Hard ride: Tesla's Roadster.
Credit: Tesla
Energy
Can Tesla Survive?
As major automakers turn their attention to electric cars, the company faces serious challenges.
- Thursday, February 16, 2012
- By Kevin Bullis
The year 2012 will be an important one for Tesla Motors. Amid growing competition from established automakers, Tesla plans to sell a new Model S luxury sedan in July, and to supply Toyota with batteries, motors, and control systems for a new electric RAV4 SUV. Yesterday it announced a similar deal with Daimler for a new electric Mercedes-Benz. The success of these efforts could determine whether the company survives long-term—and what it might look like if it does.
Even if Tesla can't succeed as an independent automaker, it could still be acquired by a bigger company, or live on as a supplier to major automakers.
Tesla is best known for its electric sports car, the Roadster. But from its early days, the company has hoped to move beyond the Roadster to lower-priced electric vehicles sold in much higher volumes. Earlier this week, Tesla revealed a luxury electric SUV, the Model X, which it plans to sell starting in 2013.
But the automotive industry has changed dramatically since Tesla was founded in 2003. At the time, changes to a California mandate that had required carmakers to make electric cars had just led GM to cancel the electric EV1, and Toyota to cancel the original electric RAV4. By and large, Tesla had the electric vehicle market to itself, its only competition coming from a handful of other small electric car companies.
Now, GM, Nissan, and others are selling electric vehicles in numbers that after one year far exceed the total production of the EV1. In fact, every major automaker has announced plans to sell electric cars of some type. Furthermore, vehicles from companies including BMW and Mercedes will compete directly with Tesla in the market for high-performance or luxury electric vehicles.
In its earnings report this week, Tesla said it expects to triple its revenue this year, in large part from sales of the Model S and components for the RAV4. But it doesn't expect to be profitable until it starts selling its Model S in high volume next year. Tesla's business plan calls for the production of 20,000 Model S sedans per year, but selling that many cars could prove difficult. Aaron Bragman, a senior automotive analyst for IHS, compares the Model S, which will sell for between $50,000 and $98,000, to the Porsche Panamera, a four-door sports car with similar acceleration that has a base price of $75,000. It's not a perfect comparison—the Model S is bigger and seats more people—but it's close, he says, and Porsche sells only about 7,000 Panameras a year. And Porsche has far more dealers and is a better-known brand than Tesla. "The big question is, how will Tesla convince people en masse to give up their established brands and take a chance on them? It's a difficult sell," he says.
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yotab
56 Comments
- 457 Days Ago
- 02/16/2012
Signed a new Agreement with Diamler
Tesla has just signed a new agreement with Diamler to provide them with Battery packs and Power-trains. They have sold out with 8,000
Model S bookings for 2012, and in 1 day received $40 Million worth of Model X Sales. Lots of 40-50K plus vehicles are sold every year, heck even some Minivans go for that much so I don't think Tesla will have any issues surviving.
A lot of folks who swore off EVs have been swayed by the Model X and are now showing interest in the brand.
Good point on the ease of manufacturing, instead of building a thousand different engine parts, you only have a battery pack and twin electric motors, the rest if just a bunch of electronics and that is cheap stuff, motor controllers, processors etc which are extremely reliable.
Spicoli
166 Comments
- 457 Days Ago
- 02/16/2012
Re: Signed a new Agreement with Diamler
Just look at the financials. Their net losses are greater than their total revenue. That might be okay for a startup, but this is a 9 year old company. At some point investors are going to give up and there won't be new money to dump into the hole.
eugah
1 Comment
- 457 Days Ago
- 02/16/2012
Re: Signed a new Agreement with Diamler
7 years of ramp up to profitability for a company creating an entirely new niche in the industrial manufacturing space does not strike me as too long.
The stock market doesn't think so. TSLA share price is back to it IPO level.
Spicoli
166 Comments
- 457 Days Ago
- 02/16/2012
Re: Signed a new Agreement with Diamler
7 years? It's been 9 years and they're still not even close to breaking even. They're spending all their revenue twice over. The primary value appears to be some drive train component patents and not niche vehicles.
Spicoli
166 Comments
- 457 Days Ago
- 02/16/2012
They've only managed to lose huge amounts of money over the life of the company, so I don't think competition is the problem. I'm not even sure what they offer if they put it up for sale. I guess they have a few patents someone might want.
agedthinker
1 Comment
- 457 Days Ago
- 02/16/2012
Tesla will survive if it does the things a corporate needs to to survive. It has to focus on its niche and work to establish it in true ernest. www.sci-burr.com has seen plenty companies come and go but the survivors go on to conquer.
Spicoli
166 Comments
- 457 Days Ago
- 02/16/2012
I think it's the opposite. They need to unfocus on the niche and start making things people want to buy. You can keep the vehicles for marketing but focus on boring but profitable products.
aunderdown
78 Comments
- 457 Days Ago
- 02/16/2012
Multiple Survival Possibilities
Tesla began its electric vehicle development at a time when the major automakers saw their opportunities elsewhere. Now that the electric vehicle market looks promising, Tesla should be able to reap the rewards of its foresight and perseverance. Well, at least we hope so. What were the names of those pioneering personal computer companies ... Altair, Commodore? Hopefully Tesla will be nimble enough to position itself to catch the electric vehicle wave coming toward the auto industry; and keep its balance.
As the article suggests, long-term survival as a stand-alone company may be unrealistc. But there are several scenarios in which Tesla survives through association with one or more of the larger automobile companies. Outright acquisition is one of them. Joint ventures and strategic partnerships are also possible. Tesla could supply components or subsystems, license its technology, develop and supply new technology under contract, etc. Rather than outright acquisition, a major automaker could take a significant equity stake in Tesla as part of a joint strategy.
The established auto makers have mega-marketing and manufacturing/assembly muscle so it's an inefficient use of investor funds for Tesla to build its own capabilities for these functions.
I also think the Tesla brand has real value. It resonates well with high-end buyers and technophiles. It doesn't have to go head-to-head with established automobile brands; since it could, as the article suggests, become a product line of a major company. Also, the Tesla brand could be used on Tesla-supplied components in other automakers' vehicles, communicating to customers that they are buying cutting edge technology.
oldschooljohn
1 Comment
- 457 Days Ago
- 02/16/2012
How can they expect to sell 20,000 vehicles per year at a price point that Porsche can only sell 7,000? Teslas brand equity is almost non existent in comparison.
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devassocx
112 Comments
Tesla can survive
as long as Elon Musk has money to fund it.
As far as ever being profitable, I think that is
a very tough call.
Reply
R Sweeney
72 Comments
Re: Tesla can survive
Surely we can steal another 1/2 billion from our children to prop up this rich boy toy producer.
Reply