Has Elon Musk Finally Gone Too Far?

Tesla Motors (NASDAQ: TSLA  ) CEO Elon Musk had plenty of interesting things to say this week. He wowed Tesla owners by announcing that the company was tripling the number of Supercharger stations, offering drivers free Tesla battery charging options in more locations. He also teased that more details would be forthcoming on his "hyperloop" project that would help transport people faster and cheaper than bullet trains or planes.

However, the one comment that truly turned heads was Musk's forecast -- at both the AllThingsD conference and later on CNBC -- that Tesla will put out a sedan in three to four years that costs half as much as today's Model S.

Tesla now commands an $11 billion market cap after seeing its stock nearly triple in three months. That valuation doesn't seem sustainable for a company putting out a niche car with a $70,000 price tag. For Tesla to go mainstream, it needs to tackle the "range anxiety" fears -- and it's addressing that in part through the Supercharger expansion -- and lower prices.

The original Tesla Roadster cost twice as much as the Model S. Why wouldn't the next car -- outside of next year's Model X, which will run at comparable pricing to the current Model S -- go for half as much?

This could be Tesla's defining moment. Right now, Tesla's Model S is a lot like Apple's (NASDAQ: AAPL  ) original iPhone. The consumer-tech giant's first smartphone turned heads in 2007 as the class act in a new product category. However, the $600 price tag was too much for most potential buyers. It wasn't until the iPhone was available for as little as $200 through a subsidized wireless contract a year later that it truly took off. Even that doesn't seem to be enough sometimes, and half of the iPhones selling these days are the older models that retail for $100 and even $200 less with a two-year contract. Even now there's pressure on Apple to put out an even cheaper device so it can cash in on overseas markets, where carriers can't afford to be as generous with the subsidizing.

In any event, Tesla's cool now at $70,000 per car, but it could become ubiquitous come 2016 at $35,000.

However, Tesla has a bigger challenge here than Apple. There are two big questions it will have to tackle on the road to rolling out a half-priced car:

  • Will Tesla's prestige diminish with mainstream-priced cars on the market?
  • Will potential Model S buyers now hold off on new purchases until they see the new car?

The prestige issue may not seem like such a big deal. Most luxury-auto makers have entry-level lines these days. They have clearly faced Tesla's decision to go for a larger target audience, and it's one that can ultimately result in hundreds of thousands of cars sold, a year as opposed to tens of thousands of cars sold annually now. The trade-off is worth it.

The bigger concern may be that folks hold back. Apple deliberately didn't telegraph its price cuts ahead of time. Even rolling out new products at the same price points can dry up demand for the current model. The problem is also magnified when you go from hundreds of dollars saved by waiting on Apple to tens of thousands of dollars that may be saved by waiting on Tesla.

Thankfully, this isn't much of a problem at Tesla these days. It's coming off a blowout quarter in which it stunned investors with a profitable showing. Orders are coming in faster than Tesla can produce the cars.

This is still a brazen strategy, but it's hard to question Musk these days, when Tesla shares are making "hyperloop" gains.

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  • Report this Comment On June 01, 2013, at 10:48 AM, sabebrush6 wrote:

    Go Tesla ! Elon has done a great job and there are those who are not happy about it.

    Good job.

  • Report this Comment On June 01, 2013, at 10:50 AM, ckgod wrote:

    The argument makes absolutely no sense to me. Did $35K C300 ever prevent people from purchasing $100K S550 or even $150K S67 AMG? These are not the same cars even they came from the same brand.

  • Report this Comment On June 01, 2013, at 10:51 AM, borlock wrote:

    Wow...

    Ok, perhaps I should not reprimand your for coming late to the party and congratulate you for showing up at all!

    This "breaking news" from AllThingsD was first announced in part in 2006, with details emerging piece by piece over the last 7 years.

    Even Tesla store employees would talk to you about it over the last year. (It's called the Gen III).

    It's progress has also been described in earnings releases over many years.

    Elon didn't say anything remotely new about it at AllThingsD. It won't affect sales of the Model S any more than it already has.

  • Report this Comment On June 01, 2013, at 10:51 AM, jswap1 wrote:

    Are you happy with your laptop's battery life? Now ask yourself how Tesla solves a problem that even the laptop manufacturers can't fix.

  • Report this Comment On June 01, 2013, at 11:19 AM, Pakirk53 wrote:

    There must be a hell of a lot of profit in this ecar vs traditional ones to be able to construct maintain address liability expenses with singlepurpose nation wide chargers and offer free pick up and loaner car services. How many Of you go go Tesla people currently own the car or are stock holders?.

