Tesla Beats the Odds — And the Haters — But Now Comes the Hard Part

  • Share
  • Read Later

The electric car company Tesla has always been an easy target. There’s the CEO,  messianic Silicon Valley entrepreneur Elon Musk, who sometimes actually seems to be convinced that he’s the real-life Tony Stark. There’s the sheer chutzpah of a startup company from outside the auto industry trying to successfully build and market a new car in America—something that hasn’t been pulled off successfully in decades. There was the disconnect that came from marketing a $109,000 sportscar—the Tesla Roadster, the first model the company launched back in 2009—as a way to save the planet. There were the $465 million low-interest government loans approved to Tesla in 2009—public money that made the company a punching bag for conservative critics. So it shouldn’t be surprising that legions of haters have always cheered for bad news about Tesla—like the brutal, if contested, review of the Tesla Model S in the New York Times. According to Thomson Reuters StarMine, Tesla stock has been more heavily shorted by investors than 98% of the 4,200 companies tracked by the service.

But now it looks like Musk may get the last laugh. On May 9 Tesla posted its first profit, recording $11.2 million in first-quarter net income. Its stock surged after the news—and with a market capitalization of $8 billion, Telsa is now more valuable than the 113 year-old Italian car company Fiat. On top of that, Consumer Reports just gave the Tesla Model S—the more affordable sedan that the company is mass marketing—a near-perfect rating of 99 out of 100 points. Sales of the Model S are beating expectations and the vehicles have become the latest must-haves for the rich and the techie. Even Musk’s competitors in the traditional auto space are impressed. “My hat’s off to them,” Ford Motor executive chairman Bill Ford said at the company’s annual meeting yesterday. “It’s really hard to start a company, particularly in the auto business, and be successful.”

(MOREIt’s Not About the Range: How the Tesla/New York Times Controversy Misses the Point About Electric Cars)

But is Tesla’s success real—and is it sustainable?

First a little perspective. While Tesla did post its first profit, a year ago it lost $89.9 million in the same quarter last year. And its sales numbers are still small, though growing—in the first quarter of the year Tesla sold 5,000 cars. (Toyota, by comparison, sold more than 50,000 hybrid Priuses over the first quarter of the year.) And a good chunk of Tesla’s revenue comes not from selling cars but from selling credits—carbon credits, to companies trying to meet mandates to manufacture zero-emissions vehicles.

Still, even Tesla’s critics are impressed. Here’s the conservative writer Walter Russell Mead blogging in the American Interest:

Tesla has comfortably settled into a rich, environmentally conscious and geeky niche. It’s on track to pay back its government loan ahead of schedule and seems to be avoiding the pitfalls that have doomed the Fiskers and Solyndras of the clean tech world. Much of that can be attributed to Musk’s leadership. Also the founder of Paypal and SpaceX, Musk has charisma, vision, deep pockets, and an entrepreneurial savvy that’s been vital to Tesla’s success so far. He’s a model of American gumption, but his biggest test will be what happens next.

Indeed. Right now Tesla is successfully making a high-quality, high-price product. That’s not easy to do well—just ask its electric-car competitor Fisker Automotive, which is poised to lose hundreds of millions of dollars. Tesla is doing better than the more down-market Chevy Volt and Nissan Leaf largely because the Model S, though it may be extremely pricey at a base of $70,000, compares well with similarly-priced BMWs and Mercedes in terms of performance. It’s ironic—car manufacturers thought that buyers would want to shift to electric largely to save money at the gas pump. But anyone rich enough to afford a Tesla S isn’t exactly sweating their gas bill.

(MORE: Are Electric-Car Enthusiasts a Little Too Enthusiastic?)

This is, understandably, confusing to analysts, who wonder why anyone would pay essentially double for an electric car that—though it does have a range of about 200 miles on a single charge—is hampered by limitations that a much cheaper gasoline-powered vehicle does not have. But Tesla owners bought their Model S because they love the car—and, I suspect, they love what it says about them. After all, driving a Tesla basically says, “I love the planet—and I happen to be extremely wealthy.”

