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."

Comments

Credit crunch my butt

[Gothmolly]

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. If you're a slick dot-com shop with a foosball table and free soda for everyone, and your product consists of a slick name and spiffy presentations, then not so much.

Re:Credit crunch my butt

[neokushan]

Sadly, if Dilbert has taught me anything, it's actually the other way around....

Re:Credit crunch my butt

[morgan_greywolf]

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.

Re:Credit crunch my butt

[baldass_newbie]

You really don't understand market economies. There are a lot of great ideas that never reach the market. It isn't enough to have a 'good idea'. Betamax was a 'good idea'. How was their market share?

Re:Credit crunch my butt

[theaveng]

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.

Re:Credit crunch my butt

[digitalsolo]

My company has free soda.

Luckily we have a Ping Pong table instead of foosball, or we'd be totally boned.

Re:Credit crunch my butt

[acklenx]

Wow, the first thing they do in a marketing class is market marketing....

Re:Credit crunch my butt

[RulerOf]

He forgot the "dozen" before "thousand."

Re:Credit crunch my butt

[Anonymous Coward]

Hey look! With this new fangled "HTML" thing we can make clickable words!

http://xkcd.com/125/

Re:Credit crunch my butt

[dnoyeb]

You are correct. However, what we have is not so much a credit crunch as we do a "Truth crunch." Peoples ability to use smoke and mirrors to get credit has dried up in an instant. Those without sound, impressive, and extremely plausable plans are being kicked out in the street. Those with marginal plans are probably taking the gas pipe as well.

People are not buying bullshit anymore. Not because they don't believe the bullshit; they never did. They are not buying it because they can not sell it on to someone else.

Re:Credit crunch my butt

[inviolet]

You really don't understand market economies. There are a lot of great ideas that never reach the market. It isn't enough to have a 'good idea'. Betamax was a 'good idea'. How was their market share?

Your idea is correct but PLEASE pick a better example to illustrate it with. Betamax was more expensive and had much shorter recording time per tape. For most consumers, these disadvantages very rationally trumped its higher video resolution.

Re:Credit crunch my butt

[Free the Cowards]

"The war saved the economy" is one of those fascinating "facts" that gets repeated constantly but which simply doesn't hold up if you look at it closely.

Consider a similar situation: the government places orders for all sorts of war supplies. Tanks, planes, food, ammo, etc. They all get loaded up on trucks and trains and taken to sea ports. At the ports they are loaded onto cargo ships. Once full, the ships leave port, sail out to sea, and shove everything into the ocean.

And just for good measure, a large fraction of the ships themselves are also sunk.

The remaining ships come back for more, and the shipyards build replacements for the sunken ships.

Economically, this situation is identical to what you experience during a major overseas war such as WWII. But somehow, shoving thousands of tanks and planes into the ocean, and tons of food and ammunition right behind it, doesn't seem like a net gain. In fact, it seems an awful lot like a net loss.

Maybe extra government spending on the war stimulated the economy. But nothing about that stimulus required a war, and indeed without the war it could have been done much better and less wastefully.

Re:Credit crunch my butt

[machine321]

Those with marginal plans are probably taking the gas pipe as well.

You miss the point, the Tesla doesn't have a gas pipe.

Re:Credit crunch my butt

[BlueGecko]

Some deficit spending...and a 94% tax rate. Seriously.

Look: I'm extremely fiscally conservative. But even I'm more than willing to grant that there's a definite balance point between anarchic free-market capitalism and nanny-state socialism: putting aside morals, too much wealth centralized in the hands of too few kills the economy because no one can afford to buy anything, while too much wealth distribution kills the economy because no one's motivated to innovate.

During WWII, we had extremely aggressive taxes to pay for a massive war, where those taxes are going to local industries, thereby supplying tons of previously unemployed laborers jobs. That's effectively labor-based socialism. At the end of the war, Europe had bombed their industry to oblivion, while ours had just been rebuilt, so we were in a wonderful position to get rich--if we had buyers. Critically, the Marshal Plan basically amounted to international socialism, giving Europe money with which to buy American goods. They then used those goods to rebuild their own economies, giving them new income, with which to purchase American goods legitimately.

So, in summary: WWII caused domestic socialistic policies that got us out of the Depression, and the Cold War caused international socialistic policies that kept us out of it.

Can we all agree now that maybe a little wealth distribution isn't necessarily a bad thing 100% of the time?

Re:Credit crunch my butt

[Thelasko]

Maybe extra government spending on the war stimulated the economy. But nothing about that stimulus required a war, and indeed without the war it could have been done much better and less wastefully.

You forget that economics has a psychological aspect to it. During the depression, people were fearful to spend and loan out money. There was a sentiment of distrust among people. The war changed that, it united people to a common goal. Unions ended strikes, and people began to loan out money in the form of war bonds. The money from those bonds were given/loaned to companies to hire and train more people. These people could then afford to buy bonds, completing the economic cycle.

Our economy is a closed loop system that works because people believe in it. Without confidence in the system, it fails. This is why surveys of consumer confidence are made, and the results of which are used by the Federal Reserve to determine its policies.

