Last Best Hope For Electric Cars

You are excused if you did not see the recent announcement about Tesla Motors, the one shining example of the future of electric cars. The news was buried in the small print in business sections of most newspapers, if it was covered at all. However, the news deserved more attention because Tesla Motors has the distinction of being the first U.S. company to produce and sell an all-electric car. That's no small feat when you consider the world's largest multi-billion auto manufacturers' plans for producing and retailing electric cars are still years away.

In its announcement, Tesla Motors and Toyota unveiled plans to work jointly on electric vehicle development and production. As part of the agreement, Toyota signaled that it will purchase $50 million of Tesla's common stock. Currently, Tesla is privately held, but it filed papers early this year with regulators, revealing its plan for an initial public offering. No date has been set for the IPO.

Perhaps, the lack of excitement about the investment can be traced to Tesla's checkered past. Its founder, entrepreneur Elon Musk, has been a mercurial leader for the motor company. Musk, who co-founded PayPal, has flitted between the car company and SpaceX, a private space exploration company he started. There also have been questions about the firm's financial viability. Since its founding, the company has lost about $290.2 million. Add on top of that, Musk's brushes with messy lawsuits and legal settlements during his tenure at the company, and it's little wonder skepticism runs deep. In addition, Tesla's public relations machine has often ginned up expectations that went unfulfilled. That has created a credibility gap that makes the media wary of any Tesla announcement.

Yet the Toyota investment could be the spark that jump starts mass production of electric cars. This is more than Toyota just throwing chump change at a potential competitor. Money aside, the real news is that Tesla has purchased a part of the former NUMMI manufacturing factory in Fremont, California. General Motors and Toyota had been sharing the facility until GM pulled out in June, 2009. Toyota produced its last car there in the plant a month ago.

What has always hamstrung any start-up car company has been mass production. Modern automobile plants require nearly a billion or so dollars to build, making mass production out of the reach for small firms. Producing a few hundred cars is all Tesla could manage on its own. Even with limited facilities, the Palo Alto-headquartered Tesla has manufactured 1,000 of its Roadsters, attracting a loyal if small following of car enthusiasts. The Roadster, equipped with a 375-volt AC induction air-cooled electric motor, looks like an European expensive sports car. The price tag is around $100,000, putting it out of the reach of ordinary Americans. Without mass production, the Roadster will remain a novelty.

However, Tesla has developed a sleek sedan, dubbed Model S, with a base price of $49,900 and a range of 300 miles on one electric charge. The car zooms from zero to sixty in a breathtaking 5.6 seconds. According to Tesla officials, the new model can be quick charged in a mere 45 minutes and is twice as efficient to operate as today's hybrids. If indeed the car can deliver on those numbers, then highway-capable electric cars could go mainstream faster than anyone imagined.

Another thing Tesla has going for it is the design. Its electric vehicles do not look anything like the prototypes the big auto companies have unwrapped in recent years. They share design traits with European sports cars, not the boxy hybrids being pumped out today. Why anyone would buy one is beyond me, unless it is a person wants to thump his chest and proclaim, "I am an environmentalist!"

The key to Tesla's success is producing enough cars to seriously contend with the big automakers. Mass production not only amps up the inventory, but it will bring down the per unit price of each electric vehicle sold, driving up profitability. That means it will be affordable to more Americans, a key to breaking through in the cluttered market place. If you heart rate isn't elevated over that prospect, then you are seriously in need of a pacemaker.

Of course, production doesn't guarantee sales. Big automakers have huge dealer distribution networks that seriously handicap small firms' ability to compete. This may remind you of the ill-fated DeLoren, which has disappeared from the automobile landscape, although it still has its share of devoted fans who cling to their cars.

To survive, Tesla needs to break the distribution mold. More cars are being sold over the Internet than ever before. Even brick-and-mortar dealers use the net to lure customers to their lots. One avenue for Tesla would be to strike an agreement with a firm such as Costco, a discount wholesaler with locations throughout the country. Tesla's cars could be showcased at the wholesaler's stores. Costco is already in the car business today, offering its customers discounts on automobiles. This would be a lot less expensive way to enter the market than building an extensive dealer network. Of course, Toyota already has its own huge worldwide distribution network that it could make available to Tesla.

Servicing is another huge stumbling block to new entrants. Dealer networks provide the maintenance, repair and service every car requires. Today, Tesla has so-called "service rangers" who make house calls to work on its Roadsters. Quaint, but it won't work for Tesla if it begins selling 20,000 cars a year. Again, the partnership with Toyota could be the answer.

However, Toyota also has announced its own plans to market an electric vehicle in 2012. No one knows how this will impact its allegiance with Tesla or even if Toyota will be able to get its electric vehicle production ramped up by that date. There has been lots of talk from the big auto manufacturers about electric cars, but not much to show for all the hype. That's why its best to wait and see what happens. This could turn out to be another false start for the electric vehicle as a mainstream replacement for gasoline powered cars.

All that said, there is cause for hope. Tesla has actually produced and sold a world class, highway drivable electric car, something no big automaker can claim. Tesla Roadster owners seem to love the vehicle. It has the looks and performance to turn any potential buyer's head. Now if Tesla will not muck up this opportunity with Toyota, there just might be an electric car in every one's future.