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Tesla Motors Shaken Up, Laying Off
tjstork writes "Tesla Motors, the darling of technorati for its high performance electric car, may be about to go belly up. Venture capital is cut off, layoffs are under way, and construction plans are being stretched out. Elon Musk has ousted the CEO and taken the reins, blaming the global credit crunch."
GM losing billions and getting loans to retool for
Greener, more efficient vehicles like hybrids and while the real innovators go under.
Truth: If it's not one thing, it's another
If your product works, or at least appears to, and you have a sound plan for getting it to market, where it will be purchased, then SOMEONE will loan you the money.
Not necessarily so. For one thing, Tesla Motors has a long list of pre-orders, IIRC, and I believe they started shipping cars, so there is apparently sufficient demand for their product.
In this tight credit market, lenders are reluctant to lend money to even stable, established companies. They're not even issuing commercial paper -- which are short-term loans to other banks.
Venture capital usually doesn't mean that VC or "angel" fronts cash right out of their own bank account or even out of their investment accounts. Many times, they themselves are operating on loans -- if you have a lot of assets, like many VCs, it may be more better to keep your cash locked up and invest borrowed money because the interest rate you pay on the loan may be much cheaper than losing the interest from those investment accounts, especially if they have golden credit.
And if the VCs with the golden credit aren't getting loans, well, that shows you just how bad the credit market is.
My blog
During the Great Depression lots of people had great products (cars, houses, radios), but since one-quarter of people were jobless, almost nobody was buying these products.
About the only 1930s industry that profited was the movie industry, mainly because people wanted to escape reality, even if only for three hours.
FOX NEWS.com should be BANNED from television and internet. Have the Congress take it over and give us Truespeak.
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There are economies of scale in the auto industry, but the price of an individual model still doesn't drop much.
The choice of car body material is illustrative. Fiberglass is cheaper than sheet metal for small production runs, since you don't have the up front cost of tooling up expensive sheet metal stamping machines. Sheet metal is cheaper than fiberglass for large production runs, since you can amortize the cost of the stamping machine over many units and there is less labor cost per unit. Once you have gone into production with a fiberglass body, it is not feasible to re-tool your assembly line to use sheet metal instead of fiberglass, so as to achieve an economy of scale. Such a change would a) totally disrupt the assembly line, and b) force you to redo all of your safety tests, etc.
Generally speaking, in the auto manufacturing business, you decide how many vehicles you are going to make and what economies of scale you will see years before the first vehicle is made. If you guess wrong, you don't get a chance to change your mind.
So, in the case of Tesla, if the current model is wildly successful, its price is still unlikely to come down. Instead, they will introduce a follow-on model with more planned units and a lower price from day one.
http://xkcd.com/756//
Several dozen. They're only a small fraction of the way through the preorder list, though.
This headline is quite misleading. Tesla is not about to go "belly up". Tesla had an extremely ambitious scale-up plan (one might say overambitious), trying to get the Model S not only onto the market, but in mass production. The current credit crisis really can't support that kind of expansion from a new company like Tesla. Which, really, is why this crisis is such a disaster, especially for cleantech. Innovative cleantech companies are generally high risk, high reward. Right now, the market can only tolerate low risk. Hence, Tesla is basically undoing part of their expansion and will be focusing more on Roadsters until they get into the black rather than trying to leap ahead to the Model S. Given their preorder list, Tesla is guaranteed a revenue stream so long as they can deliver product faster than they're burning money (and they just cut some of the burn)
Isn't it enough to know that I ruined a pony making a gift for you?
Tesla motors has no proven ability to make anything except prototypes. It costs a lot of money to start a car company, because the factories are so expensive, and recouping the tooling costs requires that you amortize that cost over a large production run, which a startup really can't do because they have very little of the supporting infrastructure (dealers, trained mechanics, etc.) in order to be able to sell what they make to a mass audience.
What that means is that Tesla was always and still remains a long shot at being a viable company. At the present time, all Tesla has is a prototype and a story while GM has a lengthy history of actually building a lot of cars and making a profit by selling them. That is why Tesla has trouble getting financing while GM has less trouble. GM has assets they can sell and lots of momentum behind them. What does Tesla have except a following among the sort of people who regularly visits Slashdot?
You don't need to imagine a conspiracy to see why this is so, only a view of history. There is a long history of even established auto manufacturers finding it difficult to enter new markets. Remember Renault or Sterling (nee Rolls Royce)? Well, you probably don't, not as manufacturers that sell cars in the United States, anyway. The thing is, they both tried to enter the North American market and both were pretty dismal failures.
In fact, I remember reading an article praising the virtues of the cars made by Gordon-Keeble, which is a sports car manufacturer that you've probably never heard of. That car was actually put into production to be sold into exactly the market that the Tesla is targeting at about the same real cost, and without requiring the invention of a lot of the new technology that had to be invented for the Tesla. Despite the relative advantages (relative to mass market electric cars, I mean) it enjoyed, it eventually failed because it wasn't viable.
Most big-ticket manufacturing items are like that. It's tough to start a new company to build aircraft, for example, or ships or trucks. New entries face higher costs and can hope for much lower revenues than their more established competitors, and because of that a little thing like higher interest rates (in the late 1970's, the interest rates on mortgages were in the 20% range) can spell the end of a hopeful company while a larger company has the resources to weather the storm.
The Tesla is a great idea, but they tried too hard to make it really fast. The original idea was to have an air-cooled electric motor and a one-speed transmission. But they couldn't quite get the top speed they wanted, which was somewhere above 125. So they went to a two-speed transmission, and the first transmissions wore out rapidly. Then they went back to a one-speed transmission, and tried water-cooling the motor so they could pour more current into it. This ran up their costs, delayed shipping of the product, and made the thing more complex. If they'd settle for a top speed of 110 MPH, the thing would be much easier. It would still have the acceleration.
More fundamentally, "bling" is dead. It died about two weeks ago. The luxury industry is terrified right now. It's very clear that we're in for a long, worldwide recession. Expensive status symbols are so over.
I see Tesla cars on the road regularly. But that's because I live near the Silicon Valley dealership. I think they demo the thing by driving past my house and out to Canada Road near Crystal Springs Reservoir, which has a nice scenic route with little traffic where they can speed. I just hope they don't wipe out a bicyclist out there.
They do "woosh" by without engine noise, as advertised.