August 16, 2013

News & Features

Tesla's Model S, plans for new models drive company to next level

San Jose Mercury News

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The Tesla Model S is the electric car that has propelled the company to success. (Tesla)

There are many ways to measure Tesla Motors' remarkable progress in the three years since the electric-car maker launched its initial public offering: The first-ever profitable quarter this past spring. The 99 out of 100 score in Consumer Reports' review of the Model S sedan. The stock price, up more than 500 percent since June 2010.

Then there's this: Tesla, which is on track to build 21,000 cars at its Fremont, Calif., factory this year, is worth more than Fiat and nearly a quarter as much as General Motors — which has 21,000 dealers.

In a considerable understatement, Tesla CEO Elon Musk told shareholders recently: "This has been a great year. Things have really gone pretty well. I'm having a lot more fun these days."

While Tesla has proved it can make an expensive electric car, it has not yet met its goal of making an affordable one. Its long-term success may hinge on its ability to drive down battery and manufacturing costs and create a car in the $35,000 price range.

"The biggest single challenge for electric vehicles is affordability," Musk says. "If we could build the Model S for half the price that it currently costs, and solve the long-distance travel problem, then we'd see widespread adoption."

Tesla says it plans to roll out what it calls the "Gen 3," a smaller version of the $72,000 Model S at about half the price, in 2016 or 2017. Sometime next year, it plans to start delivering the Model X, a crossover between an SUV and a minivan.

Prices for the Model X have not been announced, but Tesla hopes to deliver the Gen 3 at a much lower cost than the Model S because it will spend much less on research and development. It also expects battery technology to improve, allowing it to use smaller, less-expensive batteries than those that power the Model S.

The challenge for Tesla in the near term, many analysts say, is for it to keep demand for the Model S high while making steady progress on the other vehicles in its development pipeline.

Tesla has sought to stoke demand for the Model S by greatly expanding its network of Supercharger stations, which offer free, rapid charging to all Model S drivers. Within a year, the Tesla Supercharger network will stretch across the United States and Canada. Musk recently unveiled Tesla's plans to offer 90-second battery swapping at Tesla stations.

Tesla's wildly enthusiastic owners have become evangelists for the company. When The New York Times published a negative review of a Washington-to-Boston Model S road trip, the newspaper was swamped with complaints from the Tesla faithful. A caravan of Model S owners quickly convened and re-created the road trip. That incident is an example of how Tesla has been able to build a formidable brand without spending money on advertising.

The first Tesla users conference, known as Teslive, took place in July. Owners and enthusiasts from as far away as Japan and Hong Kong were among the more than 300 who attended; the three-day event included highly sought-after tours of Tesla's Fremont factory and a keynote speech by Musk.

"A year ago, a lot of people didn't know what a Tesla vehicle was," says Andrea James, an analyst with Dougherty & Co. "Today, you'd have to be living under a rock to not know [what] Tesla is, or be curious about [it]. Tesla has emerged to the next level."

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