On Bailouts and Sports Cars
Today, Randall Stross takes apart Tesla Motors' request for a $400m government loan in an illogical, factually incorrect editorial that screams of a "Kill The Affluent!" ethos that spreads every time the market crashes. Putting aside the issue of bailouts--which many of you know I'm against--let's look at Stross' reasoning.
According to Stross, Tesla shouldn't get a *loan* because:
1. According to the title: "Only the Rich Can Afford It."
2. Battery pack life isn't moving fast enough: "But 8 percent, compounded, would bring too few benefits, too late to Tesla: it would take nine years to halve the price of its battery pack."
3. Randy says there is no upside to the loan: "Can you conceive any way that federal dollars could be put at greater risk -- and for no equity in return, keep in mind -- to benefit fewer people?"
4. Stross says the Tesla isn't ready for prime time: "its all-electric technology remains woefully immature and don't-even-ask expensive" and "The Roadster is not much more than a functioning concept car that sells for $109,000."
These points are all, well, somewhere between short-sighted and outright false, leading me to think that Randy's big problem with a *loan* to Tesla is that he needs to write a piece that appeals to the short-term sentiment of the country right now ("damn the billionaires!") rather than one that pursues the actual truth. Car technology needs to advance, and the best place for that to happen in in Silicon Valley. If the government is going to give loans to any car companies, it should be the ones that have the best chance of successfully innovating, not the losers who haven't competed for decades.
So, let's take a moment to fisk* Randy's story:
1. "Only the Rich Can Afford It. Should Taxpayers Back It?"
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Yes Randy, the first version of technology tends to be expensive. Personal computers used to cost $5,000, flat-panel TVs were $10,000 and--gasp--the first decade's worth of solar panels were not worth the price. You're a *technology* journalist at the New York Times. You understand all too well that expensive technology becomes commodity technology within 10 to 20 years of its inception.
Personal computers now start at $200. Of course the first version of an all-electric sports car is going to be expensive.
2. Battery pack life isn't moving fast enough: "eight percent, compounded, would bring too few benefits, too late to Tesla: it would take nine years to halve the price of its battery pack."
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Really?
If Tesla cuts the cost of the battery pack in half over the next nine years, they will have two choices: take about $20,000 off the price of the car or double the range to 500 miles. You correctly point out that Tesla over-did the battery range, as most folks are commuting way less than 100 miles a day. Ever wonder why they did this? Well, skeptics are obsessed with the limited range, and Tesla must fight the public perception that an electric car is not viable. You're, of course, exacerbating this problem with your column today--something you should really think long and hard about, since you're so wrong and you have such a big platform.
You, in fact, could be in the documentary "Who Killed the Electric Car Part Two" as one of the contributors to the "It Can't Be Done" movement.
The fact is that Tesla could--right now--produce a car that is 1/3rd to half the price if they set it to go only 100 miles. In nine years, they will easily be able to produce a $40k car that does this. Is nine years too long to wait for this technology to reach the price point that 80% of the new-car-buying country could afford? I don't think so.
Your interpretation of the three central facts here--average commute, cost of the car and battery costs--all work about against your argument when you consider them holistically. You say in the same article that:
a) The Tesla is too expensive at $109k.
b) The Tesla's range is too far, and only needs to be 50 or 60 miles
c) That battery technology doubles in nine years at the slow estimate
Well, that all adds up to a reasonably priced car that goes a reasonable range today (100 miles), a reasonably priced car that goes a very nice range in four years (say 150 miles), or a cheap car that goes an absurd range in less than 10 years (250 miles). Your own data would lead any reasonable person to the conclusion that Tesla is well on it's way to an affordable electric car.
What's the problem here exactly? You're saying that America could have a brand new startup car company that produces an affordable car that goes an absurd range just 10 years from now? The cost is a $400 million dollar loan? You're problem with this is what?
Also, Tesla has publicly stated that they are pursuing a flagship--or tent pole--release of their cars. This means they start with the sexy, fast and expensive car for affluent folks, then move on to the sexy sedan for middle income folks. Finally, they take all the technological advances from these two models and move them into the affordable car for everyone.
This is, in fact, the best practice for the automotive and technology industries--you, of all people, know this! How do you think it's possible for cars under $30,000 to include GPS,antilock breaks, and air bags? Those items were once reserved for only the most elite cars, as you well know.
Why is what's good for Intel, GM, and countless other tech and automotive companies so bad for Tesla in your mind?
