Bob Lutz is prognosticating the death of Tesla Motors, saying the company is badly run, its costs are too high, it should be working through dealers, it should add a plug-in hybrid model, and oh-by-the-way he likes Elon Musk. Coincidentally, I see from my calendar that in exactly one week is the Tesla Motors quarterly shareholders/analysts call to go over Q3 2015 financial results. Is Lutz wanting to cast some aspersions prior to those results for some car industry gamesmanship? It’s clear Tesla Motors is at a critical juncture, because the company has spent several quarters investing in R&D of the Tesla Model X, then building out the factory line to manufacture that Model X, all of which cost a lot of money, and Tesla’s financial future is dependent on the success of the Model X.
What’s Lutz’s recommendation? That Tesla Motors jump the shark and build a Chevy Volt. Since becoming the Father of the Volt that’s been Lutz’s answer to everything, add a plug-in hybrid drive train. Oh, and Tesla needs to do some cost cutting.
Despite Maximum Box having more experience at the top of car companies than almost anybody, he’s not an innocent bystander. His reputation is tied to plug-in hybrids and not battery EV’s. He has a long history of pushing the PHEV concept in preference to BEV’s. He still has skin in the game as a leader at Via Motors, who’s manufacturing plug-in hybrid versions of GM trucks.
Let’s go over what Bob Lutz said in more detail, doing some analysis as we go.
Tesla’s showing all the signs of a company in trouble: bleeding cash, securitized assets, and mounting inventory.
Yes, we all should be worried whether Tesla Motors is making a sustainable business. Some look at the evidence in Tesla’s quarterly financial results and have decided that Tesla is simply sucking money from the public trough, or they’re bilking investors, etc.
So far Tesla Motors has kept itself afloat from a handful of money sources:
- Revenue on car sales
- Revenue on component sales to other manufacturers (which have dried up thanks to those deals ending)
- Revenue on ZEV credits sales
- Investors buying more stock during additional funding rounds (buying stock on the open market doesn’t give Tesla any cash, while buying during a funding round does)
Tesla Motors did receive some loans from the US Government to help fund development of the Tesla Model S and to buy/equip the factory in Fremont. They’ve since paid that back way ahead of schedule. There are other government grants or loans or tax abatement’s that Tesla receives, such as the package they negotiated for the Gigafactory. Since pretty much all companies get similar deals it’s silly to single out Tesla Motors to say they’re getting preferential treatment. Too bad the movie industry lost their package of incentives from Nevada in the wake.
We’ll have to see what next week’s Q3 results say, but it’s likely to tell us this:
- Another quarter of big loss because
- the Model X launch came late in the quarter
- therefore Model X sales revenue will contribute very little this quarter
- the quarter will have seen lots of expenses at the factory
- Some Model X sales this quarter – remains to be seen whether the number matches expectations
- The autopilot rollout may have been premature given initial reports from Model S owners
Getting back to Lutz’s point – “bleeding cash” is because Tesla Motors is in an aggressive scaling up of the company from boutique maker of individualized cars, into what’s promised to be a half million vehicle per year business by 2018 and several million per year by 2025. The “securitized assets” thing is simply a strategy to get there.
buyers who will spring for a big-dollar electric vehicle that can’t make the hike from Detroit to Chicago without stopping for a long charge.
Does Bob Lutz not understand what the Supercharger network is? The distance is about 280 miles, which is more than feasible for a Tesla Model S. A quick stop at a Supercharger somewhere along the way would be sufficient. It wouldn’t even require a full recharge since there’s only 50-100 miles additional range required to make the trek, so a 20 minute top-up at the Supercharger would be sufficient.
[gasoline] prices around the country are hovering close to $2 a gallon
Well, that’s a good point. But, have we seen an dropoff of electric vehicle sales with low gas prices? I don’t think so.
there’s never been any secret sauce to the company’s battery technology
Yes, there’s nothing special here? Pile enough kiloWatt-hours into a car gets you the 260+ miles range, and couple it with a sufficiently powerful fast charger (120 kiloWatts for the Supercharger) and you’ve got yourself a road trip machine.
