And the All-Electric Tesla Is Really Here
June / July 2009
Volume 7 Number 3
Elon Musk has become one of the most visible car company executives in the world. And he's not working for America's Big Three automakers. He's the founder and chief executive of Tesla Motors, an electric car startup in Silicon Valley.
In April, he made an appearance on the Letterman show, enthusiastically answering questions from a scratchy-throated David Letterman. He appeared in a video with journalist Sarah Lacy and mocked a New York Times writer. He even floated the idea of creating electric-powered airplanes in the future during a conversation with George Zachary at the Charles River Ventures CEO Summit. The PR blitz is part of a campaign to ensure that Tesla scores a much-needed loan from the government.
The electric car is getting unprecedented media attention buzz these days, mainly due to the confluence of trends that started with the election of cleantech-leaning President Barack Obama in November. Just five years ago, such favorable media attention was inconceivable. But with the threat of global warming, the collapse of the American automobile industry, and the hope that alternative energy vehicles could save the economy, the spotlight is bright.
Musk couldn't ask for better publicity and trends.
But beyond scoring a big loan, Musk's job is to make the company profitable on the sales of its existing electric cars, which are aimed at rich people who drive sports cars. In the midst of the recession, it might get harder and harder to find those people. The San Carlos, Calif.-based company is selling its Tesla Roadster sports car, no small achievement since General Motors—€”which made and then killed the EV1—€”isn't due to ship its Chevy Volt until next year. And even then, the Volt will have a range of just 40 miles—€”a number that Letterman laughed at on his show.
Tesla has the good fortune of being in the pole position on electric cars, taking the leadership position in sales even as others struggle to make it to market. The company has sold hundreds of its Tesla Roadster sports cars, which can go from zero to 60 miles per hour in just four seconds. Silicon Valley's richest people can check out the Tesla in its showroom in Menlo Park, while the Hollywood elite can check out a showroom in Los Angeles. There's still a backlog of orders for the cars, which the company started making in March 2008, just five years after its founding. In electric car history, that's a remarkably short time.
The company has received a lot of criticism for the Roadster's $109,000 sticker price. But the major point of the sports car was to finance a vehicle that would be much more practical for everyday commuters, Musk said in his appearance on Letterman. The early manufacturing of the sports cars proves that the technology works. And over time, cost reductions and volume purchases of parts will allow the company to lower its costs and make cheaper models. Call it Moore's Law for automobiles.
The company is preparing to launch its Model S electric sport sedan in 2011. Early reviewers say it has smooth acceleration and can move at breakneck speeds in near silence. If you can imagine future highways filled with these kinds of cars, the most notable difference would be that the cars would sound so quiet. This sedan will sell for $57,400, or $49,900 after a $7,500 tax credit. Tesla is hoping to finance its launch of the sedan with stimulus package money that supports alternative-energy, pollution-cutting vehicles. The company is applying for $350 million in loans from the Department of Energy. The government appears ready to give the money, with installments paid through sometime this year. But it's not entirely final.
The company has shown off its concept car at events in Manhattan. The battery is still being worked out. But the company has said it expects the range of the sedan to be more than 160 miles. That could become more than 300 miles, with an optional super-charged battery pack. Musk has said that it will take only 45 minutes to charge the car to 80 percent of its battery power. It has options including 120 volts, 240 volts, or 480 volts. The car certainly isn't underpowered; it can go more than 130 mph and, for tech fans, it has a 17-inch touchscreen with 3G connectivity. The more voltage, the less time it takes to charge. In early April, the company said it had received 520 orders for the sedan.
It seems unthinkable that this company with just 270 employees can beat the Big Three, with their hundreds of thousand of employees (at the moment), to market in the electric car space. It's a classic case of The Innovator's Dilemma, the Clay Christensen book that documented how market incumbents often fail to grasp big changes in the market and adapt. Despite rising oil prices, American car makers innovated by creating SUVs and vehicles like the Hummer. Now that environmental concerns have turned around attitudes on those big cars, it still seems amazing that such a small company could even get off the ground. If Musk succeeds, it will be due to his Silicon Valley can-do attitude and the close connections he has made as a result of his past success.