3. America has no upside from the $400m loan.
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First, these loans come with a very innovative concept: interest. The country would get *interest* on the loan. Second, the country gets added value from the following:
a) Sustainable, high-paying jobs for potentially thousands of Americans
b) Those employees spending money, buying houses and paying taxes
c) Tesla licensing its technology to other non-US companies (as they are *already* rumored to being doing with Mercedes)
d) Who says Tesla can't give the country warrants on two percent of their stock as an added bonus?
e) The country would not need to send mountains of cash to the Middle East
f) Smog levels would drop, and with them massive health care costs associated with smog
g) We would be doing our part to slow down global warming (and every bit counts)
That stock kicker in (d) above I just invented. Perhaps all the companies we give loans to should be required to give a two percent preferred share stock bonus to the United States in exchange for originating their loans? That could be an amazing bonus.
4. Tesla isn't ready for prime time: "its all-electric technology remains woefully immature and don't-even-ask expensive" and "The Roadster is not much more than a functioning concept car that sells for $109,000."
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I own the number 16 production car of the Tesla, and I've been driving it for two weeks now. Anyone who owns the car can tell you that a) it is not "woefully immature" and b) that it is not a "concept car."
The Tesla has been through many crash tests. It has air bags and, yes Randy, even a cup holder. It is a thrill to drive, safe and dependable. It gets the range it reports and the early owners have been delighted with the refinement of the car and the lack of problems. You are flat-out wrong when you say it's "woefully immature" and a "concept car." It's a production car and when compared to my two other cars--a Mini Cooper and a Corvette--it blows them away. How Tesla could create a car that competes with two cars that have been in the "Top Ten cars of the year" for the better part of the past 10 years is just mind-blowing. You and the New York Times should really alter these incorrect facts in the article.
Question for Randy: on what basis do you label the car "woefully immature?" Here's what other publications said (I found these in five seconds on Wikipedia--why didn't you?):
Road and Track: "The Tesla feels composed and competent at speed with great turn-in and transitioning response."
Motor Trend: "undeniably, unbelievably efficient" and would be "profoundly humbling to just about any rumbling Ferrari or Porsche that makes the mistake of pulling up next to a silent, 105-mpg Tesla Roadster at a stoplight."
Slate: "A week ago, I went for a spin in the fastest, most fun car I've ever ridden in--and that includes the Aston Martin I tried to buy once. I was so excited, in fact, that I decided to take a few days to calm down before writing about it. Well, my waiting period is over, I'm thinking rationally, and I'm still unbelievably stoked about the Tesla."
5. Factually Incorrect: Tesla is asking for help producing a rich man's car. --------------------------- Yet another factually incorrect statement Randy. Tesla is NOT asking for a loan to build the Roadster. They are asking for a loan to build a second, family-friendly, $60,000 version of the car called the Model S. The Tesla production run and technology is already paid for--Tesla has said this over and over again.
You know this, yet you spun the entire article with the headline "Only the rich can afford it." Only the rich can afford a $60,000 car? Really? I'm sure you make at least $80 to $120,000 as a New York Times writer, and your book advances have to be well into the six figures. Guess what, you can afford the Model S!
Finally, Tesla isn't asking for a handout, they are a asking the tiny, tiny piece of an incentive program from 2007 called the Advanced Technology Vehicle Manufacturing Incentive Program that was designed to give large automakers support in developing more energy efficient vehicles.
How did you miss this basic fact in your article? It's not a bailout--it's a loan that is part of an existing program for just this purpose! If we are going to give a loan for advancing vehicle technology shouldn't we give it to the only company which has actually produced 100% electric cars? How about the company that has over 1,200 orders for those cars? How about the company that has gotten absurd reviews from the press for their extremely capable car--a car you, and only you, call a "woefully immature" kit car.
How could pack so much bias, incorrect facts and absurd conclusions into one article Randy?!
6. Some perspective please!
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Randall says "Can you conceive any way that federal dollars could be put at greater risk -- and for no equity in return, keep in mind -- to benefit fewer people?"
Sure, how about the Iraq war, which costs around $400m a day--dollars that we have no chance of ever seeing again (as opposed to a loan, which is paid back with interest).
Your editorial should have started with this fact: if we leave Iraq a week early, we can give two billion dollars in loans to *five* electric car companies. That's your lead right there, Randy. That's leadership, that's the truth and that's your job as a journalist. Not this "damn the billionaires" crap. In fact, the billionaires in this country have done a hell of a lot (see Gates, Buffet, Turner and countless others)...But that's for another email. Let's get back on the subject.
You need to put things back in their proper perspective instead of obsessing about the fact that some of the investors in Tesla are really rich, that the first version of the car is slightly more expensive than a luxury car, and that battery power is *only* going to *double* every ten years.