But you’re not going to save the world by selling a few electric cars to the wealthy—and Musk, a guy who has his own private space rockets, is nothing if not ambitious. For Tesla and other electric car companies to really grow, you’ll need to reduce the price of batteries and create an extensive electric charging infrastructure. And to do that, Tesla is actually working with other car companies, as Farhad Manjoo explains in Slate today:

Neither company has confirmed it, but there are reports that the Mercedes B-Class may be the first non-Tesla vehicle to be allowed at Tesla’s supercharging stations. If that’s true, it would be an indication that Musk sees his charging network as a kind of common tech platform. If Tesla’s technology helps Mercedes sell a lot of electric cars, the deep-pocketed luxury car company will have an incentive to build its own charging stations, too—places where Tesla owners could charge up. The more charging stations there are, the more attractive both firms’ vehicles would become. And then, as its battery production scales up to meet that demand, Tesla’s batteries will likely improve as well, as many in the industry see increased production as one of the main ways to lower the cost of electric-car batteries.

Pay attention to that last line. Until we can figure out a way to make batteries cheap enough to compete with gasoline, electric cars really will just be for the rich. I’ve been an electric car skeptic in the past, but if anyone can do it, I’m betting Elon Musk and Tesla can.

(MORE: Are Electric Cars Safe?)

30 comments
MagnusThunderson
MagnusThunderson

Electric is the future for over half the cars in the USA but the millage need to go up before this is going to happen with the prime spot of 300 miles but will take off when they hit 150.

but in till very fast charging stations  gas vehicle's will still be needed for vacations but rentals cars would be quite affordable on the money saved driving  an electric.

Travon
Travon

Holy molly. I thought Tesla used gas. orz. I was so eager to comment on yahoo saying things about innovation. I read Vivek Sood’s book The 5-Star Business Networks wherein he mentioned that innovation is important for business and the different strategies the company will present. So I keep on saying to car makers that they should at least make something that could use carbon dioxide as a power source. But I guess that is not needed since Tesla had been successful in their green car.

mark.helsinki
mark.helsinki

Bryan

"a year ago it lost $89.9 million in the same quarter last year."

That's hardly 'perspective', unless you also mention that this loss includes investment for 'tooling' the manufacture of this car, and all that that entails. Perspctive? Suddenly, I start to feel that facts are being used selectively and that in fact that 'story' here is that the 'real' story is an 'untruth', except that there is nothing forthcoming except the idea that a 'loss' always idicates a 'worthless' company. 

Toyata may have sold more cars, but the significant point is whether Tesla fulfilled its marketing promise in selling enough cars to be profitable, not whether it sold enough cars to compete with established and MASSIVE production lines. Nevertheless, Model S is outselling all other cars, IN ITS CLASS. Pay attention to that last point. It's important in terms of perspective, Bryan! 


JohannRudd
JohannRudd

He´s not just "convinced" he is the real life-Tony Stark, HE IS the real-life Tony Stark. Probably even better.


ToddRLockwood
ToddRLockwood

As a Model S owner, I can assure you that very few of us were motivated by environmental benefits as a primary incentive for buying this car. It's a common misconception and one that even the auto industry doesn't understand. The Tesla Model S is quite simply a fantastic car, regardless of its being electric. If it was gas powered it would be equally popular, although it wouldn't be as much fun to drive.

The auto industry has led us to believe that an electric car, by definition, will always be less of a car: smaller, frumpier, less powerful and less practical than its gas powered cousins. The Model S clearly blows those assumptions right out of the water.

rrray55555
rrray55555

over a 10 year period I use about $40K in gas for my SUV.  pay $62500 for a Tesla and in 10 years your total cost of car falls to $22500.  Drive it for 20 years and you see the point.   the negligible electricity costs are covered by the mechanical and usage costs (wear tear, emissions testing) of a gas car.  The rich didn't get there by being stupid.  They see the value in buying a Tesla.

As for the stock,  the car is the ultimate app so now TSLA becomes a technology play

lunarnsx
lunarnsx

It is nice to see you coming around, Bryan. Though I do have some clarifications. The only real limitation the Model S has vs ICE cars is on a long distance trip and even that is arguable considering Superchargers will soon allow you to drive across the entire country for free. In every other way it is vastly superior to any ICE car.  One of the main reasons the car is wildly successful because 97% of all driving are trips under 50 miles. The Tesla gets up to 300 miles per charge, so suddenly range anxiety is a thing of the past for 97% of all driving. That is huge. In addition, the Tesla isn't just as much fun to drive as a top end Mercedes or BMW - it is actually much better! It is significantly faster and has incredible off-the-line torque at any speed. There are no explosions constantly rocking the engine, so this super-fast ride is also super-smooth. It is like an entirely new driving experience just blowing away any other ICE car. That is one of the reasons Consumer Reports just gave the Tesla its highest score in history and said it was absolutely the best car they have ever tested - period. One of the biggest complaints many, many Tesla drivers have is when they are forced to drive an ICE car again. They all  just feel sluggish, noisy and ancient in comparison. That is also one of the reasons that Tesla is already the #1 Large Luxury Selling car beating Mercedes, Lexus and BMW. The reason people are paying for a Tesla is because it more than fulfills 97% of their distance needs and it is simply the best driving experience that can be had for, pretty much, any price.

