Tesla's new sedan will make or break the company (Update)

Jun 21, 2012 by DEE-ANN DURBIN
In this Oct. 27, 2010, file photo, the new Tesla Model S electric sedan is shown during the unveiling of the new Tesla factory in Fremont, Calif. Tesla Motors, which has lost nearly $1 billion selling high-end electric sports cars to the likes of George Clooney will offer its first mass-market, five-seat sedan Friday, June 22, 2012. (AP Photo/Paul Sakuma, File)

It's a make or break moment for electric car maker Tesla Motors.

Tesla has lost nearly $1 billion selling high-end electric sports cars to the likes of George Clooney. Now it's going to attempt to sell them to the rest of us — and try to make money doing so.

The company's first mass-market, five-seat sedan will be delivered Friday. The car, called the Model S, will either propel the company to profitability or leave it sputtering on the fumes of a $465 million government loan.

"The Model S is the going to be the first true mass market product experiment for Tesla, one they cannot afford to fail," says Jesse Toprak, vice president of market intelligence at car buying site TrueCar.com.

Tesla, the brainchild of PayPal billionaire and SpaceX founder Elon Musk, has always been a moon shot. Analysts and auto industry insiders scoffed at the idea that a new car company could be created from scratch and built in a high-cost state like California. Boardroom turmoil and a string of technical problems repeatedly delayed the launch of the company's only car, the $109,000 two-seat Tesla Roadster.

Tesla survived by creating something so unique that the price tag was almost irrelevant: A beautiful car that could tear up a race track without burning a single drop of gasoline. Celebrities flocked to it, giving Tesla a cache that an established brand like Cadillac could only dream of.

Now Tesla must do something much more difficult. It has to convince more traditional car customers to buy an expensive vehicle with limited range from a small, untested company.

The Model S carries a starting price of $49,900 after a federal tax credit — about the same as a Lexus RX hybrid crossover. Models top out at $101,550, or about the same as a hybrid Fisker Karma sports car.

A car that's half the price of the Roadster lets Tesla break into a bigger market, but those customers will take a hard look at the value they are getting. This isn't a trophy car to park on Rodeo Drive. It's a sedan for hauling kids and groceries.

The high price will limit sales, says Rebecca Lindland, an analyst with IHS Automotive. She doubts Tesla will reach its goal of selling 20,000 Model S sedans in 2013. Nissan has sold just under 30,000 all-electric Nissan Leaf sedans since they went on sale at the end of 2010. But the Leaf is little more than half the price of a Model S.

Still, the Model S already has broader appeal than the Roadster. Tesla says more than 10,000 people have put down a refundable deposit for the sedan, and it expects to sell 5,000 this year. The Roadster has sold just 2,150 since 2008

In this May 25, 2011 file photo, people look at a Tesla Motors electric car vehicle at a showroom in San Jose, Calif. Tesla Motors, which has lost nearly $1 billion selling high-end electric sports cars to the likes of George Clooney will offer its first mass-market, five-seat sedan Friday, June 22, 2012. (AP Photo/Paul Sakuma, file)

The first sedans will be delivered to customers Friday at Tesla's factory in Fremont, California, a plant the company bought for $42 million in 2010 from its former operators, General Motors Co. and Toyota Motor Corp. Tesla will host 12 test drives around the country this summer for reservation holders.

Tesla didn't make executives available for interviews ahead of Friday's event. But at the company's annual meeting this month, Musk said he's "highly confident" that Tesla will meet its goals. That includes making a profit in 2013.

Even if buyers take a chance on Tesla, the risks don't end there. A charging network doesn't exist in the U.S., and electric-car owners can run out of power between stops. There's no gasoline engine that kicks in as a backup, as there is in the electric Chevrolet Volt.

Tesla is trying to ease worries about range by throwing in a charger with three kinds of adapters that can be used at home or at public charging stations. It's also planning a network of fast chargers at highway exits. Buyers can upgrade to a battery with an industry-best 300 miles (483 kilometers) of range. The base model can go for 160 miles (257 kilometers) on one charge.

The company's retail strategy is also untested. Its 14 U.S. stores have a tiny presence compared with Lexus' 230. When Roadsters need repairs, Tesla deploys technicians to the owners' house. It will be far more expensive to do that if Tesla sells as many Model S sedans as it hopes. The company's plans for servicing the cars are hazy. Musk said recently that Tesla simply wants to make cars that don't need servicing.

"We want every aspect of that car to be as perfect as possible," he said.

For investors, the Model S will test whether the company is built for endurance or a quick test drive. So far, the company's glamorous founder and its sculpture-like cars have generated enough buzz to keep the stock hot. Its price has nearly doubled from its initial public offering level of $17 a share two years ago.

