Tesla’s Secret Sauce — Innovation Enables Hyper-Growth Without Increased Costs
Looking at the Q2 shareholder letter, I notice something that is underappreciated. Elon did say on the conference call that they could build better factories faster and for less money than before. The fact that they are developing the Semi, Cybertruck, Roadster, Full Self Driving, and expanding production in California, Nevada, Shanghai, and Berlin with just the money allocated for depreciation is amazing. Depreciation is just supposed to cover how much of the existing factory you have worn out. So, it should just be enough to replace equipment that is broken or worn out. Tesla is quickly expanding production with the money that is just set aside for replacing worn out equipment.
Comparison to Amazon
Amazon is a very hot technology company that has really made some large innovations and experienced high growth over the last few decades. Let’s compare its growth and capital expenditures to Tesla’s.
From 2016 to 2019, Amazon has about doubled its annual revenue (up 106%), while Tesla has more than tripled its revenue (up 251%). In order to power that growth, Amazon has more than doubled its capital expenses (up 151%), while Tesla capital expenses are flat (down 0.3%).
Conclusion
How can Tesla continue to scale without spending more money on plants? The key is it takes smart risks. The safe way of doing your job is to not rock the boat and just keep your head down. Tesla has inspired its team to continually go the extra mile and work hard to change things for the better.
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