If this was the only thing that mattered for businesses, we wouldn't have Amazon as Walmart has consistently produced more net profit over Amazon since the last 22 years. 1
A difference is that Tesla hasn't really managed to execute its original plan, in particular:
- Use that money to develop a medium volume car at a lower price
- Use that money to create an affordable, high volume car
Amazon is way better at making money to invest in growth. Tesla ?still? is in a fairly deep well, and will need investments to crawl out of it. Big question is whether they will.
That would depend on what your definition of “use” is. Musk is using a surprising definition of “use” that includes “leverage.”
The income increases the cash flow, which is obviously important, but it also signals to investors and bankers that there is a business, and they can invest or loan with better confidence.
What? There are room for multiple companies that make a profit. The point is that claiming a business sucks that still makes a profit and provides value to lots of people is tone deaf.
Amazon was never a profit machine. I do think that's part of the core business, re-invest everything and more... and they turned into a giant comparable to Walmart.
It's not really the same thing. Amazon don't turn a profit because they intentionally re-invest they money they would make into areas that they think will make them money in future. (Once or twice they've screwed this up and accidentally ended up making a profit.) Tesla don't turn a profit because they're making and selling cars at prices below their total costs.
They have basically a single source of revenue AFAIK which is selling cars. They sell X amount of cars per year making $Y. They don't turn a profit. Last year they lost close to $1B mostly because of their R&D costs. They need to either sell more cars (assuming that they can make money per additional unit like they say they can) or charge more for the ones they do sell, or both. Fortunately they are expected by investors to follow the Amazon model so they can get away with it for the foreseeable future.
Spending on R&D is exactly the same as Amazon intentionally reinvesting in areas that will make them more money. How does this not make them like Amazon?
The only real difference is that they have higher bootstrapping costs due to the type of product they make. i.e a physical object with a complex production pipeline. The only way to ever get profitable is to heavily and intentionally reinvest in R&D. Musk is doing the only thing that a startup in this space can do and expect to succeed outside of getting acquired which would be pretty much directly counter to the stated goals of the company.
That's of course incorrect. Amazon doesn't lose money on every sale. Their business is profitable and generates a lot of cash. Their retail business is also profitable. They lose money in retail only on new segments and similar, not on the older existing segments. That has been well known about them for years now.
For fiscal 2015 they were positive on net income: $596 million.
Q1 2016: $513 million in net income
They'll be generating $3 billion in annual net income in just another year. Sounds like a business to me, even if half of that net income comes from AWS.
Reminds me of the old accounting joke.
CFO -> CEO We have a major problem, recent price cuts mean that we are now making a loss per unit on our major product lines.
CEO -> CFO Don't worry about that, We'll make it up on the volume!
Not to over-analyze a comic, but the business model might not be awful in this case. They sell all potions for 20gp kind of like the original dollar stores. The one particular item is at a loss, but the majority may be at a profit or at least the aggregate based on volume is a profit. Basically they have loss-leaders to get people to use them as their only store.
This may seem like a ridiculous strawman, possibly because it's presented as a comic strip, but I've seen similar conversations on the TV show Kitchen Nightmares. Possibly worse actually, as the business owners didn't even know how much it cost them to make their most popular dishes.
Amazon has diversified income streams, they don't just resell products they purchase wholesale. They have a pretty sweet deal with 3rd party sellers, they make a big cut providing a sales channel for inventory owned by others, either seller-fulfilled or FBA.
- Use that money to develop a medium volume car at a lower price
- Use that money to create an affordable, high volume car
Amazon is way better at making money to invest in growth. Tesla ?still? is in a fairly deep well, and will need investments to crawl out of it. Big question is whether they will.
Good news is that they aren't at 2012 scale anymore; bad news is that they aren't improving recently (https://ycharts.com/companies/TSLA/profit_margin)