  • Report this Comment On June 01, 2013, at 11:38 AM, MKArch wrote:

    Even the super charger takes 30 minutes. How many people you think are willing to wait 30 minutes to recharge when they could be on their way in a couple of minutes fueling up a regular car. This is assuming there's a super charger nearby when they run low. The cars also lose 40% of their range after 5 years.

    Tesla is surely benefitting from pent up demand from died in the wool Greenies and their first mover advantage but let's see how they do when they've saturated this market and have to appeal to more practical consumers.

  • Report this Comment On June 01, 2013, at 11:40 AM, FrozenCanuck wrote:

    @jswap - instead of asking theoretical questions, just look at ACTUAL real world results. They've built a car that has a 300 mile range. Happens to be on par with my 8-year old Lexus RX330.

    You're asking what sounds like "how will they solve ..." instead of asking "how HAVE they solved ..."

    @Rick (original author) ... Elon didn't say anything new about Gen III at AllThingsD. They've been talking about a half-price car for a very long time.

  • Report this Comment On June 01, 2013, at 11:43 AM, FrozenCanuck wrote:

    @MKArch - I think you're missing the bigger picture of what's happening here:

    1) Battery technology is improving at about 7% per year from what I've read. Where does that put range in 3-4 years? A lot higher. On par with a fairly efficient gas car's range.

    2) Supercharger technology has just been boosted by 30%, so you can add 150 miles of driving range in something like 20 minutes. What are the chances that they'll be able to improve this further?

    3) For the vast majority of trips (i.e. anything that is not long distance), charging time is effectively zero because you charge at home.

  • Report this Comment On June 01, 2013, at 11:53 AM, blando3 wrote:

    It's true that charge times and range are issues to be considered right now, but technology moves forward exponentially. Remember when hard drives were about 20GB? Now hard drives are 2000GB and RAM can be as large as 20GB.

    In the not-so-distant future, who's to say there won't be a 1000 mile battery with a 10 minute recharge time?

    Elon Musk is a forward thinking visionary, and those who don't believe in him will miss the boat. Hop on now!

  • Report this Comment On June 01, 2013, at 12:07 PM, MKArch wrote:

    I'm not an expert on battery technology or hard drives but in general I know the chip industry followed Moore's law by a steady process of shrinking parts to get more on less area. Assuming what worked for one product works for everything is dangerous particularly if you have money riding on it. I don't know what is behind the 7%/ year improvement F.C cites but I wouldn't be surprised if it was just a mix shift as more efficient batteries comprise more of the overall battery market. Even if it isn't I think it's a risky bet that battery technology can improve indefinitely. Like I said I'm not an expert but from what I can tell you have some chemicals and a casing. How much more room for improvement is there?

  • Report this Comment On June 01, 2013, at 12:18 PM, middlenamefrank wrote:

    Wow, really? What "giant competitors" do you see that are "moving to disrupt Tesla"? I don't see a single one. As far as I can tell, all of the "giant competitors" are digging themselves ever deeper into the sand, pretending the electric car market doesn't exist, or at least doesn't matter.

    You could make the argument that Tesla is over-capitalized, much like the dot-coms were fifteen years ago. But let's not forget that several giant companies got through that era and have become part of the modern landscape: Companies like Yahoo, Amazon, Ebay and Google. Tesla stands in a very good spot to duplicate their results.

  • Report this Comment On June 01, 2013, at 12:32 PM, NOTvuffett wrote:

    The champions of the electric vehicle movement are unwilling to acknowledge simple physics. Battery capacity diminishes over time. In a few years, the battery will probably be shot. Just exactly how much would your Tesla S be worth then? I own a couple of cars that are over 40 yrs old with no major problems.

  • Report this Comment On June 01, 2013, at 12:44 PM, peteroo wrote:

    Rick Munarriz. I am a fan of Tesla and Mr. Musk. A Gen III Tesla may have a base price of $35K, however, by the time you add all those wonderful options, the MSRP will likely be closer to $50K. The Gen III will likely be comparable to a similar MSRP BMW 3 Series or Audi A4 – not a Honda, Toyota, Chevy, or Ford.

    In my opinion, Tesla Motors is mirroring the BMW model. Building high quality, upper price range cars, offer lots of options, and compelling technology. Driving a Tesla ( I own a Model S ) is unlike any other car: smooth, quiet, quick, beautiful, plug and play, and the 17” infotainment is a joy. The Tesla ‘unfair advantage’ comes from not being a traditional ICE manufacturer. Another clear advantage of a Tesla is comparing the cost of a tank of gasoline ($75) to recharging at night ($15).

