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

[beaushelby]

This, Mr. Calcanis, was one of the most thoroughly heartfelt and incisive rebuttals I've ever had the pleasure of reading.
Simply 'commanding' in all aspects.
If I could only find an Agent with this combination of discipline and fire to represent me in the music biz.
Totally *smoked* him!! Whew!

[myerstlm]

Someone has to take the lead here...certainly the big three are ill equipped to raise the bar. I'd much prefer to provide a bailout to Tesla than the big three. We need to be rid of our dependence on foreign oil for so many reasons. I agree with Jason that the bleeding edge of new technology is always too expensive. But we have to move in this direction in order to realize a better product down the road. Have to. Have to. Have to.

[golfgirl]

In the current environment it's easy to see how a reactionary piece like the one by Mr. Stross might resonate. However getting ourselves back on track is going to require us to put more thought, analysis and follow-up into the decisions we make, as Mr. Calcanis does here.

If, after the eight years of mismanagement that got us to this point, we blindly follow a "kill the afluent" mentality ...or if we hand out bailouts with no oversight/accountability...we risk to eventually find ourselves in a very different America then the one our Grandparents, Parents... and we ourselves... strove for throughout the 20th century.

[thetypolice]

The internal combustion engine is dead. Hybrid cars are yesterday.

Especially the huge SUV monsters, that claim ”Having (insert ridiculous amount) percent more gas milage than (insert ridiculously oversized model) with regular engine”.

So, yay! The Electric Car, reloaded. But the reality is a bit more complex. If every American would drive a Tesla, what would provide all the extra electricity to power them? Dirty coal? Hazardous nuclear power? Not to mention an ancient electricity grid that’s already crumbling on overload.

We need to look at the problems on hand in a holistic way, which means investments into our infrastructure to bring it up to speed for a future that needs to be free of fossil fuels.

Tesla made a good start, but in the spirit of energy conservation, why start with a sports car? To me, that’s no different than the SUV-hybrid-hypocrisy.

I think BMW is doing it the better way — start small, than scale up, and let the necessary dependent technologies (liquid hydrogen, wind or solar powered “gas” stations, for example) keep pace with it. Then we can make the toys.

[Shawn828]

They started with the sports car to make some of the money committed to development back. If they had a bigger production that could produce the economy of scale they might have started off with a sedan.

[dml247]

What is screwy isn't the argument of whether Tesla Motors deserves a loan from the government, but instead why the government should be on the hook for this anyway! The government is your money. If Tesla (or anyone) deserves a loan then they can go to a bank and get it. You see, when you put your money into a savings account, you are loaning your money to the bank. The bank then decides who it will loan your money to. It asks the borrower to pay more in interest than it pays you for the use of your money. If the bank decides that it can't trust that borrower then it won't loan them your money. What's the difference between whether the bank or the government loans Tesla the money? The risk is spread around to more taxpayers in the government loan instead of a limited number of depositors in the bank. This spread by the government could also be called a CREDIT DEFAULT SWAP. Someone needs to face up to the risk. This risk makes sure that investments are only done when they make sense as in actually getting paid back with interest. If Tesla can't get a bank loan with YOUR money then they can go suck exhaust (or water).

[Nikiska]

The government isn't particularly interested in Tesla's success as a company, but it does have a vested interest in the development of new alternative energy sources.

The major difference between a bail-out and a loan to help develop technology is that one is needed to compensate for poor business choices and the other is needed to advance the underlying science (ya, I know there are questions about what part of the business the DOE loan guarantee's would actually fund, but that's what the application/approval process is design to address).

In a related example, our money created the internet (DARPA), but our money wasn't used to prevent many dot com's from failing. Given that DARPA can't invent everything, it seems that there might be room for private enterprise to advance technologies that the public at large can benefit from. It would seem that if the government (i.e. you and me) has a vested interest in the development of specific technologies, and a private company has a vested interest in the development of the same technologies, then there might be times when the government could use its resources (financing, tax breaks, legislation, etc.) to promote that development (with all the usual caveats about oversight to stem corruption, a vetting process to ensure resources are being put into promising endeavors, etc.).

[Shawn828]

As he pointed out the fund for the loan is already established for just this purpose- to encourage innovation. It's based on the same principle as scholarships for maths and sciences- to encourage more movement into needed fields. It's a better investment than pouring more money into an array of weapon systems that will only be needed if we sell the ones they replace to someone who can then threaten us and create a need for new weapons.

The Tesla does meet a need, and with better funding (which as you may notice the banks haven't been doing lately) they can get to making a more affordable model sooner.

[randyHo]

I couldn't have put it better than Jason already did. He gets it.

"helplessly smitten by the world's quietest dragster" speaks loudly to the fact that Randy and his editors do not.

I'd much prefer to see money invested in a forward-thinking (and PRODUCING) company, than one mired in their past, and the pointless extension of an inevitable downward spiral. Invest the money in training so that tesla can have competition in our future market-place.

[NikosIatropoulos]

Jason,

Thank you for a very well written reply to Randy's story. I particularly enjoyed your reference to "Who Killed the Electric Car" and recommend that everyone reading this rent a copy and see this great documentary. Please, please, let's not repeat the mistakes of the past!

As a family man, I unfortunately can't afford to have a roadster as a second car, but I can't wait to replace my BMW with the Model S. My only fear is that there will be a pretty long waiting list.

[kylebuttress]

Is it more to do with the fact that the Governments have far to much to loose from the demise the old style motor and related industries, this would include oil. So to promote and help industries where they have no immediate benefit would be counter productive to them.

I think only when the general population gets behind a movement like this will any action be made.

[emaij]

Unfortunately, convincing Americans that sending money to the Middle East hurts them is once again going to be difficult. We missed the biggest opportunity in a century to do so but having GWB in office after 9/11 was tragic in many ways. Thanks for making the case one more time.

[jacobrdavis]

Jason, Thank you for a well thought out post. I appreciate the way you support American ingenuity and manufacturing. If only more people had the wherewithal to support great companies like Tesla, this country would be a better place.

[cylindar]

Allright!! Love them Tesla's

[joebaggadonuts]

I really appreciate that you are someone who can afford the Tesla and who is willing to take the time to defend it. New technology needs support to succeed. Thank you from a fellow American who cannot afford to buy one for defending all of our rights to eventually have one, at a price that we can all afford.

Frankly, if everyone in your position would simply stand up to the baloney the entrenched interests publish as you have here, the whole world would be a better place.

Thank you.

[scottgamble]

Bravo, Jason. This is a thoughtful, educated response to a "jump on the bandwagon" piece that the NYT should know better than publish but chooses to do anyway. I share your sentiments on bailouts in general - especially when the hard-earned dollars will chase old-world businesses like Citi and GM. The American taxpayer could do much worse than investing in the next generation of automotive technology - an investment that could not only pay direct dividends in terms of repayment with interest, but indirect ones through advancement of technology.

The NYT piece sells newspapers I guess. Your response sold me.

[francinehardaway]

I am waiting for the S myself. I would LOVE to have an electric car, especially one made in the US that is based on a new technology. And all the people who are buying the Lexus, BMW, and Mercedes can buy it; those cars have much more expensive brands than the Tesla S will be.

Every word you have written is correct. The reason people don't want to give Tesla money is that it's not part of the establishment that hires too many people, gets into bad contracts, and runs companies like the last century. I think the Obama administration, if it lends money to anyone, would have egg on its face if it doesn't lend to Tesla, source of the American ingenuity and green jobs he has committed himself to produce.

Good job of "Fisking," dude. In poetry, that kind of line by line analysis used to be called "new criticism."