Re:Credit crunch my butt

[BlueGecko]

Keying the end of the Depression to the return of the DJIA to 1929 levels is wrong, in my opinion. The only reason that the market of 1929 was as high as it was in the first place was that everyone was buying stock on margin, which resulted in hilariously large P/E ratios and absurd market caps. In 1929, as now, the market crashed because the "wealth" was really just debt and didn't really exist . So I don't think it's fair to say that the Depression didn't end until the market legitimately achieved the level that it had artificially achieved thirty years earlier.

A better mark--and why most people do consider that WWII ended the depression--is that the unemployment rate all but evaporated. In the Depression, unemployment was as high as 25-30%. By 1948--the first year in which we started properly tracking unemployment in the Federal Government--it was about 3.5%--a level it held relatively consistently until the 1970s oil crisis.

If you don't like the unemployment rate, let's look at the GDP. In 1929, the GDP was $103.6 billion. By 1933, it had declined to $56.4 billion. It had crawled back up to $92.2 billion by 1939.

By 1945, the end of WWII, it was $223.1 billion.

So, although you're correct that the Dow didn't return to its 1929 levels until 1960, I think trying to make the argument that the Depression didn't end until then is weak, and, ultimately, simply wrong.

Re:Credit crunch my butt

[jguthrie]

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.

Re:Credit crunch my butt

[MrMickS]

Seconded the above. At the time of the dotcom boom my uncle had a new filling machine ready for manufacture. He had orders. He just needed some additional money to build it. He tried banks, VCs, every one he could think of and drew a blank. Yet at the same time VC threw countless money at any proposition that ended '... and its on the internet'.

Unappealing except for early adopters

[Futurepower(R)]

There is limited desire for the first generation of a car that costs $110,000.

Misleading summary

[passthecrackpipe]

Tesla isn't going belly up. They are waiting with further developing their Sedan until they can get a cheaper loan. next year or so.

Like their namesake?

[that this is not und]

Maybe, like Nickolai Tesla, they were just destined to have a great beginning but go nuts toward mid life.

Re:Like their namesake?

[thermian]

Tesla was OK I guess, but those lightening towers he built for the Russians used to tear up my tanks something rotten, the barstard.

Irony

[Lil'wombat]

GM losing billions and getting loans to retool for
Greener, more efficient vehicles like hybrids and while the real innovators go under.

Re:Irony

[Ogive17]

Tesla Motors struggling doesn't affect millions of Americans.

I work for Honda and I don't want to see GM or Ford go belly up because it would hurt us as well as Toyota. We've already had to deal with numerous suppliers shutting down due to GM/Ford plant closures. A good portion of our suppliers built parts for multiple OEMs. When the bigger ones go belly up, the ripple is felt throughout the supply chain.

GM or Ford going out of business might give us more sales, but considering how many suppliers would shut down, our business would suffer immensely. That doesn't even consider the number of people who lose their job and no longer afford buying the car.

I don't like the bail out, the Detroit automakers had poor vision and now are suffering for it, but it's bad for the industry if they don't survive.

Re:Irony

[FileNotFound]

Ford and GM going belly up wouldn't magically cause them and their billions of assets, be it physical or intellectual to disappear.

What you'd have is companies breaking away from the main brand and being sold off. Ford would let Mazda go, GM Saab and so on.

What would die would be the GM/Ford brand names along with the pension plans and other UAW union benefits. Which frankly is a good thing for the US auto industry in the long run.

Re:Irony

[Lord Ender]

The problem is that GM is bankrupt, but it also has made a fantastic amount of pension promises without funding them. At some point, GM will be crushed under that weight, and there will be an army of angry pensioners suddenly thrust into poverty. They will blame whichever government is in power. This is a disaster for the politicians seated at the time.

As a solution, our friendly government has decided to loan ever-increasing amounts of our tax money to GM in hopes of prolonging it's life until their terms are up.

Tesla may be exactly what America needs, but it isn't a political issue, so it isn't going to get free loans from the taxpayers.

What the programmer had to say about the car...

[Jodka]

Wil Shipley of Delicious Monster test drove a Tesla and wrote about it in his blog.

Here is part of what he had to say about:

It's crazy-fast. It handles like a jet fighter. It gets the equivalent of about 140 mpg. It has no gears. It requires almost no maintenance.e It's gorgeous. It's whisper-quiet. And, in Seattle, runs off hydro power.

Comment removed

[account_deleted]

Comment removed based on user account deletion

here ya go

[zogger]

Detroit big three and bailouts

Re:Electric Cars

[Anonymous Coward]

Tesla's business plan involved selling the Roadster as a luxury item to raise funds for designing lower priced (and larger production run) electric cars. See planned models on Wikipedia. Note that at time of writing Wikipedia still gives a 2010 date for the Model S, and the article says that is being pushed back about six months into 2011.

Great idea

[copponex]

What would die would be the GM/Ford brand names along with the pension plans and other UAW union benefits. Which frankly is a good thing for the US auto industry in the long run.

