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Is Tesla really all that disruptive?

Elon Musk’s dream of revolutionizing the auto industry seemed to lose some of its luster last week as the fledgling electric car company ran into a few roadblocks in getting its new models into consumer hands.

The $35,000 Model X is scheduled to be leaking out to a few early customers late this year. Then full-scale production will begin in 2016. But already there is talk of delays and missed deadlines, so there might be an asterisk attached to those numbers soon.

The ultimate goal is selling 50,000 Model X’s by 2017, which still seems way over the horizon. A lot of those sales were supposed to come from China, and that’s developing into a problem. Musk was in China last week talking things over with Zhao Kuiming, head of Tesla’s China sales division, but Musk has already decided to “reboot.” It appears that Chinese buyers are still spooked by the lack of recharging stations, even though there have been a few grand openings around Beijing. Tesla was hoping to sell between 4,000 and 8,000 models in China in 2015, but only 120 cars were sold in January. Musk has cut the China staff from 600 to 420 and is recalculating just what can be expected from the Middle Kingdom. The tastes of the few Chinese millionaires who could be counted on to purchase the Tesla as a status symbol aren’t going to get him very far.

All this has spooked investors as well. They’ve driven the price of Tesla stock down nearly 20 percent since the start of the year. Once the highest flyer on the market, Tesla peaked at $293 a share last September, but it’s been a long descent ever since. Prices lingered around $180 per share last week. Even then, Tesla is trading at 232 times its expected earnings for 2015. The average stock on the NASDAQ, where it trades, is 21 times earnings. All this has lifted the short interest on Tesla stock to 27 percent of floating shares. The average on the NASDAQ, once again, is only 5 percent.

Nevertheless, all this could turn around quickly. Tesla already has 20,000 pre-orders on the Model X, and there is every reason to think its release could revolutionize the industry, much as Musk says. As it is emerging, the Tesla is going to be a device much more attuned to electronics and Silicon Valley as it is to Detroit and the auto industry. Musk is already introducing over-the-air (OTA) updates of the car’s software in a model, much more like an iPad than a Ford Focus. All those features you see advertised by the major automakers — rearview cameras, automatic emergency braking — will be standard in the Tesla. Musk is already talking about an automatic driving feature that will allow drivers to guide the car hands-free on Interstate highways. Of course, there are lots of state regulations that will have to be satisfied before this feature can go into effect. California, Nevada, Michigan, Florida and Washington, D.C., already have laws allowing driverless vehicles driving, but it’s unclear how Tesla’s system will be judged under these statutes.

Also decided at the state level is the question of whether Tesla can sell directly to customers or must work through established car dealerships. These laws are generally put into effect at the behest of local dealers to prevent the major auto companies from setting up their own shops. But Tesla has run afoul of the law in many states. The company just won a major victory when New Jersey Gov. Chris Christie came down in favor of Tesla. Georgia has also opened its doors to direct sales at five stores. But West Virginia has gone in the opposite direction, banning sales of Tesla altogether. There probably aren’t that many potential Tesla customers in West Virginia anyway.

Perhaps the unkindest cut came from Wall Street Journal columnist Holman Jenkins, who wrote a piece titled “Tesla: Just Another Car Company.” If you wanted to insult Elon Musk, you could hardly do better. “Elon Musk has proved that a market exists for electric cars, despite their many inconveniences, especially if they come wrapped in taxpayer subsidies,” Jenkins wrote. “But he hasn’t proved he can make a profit.”

Jenkins sees the Tesla operating in a niche market, in which a small percentage of customers are willing to ignore the problems in order to be “green.” Once this niche is filled, however, the market will thin out quickly. “Uber is disruptive,” he writes. “Tesla isn’t. Tesla is disruptive mostly of a driver’s confidence that he’s going to reach his destination without needing a tow.”

Yet this perspective is probably too negative of Tesla, and electric cars in general. There are people whose driving needs it fits perfectly. “I own a Tesla. It is beyond spectacular,” wrote one of the commenters to Jenkins’ piece. “The car has Di Minimus maintenance as there is nothing to break.” “That is why I bought a Tesla,” says another. “At 270 miles to start with, range anxiety is not my problem, yet. I rarely drive over 100 miles in any given day, and if I needed to, my Chevy Tahoe is still in the garage.” I have friends in Baltimore who bought a Nissan Leaf as a second car to tool around the city and love it.

