The only successful new American car company in more than half a century, Tesla, reported its first quarterly profit yesterday.
It wasn’t a big profit.
But the fact that it was any sort of profit blew away investors, who instantly bid the company’s stock up 25%, to a new high near $70.
Helping fuel this gigantic move was presumably collective panic on the part of the many investors who are short Tesla’s stock, betting that the electric car company will falter and its stock will tank.
When short-sellers are forced to “cover” their bets on unexpected good news, their panic buying often creates demand that drives stock prices through the roof. And Tesla’s stock presumably benefitted from that.
But Tesla has defied critics and short-sellers from the beginning.
When entrepreneur Elon Musk and others founded the company a decade ago, most people assumed that Tesla’s ride would be short-lived. After all, the fate of new American car companies in the last half century has been so predictable that very few entrepreneurs even had the guts to create them.
But Tesla’s first car, a convertible called the “Roadster,” was popular with the handful of people who could afford to own $100,000+ electric two-seater sportscars with a limited range. And the company’s second car, a sedan called the “Model S,” has gotten some excellent reviews and has sold reasonably well. Remarkably, Consumer Reports just concluded that the Model S is the best car it has ever tested.
Tesla sold 5,000 of its sedans last quarter. Although that’s a small number relative to the 2+ million cars sold by General Motors in the same period, it’s impressive considering the car’s high price and the limitations of an all-electric vehicle. And it has helped to stoke excitement that Tesla will be able to solve the problem that has defeated other electric car manufacturers for decades: Figuring out how to make an electric car with a long-enough range that is affordable for mass-market car buyers.
Most mass-market electric cars have been hobbled by high prices and low ranges. And the winning propulsion system for electric cars over the past decade has been the “hybrid” drive–cars that can be powered by both gas and the battery. This problem has led me and others to conclude that the world is just not ready for all-electric cars, which aren’t practical for many people. But those rich enough to buy Teslas are quite vocal about how much they love them.
What Tesla has accomplished over the past decade is extraordinary. It remains to be seen whether the company can now “cross the chasm” from wealthy buyers who can afford to buy the Model S or Roadster as a second or third (or fourth car) and don’t mind their limitations to mass-market drivers who can rely on electric power for their primary, affordable family car. But so far, anyway, Tesla is a great American success story, and everyone should be rooting for it.