Tesla at Turning Point

Tesla Motors
Tesla Motors

The company said in its quarterly earnings announcement that it has achieved a “fundamental turning point” as it transitions itself from a small volume maker of niche electric cars to a company with mass production capacity, able to build and sell 20,000 or more vehicles each year.

This is very optimistic and it remains as a company production target of the company. This is a great jump, as it would be two orders larger than the whole third quarter production of the company. In that same period, the company was able to build just 350 Model S and sell just 250 as well as sell 68 of its Roadsters. All these resulted in gross revenues totaling U.S.$50 million.

The numbers remain small with the production compacted in the last two weeks of the quarter. Tesla in its defense says it is able to build 200 cars per week and at that rate, it would be able to build 10,000 cars in a year. This is the number to make the company cash flow positive and it assumes it sells all those sedans at the projected price of U.S.$57,400. The current price of the Model S is pegged at U.S.$95,400.

The company has spent a great deal of last year upgrading its main factory located in Fremont, California. The former Toyota plant’s retooling is a slow and arduous process and is funded in part by a U.S.$465 million loan from the US Department of Energy and another U.S.$222 million on its follow on offering after the company initially went public.  Another major issue is the multiple suits it is facing claiming that its manufacturer owned showrooms are violative of current U.S. law.

These suits were filed by the auto dealers of America and their respective state associations. Tesla is currently selling its electric cars online and not through franchised independent business dealers. Once bought, the factory delivers the cars directly to the buyer.

In undertaking this practice, two deigned aspects of car purchases are removed, mainly haggling and the buying. The Tesla Stores are educational showrooms where no cars are sold. The dealer groups do not believe this and have lobbied to change state laws as well as prevent the company from opening its stores. The Tesla Stores are viewed as dire threats and the movement has grown to suits filed in four different states.

A different view is being taken by Tesla CEO Elon Musk. He wrote on the Tesla website, “In many respects, it would be easier to pursue the traditional franchise dealership model.” This he said would save the company money and thus broaden its distribution coverage. There is a fundamental problem though, he observed, as the dealers would explain the advantages of battery electric cars while relying on conventional vehicles for their profits and sales.

The purpose of the Tesla stores is to let the public learn about the Model S from product specialists no on commission and learn about electric cars in general. The Model S is very different from any other vehicle that it requires a great amount of education before considering a purchase.  Musk added, “Their goal and the sole metric of their success is to have you enjoy the experience of visiting so much that you look forward to returning again. “

As for laws, Musk adds, “We do not seek to change those rules and we have taken great care not to act in a manner contrary to those rules. “ He views the lawsuits filed as ‘starkly contrary to the spirit and the letter of the law.” One case was filed by a Fisker dealer while the other suit is “an auto group that has repeatedly demanded that it be granted a Tesla franchise.”

Battery Investments and Research on the Upswing


One of the world’s largest corporations, General Electric Co, is increasing its exposure in batteries investments with a U.S. $170 million factory. This facility would make the firm the largest maker of electric turbines, which the company foresees as a key element in its burgeoning energy business.

The conglomerate is planning to unveil its factory on Tuesday and said that it was increasing its investment in the site from its original U.S. $100 million investment planned in 2009. The increase in the investment would double the capacity of the plant’s production.

The company is located at Schenectady, New York and would employ four hundred fifty individuals at full capacity. The factory is expected to spearhead a projected U.S. $1 billion revenue return for the company.

This is but another move for GE Chief Executive Jim Immelt, who has spearheaded up GE’s focus on energy projects in the last two years. These include an astounding U.S. $11 billion in takeovers from 2010 and 2011. Other investments that the company has undertaken include a stake in A123 Systems Inc. and a lithium ion battery maker for electric and hybrid cars. The purchases were funded by proceeds from the sale of a majority stake in the NBC Universal media operation as well as U.S. $15 million in funding from New York state authorities as well as U.S.$5 million from local officials.

The company has also confirmed that it has received its first order of batteries from Megatron Federal, a South African engineering firm. The order amounts to 6,000 units to be used as backup power supplies for its telecommunication sites. The total amount of the order remained undisclosed.

This move by GE seems to echo a projected decrease in the cost of batteries used in electric vehicle platforms. The decrease in the price is foreseen to amount to a seventy percent by 2025, with increasing oil prices and stricter fuel efficiency standards are pushing carmakers to build more cars of this design.

The study was conducted by McKinsey and Co and it stated that manufacturing these batteries on a greater production scale represents one third of the total price decrease by 2025. There is also an expected increase in the number of companies participating in this sector together with the creation of new technology taken from consumer electronics makers can also provide more impetus to cut the costs of lithium ion battery creation.

The report stated, “Cheaper batteries could enable the broader adoption of electrified vehicles, potentially disrupting the transportation, power and petroleum sectors.”

The consultancy firm is projecting that the price of a lithium ion battery array could be as low as U.S. $200 in 2020 and U.S. $160 in 2025 per kilowatt-hour. Current prices range between U.S. $500 to U.S. $600 per kilowatt-hour. Should gasoline prices remain at U.S. $3.50 per gallon or even higher, carmakers that can purchase battery arrays at U.S. $250 per kilowatt hour can provide electric vehicles at prices competitive enough against advanced internal combustion engine powered cars and trucks.

The costs for batteries remain one of the biggest issues to the continued increase in electric vehicle adoption, according to the consultancy firm. The current U.S. Department of Energy goal is to aim for the reduction of the cost of a battery array to just U.S. $300 per kilowatt-hour by 2014. The standard 23-kilowatt hour battery used in Ford Focus Electric costs about U.S. $652 per kilowatt-hour totaling between U.S. $12,000 and U.S. $15,000 for each vehicle.

The experts say, “It’s the consumer electronics industry as much as any other industry that’s driving the costs lower.” Let’s all wait and see.