Is This the End of Tesla Motors?

It's an old PR truism that bad news gets released on Friday afternoons. People don't pay much attention to the news on Friday nights, the thinking goes, so announcements made late in the day on Fridays tend to fade away quietly.

Some of us tend to pay attention to the business news on Friday afternoons for just that reason -- looking for bad-news stories that folks might otherwise miss. But last Friday brought news of a different sort, courtesy of the folks at Nissan: A sketch of an upcoming all-electric luxury sedan, to be sold in the U.S. as an Infiniti starting in 2013.

You might think that doesn't qualify as bad news -- and from Nissan's perspective, I'm sure it doesn't.

But the folks at Tesla Motors (Nasdaq: TSLA  ) might feel a bit differently.

You thought the competition would be sleeping?
Every week, it seems, brings new details on upcoming electric and hybrid cars from nearly all of the major global manufacturers. While there aren't any mass-market electric vehicles available here yet, that's about to change: Nissan's Leaf will begin showing up here late this year; Ford (NYSE: F  ) will be launching an electric version of the upcoming new Focus sometime next year; and Toyota (NYSE: TM  ) , Volkswagen, Honda (NYSE: HMC  ) , and just about everybody else has announced that they'll have EVs at U.S. dealerships within three or four years.

So far, though, most of the electric vehicles announced by manufacturers have been either compact cars like the Leaf, or small commercial vehicles like Ford's Transit Connect van. While Tesla has said that they plan to move into the sub-$35,000 market in time, their upcoming Model S -- the car that the company expects to carry them to profitability -- is being positioned as a luxury model, with a price tag starting around $50,000 (and an array of expensive options that can add significantly to that number).

The Model S is currently scheduled to begin production in 2012, according to Tesla. With a 160-mile range in the base model -- the battery pack can be upgraded, at a price, to one with a claimed 300-mile range -- it'll have a sizable range advantage over the first Leafs, at least on paper, plenty for most commuters.

But the news of this upcoming Infiniti raises the big question: Will those commuters choose to buy a Tesla over a roughly similar product from an established carmaker?

A real competitor
Nissan hasn't released much in the way of details on the Infiniti yet, but we can make a few assumptions. We know that it'll hold five passengers, that it's being described as "high performance," and that the impressionistic, airbrushed-looking sketch shows a swoopy sedan with a nose somewhat reminiscent of recent Audis.

It seems reasonable to assume that it'll offer an upgrade over the Leaf in terms of both size and range, making it more closely comparable to the Model S. I think it's certainly reasonable to assume that it'll be competitive on price -- maybe very competitive. And it's coming in 2013 -- after the scheduled launch of the Model S, but not long after.

What's more, I doubt the Infiniti will be the only electric car aimed at the Model S's intended market once 2013 rolls around. Will you be surprised if the next few months bring news of an upcoming EV from Lexus, or Lincoln, or Audi, with five-passenger capacity, a 150ish-mile range, a full array of high-tech luxury trimmings, and a price around $60,000?

I'll be surprised if they don't. It's the natural next step in this market. Will Tesla's offering be competitive -- in terms of quality, price, reliability, and public acceptance?

I'm skeptical.

This is the problem with Tesla
I've thought for a while that the big problem with Tesla boils down to this: It's hard to build competitive cars at a competitive price. The auto business, particularly in developed countries, is absolutely brutal -- quality expectations are extremely high, margins are thin, and competition for every sale is fierce.

Tesla's pre-IPO road show and things said by CEO Elon Musk and some of the company's investors suggest that the company grossly, almost laughably underestimated the challenges facing them -- as if locating Tesla in Silicon Valley was enough to ensure that they'd outsmart the best minds in Detroit and Japan. Never mind that all of the major players have budgets and resources that dwarf anything available to Tesla.

And that's why I've been skeptical that the company will be able to compete once the big names start aiming at them. Yes, some of those big names -- Daimler and Toyota -- have invested in Tesla. And Toyota looks to at least be experimenting with Tesla power trains in a few of its vehicles, and has said that it will show a Tesla-powered SUV sometime this winter.

