On Bailouts and Sports Cars

Reprinted with permission from Jason's email list

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.

Comments

[Luvial]

GM is spending its money (and soon ours) on advertising the Volt, a car that does not exist for at least another year or two. So what are the ads for, our tax dollars? No tax money for virtual vapor cars from the Big Three. By all means we should be supporting alternatives like the Tesla. By supporting the Big Oil Agenda (gass guzzling SUVs), the US auto companies are responsible for the War on Terror(War for Big Oil). The traitors to our national security and economic future should not be rewarded anymore. Let Exxon bailout their subsidaries GM/Ford/Chrysler.

[JohnEGQ]

wow, wow, wow, tired of hearing the haters talk about electric cars. No one is asking you haters to purchase one. While I will be first in line for a $40k electric car. "not practical"­...blah blah...I will use it to commute to work and back. 100 mile range is perfect even for my 2hr a day commute! "not ready for prime time because need charging stations".­..no one is saying to purchase three electric cars and ditch all gasoline. But purchasing one electric car will make a difference. I hope Randoll Stross got a large bump in his saving account from an anonymous car company for his lies. Completely ridiculous and I appreciate that someone with an army of followers (thank you Jason) could call him out.

[Downix]

Have you looked at the $16k electric car, the zenn? Have a local dealership here and I've been eyeing one myself. Unfortunately, nowhere to plug it up in an apartment complex.

[Pinkmarbles]

I looked up the Zenn and it IS a GREAT little car. The only problem that I see is it only goes 25 mph. For that kind of money and for what they say it is to be used for (campus travel and gated communities) I would rather just but a golf cart and put the difference in the bank.

[SShaw490]

Full electric cars just aren't practical right now, and probably won't be for the next few years until they can be fast charged at a gas station. Until then, they are relegated to commuter duty for - no matter how much you deny it - wealthy people who can afford a $100K toy. Most people can't and won't buy a car that is great as long as you never drive it more than 50 miles from home.

The Volt is the technology of the future - its gasoline engine starts and charges the battery as needed to give it unlimited range.

What the government should be doing is funding a research and development project to build a standard Lithium Ion battery pack for use in all US made electric and hybrid vehicles. Nickel based battery packs are not going to be acceptable for plug in hybrids or all-electric vehicles, and that's what is driving the Tesla.

In short, the Tesla is a great attempt to prove you can build an electric car, which I don't think anyone doubted in the first place, but it's impractical for the overwhelming majority of American drivers. The US government should be putting their money into an independent project to produce the battery pack of the future, and all US makers should use that battery. That benefits all manufacturers, not just Tesla.

[BlackbirdHighway]

The Tesla has a range of 244 miles, so you most certainly can drive it more than 50 miles from home. The next model is designed to have the capability of an 80% recharge in one hour. So, on a road trip, you can drive for 4 hours, stop for an hour for lunch&recharge, and drive another three hours to your destination. That's a pretty good road trip. If you need to go further, you can always fly, take a train, or rent a gasoline vehicle. In any case, your doing a whole lot more than just commuting.

I agree that more research on battery technology is a good thing, but Tesla is following a proven, path that new technology has followed over and over.

The first cell phones cost $1500. They were "relegated to...wealt­hy people" who could afford such an expensive toy. They sold in low numbers, just like the Tesla sports car. But the next generation of phones were less expensive and sold more, Each generation got better and cheaper and they became more widespread. This is exactly the same path that computers, microwave ovens, big screen TVs, VCRs, DVDs, Compact Discs, and virtually all of out commonplace technology has taken.

[Pinkmarbles]

Blackbird you make a great point. My dad had one of those "cell phones" in his work vehicle. It looked like a home phone complete with the cord. And it WAS expensive. I commute about 90 miles one way every day to work and sometimes more. I am in real estate, but I would buy an electric vehicle if it would go run 4 to 6 hrs.

Why doesn't someone come up with the idea to charge to batteries with generators in the wheels (as they turn they generate a charge and charge the battery). I would be in line tomorrow to buy one.

I have been looking at the smart car but at 6'4" I would have a hard time working out of it so many hours a day.

[SShaw490]

I stand corrected about the range - somewhere I got the idea it was 100 miles. Either way, though, a car that doesn't have the ability to recharge itself while you drive is a niche vehicle any way you slice it - it would be great for most commuters and even most drivers 80% of the time, but the problem is that it's not useful at all the other 20% of the time, and that's not acceptable to most people. Families with multiple vehicles would be able to swap cars around and make it work, but, in the end, it's a handicap and people don't want to be handicapped. Bottom line is, range has to be unlimited. If you could stop at a gas station and recharge it as fast as you could fill up a gas tank, that would be OK (and even then a 244 mile range is the equivalent of a very small gas tank).

