Tesla Motors

Tesla Motors, a company that started in 2003 with so much promise, has been a great disappointment to the advancement and mainstreaming of the fully electric car. <br /> <br />The company\'s first misstep was its choice to produce a $100,000 high-end roadster as its pioneer product versus a more mainstream car. I can appreciate the company\'s intention to prove to the world that a fully electric automobile does not have to come at t... More >>

Tesla Motors, a company that started in 2003 with so much promise, has been a great disappointment to the advancement and mainstreaming of the fully electric car. <br /> <br />The company\'s first misstep was its choice to produce a $100,000 high-end roadster as its pioneer product versus a more mainstream car. I can appreciate the company\'s intention to prove to the world that a fully electric automobile does not have to come at the sacrifice of performance and style - a mission unaccomplished to-date with vehicles such as GM\'s EV1 in the mid-90\'s. However, overinflated Silicon Valley ego clouded the mission. En route to proving their concept, was there really a need to produce a car that can go 0 to 60 in 3.9 seconds? Of course not. Specs like this simply diminish the company\'s stated purpose and chances of success. <br /> <br />My second concern is the company\'s usage of funding. I\'m sure that Tesla would be quick to cite that it takes even the largest automotive manufacturers $1 billion to take a car from concept to showroom. That might be good and true, but their VC funding was provided on the company\'s claim that they could deliver on much less. Instead, Tesla squandered cash on a frivolous lawsuit against Fisker, one of its competitors, for supposedly ripping off intellectual property. The suit was later thrown out by an arbitrator. Regarding engineering difficulties, the company is battling an energy-sucking issue with its cooling system that defeats the car\'s efficiency claims. From my understanding, money is still being thrown at this problem. And production also has issues: the company wavered on its decision as to where to build its assembly plant, costing more time and money. As of February2008, only 70-something Roadsters had been shipped with over 1,000 orders yet unfilled. And their more moderately priced $60,000 sedan has been delayed until 2011. <br /> <br />Finally, Tesla\'s personnel woes make it sound more like one of its big name Detroit competitors than a lean Silicon Valley startup. The company has burned through numerous CEOs, starting with the original one, Martin Eberhard, who now maintains an openly contentious relationship with the current CEO (and also the company\'s single largest investor), Elon Musk. What does Musk know about producing cars? It\'s not completely clear as his claim to fame was the web-based payment startup PayPal. Hopefully whatever he lacks in experience he makes up for in charisma and leadership. But public statements such as \"Martin (Eberhard) is the worst individual I\'ve ever had the displeasure of working with\" won\'t help. Furthermore, the company has either laid off or plans to lay off a substantial portion of its workforce. I suppose this is a step in the right direction, but offers another illustration of how this company has struggled greatly as of late. <br /> <br />One thing that is undeniable is the allure of the Roadster itself. Short of some bugs, the ones in production seem to live up to the company\'s billing. However, if Tesla does not find a way to make this a profitable venture in the near future, I don\'t see how they can stay open for business. If that\'s the case, this failure will serve as yet another black eye on the electric car industry, setting a far overdue movement back yet another 10 years. << Less

Thought I would throw my hat into the interesting Tesla related discussion.<br /> <br /> I completely agree with the other reviewers that the Roadster is an engineering, marketing etc. marvel. It is an incredible product and the proof is in the demand - a 9 month long list of backorders for a $100K+ car.<br /> <br /> But I actually want to focus on Management\'s decision to begin production on the Model S Sedan, a $60... More >>

Thought I would throw my hat into the interesting Tesla related discussion.<br /> <br /> I completely agree with the other reviewers that the Roadster is an engineering, marketing etc. marvel. It is an incredible product and the proof is in the demand - a 9 month long list of backorders for a $100K+ car.<br /> <br /> But I actually want to focus on Management\'s decision to begin production on the Model S Sedan, a $60,000 multi-use sport sedan.<br /> <br /> I think this is a big mistake, and here's why.<br /> <br /> 1. The luxury sedan market is small, and full of competition.<br /> <br /> The market for $60,000+ cars is actually tiny, less than 1% of total cars sold. As the Wall Street Journal reports, "In 2007, before the housing bubble burst, only 92,000 high-end sedans (with prices from $60,000 to $130,000) were sold in the United States. For Tesla to sell 15,000 cars a year—each company's goal—they would have to match sales of BMW's 7-Series." I think its safe to assume that BMW and Mercedes, who are already developing electric cars, would compete vigorously to defend their position, and as larger companies, would have the resources to complete more successfully.<br /> <br /> 2. Sedan owners, even luxury ones, are different than sports car owners.<br /> <br /> For these owners, price does matter. Therefore, consumers will look at the whole package, what are they getting? For some consumers, the opportunity to buy an electric car will reign supreme. But for many, the drawbacks from the existing technology (vehicle range, availability of service, cost of repairs) may limit sales. As mentioned above, this pie is already small, so we are then talking about a very small piece of this pie.<br /> <br /> 3. The operations to produce a $60,000 car are different than producing a $109,000 car.<br /> <br /> It will be difficult for Tesla to keep costs low enough to hit its $60,000 price target (not to mention its planned $30,000 vehicle) without scale. BMW and Mercedes and other luxury sedan manufacturers, with extensive history with auto suppliers, higher-volume production, and larger distribution networks are better positioned to operate successfully in this segment. This means that Tesla would inevitably have to price the Model S higher, further reducing the size of the target market (or sacrifice quality).<br /> <br /> 4. It is already apparent that this move has already disrupted the company<br /> <br /> As has been discussed, in October, the company laid off 50% of the companies employee base. I recall one poster saying that any company liquidity issues are due to the company's plans to expand, not the company itself. My response to that is that it is impossible to separate the two. History is littered with companies who expanded too much, and subsequently failed altogether. Healthy companies don't lay off half of their employees with a 9 month backlog of orders to be delivered. <br /> <br /> BOTTOM LINE: It is a mistake for this company to 'trade down' from sports cars to sedans. This is a small market and the limits of the technology reduce the market opportunity considerably. By moving into lower-priced product tiers, the company risks the long-term viability of the company as a whole.<br /> <br /> Elon Musk claims that his goal for Tesla is to 'do good in the world.' The company has done enough good by demonstrating that you don't have to sacrifice quality to be environmental. The company should stick to what it does best, and that is produce sports cars for the ultra-rich. <br /> <br /> << Less