So Tesla may just be filling a niche, but it is still a sizable one. Infrastructures can change a lot faster than we anticipate, especially where there is a demand for it. Tesla’s stock may be overvalued and due for another nosedive. But the company is still making big changes in the way we power our cars.

Tesla hits some speed bumps

Tesla’s stock was down around $200 again after its fourth-quarter report disclosed that neither its sales nor profits had met analysts’ expectations. At the same time, the company went into what one analyst called its “insane mode” as founder Elon Musk predicted that by 2025 the company’s market capitalization would reach $700 billion, matching the current value of Apple.

Analysts were scratching their heads as Musk’s vision seemed utterly at odds with the difficulties that are starting to pile up with Tesla’s ability to meet current goals. The company’s 2014 revenues rose to $3.2 billion, up from $2 billion the year before. However, expenses continued to mount, and losses widened from $74 million to $294 million last year. For the fourth quarter, Tesla delivered only 9,834 of the 12,000 cars it had predicted. Musk blamed the winter weather and customers’ holiday travel for the shortfall. A bigger disappointment has been sales in China, where Tesla sold only 120 cars in January. Musk has supposedly messed up by insisting that the cars be sold only by dealers, whereas the Chinese want anyone to sell them. He also says that concerns about home chargers and the lack of public charging stations have made it extremely difficult to crack China’s notoriously tough market. Musk now says that the company is now not counting on any sales in China to help it reach its goals.

But those goals are wildly ambitious. Musk told analysts that Tesla is anticipating a 30 percent increase in revenues per year for the next 10 years, which is the pace needed to put Tesla’s market value on par with Apple’s. “That would imply sales volume of well over 5 million vehicles per year,” Edward Niedermeyer wrote in Bloomberg View. “That would have Tesla surpassing the 2014 sales of such familiar names as Nissan, Honda and Fiat-Chrysler – at highly significant profit margins – within a decade.” Needless to say, Niedermeyer and many others find this prospect unlikely.

But Tesla isn’t standing still. It announced last week that it will produce a battery for home electricity storage. This will fold nicely with its partnership with SunCity, run by Musk’s cousin. People who install solar panels on their roofs will welcome a battery system that allows them to store electricity for times when the sun doesn’t shine. Just as solar seems to function best when distributed across a wide variety of users, so energy storage may ultimately work best when it is distributed over a wide variety of users.

Whether Tesla will be able to survive all this, however, is still an open question. The main threat to Musk’s vision seems to be coming now, not from predictable delays and bumps in the road, but from healthy competition from experienced automakers. Chevrolet has announced the Bolt, a successor to the Volt, which will be swinging right in Tesla’s wheelhouse – the $30,000 market for electric vehicles that can travel 200 miles or more on one charge.

General Motors has moved the introduction date up to 2017 (the same as the Tesla 3) and seems deadly serious about entering the EV market. “The Bolt EV concept is a game-changing electric vehicle designed for attainability, not exclusivity,” General Motors CEO Mary Barra said in a statement. “Chevrolet believes electrification is a pillar of future transportation and needs to be affordable for a wider segment of customers.”

Besides the Bolt, GM will have an improved version of the Volt, plus the $75,000 Cadillac ELR, a plug-in model. Daniel Miller of Motley Fool isn’t terribly impressed with any of these efforts, noting that the ELR has already had little success competing with Tesla’s Model S in the luxury-car category. “Because of that premium, first-mover brand image that Tesla created with its Model S, it’s hard to imagine how the Bolt will steal much of Tesla’s Gen 3 market in 2017, even if it is price-competitive,” Miller writes.

But if Tesla really has something to worry about, it’s the rumors that Apple, its Silicon Valley rival and the world’s largest company, is preparing a secret plan to enter the car market as well. Just this week it was revealed that Apple has a secret project employing 1,000 people to come up with some kind of concept car that will rival the Tesla Model 3.