    “The EV evolution” has only begun, the infrastructure is in its’ infancy. There will be many more Supercharging stations, new and creative charging developments, increase battery range, etc.

    Tesla, designed and manufactured in America – a novel approach. Why is Tesla garnering so much acclaim – Tesla is selling a compelling product! BMWs, Porsches, Audis are all fine cars, but they are all similar in virtually everyway – not so with a Tesla.

  • Report this Comment On June 01, 2013, at 1:24 PM, Monclover wrote:

    I have come to the conclusion that Musk is a 'Flim-Flam Man." He has made himself a very rich man selling his stock with optimistic buyers who seem to hang onto every word Musk utters. What is doubling the Charging Stations.....now there are ten!

    Starting a new car company today is impossible.

    The Tesla will go the way of the DeLorean and the Brickland,......not electrics, but the same hype. I cam across a Tesla Roadster the other day in traffic....looked like a Miata on steroids. The only profits that Tesla has realized has been in selling carbon credits to others....that is about to end and so will the profits.

  • Report this Comment On June 01, 2013, at 2:52 PM, peteroo wrote:

    Monclover. Your conclusion is off the charts - So wrong: Paypal, Tesla Motors, SpaceX, Solar City. Do you see a pattern?

  • Report this Comment On June 01, 2013, at 3:04 PM, OrphnsNundrdogs wrote:

    I've been skeptical of Tesla for a while now but now I'm starting to think they can make a go of it. Also if anyone can make a more affordable EV with a range camparable to a gas vehicle, I believe Tesla can.

  • Report this Comment On June 01, 2013, at 3:10 PM, ckgod wrote:

    @MKArch 99.9% of driving people do are less than 200 miles which an overnight charge in the garage will do. Just like you plug in your iPhone every night when you go to sleep. Some employers also provide EV charging so theoretically even one way daily commute of 200 miles is doable. The super charger is provided for the occasional long distance travel only. 30 minutes charge time while you do your pit stop is acceptable.

  • Report this Comment On June 01, 2013, at 3:15 PM, ckgod wrote:

    @OrphnsNundrdogs I wouldn't believe it if someone told me this 6 months ago but more and more I can see our roads are filled with electric cars perhaps 20~30 years from now. The gasoline cars seem so outdated.

  • Report this Comment On June 01, 2013, at 6:22 PM, MKArch wrote:

    ck,

    Most people make trips over 200 miles once in a while. I'm not sure if the plug in connection is water proof but it it isn't this will be a problem for anyone without a garage. Even if it is,it's a nuisance to have to remember to plug the car in every night, an eyesore to have an extension cord draped across the driveway and dangerous if kids not knowing any better decide to play with the cord. It's also a potential theft. Other than the Greenies who buy the car for ideological reasons, I doubt many other will be willing to sacrifice the convenience they have become accustomed to, in order to protect the planet. Particularly at even the projected future price points of these cars.

  • Report this Comment On June 01, 2013, at 10:00 PM, Albert0Knox wrote:

    My big concern for Tesla is the "free forever" superchargers. they need to be able to market these things to truck stops. Allow the truck stops to charge for electricity and capture the car's occupants in its restaurant and shop.

    giving it away for free w/o the obvious revenue stream of selling these charging station franchises is foolhardy

  • Report this Comment On June 02, 2013, at 3:07 AM, crikescrikes wrote:
  • Report this Comment On June 02, 2013, at 11:47 AM, ckgod wrote:

    @MKArch It's the same as plug in your iPhone every night when go to sleep. It's not a nuisance just part of the daily life similar to taking the morning shower. Not needing to stop at gas station sun or rain and touch the dirty pump handle more than makes it up.

    It's also not just for the greenies. Everyone from Consumer Report to Motor Trend says the Tesla Model S is THE best car every produced. There are fundamental advantages in electrical car performance that an ICE could never achieve. That's what Elon Musk and Tesla set out to do. Make the best car which happens to be an EV to get people to change their perceiption and to accept EV. Go to the Tesla forum and you'll see almost all of the posts there are talking about the car and how good it is. only 1%, if that many, of the Tesla owners ever said how great it is that they are saving the planet. However it's not a bad thing to help saving the planet or the air we all breath.

    Do yourself a favor and arrange for a test drive if there is a Tesla store near where you live. You will be totally change the way you see the car. You will say, like others who have done that, WOW I have never driven anything like this.