admin1
admin1

i am a tesla model s owner, and i am certainly not "wealthy".  i purchased this car over a less expensive traditional car because i was very motivated to buy an all-electric car, and this is absolutely the best! all it takes is one test drive, and you're hooked. also,  it is so easy to simply plug the car in when i get out at the end of my day, and so i never have to worry about being low on range. the 200 mile range is more than ample for my day-to-day driving so i don't even think about it any more. for the occasional long trip, i just stop for lunch or dinner near a charging station, drivers have to take breaks anyway! this has not been a problem, there are apps for smartphones that tell you where the nearest one is and how many ports are available.

i've become so accustomed to this "new" reality, that it is actually a shock when i get into someone else's car and remember that i need to check the gas gauge. 

 i have absolutely no doubt that the company will continue to  grow, and that you will see more and more teslas on the road.

yes, this is the future, as any tesla owner will tell you.


Linda Andrews

naworb
naworb

I'm glad you've come around, but I've got some points I'd like to make.

The ZEV credits ("good chunk") is 68M out of 562.  I'm not sure if that qualifies as a good chunk, but you should be specific when reporting facts.

"This is, understandably, confusing to analysts, who wonder why anyone would pay essentially double for an electric car" - While this is true for a Volt and some other Plug-in cars, it's not for the Model S.  There is no comparable ICE car to a Model S that has a base price of $35K.  The Model S has superior acceleration, handling, cargo room, technology (plus more) than any seden costing even as much!  Factor in major fuel savings, and it's an affordable car to someone in the market for a $50K sedan.





mark.helsinki
mark.helsinki

@ToddRLockwood 

Quite. The theory has been that the only reason this car would be successful is if EV's in general were given an unfair advantage over ICE cars by dint of government reimburssment or social reimburssment in terms of environmental efficiency - the reality appears to be altogether revolutionary - a car that takes on the ICE paradigm at its own game and beats, while also being an EV.

This starts to be clearer and clearer with each significant endorsement of this car! 

mark.helsinki
mark.helsinki

@rrray55555 

Maybe I should elaborate! Much of the cricism against the Tesla is that it is an 'elistit's' car, that only the RICH would buy it as an indulgance, without any thought to the fact that the reason the RICH are RICH, is that they know a value investment when they see one! 

Every time I read a flippant 'it's a luxury indulgance of the rich' again, I will think of  you, Ray! :D

mark.helsinki
mark.helsinki

@rrray55555


"The rich didn't get there by being stupid.  They see the value in buying a Tesla."


Excellent observation!


DuckBeach
DuckBeach

@lunarnsx Good to hear, but will let you guys beta test ("Besla?") the Tesla for about 3-4 years and find all the day-to-day owner potholes and submit to all the Tesla-on-tow trucks prizes photos before I dive in.  By then GM will have Cadillac variations of the Volt which will more than fit the bill   

FabioMilan
FabioMilan

@admin1 

Really? I have a PriusV and I pay about 450 monthly. How much is that you are paying monthy? The PriusV has good internal space and about 42 miles per gallon -- I put lots of milage on it, so I'm saying about 15 bucks a week in gas. I used to have a Corolla, that would give me about 30 miles to the gallow and was small in comparison. So, would it be too much to know in what range is your monthly payments?

pauliri
pauliri

@naworb 

The answer is easy, people will buy it, even if its more expensive, if its a great car. Why will you buy a $500 Ipad when you can buy another tablet for 79... because its better. I just saw the review from Consumer Reports and if this car is what they are saying it is, this car will be a success. 