Yes, because the wage declines experienced in America due to competition for low paying jobs with no benefits leads to more low paying jobs with no benefits.

Germany still manages to have strong unions, competitive products, and they actually pay their pensions, because they're required to by law. The only people that benefit from union busting are the CEOs that make 300 times their average worker's salary, versus European CEOs who make about 35 times more than their average worker.

If you want to know which policy is more valuable, take a look at the Euro and the Pound versus the Dollar. This anti-Socialism nonsense is based in a fantasy world where facts are non-existent, and anecdotes trump reality.

Economies of Scale

[Software Geek]

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.

Precedents ... hmmm

[fnj]

Tesla isn't going belly up. They are waiting with further developing their Sedan until they can get a cheaper loan. next year or so.

Ha ha ha. And the economy is basically sound. Elvis and Hoffa are alive. Oswald just came up with the idea to kill Kennedy out of the blue. Bush's advisers are competent. The Taliban are going to realize the error of their ways. Iraq as a muslim state is going to be so much more friendly and peaceful than the secular dictatorship was. The billionaire's bailout will make everything all better. Sending all of our industry overseas will improve our economy. Obama is the Messiah. Things are really going to change now. Duke Nukem Forever is almost ready. Vista was a great achievement and everybody loves it.

why VC cash may be fleeting

[Rick Bentley]

VC's don't have a mixed pool of assets from which to operate, nor do they operate on loans in any traditional sense. If you're at a Venture backed company right now, like Tesla, it may be useful to know how the Venture Capital system works:

First, the people we call "VC's" are really the "General Partners" (GP's). They're the people the companies meet with and the ones who ultimately decide how much to invest in which companies. They'll have a variety of "Associates" or "Venture Partners" around helping out, but the "General Partners" are the ones who decide where the money goes.

The money itself doesn't come from loans, per say, nor is the money sitting around in some kind of mixed asset class. VC's don't have money laying around in a bank somewhere, at least not a lot of it. The money comes from "Limited Partners" (LP's). The LP's could be very high net worth individuals, they could be pension funds, they could be insurance groups, they could even be "funds of funds" (funds created just to figure out which VC's to put money into). A typical VC will have a mix of all of the above in their LP pool.

So, if a VC has a "$250 million dollar fund" that doesn't mean that everyone wired over a total of $250MM when the fund was created and that the VC's draw he money down. What it means is that the VC's have $250MM to call on when they make an investment. So, VC-Guys decide "hey let's put $10MM in this startup", they make a "capital call". That's when they tell their LP's to put in their pro-rata share of the $10MM they decided to invest. The LP's move the money into a single account, that account makes the investment on behalf of the Venture Capital group. When they've spent the whole $250MM (or whatever) they have hopefully already raised another fund to start investing from.

It's that last part that should be scary to any of us dependent upon the Venture Capital market doing its thing. Guess what all those pension fund and insurance groups are doing right now? I'll tell you what they're NOT doing, they're NOT showering VC's with new commitments for new funds. Even worse, some of them are so upside down that some LP's can't make their capital calls. This mean that the VC calls and says "your pro-rata share of the $10MM is $$684k" and the LP says "...er, I don't got it. Sorry". So the VC's suddenly have less money to invest than they thought.

This results in a lot of VC's sitting on their hands and not investing in big rounds of later stage companies like Tesla (or maybe the company you're at now). This isn't a bad idea for them either, the latter stage financing that they counted on their companies getting (debt based instead of equity based) is largely gone too. So they build a company up to the stage they used to build it up to and there's no one there to take it to the next level. The right thing to do is to get a company to cash-flow positive ASAP, and then worry about growth later when there is outside money available to help you do that. TFA says "the company's goal is to become cash-flow positive in six to nine months", presumably (hopefully?) they have access to enough cash to pull that off.

All you forgot about is East Germany

[copponex]

Comparing the whole of Germany isn't quite the same. West Germany has comparable, and even lower unemployment rates than the United States, but the leftovers of East German policies are still affecting the economy as a whole. Government subsidies are still flowing East, just as the Northeast and West coast pay for the infrastructure of the rest of our country.

Even with a former communist bloc attached to it, Germany has lower poverty levels, better education, and equal access to health care. Oh, and when polled, the Germans are far more satisfied with their health care than Americans are with their own, despite paying less than half of what we pay.

Comparing Tesla Motors to Nikola Tesla?

[fnj]

Maybe, like Nickolai Tesla, they were just destined to have a great beginning but go nuts toward mid life.

Nikola Tesla had a uniquely staggering natural insight. He was almost single handedly responsible for AC and polyphase power systems, and the AC motor; and made great contributions to ballistics, radio, radar, robotics, remote control, nuclear physics.

Tesla was a millionaire at 40 (when a million dollars was an astounding amount of wealth), and would have been the world's first billionaire had he not torn up his contract with Westinghouse because of his social conscience.

I hardly think Tesla Motors can be compared with Nikola Tesla, but at least they recognize his greatness, and the fact that he invented a key part of the technology that enabled their dream.

Re:Electric Cars

[Rei]

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)

Woosh...

[Animats]

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.