Tesla Model S sales exceed target, but range constraints limit adoption

I’m pleased to learn that electric car maker Tesla Motors is doing well, at least in its own estimation. Since Tesla started selling its now discontinued Tesla Roadster—a heavily modified and electrified Lotus Elise—about half a decade ago, the California based company claims to have delivered nearly 10,000 electric vehicles to customers in 31 countries. Last weekend, they announced that sales of its much more mature and compelling four-door sports sedan—the Fremont, California built Tesla Model S—exceeded the target it had cited in its mid-February shareholder letter, with sales exceeding 4,750 units vs. the 4,500 unit prior outlook. As a result, Tesla is amending its Q1 guidance to full profitability, both GAAP and non-GAAP.

Tesla Motors co-founder and CEO Elon Musk, whose profile was raised in the Apple community last fall when he was called “the Steve Jobs of automobiles,” and who reportedly refers to the Model S his “Macintosh,” commented in a statement:

I am incredibly proud of the Tesla team for their outstanding work. There have been many car startups over the past several decades, but profitability is what makes a company real. Tesla is here to stay and keep fighting for the electric car revolution. I would also like to thank our customers for their passionate support of the company and the car. Without them, we would not be here.
 

It doesn’t appear a nasty public spat with a New York Times reporter over the Model S’s cruising range on a battery charge has hurt sales much, if at all. Being a pure electric vehicle (EV) and not a hybrid, the Tesla Model S is limited in range to relatively short distances that can be covered between charging sessions. Like a smartphone or a tablet, when the Model S’s battery is out of juice, the machine is out of commission until it’s recharged.
Whatever damage, if any, was inflicted on sales as fallout from the NYT dispute appears to have been negated and/or outweighed by the unexpectedly warm and enthusiastic reception that the Model S has received from the major U.S. auto enthusiast journals. Automobile Magazine named the Tesla Model S its 2013 Automobile of the Year, and it was also chosen as 2013 Motor Trend magazine Car of the Year. Car and Driver magazine’s Csaba Csere summed up their evaluation succinctly observing that the Model S is “not just a good electric vehicle, it’s a good car.”

However, making a good alternative energy vehicle is no guarantee of profitability or even survival in a business that is notoriously difficult to get into. Another California manufacturer of an enthusiastically-reviewed car—Anaheim-based Fisker Automotive Inc. which makes the $100,000 Fisker Karma plug-in hybrid—issued a terse statement on Friday reporting that it has been considering strategic alternatives that would allow the company work through its “current financial challenges,” and will be terminating some 75 percent of its workforce. Fisker says it regrets having to let any of its hardworking and talented people go, but that doing so was a necessary strategic step in their efforts to maximize the value of Fisker’s core assets. Reportedly, Fisker has produced no cars yet in 2013 after its battery supplier went belly-up, and the company notes that unfortunately they have reached a point where a significant reduction in their workforce has become necessary.

Reportedly, Tesla is currently shipping about 400 Model S sedans per week from the Fremont factory, and is projected to be on track to deliver 20,000 cars in 2013. However, keeping it real, a production volume of 20K is mere spit in the ocean of a projected 14.2 to 15 million U.S. motor vehicle sales in 2013. Tesla is hardly revolutionizing the automobile industry, and until major advances in battery technology are achieved (and there’s nothing on the horizon for the near to mid-term), pure electrics are destined to remain largely a subsidized niche/boutique product for well-heeled greens looking to make a statement, and who never have need take road trips more than a couple of hundred miles from home base.
Speaking of the range issue, Tesla Motors also announced this week that the smallest battery option (of three levels formerly planned) for the Model S will not enter production, due to lack of demand. Only four percent of customers chose the 40 kWh battery pack, which Tesla says is not enough to justify production of that version. Customers are voting with their wallet that they want a car that gives them the freedom to travel long(er) distances when needed.

The customers who have already ordered the 40 kWh option will instead now receive vehicles actually equipped with the larger capacity 60 kWh battery pack, but range will be software limited to 40 kWh. The lower priced version will still have the improved acceleration and top speed enabled by the the bigger pack, so will be a functional upgrade from the performance level originally ordered, and can also be upgraded to the range of the uncrippled 60 kWh capacity at extra cost upon request by the original or a future owner.

Finally, Tesla also revealed a small Easter egg: all 60 kWh cars have been and will be built with Supercharger hardware included. Tesla is taking a slight cost risk that ultimately all customers will want to buy the Supercharger upgrade and receive unlimited, free long distance travel for life. Even for those who never drive long(er) distances, this will improve the resale value of their car to people who do, relatively speaking.

Source : TechnologyTell, by Charles Moore, April 7, 2013