Tesla SJames Lipman
Last Sunday another player in the electric vehicle (EV) game went bust. Better Place, founded in 2007 with a plan to provide battery-swapping stations for EVs, filed for bankruptcy.
I am not surprised. Nearly four years ago I wrote here in the Globe that I doubted Better Place would find the millions, if not billions, necessary to make its grandiose EV infrastructure ideas a reality. More importantly, it seemed obvious in the fall of 2009 that Better Place's battery-swap concept required something that would never happen in the highly competitive car business: a standardized battery pack and electric vehicle design.
Undaunted, then-CEO Shai Agassi told me Better Place was "in serious discussions with 10 companies" on a standardization approach. I was skeptical. Agassi, I wrote, gave me the "feeling that he thinks I'm a bit of an idiot for even suggesting that he and his company might struggle to achieve the lofty goal of making the electric car the only sensible, practical transportation choice in the 21st century."
EVs have a future, no doubt. But it's not as rosy as the recent stock market performance of Tesla Motors might suggest. Yes, yes, Tesla's Model S luxury EV earned the highest score in Consumer Reports' ratings – 99 out of 100. The Model S "catapults" from 0-100 mph in 5.6 seconds, said CR, "and its pinpoint handling is reminiscent of a Porsche, and the beautifully-crafted interior calls to mind an Audi." CR also said the car "has the ride and quietness of a luxury car and is far more energy efficient than the best hybrid cars."
CR also argued that the "hefty" 85-kWh lithium-ion battery is a plus; it gives the Tesla S a range approaching 322 km, far exceeding the 129– and 121-kilometre range of the Ford Focus Electric and Nissan Leaf, respectively. CR said its Model S returned the equivalent of 84 mpg (2.8 liters/100 km), which means "it's like running a conventional car on gasoline that costs $1.20 per gallon."
Buried in CR's report is something every buyer should think about twice: "Another concern is investing in a new car and startup company with no track record for reliability or resale value, and a skimpy (although growing) service network." Not surprisingly, without a reliability history, CR cannot recommend the Model S.
The challenges facing Tesla here are no small matters. Big, established car companies such as Ford and Nissan engineer their EVs to deliver the kind of reliability consistent with their brands. The Focus EV and the Leaf are Ford and Nissan cars first, not a start-up EV. They come with impressive warranties backed by billion-dollar car companies with global service and sales networks. Tesla? As a vehicle, the Model S is impressive. Nonetheless, buying a Tesla is a gamble on a new car company with nothing that resembles the rich and far-flung support infrastructure you get when you buy an EV from an established auto maker.
Tesla is an interesting start-up and a recent fawning CNBC documentary on the company raved about the entrepreneurial zeal of the Tesla team led by founder and PayPal millionaire Elon Musk. However, as www.just-auto.com recently noted, "the last time a group of entrepreneurs founded an auto maker from scratch in the U.S. whose brand is still with us – after two notable bankruptcies, mind you – was December 1924. The entrepreneur in that case was Walter P. Chrysler. No one's done it since."
So the question is: Can Tesla survive as a real car company selling a niche product – EVs – to buyers who for now are happy to pay an outsized priced for cars that will eventually need to be serviced and repaired? The stock market says yes. When last I checked, Tesla was trading at nearly $105 (U.S.) on the NASDAQ, having more than doubled in May alone and tripled in the last three months.
Also note that as Bloomberg reported, Tesla Motors Inc. paid off the entire balance of its U.S. government loan given as part of a Department of Energy program to spur development of alternative energy vehicles with interest – $451.8-million (U.S.) in all. That's all good.
But lost in the headlines is the fact that Ford Motor keeps making quarterly payments of $148-million on its $5.9-billion U.S. Government loan of which Bloomberg says $5.5-billion is outstanding (all figures in U.S. dollars). And Nissan Motor told the news agency that it is "honoring its commitment" to the $1.4-billion loan it got from the Department of Energy. "The company is fully compliant with the terms of the loan," said Nissan.
Nissan, through the Renault-Nissan Alliance, has invested some $5-billion in EVs and battery technology. The Leaf and its batteries will be built at a brand new high-volume plant in Tennessee. Ford has invested billions in EVs, too, and is steadily growing its fleet of pure EVs and plug-in hybrids – including the Focus EV and plug-in versions of the C-Max van and Fusion sedan. General Motors has the Volt already and this year will launch the Spark EV and a plug-in Cadillac that uses much of the Volt's technology.
Fiat, meanwhile, has the Fiat 500e in the works and Toyota has an EV RAV4 using a Tesla-engineered powertrain. The sprawling Volkswagen Group and its Audi luxury arm are both aggressively moving ahead with EV programs. Daimler, too, has a comprehensive EV program in place and this year we'll see its smart brand introduce the smart EV.
At BMW, CEO Norbert Reithofer recently told the company's annual meeting that the i3 EV city car will go on sale later this year. To counter electric-car concerns about cost, range and reliability, BMW has started a global marketing campaign.
On top of all that, Daimler, Ford and Nissan plan to launch affordable fuel-cell cars within five years. Toyota, BMW, Honda and Hyundai Motor aim to do the same, within a similar time frame or no later than 2020. Tesla then will be competing against electric cars fuelled by hydrogen fuel cells. The fuel cell promise is a car that emits only water vapour, and compared to EVs, can cover much longer distances and refuel more quickly.
And so on and so on and so on. The point is, the world's biggest auto makers, with combined revenue not in the billions but the trillions, are on the cusp of launching an EV offensive – fuel cells included – that will most certainly have an impact on Tesla. The EV space is about to get very, very crowded with companies anxious to win market share and earn profits.
Tesla appears to have a very good Model S, but as anyone should see, the company faces massive challenges on many fronts. The big car companies have deep pockets and a rich reserve of technological resources and capabilities. They all have wide-ranging supplier networks, not to mention established global sales, service and distribution networks needed to support EV customers as they become owners of used EVs and EVs that break under warranty. That's the reality.
Tesla right now has the makings of a sexy "David-versus-the-car-company-Goliaths" story. The company has captured the imagination of a lot of people, including a surprising pool of investors. I, however, remain as skeptical today about Tesla's future as an independent car company as I was of Better Place four years ago.