When examining where Tesla Motors is in the automotive landscape as they close out 2013, it’s important to remember that things weren’t looking all that great for startup electric car companies a year ago.
Katie Fehrenbacher over at GigaOm summed things up well last December. Fisker Automotive, which like Tesla received money under from the government’s Advanced Vehicle Technology Manufacturing program, had already ceased making cars. Fisker’s battery manufacturer, A123 Systems, had already gone bankrupt.
At the time Israel’s Renault-backed Better Place was also showing signs of major problems, which would lead up to their bankruptcy declaration the following May.
This time last year Tesla stood alone. And this year, they thrived, but their journey has been an often precarious one.
The company spent 2013 garnering rave reviews for their Model S from journalists and owners alike. They had high-profile scuffles with the media. They surprised everyone and had two profitable quarters. They dealt with issues related to cold and fire. They battled car dealers across the country who feel threatened by their direct sales model. Their stock, while unquestionably overvalued, was and continues to be strong.
They have moved from being the unlikely upstart to a legitimate player in the auto industry, and the one that makes what is most likely the hottest car on the market at the moment. But as they make ambitious plans for the future, they have a long way to go.
Perhaps more than any other automaker at the moment, Tesla has the most fervent and staunch defenders of the company in the form of its owners and supporters. Each time Jalopnik publishes a story that is critical or skeptical of Tesla, we get hammered for it in the comments and in the Tesla forums, called paid agents of Big Oil and the so-called Big Three Automakers. (Full disclosure: We are not.) I would argue that it’s our duty to be skeptical of any car company, no matter their size.
But take a step back and think about it for a second: Why wouldn’t you be skeptical of Tesla? Go back and look at the track records of other automotive startup companies. Most of them end in failure. As Sam Biddle over at Valleywag reports every day, startup companies are more than happy to come in with exciting ideas that may or may not be feasible all while scooping up as much money from celebrities and idealistic young investors who want to change the world — and in Tesla and Fisker’s case, from taxpayers as well — before they go kaput. And they do so with endless amounts of willing hype and almost no questioning whatsoever from the news media that covers them.
Look at ZAP Motors, which notoriously took millions from investors only to never put a car on the road. Look at Better Place and Fisker. Look at Carbon Motors, not an electric car company but one that purported to build green cars and are now called “snake oil salesmen” by the members of the community they left high and dry after considerable grants and tax breaks. Look at people like Scott Douglas Redmond, the poster child for electric car startup shadiness.
How the hell are you any different, Tesla? So what if you stuffed some laptop batteries into a Lotus Elise once and got yourselves a few glowing road tests in the car magazines. What makes you special?
But 2013 was the year where Tesla proved they are different. And that they might just pull this thing off.
It’s impossible to overstate how much of Tesla’s current success should be attributed to its co-founder and CEO, Elon Musk. The managerial nightmare that embroiled Fisker is proof of what happens when you don’t have the right person at the top, and probably no one could grow Tesla the way Musk has.
This is a man who, in 2008 when General Motors and Chrysler appeared headed for bankruptcy and the credit markets were drying up, invested his own PayPal fortune into the company without backers and had to borrow from friends for living expenses. He thought Tesla might be dying, but his leap of faith attracted more investors and saved Tesla from disaster.
He’s proven himself to be a tireless and ardent fighter for his company, one who arranges for customers to get their cars fixed on Twitter, actively engages with his customers through the company’s blog and other new media and is never afraid to say what’s on his mind. In the tightly-controlled world of auto industry PR, Musk is about as real as you get. To top it all off, he’s smart, ambitious, innovative and seems to have fun at what he’s doing.
The other critical factor in their success has been a simple one: the strength of their product. The Model S is an outstanding, high-tech luxury sedan that largely lives up to its hype. If the car wasn’t very good, Tesla would not be in the shape they find themselves in.
That’s not to say Musk and Tesla had an easy year. He’d probably be the first to admit that their current success was all hard won.
Tesla’s rollercoaster year got off to a rough start in February when a New York Times reporter failed to make a very cold drive from Washington D.C. to Boston in a Model S, leading Musk to say the story was “fake.” That’s a hell of an accusation to make against the New York Times, and it led to a back and forth battle of words, data logs and second attempts by other people. Musk later said he wanted to move on, but he claimed the debacle cost his company $100 million.
Evidently, Musk is sometimes wrong, because people didn’t care. By May Tesla scored two major victories: getting the highest Consumer Reports score ever and then handily outselling all of their competitors from BMW, Audi and Mercedes-Benz and becoming the top-selling car in eight of America’s wealthiest cities. The Model S has become the status symbol for the forward-thinkers, the gadget-lovers, and the eco-minded.
May was also a good month for Tesla because it was the first time the company reported a profitable quarter, a development that shocked industry watchers who said they could’t do it. They would go on to do the same in August, once again beating expectations.
Oh, and they also paid back their government loans nine years early and with a net gain of $12 million to U.S. taxpayers. GM still owes the U.S. billions of dollars.