You really should rewrite the editorial and give the public a fair world view instead of one warped by some short-term populist propaganda. Tesla isn't about rich Silicon Valley guys in sports cars: it's about extracting ourselves from the environment-killing, human-rights violating, terrorist-supporting regimes in the Middle East. The only reason we deal with countries that suppress women and homosexuals and give money to terrorists who kill based on a religion is because we are dependent on their oil. If we didn't need their oil, we would treat them like we treat other rogue regimes--isolate them until they got their act together.
Companies like Tesla are the direct path to our independence from such treachery.
In Conclusion
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The reason I bought the Tesla was to help fund the Model S--and because I like things that are fast, sexy and high-tech. I'm a proud sports-car loving technophile American and it gives me great joy that the best sports car money can buy is produced by an American company that is paving the way to independence from dirty, foreign oil.
I've already committed to buying the 16th Model S (Tesla lets you get to keep your production slot in future models), and if another company makes a better electric car, I'll replace my Mini Cooper with that. Supporting American technology companies is one of the most patriotic things you can do--the technology industry is the reason our country has such a high-standard of living and why we can afford to spread the democracy virus around the globe.
You should be proud of Tesla and support them, as well, because if Tesla gets the *loan* (a loan, not a gift), you just might be driving an electric car built in the United States by American workers. That consumer purchase is a vote which, once cast, will help us shift our interactions with the Middle East back to condemning them for violating basic human rights instead of our dual-headed approach of insincere appeasement and inappropriate force. That approach hasn't been working out to well, has it?
Good luck rewriting the article--which you or another New York Times journalist will wind up doing in another two or three years, I'm sure.
ps - If you're ever in Santa Monica lets drive the Tesla down to the Promenade and you can see first hand what normal Americans think of the car--they love it.
* Fisking: The act of delivering criticism on a line-by-line basis established by conservative bloggers to check the British journalist Robert Fisk.
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Telsa should get the loan. Sure and it's true: Only the rich can buy a Telsa Roadster, but what makes Randall Stross think that you can't buy a Telsa car or vehicle in the future? The founders of Telsa Motors have stated many times that they intend to make less expensive electric cars in the future and reportedly they are developing a electric sedan that's much less expensive than the roadster. Given this, there are companies like Aptera and Phoenix Motorcars who are making less expensive electric cars. They should also apply for some of that 25 billion dollars also. In the end, if we don't help these companies, then they can't help us with our "Oil Consumption Problem".
We all know that new technology comes at a high cost. We never were told the original cost of getting the first man on the moon, pictures of the Saturn Rings, etc...but we were all pretty much astonished when we read about them. As we all "demanded" fuel efficient cars when gasoline was $4/gallon and railed against oil companies profits, why are people now saying that the "electric" car is too expensive as gas prices drop? As a strong supporter of innovation, $400 million seems like a small price to invest in a technology that will allow upcoming generations to have at least one positive outcome as they pay off all the debt which they had such a small part in causing.
Naysayers seem to lack a vision for a future that they may not live to see and they should not be allowed to block these advances.
For those against the gov't spending money on private enterprise, spend a few minutes scanning the Earmark.org site and see how much gov't spending is to other projects for which we will get no promise of a return on investment.
We have become a country of "I" not a country of "WE" and that vision needs to be corrected if this country is to re-gain it's standing in the world as the "Innovation Leader".
I don't think most people have a problem with investing 400 million dollars in alternative fuels and transportation. I think the problem people have is investing 400 million in Tesla.
They've already spent more than 130 million, and all they have produced so far is 60 cars made from chassis that they purchased pre-made (no design costs), and laptop batteries that were purchased pre-made.
I personally think 400 million would be much more widely invested in research grants to universities. All Tesla has proven is that they can burn through cash at a rate that would make GM blush. If any of the major manufactures from Toyota to GM to Volkswagon had wanted to waste 100 million, they could have easily produced an Electric car using almost completely off the shelf components just as Tesla did.
Heck it! Tesla is worth the risk.
Yes it's off the shelf stuff, but at least they thought of a new way to use that OTS gear. Isn't innovation what we always brag about as the strength of the nation?
Plus Tesla doesn't have the established economies of scale as VW or Toyota or any of the other established big dogs. I bet if you looked at the relative costs of the Model T prototype compared to what it costs once it was being produced on a construction line the prototype was very expensive. To compare the Tesla to the existing companies is an unfair match. Those companies had teh assets to do this cheaper from the get-go, but they didn't.
I know this was a fairly long piece of reading, and I know that I won't be owning a Tesla anytime soon...but did any of you deep thinkers actually READ the WHOLE article?
