Billionaire Chief Executive Officer Elon Musk directs Tesla Motors Co. with an almost evangelical zeal. (Simon Dawson / Bloomberg)
Tesla Motors Co., the brash electric vehicle start-up, is on a roll as it vows to revolutionize the world’s auto industry and convince everyone to stop driving gas-powered cars.
Stock in the Palo Alto, Calif.-based automaker is up about 400 percent since January, and with a market capitalization of more than $20 billion, the company is worth 42 percent of General Motors Co.’s value. Tesla paid off its $465 million Energy Department loan nine years early. And its Model S electric sports sedan received the highest possible safety rating from the National Highway Traffic Safety Administration. Consumer Reports said the Model S came “close” to being the best-ever car it has tested.
Tesla even was able to shrug off some uncharacteristic bad news this month after a Model S hit steel debris on a Washington state highway and a punctured battery pack caught fire. Although its stock is down about 12 percent since Oct. 1 — it closed Friday at $169.66, from its high close of $193.37 — analysts have attributed some of that drop to profit-taking. Thursday, NHTSA decided not to open an investigation after it found no evidence the fire resulted from a defect or violations of safety standards.
Tesla’s ascent — production of its first cars didn’t start until 2008 — has caught the attention of the world’s automakers. GM created Team Tesla to study the upstart company. “Listen. Like it or not, they think big,” GM vice chairman Steve Girsky said admiringly last month at the Frankfurt auto show. “Big in terms of range, big in terms of speed.”
Still, Tesla has a long way to go to reach the biggest players. Tesla expects to sell 21,000 vehicles this year — offering just one model. By contrast, the world’s three largest automakers each will sell more than 450 cars worldwide for every Tesla sold this year. With a business model that does away with independent dealerships, Tesla still is fighting for the rightto sell cars in some states.
The driving force behind Tesla is billionaire CEO Elon Musk, who also runs SpaceX, a private company developing spacecraft to reach other planets. He co-founded PayPal, the world’s largest online payment system.
Musk owns nearly 25 percent of Telsa through a trust that holds 28.3 million shares currently worth $4.8 billion on paper.
At times, the company and its founder expound with an almost evangelical zeal. “Tesla will not rest until every vehicle on the road is electric,” the company declares on its website.
In a recent speech in Germany, Musk said, “There are many people out there who don’t believe in electric cars — they think nothing is going to happen.
“We have to overcome that negativity — otherwise it is going to be way too slow.”
Tesla has been able to do what nearly every other maker of electric vehicles has failed to do: make head-turning electric cars.
Nissan, which has sold more than three times as many electric cars as Tesla, praises its upstart rival and says it is helping the entire electric vehicle market. Tesla “made EVs cool,” Nissan executive vice president Andy Palmer said in an interview last month.
Cool, but expensive.
Tesla launched its $100,000 electric Roadster in 2008. It sold about 2,500 worldwide through 2012. Diarmuid O’Connell, Tesla’s vice president for business development, admits it was a “mid-life crisis car” — albeit an environmentally responsible one. “We agonized over this thing forever,” he said in an interview.
Last year, the company introduced its larger, Model S luxury sedan. It costs less, but with a starting price of least $50,000 it’s aimed at well-to-do families. The Model S has an optional third-row children’s seat in the rear.
Despite the company’s big market capitalization, it acts in many ways like a very small company, executives say.
“We don’t have the budget to spend money on advertising, so the only way we are able to grow is good word-of-mouth,” Musk said. “If the big car companies see that our sales are good ... then they will have no choice but to conclude that electric cars are the right way to go.”
There are naysayers who think the company’s stock is overpriced and question whether it will be able to make vehicles in much larger volumes. Much of Tesla’s profits come not from selling cars, but from the sale of electric vehicle credits to meet regulatory requirements.
Tesla executives, including its CEO, acknowledge the stock price is higher “than we have any right to deserve.”
The company didn’t meet its initial Model S production targets in 2012, and opted to delay production of its Model X SUV — initially planned for late this year — until late 2014. Tesla will start selling the Model S in China early next year and then Japan, as it expands in Europe. Down the road, Tesla will likely expand into Brazil, O’Connell said.
Automakers haven’t always taken Tesla so seriously. And not all are convinced Tesla will survive for the long haul.
“Detroit has spent most of its time critiquing Tesla, dancing on our apparent gravestone, rather than seeing us for what we actually are, which is opportunity for them to de-risk a promising category of technologies, to create a market that they can take advantage of us,” O’Connell said.
“We’re only going to succeed if others follow us into this space. My frustration has been (that) Detroit in particular has been so focused on, ‘(Tesla) can’t do that, who the ---- are they?’ ”
At least one chief of Detroit’s Big Three takes the company seriously. GM CEO Dan Akerson vows to challenge Tesla with Cadillac. But he thinks the better road to travel is with plug-in hybrid electric vehicles, to reassure drivers about driving range.
“If you want to compete head-to-head with Tesla, and we ultimately will, you want to do it with a Cadillac,” he said last month. “There’s this cachet associated with” Tesla, Akerson said. “I think they brought an interesting dimension to the industry, but we’ll sell more Volts and lose less money on the Volts then they will lose on the Model S.”