  • Report this Comment On June 02, 2013, at 12:39 PM, sliderw wrote:

    With more and more Teslas on the road, they will need to keep building more and more charging stations (and expand existing ones). That expense won't be small.

  • Report this Comment On June 02, 2013, at 3:03 PM, MKArch wrote:

    Dealing with a bulky extension cord outdoors is not the same thing as a tiny phone charger cord that, as you point out can be left by your bed side and plugged in while you're in your pajamas as you turn out the lights. I'm sure "when" the car runs it is a fantastic ride but I'm also sure most people are going to have a problem shelling out tens of thousands of dollars for car and not being able to take it for a long trip when they want to. Particularly when it's not problem for every other car. Having to deal with a bulky dangerous extension cord in the yard every day is going to be an issue as well. As to the Tesla forum's opinion on the Tesla car it's probably about as useful as polling regular Fox News viewers about Obama.

  • Report this Comment On June 04, 2013, at 12:24 PM, peteroo wrote:

    MKArch.

    I totally get that you are not a fan of EVs in general … and there are no plans in the near future for a Tesla Model S in your garage or driveway. Also, it is clear that doing even a modest amount of research before posting is not your forte.

    The Cord. Rest assured, the Tesla plug connection is waterproof and many Model S owners park and charge in their driveways (I am fortunate to be able to park and charge in a garage – the Subaru is parked on the street). A single charging cord is hardly an eyesore, especially when connected to the very attractive Model S. Should children be children, the worst they could do was unplug the cord from the power source, as the connection with the car is “locked” until the owner unlocks the car and releases the connector. This may also address your cord theft concerns.

    Recharging at night is not a nuisance at all. When I park my car I just plug it in. I can start charging immediately or use the timer (built into the car) to automatically start charging during non peak hours. Not to be argumentative, plugging in my Model S is no different or inconvenient than plugging in my phone – I do agree the car’s plug is bigger and bulkier than my phone but it stays in my garage and all I do is plug it in. Once again, the power cord is not dangerous.

    On several occasions you have been critical of the Tesla’s range and the time to recharge. I agree with you that the infrastructure (thousands of gas stations) that the Seven Sisters have built over the past 100 years is impressive. In the early 1900’s ICE automobiles had to purchase their gasoline from pharmacies…that may not have been overly convenient and may have taken more than 20 minutes too. The charging infrastructure is just beginning, it will only get better, range and time to charge will improve.

    IMO, the positives far outweigh the negative. I agree that the Tesla is expensive (if you compare it to Chevy Impala), but no more expensive than if you were buying a similar luxury car (BMW, Audi, MB, etc.). In the long run, the maintenance and gasoline vs. electric savings will be material, probably closer to 40%+. No offense, what have the oil companies done for you? Is gasoline so cheap, the exhaust emissions so breathable?

    Tesla, superchargers, etc. are not for everyone, and are not ideal for every driving situation (at least not now when the infrastructure is in its’ infancy). The Tesla is an amazing car, fulfills 95%+ of my normal driving needs… no I wouldn’t take mine on a cross country trip today, but probably would in the foreseeable future. Two days ago I used one of Tesla’s superchargers – it was easy, amazing, and free!

    Perhaps you can keep an open mind and drive a Model S, it is free. Why don't you see for yourself what Tesla is all about.

  • Report this Comment On June 04, 2013, at 12:31 PM, peteroo wrote:

    MKArch. I meant to say the “test drive is free”, but you will need to make an appointment at your nearest showroom.

    By the way, I hear gasoline is dangerous. Children, playing with matches could blow up your car, driveway, house, or themselves.

  • Report this Comment On June 06, 2013, at 12:40 PM, MKArch wrote:

    peterwoo,

    I'm personally sick of paying $60 to fill up my car and would love to see this technology replace ICE. When it comes to investing though I don't invest with my heart I invest with my head and from my experience people are lazy and selfish and only the died in the wool greenies will be willing to sacrifice the convenience they have enjoyed forever with existing ICE autos to own a cool but less practical new technology.

    It's the same mentality that has the U.S. Congress in general about as popular as pond scum but incumbent congressmen get re-elected at something like 90% rate. Nobody likes Congress in general putting their constituents ahead of what's good for the country but they love it when their representatives bring home the pork. People will tell you they are for green technology but try to get them to sacrifice for it.

    As to the safety of the cord it may be locked and waterproof at the car end but not at the house end. It's also an eyesore and nuisance to lug in and out every day.Where is a city dweller going to plug in at? Let's see how TSLA does when Greenie pent up demand is saturated.

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