Markets are very optimistic about Tesla’s future — so optimistic that it would be impossible to explain if Tesla were a conventional car company.
On paper, Tesla shouldn’t be worth anywhere near as much as rivals like Ford and GM. Ford sold 6.6 million cars in 2016. GM sold 10 million. Tesla sold a paltry 76,000. Ford and GM both turned healthy profits in 2016. Tesla lost money.
Yet earlier this month Tesla’s market value surged past Ford and then briefly eclipsed GM as America’s most valuable carmaker.
One big reason for this is that Tesla has made a risky bet on batteries that could be on the verge of a huge payoff. Because Tesla cars are purely electric, a single car needs roughly 5,000 times as much battery capacity as a typical smartphone. So making electric cars a mainstream technology will require producing batteries on a scale that dwarfs today’s production for smartphones and other portable gadgets.
A major test of this will come in Tesla’s release of the Model 3 later this year. These cars will be powered by batteries from the Gigafactory, a huge factory Tesla has constructed in the Nevada desert. If the Model 3 is a hit, experts say, the Gigafactory will ensure Tesla has plenty of batteries to meet demand for this relatively affordable mass-market vehicle. Other car companies would have to scramble — not only to design a similar stylish vehicle, but also to find suppliers for yet more batteries.
Experts say this battery advantage won’t last forever — other battery makers might be able to catch up within a year or two. But having a year or two head start could make a big difference — not only cementing Tesla’s reputation as the leading electric car brand, but positioning Tesla to make further investments that could help it stay a step ahead of rivals down the road.
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