<p> <br /><p>When I first heard about Tesla Motors’ new Roadster, I was amazed by the concept. A sports car that rivals the power of a Porsche, costs almost the same, and is electric. What kind of sports car enthusiast wouldn’t drool over that? As the Detroit News says, it’s a “guilt-free green speedster.” I told myself that the Tesla Roadster would be the first car I’d buy, if I could ever afford it.</p> <br /><... More >>

<p> <br /><p>When I first heard about Tesla Motors’ new Roadster, I was amazed by the concept. A sports car that rivals the power of a Porsche, costs almost the same, and is electric. What kind of sports car enthusiast wouldn’t drool over that? As the Detroit News says, it’s a “guilt-free green speedster.” I told myself that the Tesla Roadster would be the first car I’d buy, if I could ever afford it.</p> <br /><p> </p> <br /><p>With this in mind, it’s clear that Tesla is not intending to penetrate the automotive market in the same fashion as mainstream producers like GM or Toyota. Rather, it intends to establish itself in a niche market, which I think is a great move. Mainstream electric cars have proven to be a disaster in the past, as evidenced by GM’s EV1 and other models. One problem is that consumer’s will not reconcile a price premium simply because a car is electric. The cost of building an electric car is massive, so there has to be some other factor that will make them buy it. And here, Tesla has done a marvelous job. They took the electric car, made it ridiculously fast and awesome looking, jacked up the price and rebranded it as a sports car. This is what will make the Roadster successful. The target market for the Tesla isn’t Joe the plumber. It’s Joe the investment banker, and Joe the investment banker won’t be thinking about how much gas costs when he buys this car.  </p> <br /><p><b> </b></p> <br /><p><b>Bumps in the Road</b></p> <br /><p>Since the announcement for the Roadster, Tesla Motor’s has met several obstacles that have delayed production. The most problematic were the changes in transmission design. Even with these long delays though, the startup still enjoyed a large spotlight.</p> <br /><p>However, the recent economic downturn has brought tough times for Tesla. They’re firing over half of the existing staff and cutting costs in an effort to stay afloat. One important note-it’s not that they’re losing sales. In fact, almost all the cars it will produce in 2009 are already reserved. The problem is that with the liquidity crunch that has onset in the past few months, Tesla is unable to secure financing for the construction of a new facility to produce its “affordable” $60,000 four door sedan, the Model S. It’s led them to request a low rate loan from the US Government totaling around $350 million.</p> <br /><p> </p> <br /><p><b>Shine on, Tesla</b></p> <br /><p>I’m a firm believer that this company has what it takes to make it through to be a success. Tesla has successfully established a first mover advantage in this new market, giving it a sustainable momentum that has resulted in surprisingly high demand. Even if Tesla will have to delay production of its second model, they have enough demand for the Roadster to ride out this economic crisis- chalk it up to good timing and a good business strategy.</p> <br /></p> << Less

Let's be nice to Tesla. Now before I disagree with many of the criticisms of this startup car company let me first say that I think mostly these criticisms are correct. <br /> <br /> The Basics and Why Tesla Works<br /> <br /> Let's look at two (potentially debatable) rules for green automotive technology before Tesla's entrance into the market: <br /> <br /> 1. The more fuel-efficient the technol... More >>