Tesla's current stock price of $32 assumes achievements the company has yet to accomplish, says Carter Driscoll, who researches clean energy companies for Capstone Investments. The company has lost $759 million since it was founded in 2003 and has never made a profit. It survives, in part, on its loan from the U.S. Department of Energy. It also sells electric drive systems to Toyota and Daimler AG.

"It's sexy," says Driscoll. "People want to believe in it. But there are so many what ifs, ands or buts."

But if you're a believer, all you have to do is point out Musk's latest accomplishment: Last month, his SpaceX venture became the first private company to send a cargo rocket to the International Space station.

Moon shots can work.

Features of Tesla Motors' Model S electric car

Electric car maker Tesla Motors will deliver its first Model S sedans to customers on Friday. Here's a rundown of the car's features:

POWER SOURCE: One of three batteries, no backup gas engine.

RANGE: 160, 230 or 300 miles (257, 370, 480 kilometers) depending on battery.

CHARGING: Each car comes with a charger plus adapters for a 110-volt standard household outlet, a 240-volt outlet and a public charging station.

EFFICIENCY: Rated at 89 miles per gallon (2.6 liters per 100 kilometers). That figure is reached by estimating the distance the car can travel on the energy contained in a gallon of gas.

PASSENGERS: Seats five. For $1,500 extra, buyers can bring the capacity to seven with child-sized, rear-facing jump seats for the cargo area.

CARGO SPACE: 66 cubic feet (1.87 cubic meters) of storage space with the standard rear seats folded flat. 8.1-cubic-foot compartment under the hood.

DASHBOARD: 17-inch (43-centimeter) touchscreen replaces knobs and dials.

CONNECTIVITY: The vehicle offers wi-fi and two USB ports for plugging in devices.

OPTIONS: Buyers can add an all-glass panoramic roof, turn-by-turn navigation and a backup camera.

FACTORY: Made in Fremont, California.

PRICE: Model S starts at $49,900 in the U.S. after a $7,500 federal tax credit. The high-end Signature Performance version starts at $97,900.

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TS1
4.6 / 5 (11) Jun 21, 2012
I do not see a problem with the range on the standard battery version. 160 miles is enough to take me to work and back (and then some short shopping after work) for 2 days of the week. Then I can just charge it at home every night. The only problem would probably be if I ever forget to charge.

But not having to worry about oil changes, coolant, and transmission fluid all contribute to a small but positive impact not just for my time and wallet but also for the environment.
rubberman
3.5 / 5 (11) Jun 21, 2012
I do not see a problem with the range on the standard battery version. 160 miles is enough to take me to work and back (and then some short shopping after work) for 2 days of the week. Then I can just charge it at home every night. The only problem would probably be if I ever forget to charge

But not having to worry about oil changes, coolant, and transmission fluid all contribute to a small but positive impact not just for my time and wallet but also for the environment.


Well said!
I really hope these guys can make a recovery, a foothold in this market would make the future pretty bright for this company, and it's customers.
Alcedine
not rated yet Jun 21, 2012
I guess representing confidence is obligatory, if you're the front guy in something like this. I hope Tesla comes out on top; electric cars have to happen at some point, and I wouldn't mind seeing these guys carry the flag. It would certainly spur on the development of battery technology (and conversely, if it fizzles, the same techs will be chilled considerably).
Noumenon
1.7 / 5 (30) Jun 21, 2012
The government has a terrible track record in investing tax payers money, especially into the non-existent "green" industry.

Timing is everything, but the government doesn't respect tax payers money, so it gambles it away. The private sector has intrinsic respect for money to motivate a superior judgement.

The problem here is the price, $50,000 for the basic model. The masses are not going to buy an electric in which it takes two decades to see a savings for not having to buy gasoline, where savings = gas - electric cost.
Noumenon
1.7 / 5 (28) Jun 21, 2012
,.... actually, -savings = gas - (electric cost plus battery replacement cost)
hemitite
3.3 / 5 (7) Jun 21, 2012
And in the all electric future, a lot of folks may be left stranded if there is a major electrical outage, particularly if the utility guys tried to save their bacon by using the "smart grid" to suck the juice out of all those charging car batteries.
Noumenon
1.6 / 5 (26) Jun 21, 2012
...a lot of folks may be left stranded if there is a major electrical outage...


They can always use a generator,LOL.
Shabs42
3.3 / 5 (3) Jun 21, 2012
Average cost of electricity in US is 11.76 cents per KWH
Average cost of gasoline is $4.07 per gallon
Tesla Model S uses 300 WH per mile.
Not counting road trips, I average 10,000 miles per year at 25 mpg.
Tesla says the battery will retain 70% charge after 7 years.

