Tesla Restructuring, Delaying Sedan

You are probably sitting there thinking: What does this have to do with our beloved BMW?

We had discussed that Project i (Isetta) electric city car in the past, very little has been revealed about it or the research going into it. A few months ago when oil prices hit $150 a barrel and the future emissions requirements had scared manufacturers into looking at alternative powertrains they made announcements of future offerings to give people hope. Now that oil is cheap (half the price) and the car market is hurting many of these projects may be put on hold so manufacturers can keep their heads above water. Project i and the electric MINIs may have that fate unless…..

Tesla is the darling of the electric car movement;an electric “super car ” with248 HP, 276 ft/lb of torque, 0-60 in 3.9 seconds with a range of 244 miles per charge. Designed and assembled in Silicon Valley it was touted as the car of the future; and car company of the future. It operated differently than the norm and inherently better (supposedly). The initial 2 seater coupe has sold well, and has a long reservation list with payment due even before the car is built.

The next step was to produce a sedan for the masses, in other words a bit cheaper but with the same electric benefits. Today, they slammed on the brakes and stated they would restructure management, layoff some of the employees that do not meet the requirements of the special forces, and put the sedan on hold.

They are going to need to focus on current projects (coupe) and selling their powertrain technologies in order to become profitable. The market has turned sour even though they have a product that people want (or wanted). They need to scale back and adjust to the current state of economic affairs. BMW has done the same by idling its factories.

What is interesting is that Tesla will be selling powetrains and technologies. A larger manufacturer could put aside their own R&D and adopt some or outsource from Tesla. The company is strapped for funds (unless the CEO opens his wallet some more) so this may be a win win for the companies involved.

Not to allude that BMW is going to be the one to step in but it sure would be easier and more cost effective than developing or building such a system alone. Telsa and BMW both put emphasis on sport and luxury so they are not all that different. A Tesla powered MINI or Isetta (whatever it will be called) may just be the ticket.

The situation with oil will never get better as there is only so much to go around. I fear that with the return of it being “cheap ” future technology will be put on hold since the demand for efficiency has decreased. It is also within reason to say that in this slow economy manufacturers will have less money to devote to R&D; governments and regulators may decide to allow extra time for compliance to future requirements because of hardship. While I hope this does not occur it is a possibility. I for one am in favor of anything that helps save the planet, and decreases our dependence on oil. With one minor stipulation: It can not take the driving experience away! Tesla is there already.

What do you think about the state of oil, the economy and the future of electric cars? We ‘d love to hear about it!

Tesla Motors release:

Extraordinary times require focus by Elon Musk Chairman of the Board, Product Architect and CEO published Wednesday, October 15th, 2008 These are extraordinary times. The global financial system has gone through the worst crisis since the Great Depression, and the effects are only beginning to wind their way through every facet of the economy. It’s not an understatement to say that nearly every business will be impacted by what has unfolded in the past weeks, and this is true for Silicon Valley as well. At Tesla, we have decided that the wise course of action is to focus on our two revenue producing business lines – the Roadster and powertrain sales to other car companies. In the Roadster, Tesla has a unique product with a large order book that continues to grow, despite softness in the automobile sector. Our powertrain business is profitable today and is also growing rapidly. Our goal as a company is to be cash-flow positive within six to nine months. To do so, we must continue to ramp up our production rate, improve Roadster contribution margin and reduce operating expenses. At the same time, we must maintain high production quality and excellent customer service. For this critical phase of the company, the scope of my role at Tesla will expand from executive chairman and product architect to CEO. With SpaceX now having reached orbit and about to enter its third year of profitability, I can afford to increase time allocated to Tesla. Ze’ev Drori, who has made extraordinary progress with the company over the last year as CEO, will stay on the board of directors as vice-chairman and continue to help Tesla make the right decisions. It has been and will continue to be a pleasure and an honor working with Ze’ev. Special Forces Philosophy and Consolidation of Operations One of the steps I will be taking is raising the performance bar at Tesla to a very high level, which will result in a modest reduction in near term headcount. To be clear, this doesn’t mean that the people that depart Tesla for this reason wouldn’t be considered good performers at most companies – almost all would. However, I believe Tesla must adhere more closely to a special forces philosophy at this stage of its life if we aspire to become one of the great car companies of the 21st century. There will also be some headcount reduction due to consolidation of operations. In anticipation of moving vehicle engineering to our new HQ in San Jose, we are ramping down and will close our Rochester Hills office near Detroit. Good communication, tightly knit engineering and a common company culture are of paramount importance as Tesla grows. What Does This Mean for the Model S? Tesla is absolutely committed to development of our next generation vehicle, to be unveiled early next year. However, we are going to reduce activity on detailed production engineering, tooling and commitments to suppliers until our Department of Energy loan guarantee becomes effective. The DOE loan guarantee will cover most of the Model S program at a very low cost of capital compared with raising equity financing in what could quaintly be described as a “bear market.” The loan funding can only be drawn down after we receive environmental approval for our new 89-acre consolidated headquarters in the city of San Jose. If all goes reasonably well, we will receive that approval in Q2 next year. The net result will be a delay in start of production of the Model S of roughly six months to mid-2011. On the plus side, we will spend the extra time refining the vehicle design and powertrain technology, so the car will end up being slightly better. Financing The Tesla investors and I are unequivocally dedicated to ensuring the success of Tesla. If you have bought a car from Tesla or are thinking of doing so, please know that I personally stand behind delivering a product that you will love and continuing to develop new models in the future. We are not far from being cash flow positive, but, even if that threshold ends up being further than expected, I will do whatever is needed to ensure that Tesla has more than sufficient capital to get there. I’d like to thank the loyal customers of Tesla that have stood by us through thick and thin. Beyond delivering a great Roadster, Tesla will find other ways to reward that loyalty, including among other things an exclusive preview of our upcoming Model S sedan.

Photos: Flickr/Edmunds.com

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  • JonPD

    Think this was a pretty predictable choice by Tesla, the entire car market is going through some tough times. I would also have to imagine that the tightness of the credit market didn’t help a small manufacturer to build another prototype car currently. On the second part I believe that they are running on the edge because of the low volume of cars they are building.

    As for fuel costs I think that we will continue to see fuel prices bounce around, while the worldwide economy is so sluggish oil cost will drop but be sure as everything starts recovering that we will see prices shoot right back up. I still think that Electric cars are just one of several options to remove ourselves further off the oil economy. If we can get to a place where we are collecting more renewable energy that would be a great assist to electrics. Think the battery technologies also need a lot of work, then again in general batteries are a technological issue that I think still lags horribly behind the rest of our technology base.

  • Im with Jon on this one. Its amazing how far behind battery technology is and that there has yet to be any breakthrough. Thats why on the Computer side like Laptops and iPhone and handhelds, everybody now is trying to get a more efficient chip and such because everybody gave up on battery getting better but they can only make those thing so efficient.

  • Mike

    I think there should be a LotusFile and TeslaFile 🙂