What’s special about the Tesla Motors story is they’ve eschewed the normal way of doing the car business, and delivered an excellent value proposition to their customers. The other car companies can’t promise coast to coast driving because of having to rely on the charging network providers to build the network. As great as the ChargePoint is (which is debate-able) they haven’t rolled out inter-city fast charging yet. That leaves the non-Tesla automakers unable to tell their customers “go ahead and drive coast-to-coast on electricity”. Tesla Motors can do so, because they’re building the network.
Getting back to the question of driving from Chicago to Detroit for a second – my Kia Soul EV or the 2016 Nissan Leaf are candidates for that drive, if only there were enough CHAdeMO stations along the route. I just checked and between Gary Indiana and Ann Arbor Michigan there are no CHAdeMO, but plenty of level 2 stations. It means a regular affordable electric car could make it but the trip would take all day because of the charging time required. The trip would be bearable if there were fast charging stations. The ComboChargingSystem (CCS) owners are no better off.
That detour was to demonstrate my point. Tesla Motors is delivering not just a car, but a complete system, and is able to offer stuff the other car companies cannot. Coast-to-coast driving is only part of the offering. The closest the other car companies get to a similar promise is to compromise the car with a gasoline engine, and tell people to stop to gas up.
Nobody has ever been successful with company stores, though plenty of manufacturers have tried them.
Tesla’s decision to go with a direct sales model has been problematic, and has prevented the company from being able to sell cars in some states. It hasn’t prevented residents of those states from buying the cars in other states and registering in their own state, however. But, is it a bad idea?
I don’t know enough car industry history – but I do know the Car Dealership system exists because of laws preventing car manufacturers from direct sales. Those laws originally came into existence to protect car buyers from overly aggressive automakers. But the situation has morphed so that car dealerships are widely regarded as shady businesses looking to gouge people. It’s really hard to defend the car dealership system when we all feel so slimy just by walking onto the dealership lot.
Under a traditional franchise arrangement, the factory never has to carry that burden [of running large dealership operations]. Right now, Tesla does.
Tesla Stores aren’t in the traditional model – several acres of land with the service center out back, and a side lot full of used cars. Instead they’re a store front in a shopping area, and the service is handled elsewhere.
But is this the model Tesla will follow when they’re making 500,000 cars per year or a couple million? How will the existing Tesla Store model work at that volume? Or the Service Center model? So far the company is organized to deliver luxury car levels of personalized service, and it’s a great question to ponder what Tesla will have to do to deliver 10x the number of cars per year it currently sells.
A concern we should all be tracking is if/when Tesla Motors grows big enough to become as “evil” as the major car makers. I’ve asked this before, and will ask it again I’m sure: So far Tesla Motors has lived up to the promise of being a different sort of car maker who’s on a mission to stave off climate change etc by causing a shift to electric transportation. Will the company stay as pure to that mission when sales are 10x or 100x what they are today?
[Model X] A big, expensive vehicle with a compromised structure to accommodate gullwing doors can hardly be a sales knockout.
We’ll see what the acceptance of that car is, eh? Yes, Lutz has decades of car design experience under his belt. His opinion should carry some weight on something like this.
consider an entry-level model with a cheaper, range-extended hybrid driveline
Hey, Lutz, they have promised us an entry-level model with a price similar to the Chevy Volt but not with an image-and-environment-compromising plug-in hybrid drive train. You may have heard of the Tesla Model 3, which Tesla has repeatedly promised would have a base $35,000 MSRP (before tax breaks) and offer 200+ miles range.
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- The 238 mile range Chevy Bolt is not a threat to Tesla Motors, Tesla is a threat to itself - September 14, 2016
- BMW, VW, ChargePoint claim to finish East/West charging corridors rings hollow - September 14, 2016
- Chinese Model S auto-pilot crash says we shouldn’t rely on autopilot mode, yet - September 14, 2016
- TI enabling smart EVSE’s by adding WiFi to charging station reference design - August 30, 2016
- Do we need a 500 mile range Tesla or other electric car? - August 27, 2016