7 years of owning a car = 2800 gallons = $11396
7 years of owning a Tesla = 21000 KWH = $2470
Savings = $~9,000 and savings from gas prices likely rising quicker than electricity prices and no oil changes - energy lost due to battery leakage or any vampire energy

Convenient, because if Tesla is able to find some success, I think about five to seven years from now would be about the right time to really buy one of these. By then batteries should be lighter, cheaper, more efficient, and more reliable.

We're looking at buying a car next summer, I'll have to try and convince my wife it's worth it. This would be the first really significant purchase I make to support a company, not just get the best possible deal for myself
Shabs42
not rated yet Jun 21, 2012
Also, Tesla reports being able to get 62 miles in one hour of charging. That is no doubt with it's dual charging system that will be a fairly expensive add-on, but even 31 miles per hour isn't bad. If you live close to work it shouldn't make you more than an hour late.

Also, road side charging stations could charge 160 miles in 30 minutes if installed. That's another big if, and I don't know if their batteries get significantly worse performance going 70-75 mph. I'd like to see those numbers at about 200-250 miles in 15-20 minutes before really considering a road trip.
Yelmurc
1 / 5 (2) Jun 22, 2012
"The high price will limit sales, says Rebecca Lindland, an analyst with IHS Automotive. She doubts Tesla will reach its goal of selling 20,000 Model S sedans in 2013"

I can see there point that it will limit sales but this analysts really needs to do their homework.
Currently Tesla has over 10,000 reservations. If 5000 of those get delivered in 2012 they are already 25% toward their 2013 goal of 20,000. The rate in which the reservations for the model S are accelerating. Last quarter it was 1800 the previous quarter it was 1500. With 7 quarters between now and the end of 2013 I'm counting 7 since the 2nd quarter has not been reported yet Tesla needs to average 2150 reservations or sales a quarter. That seems very doable to me. Especially since they car hasn't been available to test drive yet.
Jeddy_Mctedder
1 / 5 (6) Jun 22, 2012
this is going to be as big of a flop as groupon. whose price is rapidly heading to zero.

electric bicycles are where electric vehicles are successful. simple reason, battery packs are small.
Maat
2.3 / 5 (6) Jun 22, 2012
I like the look of their cars, they should make versions with gasoline engines... > 250hp v6 engines...
packrat
1 / 5 (4) Jun 22, 2012
this is going to be as big of a flop as groupon. whose price is rapidly heading to zero.

electric bicycles are where electric vehicles are successful. simple reason, battery packs are small.


I agree! What I don't understand is why these people can't seem to figure out that they should be trying to sell a decent small city car that's much cheaper to buy , that looks like a car and not like an overbuilt golf cart. A 75 mile range, seating 4 people and using lead acid batteries. It would work out just fine for most people.

We have to get enough ecars on the road and infrastructure for them before the high priced luxury models will really start selling. That infrastructure will have to be done in cities first.

Electric bikes are a good idea too. I've had 4 over the years and they are the cheapest transportation around for local trips less than 10 miles.
hemitite
1 / 5 (1) Jun 22, 2012
When adding up the savings, don't forget to subtract the cost of a replacement battery.

Battery technology is the key to the success of this technology: lower cost greater energy density quick charge time will equal greater popularity.

Also if solar cells or some other home based technology could be used for charging those batteries, that too would lead to more sales of these cars.
dschlink
3 / 5 (2) Jun 22, 2012
The author doesn't have much of a grasp of capital investment or numbers in general. $759 million isn't "almost a billion". Also, that figure includes the development of the Model S, the Model X and the conversion of the assembly plant. Hardly a loss "selling high-end electric sports cars".
xX_GT_Xx
not rated yet Jun 22, 2012
Timing is everything, but the government doesn't respect tax payers money, so it gambles it away. The private sector has intrinsic respect for money to motivate a superior judgement.


LOL. It was the private sector that gambled itself into collapse just a few years ago. You do remember that? The government didn't do it.
The only thing that's going to hold back Tesla is their own committment. They're going to have to believe in their product and run a business like a business and not like a casino. Eventually they'll stand on their own like the internal combustion guys.
Whoops, no, they collapsed too. So much for superior judgement.
Noumenon
1 / 5 (20) Jun 23, 2012
It was the private sector that gambled itself into collapse just a few years ago. You do remember that? The government didn't do it.


False. The gov had a hand in pushing for sub-prime lending, to increase low income home ownership, lowering the standards for qualifying for loans. This is a fact. The gov had its hand on the throttle of regulations the entire time, so is directly responsible.

The gov is not responsible for the over whelming success of free market capitalism, ...occasional down-turns aside.

Eventually they'll stand on their own like the internal combustion guys.


Stand on their own, with government money?