What is Tesla Motors' biggest flaw/challenge?

[Yggdrasill]

I think Tesla Motors has a brilliant future, but when I look at the company, the Model X/S and beyond, the one thing that worries me is all the extras that people expect to have in a $100k+ car.

The Roadster doesn't have to have too many extras, it just has to be electric and a good car to drive. Tesla has done well in that respect. But now they are moving into areas where the game is fairly different. Audi, BMW, etc have all been in the car market for decades and decades, and have developed all sorts of advanced extras. HUDs, thermal imaging, collision avoidance, etc. All these sorts of things take a lot of money and resources to develop, and you need to be able to put this tech into a lot of cars to make it pay off. Tesla is at a disadvantage. The one good thing for Tesla is technology sharing agreements, but even so, the cost for Tesla to adopt all the technology can be quite high, and will eat at the profit margins.

What do you think?

[ElSupreme]

I think Tesla has a good future also, and even if they can't manufacture cars in 5 years, they still will make/develop/be bought for their EV drivetrains, and battery management technology.

I don't think the 'extras' will be a huge problem. Sure the Model S is lacking a lot of the gadgets that Audi/BMW/MB/Lexus/Acura/Infiniti put on their cars. And it does take a lot of time to develop and test theses devices. The good thing is a lot of these 'extras' are made by OEMs. All Tesla really needs to do is figure out how to buy them and assemble them in their cars. It should only take a year or two to get them added. Not to mention a lot of the 'extras' people don't actually use, and/or are not deal-breakers when buying a car. And as for margins, I hope/think that Tesla will not add these devices to the base model cars. They have purposely stayed away from the 'Luxury' moniker. They will put them in a 'package' which will have way higher margins than the base car. It will only be good for Tesla.

I think their major problem is going to be selling 20,000 Model S cars a year. Because they have 2 large hurdles. The first is they have to sell 20,000 EV vehicles. Nissan is having a hard time doing this with a much less expensive car. Granted I think starting higher up in the market is a better idea, there is also a lot less volume >$50k than at ~$30k. Which brings up the next point. Not only do they have to sell 20,000 vehicles, they have to take that market share from BMW/Audi/MB/Lexus. And those guys are all really good at making cars and keeping people happy. Tesla has the advantage as they sell something that none of the others have, an electric car. I think they will gather a niche in the Luxury market (because that is the way the Model S is priced, not equipped). But I am not sure 20,000 units is going to just happen.

Right now they have ~10,000 Model S reservations. So they have sold out until April 1 of next year. I think there will be a huge glut of reservations after they make about 500 deliveries. I think they will sell out 2012 and 2013 no problem, it is 2014 I am worried about, even after the addition of the Model X. I am worried they may saturate the EV market, or saturate the Luxury car market.

BMW sells about ~200,000 cars a year in the USA. 20,000 is 10%. Tesla is going to become a player overnight in the Auto industry if they can make it work. I think they have all the tools to do so, I just don't know how well they will fight in the market.

And another thing. The Model S I am getting isn't displacing a BMW/Audi/MB/Lexus purchase. I don't like all the 'extras' you talk about. And I certainly won't pay for them. My next car (assuming no Model S) would probably be a VW Jetta wagon. So if there are a good number of people like me, where Telsa can poach from non 'luxury' car buyers they can certainly succeed.

EDIT: BMW looks like it sells ~300,000 vehicles a year (not motorcycle) in the USA a year, I can't find light truck corrections. 200,000 is based on 2012 Jan and Feb sales. So it is probably a little low. But the general point is still valid.

[Robert.Boston]

Scaling up.

At this point, my earlier concerns about TM's ability to design, build, and test a vehicle are largely at bay. A lot could go wrong still, but Elon's confidence during the Q4 earnings call didn't leave a lot of room for hedging. And the speed with which TM could turn out a driveable prototype of the Model X further demonstrates competence in engineering.

But it's one thing to be able to turn out a great, small-volume car, and quite another to become a great car company. TM's bold decision to own the entire distribution channel requires a lot of capital and management. QC and delivery, on a mass basis, must be rationalized and streamlined to be cost-effective. Recruiting, training, and HR matters all need to be ramped up.

A lot of companies stumble at the execution stage; having a great product isn't sufficient (or even necessary) for success.

[gg_got_a_tesla]

Quality!

There are a lot of naysayers out there waiting to pounce on Tesla at the first opportunity. Tesla cannot afford any major problems; just look at the Volt mess.

It's best if Tesla keeps it simple, (relatively) perfect and just gets it right. No fancy gadgets, thank you very much; they can wait for a more accepted and mature phase of Tesla's life i.e. a few decades later?!

[Iamthecaliflower]

Interestingly, Elon has openly stated a goal for the 2020 EV market. He has openly stated that he believes by 2020, 13% of cars coming off the lot will be Electric. Of the 50 million sold annually, that's approximately 299k. If Electric cars take off, it could easily amount to 6,500,000 cars sold annually. If Tesla can penetrate 10% of this, that amounts to 650k cars. If they can pentrate 20% of this, that amounts to 1.3million cars, 30% 1,950,000, et al. That's a lot of cars. Even if the number is more like 6.5%, that's still 3,250,000 overall. Assuming they penetrate 10% that's 325k cars, 20% 650k cars, and 30% 975k cars, and 40% thats 1,300,000. The sales could be ridiculous. Assuming a worse case scenario where penetration is only 4%, that's still 2million cars overall. If they get 10% that's 200k cars, 20% that's 400k, 30% 600k, and 40% that's 800k.

[dhrivnak]

My biggest concern is FUD (Fear, Doubt, Uncertainty). There are powers to be that want electric cars to fail so we can keep on buying large amounts of oil. Many will work hard to show the batteries will not outlast the car and with a Roadster battery coming in at $40,000 one can buy a lot of gasoline and a new engine and transmission for Porsche.

Will people buy a used 7 year old Tesla if they are likely to need to spend more on a battery than the cost of the used car.

[TEG]

Competition from someone with better battery tech.

So much of an EVs cost is the battery pack. What happens if someone else 'owns' a breakthrough that gives them an exclusive to a $25K 500 mile range EV? It may never happen, but there is chance it could... I wonder what Nissan/Infiniti will be offering in 2015...

[Iamthecaliflower]

Competition from someone with better battery tech.

So much of an EVs cost is the battery pack. What happens if someone else 'owns' a breakthrough that gives them an exclusive to a $25K 500 mile range EV? It may never happen, but there is chance it could... I wonder what Nissan/Infiniti will be offering in 2015...

Maybe, but Tesla holds a number of patents that distinguish it from the competition. Also, by the time the competition catches up, Tesla will still be 2-3 years ahead of them. I'd be willing to bet that many companies are thinking the same thing.

[Kevin Sharpe]

lack of understanding of electricity distribution systems outside of the US

[NigelM]

Maintaining owner relationships.

I think scaling-up is the big challenge, but I'm confident enough that logistically they'll work it out even if there's a few bumps along the way. The difficulyt will come with scaling-up AND maintaining their relationship with owners at the same time. I have a relationship with my Roadster that I never experienced with any other car; I suspect other owners do also and by the emotion in some posts it's clear that many reservation holders have that already. Lose that support and things will get much tougher very quickly, nurture it and Tesla could become a household name.