News Column

Tesla Banks on Mass-market Sales of Model S

June 25, 2012

Nathan Bomey

tesla automotive

Tesla Motors started selling the Model S last week, an all-electric sedan billed as a mass-market car, but the Silicon Valley automaker will have only one dealership in the Midwest and the car will cost, in most cases, more than twice the price of the Chevrolet Volt.

Tesla has lost nearly $1 billion selling high-end electric sports cars to the likes of George Clooney. Now it's going to attempt to sell them to the rest of us -- and try to make money doing so.

The Model S will either propel the company to profitability or leave it sputtering on the fumes of a $465-million government loan.

The brainchild of PayPal billionaire and SpaceX founder Elon Musk, Tesla has always faced long odds. Analysts and auto industry insiders scoffed at the idea that a new car company producing in a high-cost state like California can be viable in the long run.

Boardroom turmoil and a string of technical problems repeatedly delayed the launch of the company's first car, the $109,000 two-seat Tesla Roadster.

The Model S will be offered with three battery-pack options: 40 kilowatt hours with estimated range of 160 miles at an average speed of 55 m.p.h.; 60 kWh with a range of 230 miles, and 85 kWh with a range of 300 miles.

Prices will start at $57,400 before a $7,500 federal tax credit and reach more than $100,000 for longer-range versions.

The high price will limit sales, says Rebecca Lindland, an analyst with IHS Automotive. She doubts Tesla will reach its goal of selling 20,000 Model S sedans in 2013. Nissan has sold just under 30,000 all-electric Nissan Leaf sedans since they went on sale at the end of 2010. But the Leaf is little more than half the price of a Model S.

Still, Tesla says more than 10,000 people have put down a refundable deposit for the sedan, and it expects to sell 5,000 this year. The Roadster has sold just 2,150 since 2008.

The first sedans were delivered to customers Friday at Tesla's factory in Fremont, Calif., which it bought for $42 million in 2010 from its former operators, General Motors and Toyota.

Tesla didn't make executives available for interviews ahead of Friday's event. But at the company's annual meeting earlier this month, Musk said he's "highly confident" that Tesla will meet its goals, including making a profit in 2013.

Even if buyers take a chance on Tesla, the risks don't end there. A charging network doesn't exist in the U.S., and electric-car owners can run out of power between stops. There's no gasoline engine that kicks in as a backup, as there is in the extended-range electric Chevrolet Volt.

Tesla is throwing in a charger with three kinds of adapters that can be used at home or at public charging stations.

It's also planning a network of fast chargers at highway exits.

The company's retail strategy is also untested. Its 14 U.S. stores have a tiny presence compared with Lexus' 230. The closest store to Detroit is about five hours away in Oak Brook, Ill., but consumers can purchase vehicles through the company's website. Tesla has stores in fewer than 10 states.

When Roadsters need repairs, Tesla deploys technicians to the owner's house. It will be far more expensive to do that if Tesla sells as many Model S sedans as it hopes. The company's plans for servicing the cars are hazy. Musk said recently that Tesla simply wants to make cars that don't need servicing.

For investors, the Model S will test whether the company is built for endurance or a quick test drive.

So far, the company's glamorous founder and its sculpture-like cars have generated enough buzz to keep the stock hot. Its price has nearly doubled from its initial public offering level of $17 a share two years ago.

Dee-ann Durbin of the Associated Press contributed to this report.

Source: (c) 2012 Detroit Free Press

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