Potholes Ahead for Tesla

WASHINGTON, DC: Tesla Motors is on a roll. Last year its share price quadrupled and it sold over 20,000 cars. There’s a waiting list for every four-door sedan that rolls out of the Fremont, California plant.

But with a single factory and a more complicated SUV expected down the line later this year, can Tesla nearly double production as planned? Other potholes include batteries, dealer protection laws, and an organizing drive from the auto workers union.

The $100,000 Model S rules the luxury electric vehicle market. For the rich, famous and green, the quick-accelerating Model S is the vehicle to own. Aggressively expanding, Teslas are now on sale in China, the world’s biggest auto market.

 Model S at Tesla Washington, DC showroom 

The Model S is taking off in Europe where it’s been available less than a year. In environmentally conscious Norway Tesla was the best-selling car in December. Tesla sales get a huge boost in Norway because they’re exempt from taxes that can double the cost of gasoline-powered car.

The ten-year-old Silicon Valley start-up is on its way to becoming a viable 4th US-based car company. Detroit is paying attention. Mark Reuss, G.M.’s chief of product development, is extravagant in his praise, telling the Detroit Free Press he spends a lot of time in a Model S. “It’s highly creative and fun to drive,” he says. Referring to 42-year-old billionaire and Tesla CEO Elon Musk, Reuss says, “he’s basically created a brand, which is very hard to do in a mature industry.”

Tesla lithium-ion battery

Musk, the South African-born genius behind Space X, SolarCity, and Tesla, runs the car company much like Steve Jobs ran Apple. Technology and design are paramount. There’s a keen eye on media and like Jobs Musk was on stage near LA in June to introduce the automated battery swap stations that will be placed across the country. Replacing an entire panel of 7,000 reusable lithium ion batteries is meant to take only 90 seconds.

Tesla super-chargers, as of February 1, 2014 

Determined to prove that the Model S can perform well on highways, Tesla has constructed a network of free supercharging stations situated at 200-mile intervals on a transcontinental route linking Los Angeles with New York.

A half-charge, enough to zoom on to the next station takes about 30-minutes. Typically six charging posts are in the unmanned facilities situated in shopping mall parking lots near on-off ramps. Tesla says supercharging will be free forever, meaning that Tesla vehicles can scoot across the country paying nothing for fuel.

The Tesla business plan is simple, ambitious and on track. First establish the brand with a luxury car. Create a buzz. Widen the product line and boost production. Then produce a smaller sedan priced at about $35,000, within reach of the upper middle class.

Even if Tesla can produce 35,000 vehicles this year, that’s a tiny number equal to half the Ford F series pickups manufactured each month. Tesla’s gull-wing crossover is expected by the end of the year, but the much-touted generation three family car isn’t due until 2017. Musk speaks of eventual production of 500,000 cars per year.

Musk concedes that getting enough batteries is a problem. His sole supplier is Panasonic in Japan. To overcome the bottleneck Tesla contemplates making its own cells. In November Musk speculated that it would be a giant facility. “We’re talking about something that is comparable to all of the lithium-ion battery production in the world — in one factory.”

Tesla currently has four-dozen showrooms with more on the way. But all sales are online. Tesla’s direct to the consumer approach collides with a maze of state laws that essentially require all new cars to be sold through dealers. Jack Fitzgerald, an electric car advocate and president of Fitzgerald Auto Malls in Maryland, says as long as Tesla remains a bit player, the dealership rules may not be a problem. But complaints are already coming in and dealers don’t want the precedent of buying on line to take hold. 

Tesla’s manufacturing facility is in Fremont, California in San Francisco’s East Bay. Originally built by General Motors the Fremont plant in the 1980s housed Nummi, a cooperative venture between GM and Toyota. GM later withdrew and Tesla purchased the sprawling plant for a mere $50 million.

At its peak Nummi employed nearly 5,000 workers who were represented by the United Auto Workers. Tesla’s current workforce of nearly 2,000 is non-union but with decent pay and benefits. The UAW has already set up an organizing committee. While Musk says he’s neutral on the union, Tesla’s headquarters are nearby in Palo Alto in the Silicon Valley where unions have been neither popular nor successful.

Finally, what about sales and service? Will American customers be willing to wait months to get a car they ordered online? And things go wrong with cars, even those without engines. How fast will customers get a replacement mirror or fender? For now Tesla is employing mobile service vans, an operation that would be overwhelmed by increased volume.

If its success continues to build, Tesla will encounter competition with established car companies. The game then could become brutal. In short, Tesla’s viability is not assured.

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