I thought Mr Calacanis answered Stross's piece succinctly and very clearly.
What's wrong with some of you people?
In nine years we could have a $40,000 electric car? You mean that in almost a decade I can buy an electric car for only four times what I paid for my first house? Golly, that's wonderful. Any car that costs more than $10,000 is over-priced.
I'll stick with my leased Honda Accord, thanks. It has a cup holder, too. Meantime, you have fun driving your 100K buzzer... until some uninsured bozo slams into you on the way to the supermarket.
~WolfLady~
I'm all for developing electric-car technology, and I'm willing to let the Government invest in research in this direction. What I don't like is the notion that the Government is supporting a company that is currently only producing pointless -- and inherently dangerous -- toys exclusively for, yes, the very rich. Who the hell needs a car that can go zero-to-sixty in less than four seconds (.7 G force, how fun!), or a car with a top speed of 125?
I'm glad you enjoy your car. Please stay off my street when you drive it though.
It's extremely unrealistic to think that a startup company can produce cars in the 100s of thousands right away. They have to start small and work up to larger numbers.
There is also no way to produce an inexpensive car when using new technology and only manufacturing small numbers.
So, if you are forced by circumstances to start out producing expensive cars, you had better make ones that are worth the money. The Corvette ZR1 is another high performance, impractical two-seater that accelerates 0-60 in less than 4 seconds and costs over $100,000. For now at least, Tesla has to compete against cars like that. That is not their end goal, only a stepping stone to eventually making high volume, practical and affordable electric cars.
That car was built to prove a point, as the author of the article notes. Americans have long been leery of electric cars because they're perceived as weak, and short on distance. The roadster shatters those notions, and proves they can build a "common" car, and then some. What they've done is the equivalent of going to Mars when everyone else was still trying to get to the moon. They're quite literally racing laps around Detroit, and too many people are too blind to notice.
The roadster only proves that Americans don't understand physics. A Lotus, which is what the car is based on, gets excellent acceleration from an engine a third the size of an average SUV's. It does so because the car is light. And since F=ma ....
Plans are already underway for a ultilitarian car. The point of developing a sports car was to show that an electric car can be exciting and needn't be thought of as a flimsy tin can for geeks.
They can't even deliver on their luxury toy. Don't expect too much. This is not a tin can. It's a plastic shell you can poke a screwdriver through.
With all of our money the Government is printing and giving away, why can't the Government simply build electric cars, or contract to have them built, and give them to us? You know, like it gives vehicles to the military? Seriously. It's basically one of the necessities of life, and we're bleeding tax dollars, our future has just been mortgaged away, why not give us the cars we need?
While I agree whole-heatedly with the "Kill the Affluent" ethos, in bad times or good, I think the Tesla is a worthy test-bed and should be kept alive with government money with the proviso that any technology achieved with government funds will be Open Source. That will foster competition and bring costs down.
I appreciate that Tesla has done some great things with their electric Roadster, but as the great Winston Wolf said "Let's not start sucking each other's d!*%$ quite yet".
Tesla is not an automaker. I installed and modified some cabinets in my house. This does not make me a cabinet maker.
Producing 60 vehicles in 11 months (WAY behind schedule) at a HUGE loss is not a good sign. I'm sure the cars are great, but then again I'm sure if GM wanted to blow 200 million dollars, they could have bough some lotuses and computer batteries and made the same car.
And for a little perspective, Tesla is asking for a loan 63.5 times it's current annual revenue. GM is asking for a loan that's less than 8% of it's annual revenue. If GM were asking for a similar amount as Tesla, they'd be asking for 10.5 trillion dollars.
Again, I'm not ragging on the Tesla Roadster. I believe it's a great car, and I didn't read this article that Mr. Calacanis is responding to, but some perspective of Tesla'ssituation seems needed.
You said "And for a little perspective, Tesla is asking for a loan 63.5 times it's current annual revenue. GM is asking for a loan that's less than 8% of it's annual revenue. If GM were asking for a similar amount as Tesla, they'd be asking for 10.5 trillion dollars."
That is actually untrue, since GM is operating in the red, while Tesla is operating in the black, GM is actually asking, percentage-wise for a much larger amount of money then Tesla. Remember, in the 4th Quarter of last year, GM lost nearly double the amount of money that Tela is asking for. I think I'd rather trust a company, with new technology, looking to the future, that is asking for a loan. Then a company, still living in the past, using outdated technology asking for a bailout.
I believe you are confusing profit with revenue. Revenue is the total money that a company brings in. Profit is what the company brings in minus the cost.