Also in August, the Model S was named the safest car ever tested by the National Highway Traffic Safety Administration. By this point, it was clear that the Model S was more than just a flash in the pan.
The tricky part was getting those cars to the people who want to buy them. Tesla, like Apple, prefers to sell their products directly to the customer rather than through a third-party middleman like a car dealer. Unlike countries like Canada or Germany, where direct sales coexist with independent dealers, the idea of a manufacturer cars selling straight to customers goes against the grain in the U.S.
Since car dealers feel Tesla could open the floodgates and lead to, say, Chrysler or Toyota or whoever selling cars directly, they have used their considerable political clout and large pocketbooks to influence lawmakers to pass legislation banning or tightening direct sales.
This led to Tesla waging a state-by-state war of money and influence against car dealers, and one that is unlikely to end soon. It’s happened in places like New York, Ohio and Texas. There, Tesla’s “galleries” are legally prohibited from giving price quotes or offering test drives. And in states like Texas, the powerful dealer lobby handily outspent Tesla in campaign contributions. Welcome to how politics works in America.
Many have wondered why Tesla doesn’t just bite the bullet and set up a franchise system. But why should they have to, especially in a state that claims to be pro-free market and pro-business like Texas? Further, as Musk told Reuters earlier this year, the chances that a small startup company can pull off a successful dealer chain are historically slim:
He told shareholders that the traditional dealer model has not worked for other auto start-ups, including Fisker Automotive and Coda Holdings, which filed for bankruptcy last month.
“It didn’t work for Fisker, didn’t work for Coda. In the last 90 years, when did it work?” Musk said at the meeting in Mountain View, California that was also broadcast online. “We have to do this directly.”
It’s possible Musk could take his fight to the federal level next year, but positive results aren’t guaranteed. This remains a David vs. Goliath situation.
As they continue to add new Supercharger charging stations across the country, Tesla also debuted their battery swapping technology in June. Musk said that when these stations become more common, customers will have the choice between “free” supercharging and “fast” battery swapping.
Most likely, Americans may never fully accept electric cars until charging them is as fast and convenient as filling a tank of gas. This could be a good step in that direction.
But just when it seemed when the cold weather controversy was a distant memory in the minds of the public, Tesla was hit with yet another crisis: their cars catching fire following crashes, which as far as we know has happened three times on public roads. The fires occurred near Seattle, in Mexico, and in Tennessee. (The cause of a garage fire at a home in California where a Model S was charging is in dispute.)
While the news media took the fire story and ran with it, and it was partially credited with a dip in Tesla stock at the time, we pointed out that it’s really not a big deal. Besides the obvious fact that fires happen all the time when gasoline-powered cars are involved in crashes, only three fires have been reported so far out of the some 14,500 Model S-es sold in North America this year alone. None of the fiery crashes led to fatalities or serious injuries either; as Tesla has said repeatedly, they did what they were designed to do, which is protect their drivers and passengers.
The Tesla fires were news because the company is new, and to most Americans, the modern electric car is still something of a novelty as well. That will no doubt change with time.
Tesla closes out a rocky year that frequently had them in the news, sometimes for the wrong reasons, but was ultimately a successful one. But resting on their laurels is not an option for the company. Compared to the major manufacturers, they’re still a boutique company at this point. They raised their game in 2013; more will be expected of them in 2014.
For one, they’ll have to post more profitable quarters, with more profit coming from actual vehicle sales rather than selling carbon credits. Their overhyped stock price will come down to more reasonable levels at some point. And while the Model S is strong, the hype won’t stick around forever. They’ll have to add new models to their lineup soon. As one analyst recently told the LA Times, no company can expect to sell just 20,000 to 30,000 cars a year and expect to be profitable in the long term. And they still have car dealers to fight.
Most likely, that will happen sometime next year with the debut of the Model X crossover SUV, last seen in prototype form at the 2013 Detroit Auto Show and one said to cost about as much as a Model S. I predict that when it goes on sale it will once again be the hottest vehicle in its segment on the market. You think Americans are good at scooping up luxury SUVs made by Porsche and Audi? Just wait until Tesla debuts theirs. That will be the car to have in the U.S.
Tesla is already taking $5,000 deposits for the Model X, though they won’t say how many they have accepted.
After that, Tesla is reportedly planning to debut the Model E sedan sometime in 2015 with a release in 2016 or 2017. Said to have a $40,000-or so price tag with a 200 mile electric range, it will compete directly with the BMW 3-Series and its ilk and open Tesla to an entirely new market of buyers.
And then there’s the Tesla pickup truck that Musk wants to build at some point. If it’s going to compete with other high-end trucks, Tesla’s engineers must create one that can do all the truck-things buyers want, like tow a boat up a snow-covered mountain. Half-measures don’t work in the truck market.
It’s good to see a startup automaker beat the odds, especially one that is based in and builds their cars in the U.S. Tesla heads into 2014 with a great deal of momentum. Can they keep it together another year? We’ll see.
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