I just don’t understand Tesla.

I saw my first Tesla on the road today, and I have to say I just don’t get it.
Tesla Roadster Sport

Oh, I understand the car and think it’s pretty cool. The Tesla I saw this morning was a red Roadster Sport model. It looks very Lotus-like (not suprising, since that company is making the body parts). It definitely grabbed my attention as it pulled in front of me. Having never driven one, I can only repeat stories about the neck snapping acceleration and the 200 mile per charge range. It really does deliver on its promise. Of course, with a price tag of nearly $130k, it should.

What I just don’t get is how Tesla is going to make it as a car company.

I understand that Tesla is marketing the technology. It’s selling power packs to Daimler and Toyota. It’s got an agreement with Panasonic to develop nickel-based lithium-ion battery cells. Anytime the big dogs are coming around your table to eat, you must have done something right.

But can Tesla make it as a car manufacturer? I have doubts. First, that’s one brutal world. Lots of companies have fallen by the wayside over the years. The secret has always been high volume, low margin. Tesla is taking the exotic car approach with small numbers. So far Tesla hasn’t actually made a profit, but the company says it expects to be in the black by 2013. Even then, it’s going to be tough. How many people are willing to pay top dollar for a car whose main claim to fame is simply that it doesn’t use gas? And the next car planned to roll off the line is a sedan (Tesla S) which  may only cost less than $60k . It’s a great price for cool looking car with leading edge technology. It just doesn’t leave much room for profit. It makes me think that the cars are just rolling promotional devices to bring in more companies to buy the technology.

Tesla S

The folks over at the Motley Fool seem to think that Tesla is at a crossroads. They write, “Will the company’s products find a home in the wider mass market? Or will sales drop off once the initial rush of early adopters and gadget geeks get their new rides?” Interestingly, they sound pretty optimistic that Telsa stands a real chance.

Don’t get me wrong, I’d love for Tesla to succeed. Automotive variety is a great thing in the marketplace. And the mere fact that no major car maker has partnered with me on anything is probably proof that I don’t understand the car business as well as the Tesla folks. Still, I can’t help think that in another decade we’ll be talking about the Tesla car company in the past tense.

Here’s a link to a recent Forbes article about the Tesla S. They say it if it delivers on its promises, this car could be a game changer. Could be very interesting to watch.

Here’s Consumer Reports article about pricing for the new Tesla S.


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