Born and raised in South Africa, Musk founded one of Silicon Valley's biggest success stories in 1999. He co-created X.com, an online financial services and email payments company. He merged that with Confinity, which in 2001 changed its name to PayPal. The business grew and the company was acquired by eBay for $1.5 billion in stock in 2002. That stunning success gave lots of money to the PayPal mafia, as the founders and executives of the company were known. They played a key role in the revival of Silicon Valley after the dotcom bust because they were one of the only successes at the time. The founders went on to create web-based social networking companies such as Slide. But Musk started Space Exploration Technologies in 2002, and then he started Tesla Motors with his own money in 2003. By 2005, Musk's wealth was estimated to be $325 million.
He has needed a lot of it, but he also raised a lot of venture capital for the effort. Among the backers are Google co-founders Sergey Brin and Larry Page, former eBay President Jeff Skoll, Hyatt heir Nick Pritzker, VantagePoint Venture Partners, and Draper Fisher Jurvetson.
But it hasn't been without hiccups. Fisker Automotive has sued the company, saying Tesla stole its design ideas in an abortive design partnership. Car designer Henrik Fisker consulted for Tesla, but Musk said in a lawsuit that the design was substandard and Tesla could use it. Fisker later announced his own Karma hybrid-electric sedan. There are dozens of other companies working on electric cars. And Toyota is doing extremely well with sales of its mass-market hybrid Prius.
And the leadership has changed hands often. In August, 2007, the company replaced Martin Eberhard by interim CEO Michael Marks. Then it hired Ze'ev Drori in December, 2007. In October, 2008, Musk, who had been chairman, took over the CEO job. The company started looking for $100 million in additional venture capital in mid-2008. It managed to raise just $40 million from past investors in November, bringing the total raised to $189 million. Prior to that, it had to lay off a bunch of employees and admitted that it had only $9 million in the bank. Meanwhile, rival Fisker raised $85 million in April, 2009.
In February, Tesla announced that it would hit profitability in the second half of 2009. The forecast was based on the fact that the Roadster was sold out through November 2009. Some observers are skeptical that the company can turn the corner. In May, however, Germany's Daimler announced it was purchasing 10 percent of the Tesla company.
The company is at least generating sales, but it is still losing money and needs capital to get its production going. If the company lands its government loans, it plans on proceeding with the Model S and another project dubbed BlueStar. That car is expected to launch for the general consumer in 2012 and cost $30,000. At that price, Tesla may see an enormous amount of demand, and it just might succeed in changing the world. If Musk gets that far, he might do well to turn his attention to SpaceX, which is giving wealthy citizens a ride into space for $30 million each, and try to bring the cost of that down. Or maybe he should try building the electric-powered airplane.
Dean Takahashi reports from Silicon Valley for Innovation.
***
What--or Who--Is a Tesla?
Nikola Tesla (1856 —€“1943) was an inventor and a mechanical and electrical engineer. Tesla was born in the village of Smiljan, Austrian Empire, (today's Croatia). He was an ethnic Serb subject of the Austrian Empire and later became an American citizen.Tesla is often described as an important scientist and inventor of the modern age. He is best known for many revolutionary contributions in the field of electricity and magnetism. Tesla's patents and theoretical work formed the basis of modern alternating current electric power systems, including the polyphase power distribution systems and the AC motor, with which he helped usher in the Second Industrial Revolution.
After his demonstration of wireless communication (radio) in 1894 and after being the victor in the "War of Currents," he was widely respected as one of the greatest electrical engineers who worked in America. Much of his early work pioneered modern electrical engineering and many of his discoveries were of groundbreaking importance. During this period, in the United States, Tesla's fame rivaled that of any other inventor or scientist in history or popular culture, but due to his eccentric personality and his seemingly unbelievable and sometimes bizarre claims about possible scientific and technological developments, Tesla was ultimately ostracized and regarded as a mad scientist. Never having put much focus on his finances, Tesla died impoverished at the age of 86.
Aside from his work on electromagnetism and electromechanical engineering, Tesla has contributed in varying degrees to the establishment of robotics, remote control, radar and computer science, and to the expansion of ballistics, nuclear physics and theoretical physics. In 1943, the Supreme Court of the United States credited him as being the inventor of the radio.
Copyright © 2012 | Innovation America