like GM and Ford.
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Interestingly, friends,
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the money earned by Tesla
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is less than the money spent by Tesla.
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You'd wonder how this could be possible.
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Tesla has a nice profit margin.
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The cost to manufacture one car,
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allows it to get profit on sale at a 30% profit margin.
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On what is the money spent?
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Friends, the simple answer to it is
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on Research and Development.
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Tesla is spending billions of dollars
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on researching and developing good technology.
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For this exact reason,
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Tesla had been a loss-making company for many years, up till 2019.
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2020 was the first year when Tesla made a net profit.
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And do you know what's more interesting, friends?
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While the other car manufacturing companies
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spend a lot of money on advertising.
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On marketing and promoting the cars,
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Tesla's advertising spending is $0.
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$0!
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Tesla doesn't spend any money advertising its cars.
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Look at this chart.
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It has shown a good comparison of different car companies
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the per car expenditure on R&D
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and the per car expenditure on Advertising.
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For Tesla, the advertising spending is 0.
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But R&D expenses is almost thrice than that of the other car companies.
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You'd wonder how this could be possible.
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How could a company sell its products without using ads?
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The simple answer is
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Elon Musk's popularity.
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Elon Musk is such a popular personality,
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with only one tweet, he can impact the price of Dogecoin.
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So you can imagine, such a popular person
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doesn't need to spend on advertising for the promotion of his company.
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There is so much hype built up for Tesla,
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that it gets automatic media coverage from all the companies.
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There are so many new exciting features in their car,
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they present so many new and unique things,
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that people get curious about it and write on social media,
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discuss them,
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the media companies publish articles about it,
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news channels talk about it on TV.
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In marketing, this is known as
Word of Mouth Marketing.
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If you like something so much that you tell your friends and family about it,
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and they like it immensely as well,
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and they tell their friends,
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this leads to the promotion of the thing.
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In a way, you can say that the promotion of my YouTube videos is also by Word of Mouth.
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When you like it,
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you tell your friends and family members,
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they watch these videos,
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and through them, more people watch these videos.
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And I don't need to spend on advertising either.
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Other than this, there are so many unique things about Tesla,
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in comparison to the other car companies,
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that makes it unique in itself.
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That makes it special.
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Another example of this is,
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their car dealership model.
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Other car companies often sell their cars through car dealers.
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A third party is involved in between.
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You would've seen that when you go to buy a car,
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there is some dealership involved.
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Tesla doesn't do so.
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If you want to buy a car from Tesla,
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you can order it from their website directly.
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Or you can go to their showroom and buy a car from Tesla directly.
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So there are no middlemen.
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No need for negotiations.
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And Tesla doesn't lose money on commission either.
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The disadvantage of this model is that
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for Tesla, this increases their costs.
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They need to have their delivery centres.
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Hire staff there,
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carry out maintenance.
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Train the staff.
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The other car companies do not have to bear these costs.
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But the advantage is that
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Tesla has total control of the process
from start to end.
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You can compare this with the Apple company.
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Apple does the same.
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Apple tries to control as many things as it can.
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Whether it is the Operating System,
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software of the phone, or the chip manufacturing.
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Tesla's direct sales method is banned in some US States.
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Like in Texas.
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That's why Tesla can't legally sell any cars directly in Texas.
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People living in Texas have to go to other states to buy Tesla cars.
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Another special thing about Tesla
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is their giga-factories.
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The gigantic factories they have established
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to establish the principle of Economies of Scale.
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In economics, there's a concept
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Economies of Scale.
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The larger the scale of production of something,
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it reduces the cost per unit of it.
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In electric cars, over several years there was a problem that
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the cost of batteries was very high.
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So Tesla introduced the concept of Gigafactories,
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wherein they set up gigantic factories
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for manufacturing the batteries for their cars
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in order to reduce their cost.
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Presently, there are 6 Gigafactories worldwide.
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4 of them are functional.
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And 2 under-construction.
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Apart from these, perhaps the most special thing about Tesla is
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the technologies that they use in their cars.
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The type of self-driving technology they've used
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has never been seen before in a car.
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In their autopilot mode,
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a driver could drive the car almost without doing anything.
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The car can drive itself.
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The safety features in their car
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are one of the best in the world.
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The credit to popularise electric cars globally,
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goes to Tesla.
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For these reasons,
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many people have confidence in Tesla.
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And feel proud to invest in its stocks.
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They're certain that in the future, this company
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would bring a revolution to the world.
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So many people have invested in Tesla's stock,
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that it is the most popular stock in the US now.