I'm stoked at all the research into this kind of thing, but that's a pretty big problem.

[Downix]

There's no reason why you couldn't do a Volt with the Tesla. Just put the generator into a tow-trailer. That way, if you needed long distances, attach the trailer. If not, go trailer-less.

[rf-hawaii]

Thanks for the great post! Electric cars are surprisingly simple and powerful and cheap and long lasting.

The Tesla has great performance numbers and great reviews. I'm sure the big auto makers aren't too pleased to see this upstart building such great cars.

[mheister]

Tesla is far more worthy of a loan than the Big Three are of a bailout, and Tesla is asking for peanuts compared to those behemoths.

I favor bailing out the Big Three so long as they seriously green themselves and their products, but Tesla's already there!

[Semaj51]

"They are asking for a loan to build a second, family-friendly, $60,000 version of the car called the Model S."

Just how many families can afford $60,000 for a car? And how many years do they need to drive this car to equal the cost for a stadard car Plus costs of gas?

Critics are saying that the VOLT at $40K is too much... How can you say that $60K is anything but friendly to a family?

[justmeinAz]

I don't know what critics are expecting the first generation of a new technology vehicle to start off cheap enough for a college student, but that's a pretty crazy expectation. Considering the enormous research and development costs associated with these initial offerings, 60 thousand is pretty reasonable, and quite a few middle and upper class families will be able to afford them, especially since they'll be saving 3 to 5 thousand dollars a year by not buying gas.
Lower income families won't be able to afford these cars at first, but any gas vehicles we can get off the road is a help to the economy and the environment. It's silly to not do it at all until it can be sold for 20 thousand.

[ezmacmike]

Good job on fisking Mr. Stross' article. Very thorough.

Coincidentally, Fisker is also a brand of electric car.

[tomsax]

The Stross article is an embarrassment to journalism. Being an opinion piece doesn't mean Stross can misrepresent the basic facts. The nytimes should print a retraction and apologize.

[vfx]

GM made the EV1 for a Billion dollars. Tesla has multiple patents on their car and did it for 145 Million. I'd rather give my money to the smarter company.
That would also be the one that didn't take back their electric cars and crush them.

[William1950]

I love cars ... all cars, I love big v8 engines and straight 6's. I love old cars, rods and jalopies ... The electric car is the future, like next month is the future ... the electric car is the only way to go .. forget ethanol, forget hydrogen, well maybe not hydrogen if it can be burned like gasoline and not used to power a fuel cell... all electric, with thousands of miles of range... we like to drive cross country and hate busses...

[MouthFountain]

I like cars, and am particularly interested in electric vehicles. I also happen to be a fan of Lotus, on which the Tesla is based. So, my question revolves around, what Telsa adds to the value of an Elise, an Engish car, and why we as a country should invest in the company.

Given that Tesla has utilized a partner platform, can they independently develop a compact, cost-effective popular automobile? That is not an insignificant investment. Lotus has a small car in development. Is Tesla an exclusive partner? And finally, is the Tesla drive system worth $400M in investment? There are some interesting drive products including the recent Michelin all-wheel drive prototype.

Just because something is cool and green does not make it an investment. I would prefer that we as a country invest in public transportation. Tesla has plenty of high-profile technologist investors, as private companies generally require. I fail to see why this is a public issue, unless Tesla offers significant returns on public investment.

[FearlessFreep]

Why can't Obama's stimulus package include both?

[dkmullen]

Jason convinced me of Tesla's value to America during several appearances on the This Week in Tech podcast. His article here nails the case closed. I'll never be able to afford this current model, but I look forward to the models that will grow out of it. Boy do we need companies like this now!

[gadgetenvy]

@JasonCalacanis Sounds like Stross has the green demon riding him. If he can't afford a Tesla now, no one should.
-Carrie

[livesbythec]

Thank you for the great post. I can hardly wait to buy my first electric car!

[RepugsOut08]

Of all the money being tossed around these days, the money I think will be best spent is in new technologies such as the Tesla. Why anyone would be fighting against this modern version of the Industrial Revolution is just beyond me.
The only thing that made the high gas prices tolerable, was knowing they'd force us to get serious about getting off fossil fuels. I don't care if gas drops to one dollar a gallon. I know it can go to 4 and 5 dollars in six months!
If the US doesn't get out in front of the new energy revolution, our foreign competitors will leave us in the dust.