FabioMilan
FabioMilan

@mark.helsinki @ToddRLockwood 

That's what I've always said. This idea of apealing to the environmental conscience as a way to save the planet simply can't hold up. If you want to have everyone adopting electric cars, using solar panels, or any other green technology, then we MUST make those technologies BETTER than the ones we have today. If you do that, there is nothing no one can do to bar its adoption anywhere. You can apeal for the environmental conscience in a 1st moment, to get your business going and have money to mature the technologies, but you must get off of that ASAP. Otherwise you are doomed

That's why Elon Musk is taking the route he took, he starts doing the very best product for the rich and then uses the money to increase scalle and lower the price. That's nothing new, Ford did that.

lunarnsx
lunarnsx

@DuckBeach @lunarnsx Do your research. The Tesla Roadster has been around for  over 5 years and traveled over 30 million electric miles with no issues. The Model S has already traveled close to 20 million electric miles with no issues. A test Model S has traveled over 500,000 miles, so far, on a single battery. These cars are proving more reliable than ICE cars. Also, the Volt is quite slow with only average handling. It's still better than driving a pure ICE but there is really no comparison here to one of the very best cars on the planet. Tesla's battery tech is about 3-4 years ahead of everyone else and is on track to stay that way with great new developments coming fairly soon.

TeslaRoadster181
TeslaRoadster181

@DuckBeach, I'm at 4 years and 2 months, and over 62,000 miles driven on my Tesla Roadster. Never been stranded or run out of charge with it. I couldn't be happier with my decision to purchase this great EV!

I'll leave others to purchase a Government Motors second-best EV, if they so choose.

FerryPencer
FerryPencer

The Model S really is as great as Consumer Reports (and Motoor Trend) say. Just go test drive one. Then, think about never having to gas up or service your car again. In addition to having superior performance and handling compared to a BMW 5-series or an MB E-Class, the Tesla Model S has lower fuel costs, a quieter ride, less maintenance and more storage room. People are flocking to this car because it is better. The "green" cred is not what is selling the car. It is an afterthought.

FerryPencer
FerryPencer

The Model S really is as great as Consumer Reports (and Motoor Trend) say. Just go test drive one. Then, think about never having to gas up or service your car again. In addition to having superior performance and handling compared to a BMW 5-series or an MB E-Class, the Tesla Model S has lower fuel costs, a quieter ride, less maintenance and more storage room. It is equal to other luxury brands in terms of engineering and design. And it has a coolness factor that compares to ultra luxury cars like a Porsche Panamera, or a Maserati Quattroporte. People are flocking to this car because it is better. The "green" cred is not selling this car; the car is selling itself.

DuckBeach
DuckBeach

@lunarnsx @DuckBeach @mark.helsinki 

Oh, I know how "beta test" is typically used.  Here, though, I clear use it from the buy-side, consumer perspective, not the sell-side, business perspective.  

You might say, "business doesn't care about that."  Yes, I know.  And I don't care, either.

The TSLA price will rise just fine, it sounds like, in the long run.  How could it not? 

lunarnsx
lunarnsx

@DuckBeach @mark.helsinki @lunarnsx Anyone who thinks a car that received the highest score in Consumer Reports history, won Motor Trend Car of the Year (first time in history all 11 judges were unanimous) and is outselling Mercedes, Lexus and BMW is still in beta, really hasn't the slightest idea what beta means.

DuckBeach
DuckBeach

@mark.helsinki @DuckBeach @lunarnsx 

I like happy beslas.  Happy beslas may mean I actually buy a Tesla Model S at some point.  But no slacking over the next few years -- am counting on you to keep those besla reports coming!

mark.helsinki
mark.helsinki

@DuckBeach @lunarnsx 

Besla-ing! :D Gosh, the innovation inspired by the Tesla S knows no bounds. 

Well, it's probably indicative that much of the negativity towards Model S owners is from Skeptics that refuse to be 'taken in', while much of the positivity around the Model S comes from those that have actually driven it or owned it. :) Long live supersition, eh!

DuckBeach
DuckBeach

@lunarnsx @DuckBeach 

By "Besla-ing," Model S owners are doing "my research" for me.   

Thank you for the anecdotes, though.


lunarnsx
lunarnsx

@DuckBeach @lunarnsx @TeslaRoadster181 Wrong. Not an unfounded conclusion at all. A Cadillac variation of the Volt would still basically be a volt and have tech that will be about 2-4 years behind Tesla and nowhere near the super car performance.

lunarnsx
lunarnsx

@DuckBeach @TeslaRoadster181 Uh, the Tesla Roadster has received virtually universal acclaim and is one of the fastest cars on the planet. It currently has one of the highest resale values of any car in history. You can't seriously compare it to a Volt in any way.  It really isn't working out very well to let other people do your research for you.