By on October 24, 2008

Now that the economic downturn has liberated Tesla Motors’ inner Curly– we’re a victim of coimcumstance!– CEO Elon Musk has finally admitted what TTAC said all along: they’re not making a dime on the $109k Tesla Roadster. OK, the self-annointed CEO says they weren’t making a profit. In fact, Musk tells BusinessWeek that the EV maker was $40k over budget per vehicle. Which would make it a break-even proposition. Yes, “Tesla had to delay the launch by six months while it looked for a way to make the car profitably. Musk fired founding CEO Martin Eberhard and brought in as interim chief Michael Marks, an executive at electronics maker Flextronics International.” And now Musk is busy re-writing recent history. “A few weeks ago, Tesla seemed to be on the road to making that [world domination] happen. Musk had verbal commitments for $100 million in private capital, federal loan guarantees geared at jump-starting development of alternative vehicles, and thoughts of going public next year.” OK, that brings up to Musk’s favorite time period: the future!

“Our sedan will crush everything out there,” Musk says. What sedan you ask? Good question. “Musk insists Tesla’s next models will be irresistible. The Model S will go up against formidable competition—cars such as the Lexus GS 450h hybrid, the diesel Mercedes E-class, and the Chevrolet Volt. Not that those cars feature Tesla’s neck-snapping acceleration and running cost of 4 cents a mile.” That’s assuming of course, a) Tesla builds an EV, I mean hybrid sedan and b) it has neck-snapping acceleration and running costs of four cents a mile. Anyway, TTAC has one piece of advise for Tesla; the same advice we gave them at the beginning: raise the price of the Roadster. If that works out, can we test one, as Daryl Siry promised? No, I didn’t think so. Corporate culture eats strategy for lunch.

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17 Comments on “Tesla Death Watch 28: WhiteElephant’s Rump Revealed...”


  • avatar
    Dutchchris

    If “hype” could pay bills Tesla would no doubt be the richest company in the business. Why don’t they focus on sorting out the problems with the roadster and you know… like actually deliver them in any significant numbers to customers that made down payments for them a long time ago.

    Tesla really should try to generate a viable cashflow from sales of the Roadster rather than hyping a new model that will obviously never happen the way Tesla is going.

    Maybe it’s a tat early for a eulogy but I think that despite it’s flaws Tesla may have contributed significantly to changing the image of EV’s to the point that almost every mainstream car OEM has become aware at this point that EV technology can no longer be ignored because it is in fact the future.
    GM’s feeble and half hearted 70% ICE /70% EV /200% price Volt attempt indicates that even they seem to realise that the days of crushing EV’s are gone and probably won’t return. We’re currently watching Carwars episode V: the EV strikes back. Bob’s praying every night though for episode VI: the return of the SUV. Not gonna happen Bob!

  • avatar
    OldandSlow

    How about a government bail out? A trillion here a trillion there, our grandchildren won’t mind.

  • avatar
    ComfortablyNumb

    I spit coffee on my keyboard when I read “Tesla Motors’ inner Curly– we’re a victim of coimcumstance!”

    Thanks, Rob.

  • avatar
    210delray

    Musk is an order of magnitude more delusional than the 3 stooges of GM – Rick, Bob, and Fritz.

    The Tesla will join the DeLorean, Bricklin, and Tucker as cars that never really got off the ground.

  • avatar
    Ken Elias

    What is it with software/internet guys who make fortunes and then believe they’ve been “gifted” to change/revolutionize older technologies? Doesn’t look like Elon Musk really understood the complexities of bringing a road legal vehicle to fruition, and I’m not talking about any technology problems with an EV.

    But the better example to date – Eclipse Aviation in Albuquerque. Founded by Vern Raburn in the late 1990s, the company promised to deliver an economic small jet run by sophisticated software. Give Vern credit, he did bring a jet into production, after running through at least a billion or more dollars of investor and local/state government money. But he couldn’t get it built at the price point he promised, the software still doesn’t work completely, and production rates are way below the rate claimed. Vern got kicked out of his company, customers are demanding deposit refunds, and the possibility of a bankruptcy is real.

  • avatar
    MattVA

    This is my understanding of Tesla’s business plan:

    Lose money on an ultra-high priced car that required minimal chassis engineering and a compromised transmission.

    Then while you’re losing money on that product, produce another product that has all the complications of the original, plus design the chassis and body, but all the while making it half the price.

    I think Tesla got multiplication confused with addition, because a negative number plus a negative number is always a negative number.