Let's be nice to Tesla. Now before I disagree with many of the criticisms of this startup car company let me first say that I think mostly these criticisms are correct. <br /> <br /> The Basics and Why Tesla Works<br /> <br /> Let's look at two (potentially debatable) rules for green automotive technology before Tesla's entrance into the market: <br /> <br /> 1. The more fuel-efficient the technology, the more expensive it is. <br /> 2. The more fuel-efficient the car, the less interesting and useful it is. <br /> <br /> There's a real problem with any company that is prepared to enter a mainstream market given these rules. I think it is generally clear that the mainstream market will not pay more for an inferior and more expensive technology. Tesla was able to break these rules in the high performance roadster category and for that reason Tesla is tackling a different (and important) end of the green revolution. Others suggest that this end is the wrong place for Tesla to start such a revolution, but I would disagree and say that this is actually the right place to start. I suppose it's what Reagan might have called "greentech trickle down economics". With gas prices coming down (again), and an economic crisis on the rise, the majority of Americans will most likely not be willing to pay a premium for a more expensive technology that compromises on the traditional performance of their everyday car (e.g. range and performance). So what's a new car company to do? Not inclusive of range (generally of less importance in an exotic car anyway) the Tesla is a real sports car without compromise. I think many would agree that battery technology is currently not good enough for a "reasonably priced mass market people-carrying car" (which obviously the Tesla roadster is not). For this reason, a car that's less than half the price and accelerates negligibly slower than a Ferrari 430 needs to have a 3.9 second clock time. Furthermore, anyone who has driven a car capable of anything at or below a mid 4 second 0-60 time can tell you that the smile on your face makes this type of performance "necessary". Tesla is a sports car that does not compromise on a sports car. A family car? A long-range cruiser? Nope. But you have to choose your niche and it enters the niche market of high-end performance green. I think this is actually the only way to make an automotive entrant work given current battery prices, gas prices, carbon prices and technology. (See below)<br /> <br /> The future of cars will not only be ruled by gas prices but carbon prices too<br /> <br /> So where does this leave Tesla's future and when can they expand into the larger passenger car market? Let's think about what happened to the electric cars of the 70s. There was one driving force that was pushing a market for electric cars in the 70s and that was the high price of gas. But when gas came down, no one cared about electric cars and so time still ticks waiting for a successful entrant. This electric car revolution was in a way dependent on a single factor and that was the price of oil. Today we have two issues. One is the same issue again from the 70s, the price of gas (which now happens to be quite low). The other is the production of green house gases. The later is something we cannot run away as easily or as quickly from with simple price control. As governments begin to regulate carbon output, and carbon output costs money in addition to gas, there will be a true demand for greentech, not just a trend. In the mean time, people will not pay more for an inconvenience. <br /> Much in the way that wealthier green conscious individuals may be willing to pay more for the option to switch to identical wind power coming to their homes, these individuals will also spend more for good green technology because their drive is for cleaner technology, not necessarily cheaper technology. However, no one wants to compromise. Look at how Lexus has tackled the green market. Lexus's hybrid cars are also the highest performance cars that they sell. Why? Because it's been internalized that green means compromise, and what better way to say that this isn't true than to make the greenest cars the flagship cars. You can be green, but also not have to sacrifice. Tesla knows that green alone cannot mean compromise for its survival in a $2/gallon world. <br /> <br /> OK, so what's the problem?<br /> <br /> Starting a car company in this day and age is no simple feat. Even with the big three in shambles, this is a heavily fortified hill and you better have a seriously disruptive technology if you're coming to play in this market. I think Tesla has a good technology and has been smart not to directly attack this hill. So what's not working? Is Tesla a case of a spoiled startup? Poor management? A failed business model? I would say yes to the first two points, but I think we are working with a legitimate business model here. Take a high end, high performance car, use it to break into the all-electric car market, and then expand into the mainstream market when oil prices and/or political policies make it a legitimate endeavor. <br /> So there are certainly downfalls and huge risks to Tesla's technology, but there are also huge advantages that will be solved with the right management and I think that's the real issue here. If anyone is familiar with MIPS Computer, this was a company with a technology (R.I.S.C. microchips) that was in many ways far and away superior to any competition in the market. Too much money and poor management drove it to the brink of collapse. It took an excellent CEO (Robert Miller), proper management and focus to get this great technology back on track. I believe the same thing is true here. Tesla has some serious issues and people that comment on this fact are right. Huge risks? Absolutely. Huge potential to be an early entrant into the all-electric market and be a bridge into the mainstream passenger car market? Definitely. Even if Tesla only captures a small portion of the market with the roadster, it's an important foot in the door. <br /> To say that electric car movement is far overdue is true, but in many ways not true. This is akin to saying that supersonic commercial flight should be a reality since the Concorde was first launched in 1969 (but was retired in 2003). Sometimes great ideas that are possible are still way ahead of their time and are just not cost feasible given cheaper alternatives. As long as fuel prices remain low and regulations don't mandate carbon reduction, I'm not certain that there will be a true mainstream market unless a breakthrough in battery technology (read "revolution") comes about. This is why I think appealing to the niche green high-end market is appropriate. If (when) gas goes up to $6/ gallon or policies mandate, this will lead to an effort to enter the mainstream market. Who better to lead the way than those that pioneered the early adopter technology with initial entries into the market and those who are consequently poised to strike? Again, others are right about many of Tesla's issues, but I think that this would be a very different company with proper management. <br /> << Less