It's possible that that's the real way forward for Tesla -- as a provider of technology and power trains to a company like Toyota, rather than as a full-on mass-market automaker. But does Tesla's power-train technology really provide an edge over whatever Toyota has brewed up on its own?

That would surprise me. If Toyota actually decides to bring a Tesla-powered model to market, we'll have to start taking them seriously. But as of right now, I'll believe it when I see it.

Fool contributor John Rosevear owns shares of Ford, which is a Motley Fool Stock Advisor selection. You can try Stock Advisor or any of our Foolish newsletter services free for 30 days, with no obligation.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.


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  • Report this Comment On September 29, 2010, at 10:23 PM, liveoilfree wrote:

    Another STUPID article. Tesla is working with Toyota, which has produced the best EV ever made, the NiMH Toyota RAV4-EV.

    Whatever the direction of Electric cars, Tesla/Toyota can't be topped.

  • Report this Comment On September 30, 2010, at 1:21 AM, mrfixit123 wrote:

    I agree the article is silly, particularly " laughably underestimated the challenges facing them" and "quality expectations are extremely high, margins are thin, and competition for every sale is fierce". Apple , Jet Blue, Google, Netflix, Walmart, Salesforce.com, the list goes on and on and on. The auto industry like every other industry is easily profitable. The reason margins are razor thin is simple: 1. The auto industry is made up of overbloated dinosaurs with totally inefficient operations and old people who have no business selling or making cars. 2. They are mostly unintelligent and brainless. Engineers smart? What a joke. Most design engineers have neither taste, nor talent, nor common sense. Auto industry workers and engineers are largely talentless, mindless, useless drones and management just exists to suck every penny out of the worthless companies they manage and keep things status quo. 3. Competitive? How many cars do you see on the road that are actually worth buying? German and Japanese car designs have been awful since 1995. German car reliability is laughable across the board. Japanese cars are lax to innovate anything since 1997. What innovation or competition are you talking about here seriously? Competition for sales is fierce because there is nothing good to choose from. Apple has ONE phone yet it is so vastly superior to almost every phone on the market. Why? Good products have no competition. If Tesla succeeds it is precisely because the product is vastly superior, and innovative. They are smart, lean and mean and actually have a real culture. The End.

  • Report this Comment On September 30, 2010, at 7:15 AM, GeoMetric wrote:

    Anothing article lacking facts and information on Tesla and the status of the EV industry. You guys must realize no matter how many lies and misinformation you post, Tesla is tied to the hip of Toyota, and has the backing of Silicon Valley. That a win-win mixture!

  • Report this Comment On September 30, 2010, at 8:12 AM, nickolassc wrote:

    TSLA is doomed and people investing in it are investing in pets.com all over again. The CEO is going through a brutal divorce, the company has never once turned a quarterly profit and probably won't (the ipo was a last gasp to raise funds to keep the company afloat), the NUMMI plant has environmental issues, I could go on about how the shares are going to drop in value soon (see the S-1/a on the SEC's website and read through it carefully.

    There are no financial reasons to put your money into this company, it's all hope and dreams and from what I've seen, most of the people who are investing in it are the types who know little about investing or the car industry, but think "green" and electric cars are the future. To them I give a big Nelson "Ha-Ha."

  • Report this Comment On September 30, 2010, at 3:00 PM, TMFMarlowe wrote:

    @mrfixit123, that's exactly the attitude I was talking about. Might I respectfully suggest that if you're going to invest in an auto company, you learn a bit more about the auto business? "The auto industry is brainless" doesn't really qualify as due diligence.

    @GeoMetric: I'd love to believe Tesla has a chance -- I mean that sincerely -- but laptop batteries and an attitude don't seem to me to have much chance against OEM R&D budgets and global economies of scale. I'm sure they'll sell some Model Ss to well-heeled true believers, assuming they really do get the car to market on schedule, but I don't see them getting enough mass-market penetration to be profitable when the big-name alternatives are about to be everywhere, and come with some assurances that Tesla just can't offer. Tell me why I'm wrong.