And Tesla is certainly not in the black. Tesla has raised 140 million dollars. As of last month, it was down to 9 million in reserves. So it has spent at least 131 million. It has produced 60 cars at 105,000 a pop. Total revenue = 6,300,000. Operating profit = -124.7 million. GM's 2007 revenue was 165.5 billion dollars
I know it's not completely fair because Tesla has invested a lot of that in futurue products and capacity, but GM doesn't get to subtract Volt development costs from it's bottom line either.
GM is asking for a much much, ever so much smaller percentage of revenue than Tesla.
"while Tesla is operating in the black"
Bwa ha ha ha.
That's hilarious. Tesla has not made a single red cent yet. Every car it sells comes with a huge loss (all few dozen or so). Tesla is basically burning through VC money like a bad dot com and ghas yet to generate a single hint of a profit.
The government shouldn't be gambling with taxpayer money on private companies it wishes would succeed. Return the money to the taxpayers to spend as they will.
This is the right time to inject public capital into worthy projects. Private equity is not going to pull us out of this economic malaise.
Return what money?
It all be bundled up to Iraq where it has buggered off to parts unknown.
Oh, the taxpayer has done a fine job of it, right? SUVs, McMansions, wide screen Tee Vees, all financed with unsustainable debt. Get a clue, Overd, we are all in this together and buying more guns or blackberrys or big macs is not going to help us get to a better economic condition than pulling together in the same direction. Government is the power of the people united together for the common good. Our .05% leadership has led us all down the road to failure. Thanks for the memories, but too bad some like Overd failed to learn the lesson.
Great article. People that argue against investment in important emerging technologies just don't get it. Now I'm just waiting to see who will sell me a $30k car first, Tesla or Aptera (and then I'll wait for the 2nd gen bug fixes that follow every innovative release).
It's not the governments job to run a mutual fund with my tax money.
I'm betting on Aptera,... but wonder how long it will be before they offer sales & service in my state of Maryland.
According to their website - the all electric Aptera will be starting production during late 2008 or early 2009 (~$27K), and the plug-in hybrid sometime in 2009-2010 (~$30K).
Fantastic column, Jason! "Who Killed the Electric Car?" ought to be required viewing for every U.S. citizen. I suspect Randy has an agenda of his own with his column. I'll never forget that scene in WKTEC when it was revealed the one person on the California Air Board who repealed the regulation which was about about to make the electric car a reality, actually had stock in a hydrogen fuel cell company!
I loved one of the other posts here calling this Paine's "Common Sense" of electric car technology. Those cutting this technology down need to be seriously questioned on whether there is an agenda just below the surface. I'll never forget one interview on NPR's "Science Friday" when some car magazine editor did nothing but rant and rail against a woman who was talking up the electric car & I think may have owned one. The only reason he won the argument was that he had the biggest mouth & kept talking over her when she pointed out the facts.
Good job on this, Jason! Keep it up. We need to keep this out there & get the word out. The demand is there. If GM was serious about this they wouldn't be yakking about their Volt - "available in 2010" what's that about? Why do they need two years....& when are they going to come up with a decent explanation for why they literally crushed all those EV-1s back in the late 90s / early 00s?!
Pete
At the very least Randall Stross is guilty of lack of vision. What Tesla is offering is an opportunity to be completely weaned from the crude energy source. For those who think that hybrids are the future of transportation in the U.S. because it is the clean energy path to the future, I wouldn't sink my 401K into them. For one, you have to understand how the Prius works; it's a gas car. If you commute at 25 to 60 mph without much stop and go, you're on gas. You are charging its batteries indirectly from gas. You might be doing the environment about as much good as buying a diesel Jetta(about 55 mpg).
The real future of transportation is electric and I applaud Jason for nailing Randall with great cogent arguements.
It appears that the original editorial was missing a few historical notes.
1) Electric Cars used to out-sell ICE powered cars until the Ford Model T came out.
2) GM had a successful Electric Car in the EV1.
Altho, this has got me thinking. Perhaps this could be the key, solve two issues simultaneously. US Gov't goes to big three, "Ok, you can have your $25 billion lines of credit, but only if you license the Tesla technology, and then produce working vehicles based on it within 2 years." Congradulations, cash influx to four companies simultaneously with less headache *and* cleaner roads. Plus, we'd have already allocated the money, as it would be for cleaner vehicles.
Jason, this is one of the best articles I've ever read at the Huffington Post. It's like a 21st century version of Thomas Paine's "Common Sense." Your "fisking" of Stross is the slap across the face that America has needed for many years. Thank you for your passion.
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