Is Tesla Doomed? (Bob Lutz's Commentary on Tesla)

I decided to fact check just one claim. The $4000 figure. http://www.autoblog.com/2015/08/10/tesla-does-not-lose-4000-... explains where the figure comes from. It is one quarter's operating loss divided by the number of cars sold. However said quarter also had an unknown but large capital expenses for things like ramping up production for future models. So you can't actually get to the figure of how much Tesla is going to make per Model S sold. (Nor would Tesla want to release that figure.)

Other items I already knew to be disingenuous. I've been in a Tesla dealership. The capital expenses are nothing like the rest of the auto industry. Tesla doesn't have the capital risk of a bunch of inventory on hand. They just have a couple of demonstration models, and a browser where you can customize your order on your website. They only build the car after you buy it.

Indeed, the whole company is structured around reducing expenses. When batteries become cheap enough, Tesla will be perfectly positioned to sell mass consumer cars. Their challenge until then is to build their brand, distribution network, and capabilities so that they are positioned to capitalize on the opportunity.

The same thing was said about Apple. Same things said about Uber. Same things said about many successful ventures.

When you are trying to do something different, asking people who want to do the same old thing what to do is a bit foolish. They are playing different strategies or maybe a totally different game.

I'd be very surprised if Tesla was "doomed".

The whole car dealer enterprise is a rent seeking business. In many states you cannot have the manufacture sell the cars directly. That's changing slowly -- thanks to Tesla -- the dealer lobby is a big contributor in many local and state wide elections. The pricing for the automobile / features is not clear to begin with. It's to the point that there's many competing business that try to give you true car pricing. And, every step of the way the dealership tries to extract another fee / charge for you via various tactics like destination fees, myriad of financing fees, unneeded insurance (tire insurance, ones that overlap with the manufactures warranty).

Personally, I would love if the dealership model died. The alternative being ordering a car online and having it show up at home at a scheduled time. I imagine the same experience can be replicated the other way when the car needs servicing, schedule it online and have it picked up / drop it off and a point of aggregation of the car maker where they handle volume.

And before you tell me about the test drive and getting a feel for the car. Meh. Your fooling yourself if you think that a 15 minute test ride will tell you much about the cars performance, comfort or even layout. You will only learn that the seats are uncomfortable on a 3 hour trip once you take that 3 hour trip. If a test drive is really important to you, you should really rent the car for a couple days.

What front-engine Porsche car was a major success? The Cayenne saved the company, but is surely not a car and arguably barely a Porsche.

Seems odd that he wouldn't use "water-cooled" as the Porsche Rubicon.

I think one of the key points is that "there's never been any secret sauce to the company's battery technology". Tesla very admirably opened up its patents to competitors. Musk seems to want competition in the electric market. It almost seems like he cares more about proving the viability of electric cars than proving that Tesla can be a profitable, multi-billion dollar company.

When you're selling a unique product that appeals to a certain subset of the population that other products don't appeal to, it's easy to get those early sales. People who believe in Tesla will forgive not having a local dealership with repair shop. They'll forgive faults in the vehicle. They'll forgive a high price that can't be negotiated down. They'll forgive trade-in prices that are probably lower since Tesla doesn't have dealerships to resell the vehicles and probably just sends them to auction.

As they try to reach more customers, there are many things that cost money that they'd have to go for. And maybe it would work.

However, I think if electric cars catch on, it won't be hard for other companies to follow suit. I think a lot of companies just don't want to pour money into a very expensive battery that will make a vehicle unprofitable. If the economics change, other automakers will follow suit and there's little to no barrier to entry.

None of this is to say that I think Tesla is doomed. It's more to say that I don't think Tesla is going to become one of the top 5 auto makers in the world. In fact, it's unlikely that Tesla will break the top 15 (Mazda sitting at #15). And if it doesn't break the top 15, is it really worth $27B? Mazda comes in at around $11.6B with very healthy profits and a full line of vehicles with dealerships around the world. I think Tesla would be incredibly successful if it sold 1.3M cars in a year. As of 2Q2015, Tesla had sold fewer than 12,000 Model S vehicles in total - ever, not just for that quarter.

So, I think it's possible that Tesla will become a Mazda. But if it becomes a Mazda, it's worth a lot less than $27B. And what are the chances that Tesla will become a Mazda? Even if one thinks Tesla is a great concept led by great people with a great product, the odds are bad that Tesla will gain the market traction that Mazda has.

I think there's a middle-ground where one can say that Tesla isn't a joke or doomed or anything like that, but it's really hard to justify such a sky-high validation. There's no barrier to entry that software companies have. There's no network effect they'll exploit to make a quasi-monopoly. And there's serious competition. Competition that ships a lot more volume and can probably move into electrics the moment Tesla shows them the market and economics are right for it. That doesn't doom Tesla. It does make it unlikely they'll become so big and profitable.

But that also doesn't mean that Tesla won't have a big impact on our society. At the very least, it's pushing the conversation about electrics forward and showing us a vision. It might not be a vision for everyone. It might be a vision for the elites for now. But it's daring and interesting and there's something worthwhile about that - especially so for Musk. It just might never be worth its current market cap.

"The idea was, like Tesla, to be in control of the retail environment and give customers an upscale experience. They were all money pits."

"Stockholders may be clinging to the hope that the company's upcoming crossover will help put Tesla back on track, but there's little evidence to bolster that optimism. A big, expensive vehicle with a compromised structure to accommodate gullwing doors can hardly be a sales knockout."

0/10

A huge benefit of ev's was supposed to be the cost savings in using a single platform with multiple bodies. The Model S already had an all wheel drive platform, so I don't understand why Musk wouldn't take advantage of that with the Model X. IMHO that was a huge, huge mistake that's going to cost shareholders a ton of money.