Why Critics Are Wrong About This Electric Car
“I haven’t had an accident yet in this thing, and I’d like to keep it that way,” joked Jeff Evanson, as he whizzed the four-seat golf cart at full speed across the factory floor, weaving in between manufacturing robots and Tesla employees wearing bright red shirts with the firm’s “T” logo on them.
Jeff, Tesla’s head of investor relations, used to race Porsche 911s, and even though we were in a golf cart, it was clear that he hadn’t lost his touch. “You know, this is the second-fastest electric car in the building right now,” he said as he shot the gap in between the assembly line and a manufacturing robot.
We were here to see the fastest one…
Tesla’s sprawling factory is located on a mammoth plot of land in Fremont, Calif., the industrial side of Silicon Valley. While that may not be the most logical place for an American car manufacturer (economically, it’s about the furthest place from Detroit), the site makes a whole lot of sense for a car firm that’s compared to Apple more frequently than it’s compared to Ford.
When we initially recommended buying Tesla, we saw the firm’s forthcoming Model S as a major catalyst that would take Tesla from manufacturing a six-figure supercar to building a mass-produced sedan for the affluent car-buying public. As of last month, Tesla has already delivered its first Model S — a major feat that actually came in ahead of schedule.
With such a pivotal part of the Tesla business finally becoming reality, we decided to head over to Fremont to join a small number of outsiders who’ve been able to see the car up close and sit behind the wheel. We liked what we saw…
Now, let us be frank, this is an easy car to pan. Critics argue that the car isn’t really that “green,” since most electricity generation in the U.S. comes from coal plants. Others argue that the car’s $49,900 base price is too high to be commercially viable, or that charging takes too long to make the car practical. But we think that all of the critics are wrong about the Model S, and here’s why…
For starters, it’s important to remember that Tesla isn’t actively marketing the Model S as a “green” car. This isn’t a vehicle that’s being sold to folks who currently drive economy model compact cars — instead, it’s being marketed as the best car, one that just happens to be electric. Green-lovers can be happy that because it’s electric. The Model S can be powered by electricity from any source, including solar, wind, hydroelectric and nuclear. But we think this car’s target owners will be more excited about saving a different kind of green — cash.
When we first recommended Tesla, we said that the Model S could save as much as $236 per month versus a BMW 5 Series when tasked with a 150-mile round-trip daily commute. Higher oil prices are making that saving look even more impressive in 2012, which means that the Model S is even more commercially viable than the BMW, Mercedes or Audi offerings. Not only does it cost around the same as comparable luxury models, the Tesla saves enough cash each month on fuel costs to shave a material chunk off of any car payment.
Maintenance costs are also essentially nonexistent for the Model S. The car doesn’t need oil changes, emissions checks or any of the other chores that can be so costly on luxury imports. That doesn’t mean that problems won’t arise. It is a car, after all. But when they do, Tesla is focused on changing the ownership experience, and its Service Rangers make house calls. For just $1 per mile they have to travel from the nearest service center, Rangers have the capability to replace any part on the car while they’re in the field (with the exception of the battery. A completely new motor can be swapped out in your office parking lot in just a couple of hours while you’re at work).
The firm already has implemented its wireless diagnostic system with the Tesla Roadster model — a feature that will carry over to the Model S. Customers will have the option to link the car’s computer directly to Tesla. Their vehicle will send a report every evening, giving the service center a chance to call if the car signals a potential malfunction. This feature is already popular with the Roadster model, with approximately 75% of Roadster owners connecting their vehicles.
And beyond economy operating costs, the electric motor gives the Model S the performance characteristics that can compete with other pricey sport sedans…
From day one, range has been one of the big problems with electric cars. But the Model S has a range of up to 300 miles per charge, the equivalent of a full tank of gas in that similarly equipped BMW. And while the Model S can’t recharge in minutes (unlike gas competitors), it can still charge up as much as 62-miles of range each hour from a residential power source. That’s enough range and quick enough charging to fulfill the needs of 99% of regular drivers right now, and while you can’t please all the people all of the time, the Model S’ capabilities are certainly pleasing enough people right now.
Tesla is also in the process of building a network of Superchargers across the country that will have the ability to charge a Model S back to 50% in just 30 minutes, about the same time it takes to eat a meal at a roadside restaurant. The first Supercharger is being installed on California’s I-5 to make the trek from San Francisco to Los Angeles on a single recharge in a Model S, and new stations are being planned by the folks at Tesla as we speak.
Tesla doesn’t have designs on building a mass-produced cheap electric car. That model may make sense for firms like Ford or Hyundai, but it doesn’t for Tesla. Instead, the firm plans to continue to court so-called mass-affluent customers, competing in a lucrative space that luxury automakers like BMW and Mercedes-Benz currently occupy.
That doesn’t mean that Tesla isn’t going to make a cheaper car, though. The Tesla BlueStar is the code name for the firm’s third-generation vehicle platform, one that the firm expects to price around $30,000 — a price point that puts it more in line with an entry-level Mercedes C-Class or a BMW 3 Series than with larger counterparts. With battery costs declining swiftly, Tesla should be able to generate significant profits off of each BlueStar unit. While it’s unlikely that we’ll see a BlueStar design until the success of the Model S has been proven, it’s a big step toward the future for Tesla. Consumers should expect to see the BlueStar hit production in the next three to four years.
Tesla’s electric drive may still make its way into less-expensive cars — the firm’s EV powertrain business is starting to supply firms like Toyota with the motors and batteries that run models like the RAV4 EV in 2012. The firm also penned a much bigger deal to provide electric powertrains for Daimler-Benz, likely for European models.
In the meantime, the Model X SUV is slated to start production late next year. The Model X is based off of the Model S and will sell for the same price range — albeit with an upcharge for buyers who want the dual motor all-wheel drive option. It’s already proving to be a popular model, based on reservations to date. We’ll be keeping a close eye on how sales of the Model X ramp up.
We think that we’re seeing a pivotal time for Tesla right now, and investors who buy in are going to be rewarded. Even though we’re up considerably from our initial entry price back in October 2010, we still like Tesla right now…
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