From BusinessWeek.com Special Report March 27, 2009, 12:01AM EST
Tesla's Electric Car for the (Well-Off) Masses
The company says its $49,000 Model S can go 300 miles on one charge and carry seven people. But it needs $350 million to start production for 2011
By Christopher Palmeri
With the economy in the tank and oil prices low, most drivers have more to worry about than their gas bills. Still, the prospect of a Silicon Valley company shaking up the moribund automobile industry with a new all-electric car was enough to draw a crowd for the Mar. 26 unveiling of Tesla Motors' Model S.
The first electric car produced by entrepreneur Elon Musk, the South Africa-born co-founder of PayPal, caused a sensation when it rolled out in 2006. The Tesla Roadster was a low-slung, $109,000 rocket ride, with a body based on the Lotus Elise and capable of going from zero to 60 miles per hour in 3.9 seconds. It was among the first cars to marry an all-electric engine with the looks and speed of a sports car. Musk's company, Tesla Motors, claims to have sold 1,200 Roadsters, with 250 delivered to wealthy, tech-savvy eco-enthusiasts in such places as Silicon Valley, Los Angeles, and New York.
The Model S, on the other hand, is more of what motorheads might call a daily driver. It's a four-door sedan with an optional third set of seats that can boost capacity to seven people. At 196 inches long, the Model S is five inches longer than a Honda Accord. Musk told the more than 100 journalists gathered in Los Angeles on Thursday that extra room was essential: "I see it potentially replacing some SUVs."
Quick Recharge
The new car has improved range and battery life over the Roadster. Tesla's first car can travel a maximum of 244 miles on one charge. Powering it up again takes three and a half hours. The Model S claims a 300-mile range and fast-charging technology that can have it ready to roll again in 45 minutes.
Model S battery packs will be easier to remove, so long-distance drivers may one day be able to stop at repair shops and borrow a fully charged pack. Musk hopes to open 40 shops each in the U.S., Europe, and Asia over the next few years.
The Model S is sleek but hardly a head-turner. The front end is slightly reminiscent of a Maserati Quattroporte; the rear, more like a Nissan (NSANY) Altima Coupe. Tesla's chief designer, Franz von Holzhausen, a veteran of General Motors (GM) and Mazda (MZDAY), says the car was not designed to stand out as a uniquely fuel-efficient vehicle, as Toyota (TM) has done with its hybrid Prius and Daimler-Benz (DAI) with its Smart cars.
"I see us slipping out of an era when we have to broadcast," von Holzhausen says. "Our customer base doesn't need that affirmation."
New Kind of Dashboard
Other features will help the Model S stand out. Holzhausen designed a 17-in. flat-panel screen in the dashboard that will contain most of the interior controls: heating, lights, and stereo. It'll come with wireless Internet access so drivers can check e-mail and read restaurant reviews (hopefully, at stoplights). "We're spending a lot of time on the interface," von Holzhausen said. "I don't understand how I can pay $299 for iPhone and then get in my car and still have to turn knobs."
The Model S won't be available until 2011. Tesla is taking deposits now on the cars, which will cost $49,000 after a $7,500 federal tax credit for electric vehicles. But to produce the car, Tesla needs a lot more money. The company is asking the Obama Administration to provide as much as $350 million in loans, which the company would have to pay back. Musk is angling for funding from two Energy Dept. programs, one for eco-friendly technologies, another specifically for green vehicles.
Musk has already raised $195 million from private sources—one-third of it his own money. Musk says a decision from the government should come by the end of this year. "This car will be manufactured," he says. "Have no doubt about that."
Coming Competition
Despite Musk's accelerated confidence, Tesla has already hit some bumps in the road. There were major cost overruns on the Roadster. Last year, Musk took over the driving from his original chief executive and laid off 80 of Tesla's 380 employees.
Then there's the rising electric-car competition. The Model S will hit the market at the same time as a flurry of new "plug-in hybrid" vehicles, including GM's Chevy Volt, which will run on electric power and gasoline. Nissan, Toyota, and Ford (F) plan similar fuel-efficient offspring.
Musk says he's more pleased than scared by the competition. "I wouldn't call this a category killer," he says. "It's a very competitive electric car at a commercial price. We're hoping other car companies will follow our lead and accelerate the transition from gasoline to electric. The environmental damage from oil may already be irreparable. It's very important we make that transition."
Of course, there are other perks with electric vehicles besides maybe saving the planet. Jason Calacanis, a tech entrepreneur and friend of Musk's who bought three of his Roadsters, was standing outside Musk's Los Angeles plant shortly after the Model S press conference. Calacanis said his Roadster turns heads.
"One time a cop pulled me over just to ask about it," Calacanis said. He was on his way to the airport, where he could park in a $30-a-day lot for free, a perk for all-electric vehicle drivers. "It's sexy and efficient. Like me."
Palmeri is a senior correspondent in BusinessWeek's Los Angeles bureau.
>>I think that if they expect to get some stimulus money from the government then they should consider giving work to other places in the US too, like Detroit, somehow get them involved in the process, to share the wealth so to speak, because I think this is a great idea...I read Atlas Shrugged by Ayn Rand as a kid, and it influenced me greatly. Companies rise and they fall...Some institutions can't be saved unless they have a good idea...If a company has a good idea, there will always be someone who wants to invest in it...Foreign companies that expect to do business in the US at this juncture should consider actually making an investment in the country itself so that they have a broader customer base. If they can make this car affordable one day (I'm not saying that I have any illusions about product price when they first hit the marketplace, because eventually those luxury items go down in price if the company expects to actually do some good...) then that would probably be Tesla's dream too...
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