  • avatar
    John Horner

    I have told this story before, but will tell it again. Back in 1998 I was vacationing in California’s historic gold country region. We had a very knowledgeable docent taking us through the remnants of a once vibrant mining town. This earnest and eager to share history buff told us that not many people realized that the great California gold rush (miner, 49er …) pulled far more cash out of New York’s bankers and speculators than it did gold out of the ground. I commented to my fellow travelers that nothing was new as we were seeing the same thing happen with the dot-com boom which was then under way in my humble home region, Silicon Valley. People laughed me off at the time … but we all know how that ended :(.

  • avatar
    Wulv

    Ken:
    I was actually thinking of Eclipse the other day while reading a Tesla article, many parallels.
    At least the money down for Tesla is real, not like the Dayjet order thing, at least I hope it is and they didn’t prop up their numbers in the same way.

  • avatar
    jkross22

    If they’re losing 40k per car at the current price, why don’t they bump the price up by 50k and make a few bucks per car?

    Call it the price/reward/punishment of being an early adopter.

  • avatar
    Bozoer Rebbe

    This earnest and eager to share history buff told us that not many people realized that the great California gold rush (miner, 49er …) pulled far more cash out of New York’s bankers and speculators than it did gold out of the ground.

    And even fewer people realize that the copper mined from Michigan’s upper peninsula in the late 19th and early 20th centuries was worth more than all the gold dug out of California. Most of the money from all that copper went to investors in the east. William A. Paine, of Paine Webber & Co. managed the Copper Range Company, and there’s a 19th century Paine Webber office on main street in Calumet.

    There are all sorts of financial connections in the industrial history of America that get short shrift in history books more eager to tell us about all the sins of white males (they’re already putting sections on Obama into social studies texts even before the elections) than in teaching actual history.

    Thomas Edison? His first successful invention was a dedicated telegraph machine we know as a “stock ticker”. He was successful marketing his invention to the financial industry and subsequently had access to capital investors. If you have to pick an industry to service, the financial industry is not a bad choice if you hope to find future investors.

    Henry Ford? Before he started the first Ford car company that failed Henry was the chief operating engineer of the then young Detroit Edison Company. Ford was actually much more interested in power generation than in automobiles and you can see that interest in the collection of the Henry Ford Museum in Dearborn, which has replicas of James Watts’ first steam engine, the coal fired power plants from the dismantled Highland Park factory, and other generating systems. No doubt the financial connections Ford made while working for Edison helped in finding investors in his enterprises.

  • avatar
    njoneer

    @ Ken
    “Doesn’t look like Elon Musk really understood the complexities of bringing a road legal vehicle to fruition, and I’m not talking about any technology problems with an EV.”

    True!

    I laughed when he admitted on 60 Minutes that the roadster’s development cost was double what he expected. He only admitted to double, but it will easily cost five to ten times what he expected before Tesla turns a profit. If they survive that long.

    Sorry, Musk, the car industry is not like Silicon Valley where you get all you money back (and more) at the IPO.

  • avatar
    doug

    RTFA
    Seem to be some reading comprehension issues here.
    The BusinessWeek article didn’t say Tesla was losing $40K per Roadster, it said the Roadster was $40K over budget. Big difference. The Fortune article said Tesla had originally estimated the Roadster to cost $65K to build. So instead the Roadster is roughly being sold at cost, which is still unacceptable but nothing like losing $40K per. This is why the 2010 Roadster has a base price of $119K.

  • avatar
    cjdumm

    The California gold rush migh have been a financial shell game, but it could be worse. According to Jared Diamond, author of ‘Collapse’ and ‘Guns, Germs, and Steel’, the Idaho gold mining industry caused so much contamination that the value of all the gold it yielded wouldn’t pay for the cleanup.

    Such may be the financial fallout from the Tesla.

  • avatar
    fallout11

    The Bricklin analogy seems quite apt.
    Truly sad. Apparently basic economic, business, and engineering skill continue to be sorely lacking at Tesla. Continuous empty promises and fundamental gaffs do not inspire confidence (or investiture).

  • avatar

    after reading the articles, doug’s post seems accurate. are you going to revise your post, Mr. Farago? you can show tesla’s problems without distorting the numbers.

  • avatar

    optic:

    Yes. Done. Apologies to all involved for getting it wrong. Although I take NOTHING Musk says at face value.

  • avatar

    thanks for the correction, Robert. the article is still pretty devastating for Tesla.


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