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.

[Jaff]

+1 dh.

Most of the other issues facing TMC are items in which they can choose to exercise some sort of control over if they wish...as opposed to the FUD factories out there on the net that are virtually guaranteed to spew high grade, anti-EV fertilizer "ad infinitum"...in the short to mid term run, TMC I think TMC will need a full time person(s) to deal with these bogus / fear-mongering type issues.

Also, I had a free loaner vehicle with my Lexus...my neighbour (who has a Benz through a dealership that has common ownership with my Lexus dealer) did not...this always cheesed him off so he spoke to them about it...he now gets a loaner courtesy of his dealership...I think you're right Smooth Op...for those marques that don't as a rule offer a loaner vehicle, it then depends on the the dealership if they want to step up to keep a good client happy.

I have no concern that TMC will not turn out a quality product nor a concern that they will not be able to sell their 20,000 units / year in the future.

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.

[Larry Chanin]

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.

Very well stated. I agree that once the early adopter, low hanging fruit is plucked, it will be much more difficult to attract "normal" people and Tesla has to be very careful not to resort to expensive conventional advertising too soon. If the demand does not develop it would be safer to target lower production rates and remain a small niche market for a longer duration rather than to forge ahead and build inventories. Likewise, the introduction of the high volume vehicle in an increasingly competitive EV market may have to be timed based on obtaining a new generation of batteries with a more favorable cost/performance ratio than the current Panasonic technology.

Larry

[dsm363]

I think a lot of it falls to Tesla's volunteer sales force (us). While my only confirmed sale for a Model S are my parents (ok, that doesn't count), I've talked to a few people at work who are at least thinking about it now. They wouldn't have even considered an EV before I got the Roadster and took them for a ride.

[Larry Chanin]

I think a lot of it falls to Tesla's volunteer sales force (us). While my only confirmed sale for a Model S are my parents (ok, that doesn't count), I've talked to a few people at work who are at least thinking about it now. They wouldn't have even considered an EV before I got the Roadster and took them for a ride.

Yes, early adopters will be a very effective "sales force". We are organizing a Telsa Motors enthusiasts club in Florida. In addition to influencing friends and family, after delivery of our cars and after we start having local meets, we will be able to influence the general public and local government officials. I'm sure that our Florida store manager will be happy to provide us with promotional materials to hand out at local events.

Larry