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Michiganders Bristle at Tesla Loans; Tesla Enthusiasts Bristle at Michiganders
Recently, the Department of Energy announced their awards of loans for “the development of innovative, advanced vehicle technologies that will create thousands of green jobs while helping reduce the nation’s dangerous dependence on foreign oil.” The awards went to Ford Motor Co. ($5.9 billion for new fuel efficient models across the Midwest), Nissan Motors ($1.6 billion to build electric vehicles in Tennessee), and Tesla Motors ($465 million to build electric vehicle plant in California). This should all be great news, but anytime the government hands out money, there is sure to be controversy.
In Michigan, the unemployment rate remains the highest in the country (14.1% in May 2009) with two of the state’s three biggest employers in bankruptcy (which is why GM and Chrysler did not qualify for the DOE loans). So when the loans were announced, many in Michigan didn’t much like the news. Nathan Bomey of the Michigan Business Review put forth the argument as to why GM’s still in the game and opined on the problems with Tesla’s business model. This was quickly followed by Detroit News commentator, Manny Lopez, who came out even more strongly against the loans to Tesla. Both articles express an opinion that many in the Detroit area seem to agree with. Tesla is basically for the rich and famous, silicon valley types, and is a money pit (though this opinion does seem to be dripping with irony as GM and Chrysler received billions in loans).
I’d be remiss if I didn’t point out, that many of the comments that I have read in both articles also complain about Nissan (a foreign owned company) getting almost $2 billion of our tax money (despite the plant being in the U.S. employing Americans).
However, the green bloggers and Californians won’t sit silently and take this from Michiganders. Sebastian Blanco shot back on autobloggreen.com with an article entitled “Huh? Detroit News columnist criticizes Tesla loan, but not exactly in a brilliant manner“ His title, in essence, sums up his argument, claiming that Mr. Lopez had some of his facts wrong, and that Tesla’s business model makes sense. Much of this was based on another blog, businessinsider.com, which also jumped on Mr. Lopez for essentially the same reasons.
All of this leaves us with the question, “So, who’s right?” Well, first, I’m already on record as saying that Tesla serves a purpose, but it’s not as a mass production company. To prove my point, Telsa celebrated its 500th delivery on June 3, 2009, which went on sale in early Feb., 2008, taking almost a year and a half to hit that milestone (for comparison, Cadillac will likely sell its 500th XLR roadster of 2009 either this month or next, which will essentially double the Tesla sales in a third of the time). But does that mean Tesla doesn’t deserve the half a billion dollars? That’s not a leap I’m ready make.
Yes, the price of the vehicles will come down with mass production; but no, the new Model S at $49000 (after tax rebates – $57,000 before) is not a vehicle for the masses. However, as the Not-So-Big Three, Toyota, Honda, Nissan, and every other automaker have so effectively demonstrated recently, the auto business on a whole is a money pit right now. This $465 million will be burned through VERY quickly, and it’s an investment that has a low probability of ever being paid back. The fact is, the answer to “Who’s right?” lies somewhere in the middle. I remain skeptical that the business plan of Tesla is likely to succeed as an independent company in the long run, but the products of Tesla will likely help usher in much needed new thinking about electric vehicle capabilities within larger auto companies. In this sense, the $465 million “loan” seems like a pretty good deal.
Tesla and other start up electric/hybrid car companies good news no matter how you look at it. Model S’s will replace some amount of gas/hybrid cars and lay the ground work for more reliable and affordable technology. I love the way people are always trying to put things like this or hybrids in a nice little box..it’s either good for everyone or bad. In reality, these things completely depend on your individual situation. If you have a long commute, live in an area that has high gas prices, and are looking to buy a car..a Model S or Prius probably makes sense. If you work from home, probably not.
In the end, no one’s trying to force anyone to buy this car. If it works for you, buy it. If not, buy something else and stop complaining about a system/technology that works for and excites other people. The important thing is to have all the information you need to make a good decision.
Electric cars, and to a lesser extent hybrids, have benefits far beyond fuel savings. They never need a SMOG check, oil change, or exhaust system tune up, have far less consumables (I’m only 20% worn on my original Prius brake pads after 110,000 miles!), and require less frequent maintenance (every 12k miles vs ever 5k). Plus there are benefits that include government tax credits (I think it’s close to $7500 for the Model S), free parking, carpool lane stickers, and even free charging at public charge stations and many work places. Of course, each of these things will mean something different to each person. They may or may not off set the higher initial cost/insurance/registration..but in many cases, they will.
I don’t know why people complain if it doesn’t work for them? Do they think Tesla is trying to rip people off? Should they take a loss, risk the company, and a future of affordable vehicles in order to drop the price another $20k?
I think Tesla has shown a very innovative business model. They are getting customers/”investors” with the interest and money to do so, to take a bit of risk and fund the next development cycle. The longer you can wait for this..the better and cheaper the product will be. This is the future and as time has shown us, new technologies start costly and come rapidly down in price. Thankfully, there are people/early adopters that are willing to take a chance and pay the price so that these things become available to everyone.
I definitely see your point that they should not reduce the price $20K and risk the company. However, my question remains whether Tesla can remain independent with the new higher fixed costs offering only high-end, low volume vehicles? I don’t believe they can. Their business model brings to my mind others that have been started in the past (recall an exciting brand by the name of Delorean?).
One of the biggest challenges to the auto business are the HUGE fixed costs. These loans will help Tesla institute many of these (necessary) fixed costs. Some may argue they are “sunk” costs, but try and tell that to GM or Ford or Toyota and see what they say. I think Tesla will find that without more mainstream vehicles to improve their cash flow, they will burn through the cash too quickly.
But that is not at all a condemnation of the product itself. I agree with you regarding the products and the excitement of the technology. I have always said that Tesla does a great job of bringing the excitement of EVs to the market. I’m excited to drive one myself – though doubt I’ll be seeing many for sale here in the Detroit area anytime soon, unfortunately.