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If you want to invest in Tesla's stock too,
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or in the stocks of any major global company,
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from India.
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You can easily do so through the Vested app.
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Vested is a Zero Commission US Investing platform for Indian investors.
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It was started in 2018,
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and if you had to invest in the US stocks then,
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there was a very lengthy process.
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Many paperwork had to be signed.
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But now, the process has shifted online.
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And has become very simple.
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It is registered with
the Securities Exchange Commission and
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Registered Investment Advisor.
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It is a credible platform.
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The link to the app is in the description below.
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Do check it out.
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And for the sake of transparency, I'd like to tell you that
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I have also invested in Tesla's stock.
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But I have one tip for you,
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whenever you invest in the stock market,
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don't invest a lot of money in one stock.
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Diversify your portfolio.
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It reduces the risk
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in case one company goes under,
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all your money wouldn't disappear.
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Obviously, investing in global companies as well as Indian companies is a good way
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to diversity your investment portfolio.
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Anyway, let's get back to our topic.
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In the last 2 years, Tesla's share price has increased to 15 times.
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If you had invested ₹100,000 in Tesla's stock in December 2019,
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today, that ₹100,000 would have been
around ₹1.5 million.
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So many people investing in Tesla's stock,
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is the reason why
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Tesla has become the most valuable car company in the world.
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But there is another aspect of it.
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Many people believe
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that Tesla's stock is currently overvalued.
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They think that it doesn't have any reason to be so valuable
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if the data and statistics are looked into realistically.
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What are the reasons why some people believe Tesla to be overvalued?
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Let's look at them.
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First, other car companies have entered the electric vehicle market too.
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And the market share of Tesla is starting to fall.
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The total electric vehicle registrations in the first 6 months of 2020,
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in the US,
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In it, Tesla's market share was 79%.
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But in the first 6 months of 2021,
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this market share fell to 66%.
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The other car companies' market share has started increasing.
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Audi's market share has increased to 3.3%.
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Ford's to 5.2%
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Chevrolet's has also increased.
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And almost all of the companies have introduced models of their electric cars.
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And in many cases, they are much cheaper than Tesla's model.
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The second important reason here
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is the Regulatory Credits.
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I mentioned them earlier in the video.
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Regulatory Credits are a very important source
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because of which Tesla can now be profitable.
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For Tesla, it is a revenue source.
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What are Regulatory Credits?
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In America, there is a Point or Credit System.
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The companies that do not cause pollution,
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or those that meet the maximum pollution emissions standards,
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the US government would give them credits or points.
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These are known as Regulatory Credits.
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Companies have 2 options now.
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They can either manufacture such vehicles
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that doesn't cause pollution.
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Or if they are producing vehicles causing pollution,
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those companies need to purchase Regulatory Credits
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from either the government or other companies.
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And Tesla has earned many such Regulatory credits
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because they manufacture electric vehicles that do not cause any pollution,
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So the other car companies,
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have to buy these Regulatory Credits from Tesla.
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They pay Tesla in exchange.
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And thus it is a major revenue source for Tesla.
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According to the 2020 annual report,
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almost $500 million of Tesla's revenue
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were from the Sale of Regulatory Credits.
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In fact, if Tesla had no revenue from the Sale of Regulatory Credits,
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in 2020,
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Tesla wouldn't have been a profitable company.
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It would've been in a net loss that year.
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In this chart, you can see the impact on Tesla's net profit
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if Tesla did not have any revenue from the Sale of Regulatory Credits.
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Many experts believe that
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in the next few years, Tesla wouldn't have this revenue source any longer.
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Because the other car companies would ramp up the production of electric cars,
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or they would switch almost completely to electric vehicles.
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So they would no longer need to buy Regulatory Credits from Tesla.
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And so Tesla would lose this revenue source.
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Will Tesla continue to remain a successful company in the upcoming years?
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Or will it fail?
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Time will tell.
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But I've told you both sides of the argument.
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What's your opinion?
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Comment below.
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I would like to tell you one thing
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when you invest in Tesla's stock
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or in the stock of any company,
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through the Vested app or any other apps,
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remember one thing,
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you need to have a basic knowledge of these companies.
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How are these companies performing?
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What are its revenue sources?
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How profitable is it?
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What are the future predictions?
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Listen to both sides of the argument.
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And only after you've understood the risks,
invest in the company.
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If you're interested, the link to the Vested app is in the description.
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Do check it out.
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Let's meet in the next video.
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Thank you very much.
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