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.