I drove my first Tesla more than a decade ago — an afternoon scooting about the Hollywood Hills in a little Roadster that was an abomination.
The converted Lotus was a skateboard stuffed nose to tail with sizzling cellphone batteries. They didn’t catch fire or explode thanks to an extensive on-board cooling system. The ride was back-breaking; my ass, sitting in a paper-thin bucket, was inches from dragging along the pavement, with no apparent shocks or springs to cushion the bounces and blows of bad roads. The cockpit was a bare collection of hard plastics and somewhat crude controls.
The test drive had been set up by an old friend and colleague from Detroit who had guzzled CEO Elon Reeve Musk’s Kool-Aid. She had quit journalism and moved west to promote Tesla and its “visionary” leader and founder, Musk. “He’s got a great story,” she said.
To me, the story was about a huckster who had taken the lightest, cheapest, least complicated platform he could find – the Elise from perpetually-in-crisis Lotus – stripped out the gasoline powertrain and replaced it with thousands of tiny and very hot batteries, along with an elaborate radiator array to keep them from igniting.
It was a joke and I said so on my Car/Business TV show and in my column for the national newspaper.
As a business journalist, I’d come face-to-face with the likes of Musk and his roadster time and again. This venture had all the markings of a stock play for suckers: the “visionary” genius creates something out of pure inspiration, launches a prototype, then milks gullible idiots and dreamers for millions before the whole thing collapses under the weight of the practical business demands like costly R & D; product creation; safety concerns for both the cars and the people building them in what can be dangerous factories; reliability, production challenges; staggering marketing costs; the demands of sales, distribution and customer support; and, finally, regulatory pressures.
Of all the industries to choose for a start-up, the car business is the least likely for success. The business requires billions in capital to launch and support just one model and regulatory pressures are fierce. After all, if your new cellphone fails, you just drop a call. In a car, if something as simple as an ignition switch fails or a floormat gets stuck under the accelerator pedal, people die.
I gave the Pay Pal man, Musk, six months, a year, tops. By then, he’d have lined his pockets and moved on to selling some other “vision,” like space travel to Mars or a Hyperloop high-speed underground railroad. In between, he’d get his name in the Hollywood Reporter and Vanity Fair for dating beautiful starlets.
Well, here we are in 2018 and Tesla survives – 15 years since the company was founded. The stock market says Tesla is worth more than $50 billion (all figures in US dollars), though since the latest financials were released, Tesla’s share price has been up and down. The Roadster is long gone, but Tesla is a three-model company, with, of course, more coming, we’re told. Yes, Model 3 production has fallen woefully short of Musk’s promises, but that hasn’t stopped him from making more promises, still.
If you take a dispassionate look at Tesla, if you simply look at the company as a business venture with costs, R &D and production challenges, and the need to make a profit, Tesla is a disaster. Aside from the fact that key elements of the Model 3 have been panned, most recently by noted industry expert Sandy Munro of Munro & Associates – he says Model 3 build quality is comparable to a KIA from the 1990s – the biggest issue is funding. In the last quarter, Tesla burned through a record amount of cash, posting a $785 million loss for the quarter. Model 3 production peaked at 2,270 cars a week, well below the promised 5,000/week.
Tesla, then, continues to miss promised production targets, it’s Model 3 has major quality issues and the company is tracking to lose $3 billion a year, with less than $3 billion cash on hand. Unless Tesla raises more money or — miracle of miracles, becomes profitable –Tesla will empty its coffers in 12 months or less. Yes, there is reason to believe that Tesla as we know it cannot continue as it has; change is coming.
But what cannot be denied is how Tesla has transformed the entire landscape of the car business. Once the big, established car companies realized that Musk’s “vision” had deep and lasting appeal among very influential consumers, and once governments from Beijing to Washington, D.C., to Berlin recognized that electrification was the future of transportation for a planet choked and overheated by carbon emissions, then the idea of a world of EVs (as articulated passionately by Musk, to give him credit) became a roadmap for the future.
And so here we are. In another article, I will lay out the EV landscape that will unfold this year and it’s staggering in breadth and depth. Starting this year and heading into the next decade, Tesla faces competition of a scope and scale that threatens the very survival of what is already a money-losing operation.
I don’t believe Tesla, at least under its unfocused, dilletante of a CEO — the Elon Musk who still does not understand and appreciate the very basics of carmaking and is constantly distracted by his other “visionary” projects — can survive and thrive on its current path. But Tesla the brand is enormously powerful and I believe it is here to stay.
At some point, the big institutional shareholders who control two-thirds of Tesla stock, will find a way to ease Musk out of his operational role, replacing him with someone who can do the nuts and bolts of making cars on time, on budget and with great quality. Musk will remain the product visionary, chief pitchman and so on, but someone who knows the car business will run the operation.
It’s also possible that a merger or alliance will be the ultimate solution. Whatever happens, those institutional investors will not lose their $50 billion; they will manipulate the company and the financial marketplace to their own ends.
I will give Musk and Tesla this much: I never believed that horrible Roadster would lead to this.