Ambitious Tesla Motors Runs Into Roadblocks

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Ambitious Tesla Motors Runs Into Roadblocks

File Photo: Founder of Tesla Motors Elon Musk (AP Photo)

New York:  Tesla Motors has been the darling of Wall Street. A-list stars including Hollywood's leading men Leonardo DiCaprio, Brad Pitt and George Clooney are all also fans.

It lured them with the luxury electric Model S and is now going after the middle class with its Model 3, a compact electric sedan set to debut in 2017 for a starting price of $35,000-$40,000.

Compare that with the sleek Model S, costing upwards of twice the price.

Elon Musk, Tesla's billionaire founder, hopes the Model 3 will propel the California manufacturer into the mass market and has ambitions to triple Tesla production to 100,000 vehicles this year and to 500,000 per year by 2020.

But Musk, the man behind the online payment site PayPal who also founded SpaceX, faces an uphill task and growing skeptics.

The rapidly falling price of oil has put gas-guzzling cars back to the fore, at the expense of electric vehicles, and Tesla shifted 18,750 cars on the US market in 2014, down 3.1 percent year on year. It had a target of 35,000 deliveries worldwide last year.

Morgan Stanley, one of the few US banks that believed in Tesla's lofty ambitions, is now doubtful.

"We continue to view Tesla as a niche player," it said in a note to investors late last year, saying that it expects the company to deliver closer to 300,000 electric vehicles by 2020 -- far short of its 500,000 target.

Tesla's ambitions rest on its ability to manufacture a battery at a competitive price, which seems difficult in the current environment, where oil is plumbing record lows with each passing week, Morgan Stanley said.

Financial markets are also doubtful of Tesla's ability to segue its way into the popular car market.

Its stock was trading at $275 in September, but, ahead of the Detroit auto show next week, it is now down to $206, providing more ammunition for the skeptics.


'SPECIAL CASE'

Nobody could accuse Tesla of standing still, however, and it is building its Gigafactory in Nevada to produce lithium-ion batteries, costing an eye-watering estimated $5 billion to construct.

The purpose of this mega project is to reduce the cost of the battery, thereby reducing the selling price of electric cars.

But analysts say this huge investment -- while central to Tesla's plans -- may affect its financial results.

In addition, Tesla forked out fast-charging stations for free in western Europe for its standard bearer Model S.

Tesla, also pushing hard to boost overseas sales -- especially in fast-growing China -- was "a special case," said Martin Zimmerman, a professor at the University of Michigan and former head economist at Ford.

"People who are buying Tesla have a lot of money to spend. They want to have the latest technology and so they are buying these electric vehicles," he told AFP.

"Tesla is, in total sales, they're small... With the Gigafactory, they're trying to bring the battery cost down. That will help, but still I think compared to the $50 oil, or $60 a barrel oil, that has really created a change in circumstances."

In the immediate future, Tesla is working on a Model X, a crossover utility vehicle and followup to the widely acclaimed S. First deliveries were expected in the spring, but there have been multiple delays.

The startup is also working on new versions of the Model S with four-wheel drive to seduce buyers in US states where the weather is less forgiving than sunny California.



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