    @nikolassc: I think EVs (and hybrids) are the future. I just think they'll come from companies like Nissan and Ford and the other big global names -- the companies that have the supplier relationships, global economies of scale, dealer networks, and experienced people that one needs to design, build, and sell cars in volume at a profit.

    John Rosevear

  • Report this Comment On September 30, 2010, at 4:15 PM, baldheadeddork wrote:

    John, the crazy thing is - mrfixit123's attitude isn't that different from Elton Musk's.

    I don't think it's even going to be about Tesla's electronics versus the established industry. They have to figure out how to build a dashboard that doesn't sound like the bed springs in a college dorm when you drive over a manhole. And design a unibody that is light enough to give them the 150 miles of range they promise, without tying itself like a pretzel when you hit a curb or take a corner at speed.

    If that sounds easy, you don't know enough to understand all the forces and how they work on a car at speed. Musk has made it clear he doesn't. They don't even know the questions they should be asking, and that never ends well.

    The end of Tesla was the arrogance and conceit they had from the beginning.

  • Report this Comment On September 30, 2010, at 5:42 PM, TMFMarlowe wrote:

    @baldheadeddork: Yes, exactly. They need, for starters, to learn how to do all the stuff Lotus was doing for them with the Roadster. And they aren't going to learn it with the "Detroit is stupid" attitude, and I'm betting Toyota isn't prepared to tutor them from scratch... assuming they'd even listen.

    John

  • Report this Comment On September 30, 2010, at 7:50 PM, danallen46 wrote:

    Too many manufacturers promise a car in 0 to n years and never deliver. Audi was supposed to bring a diesel A4 to the US by now. Mercedes was supposed to make a diesel electric hybrid by now. Don't believe the hype... only shipping products really count.

  • Report this Comment On October 01, 2010, at 8:13 AM, nickolassc wrote:

    Hi John, I feel that electric cars are not worthwhile with current costs, electrical storage technology and charging times, as well as the dangers of sitting on a huge mass of potential energy. a single laptop battery has the energy of a hand grenade, I wouldn't be too thrilled about sitting on several thousand of them. A few wrecks and deaths in electric cars will be enough to spook the public out of them, if not the long charge times and cold weather performance degredation. The environmental impact of electric cars charged off of coal-fired electricity makes electric cars a wash compared to gasoline vehicles as well (40% of our electricity comes from coal, the number one source of radioactive element and mercury pollution)

    I feel that a lot of idealists, the same type of people who promoted ethanol use, are doing the auto industry a huge dis-service by pushing for electric cars. Here in the United States, we have glut of natural gas excess, natural gas burns clean, is cheap, and very convenient as little modification is needed to run a combustion vehicle off it of. I feel natural gas should be the next logical step in our fuel choices.

    Ultimately, we need to go to hydrogen fuel cells that run electric motors, for example the Honda FCX clarity. Researchers at Purdue are working to bring down the cost of hydrogen storage and the use of the expensive platinum catalysts in the fuel cells by using ammonia based solid storage fuel cells. Hydrogen is made from natural gas by companies like Exxon, however, it can also be made from solar electrolysis from water, which means a hydrogen vehicle will have zero environmental impact as ultimately, it's power came from the sun and it will emit only water vapor.

    Unfortunately, you may be right as EVs being the future. As always, the ignorance of consumer demand, shaped by government regulations, will determine the future as opposed to the superior product, much like how we are stuck on coal fired power instead of thorium based nuclear reactors.

  • Report this Comment On October 01, 2010, at 1:52 PM, jaketen2001 wrote:

    Every once in a while, intelligence, engineering, and boldness will win out over money. How can Tesla compete? What about GM's Volt? It took a lot of money to design that? The Volt is DOA. I believe in Musk. It is only a shame that billions were burned on GM (and only a few hundred million on Tesla). Tesla will use its TARP money to manufacture electric vehicles. GM will use its to cover legacy pension costs, bail out bondholders, and pay its executives.

    Bottom Line: Tesla has sold cars, and is partnering with Toyota. Go ahead, believe in Ford and GM if you want to. They are all yours.

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