“Apple has batted around the idea of developing a car for years,” reported Adam Satariano and Tim Higgins of Bloomberg Business. “Phil Schiller, Apple’s senior vice president of marketing, said in 2012 court testimony that executives discussed building a car even before it released the iPhone in 2007. Mickey Drexler, an Apple board member and head of J Crew Group Inc., also said in 2012 that Apple co-founder Steve Jobs had wanted to build a car.”

Apple has worked on batteries for the iPhone and iPad and also has a supply chain that could easily be applied to vehicles. “The mapping system it debuted in 2012 can be used for navigation. Last year, Apple also introduced CarPlay, a software system that integrates iTunes, mapping, messaging and other applications for use by automakers,” Satariano and Higgins wrote. Of course, that’s a long way from turning out thousands of vehicles, but Apple has invaded other businesses before. It basically knew nothing about the music business when it started on iTunes, and had no experience with telephones when it invented the smartphone.

In any case, even if Tesla finds itself in competition with much larger established companies – something Musk predicted at the start – it is revolutionizing the field of automobiles by making the electric car seem practical. Although Musk’s dream may prove to be overblown, he has certainly advanced the search for alternatives to the internal combustion engine.

Swappable batteries make a comeback, in the Smartscooter

Shai Agassi had a great idea. Buy an electric car in which you can swap out the battery for a fresh one. That way you bypass the recharging time, which may be up to 4 hours.

It was a great idea, and Agassi got a lot of publicity when he introduced it in 2011. He was going to set up a network of charging stations in Israel, then try to expand into Europe and the United States. But A Better Place, Agassi’s company, declared bankruptcy in 2013. The idea didn’t catch on. Battery-swapping stations proved more complicated and difficult than anticipated, and the idea just didn’t resonate with motorists.

Now a secretive American designer named Horace Luke has come up with the same idea, but he wants to apply it to a new electric scooter called the Smartscooter. The battery will be much smaller. The machine in which you exchange your depleted battery for a new one will be about the size of an ATM. You will get about 40 miles to the charge, which will make it excellent for commuting. Altogether, it’s not just an alternative vehicle but an entirely seamless system he hopes will revolutionize transportation. Once the idea catches on with scooter owners, he hopes it will eventually extend to cars as well.

There are pluses and minuses to the idea: Luke hopes it will diminish dependence on gasoline and introduce electric vehicles as a true alternative. Critics point out that there are no reliable indicators that powering a car with electricity does anything to reduce carbon emissions, especially if some of the electricity is produced by coal, which provides 46 percent of the nation’s power. Luke counters that much electricity can be produced by wind and solar, and that batteries are an excellent way of storing surplus power. There is even talk that these batteries will be a way of evening out the ups and downs of the grid — although, of course, they will not be able to feed the grid and get you home from work on your Smartscooter at the same time.

There are other problems as well. Many people complain that scooters are useless in the rain and cold, while others say a good raincoat or warm clothing will solve that problem. There are also concerns about scooter finding a place to park where they can be chained up, and worries that they are easily stolen. But overall, the idea of a scooter that can be easily recharged and make 60 miles per hour on an electric battery seems to have some appeal.

In any case, it’s enough to help Luke raise $150 million for his company, Gogoro, which intends to start marketing the scooter system this year. Both the price of the scooter and the subscription that will allow the owner to start swapping batteries are yet to be announced.

Luke is not the first since Agassi to come up with the idea of substituting swapping for recharging. In defiance of Agassi’s abortive effort, Tesla has shown off a concept for a station that would allow a Model S to replace its battery in 90 seconds. Although the system was promised by the end of 2013, Tesla has barely mentioned it since. There was some talk about a launch early this year. The problem is that a Tesla battery weights about 100 pounds and requires a complex system to replace, whereas the scooter battery exchange can easily be handled by one person. “We no longer want to talk about charge time,” said Luke, “we want to talk about swap time.”

The Smartscooter received a nice write-up in the current edition of Wired, but even there the sophisticated readership had its doubts that the technology could be applied to cars. One online commenter wrote: “Even if it [the battery] could be replaced in 1 second, people would still rather fill their tanks, than assembling heavy batteries back and forth. Only battery enthusiasts are willing to do every inconvenient thing, to keep their dream alive.”

Other readers complained about how lithium ion batteries lose their charge and don’t store easily. They will have to be continually recharged, which of course requires electricity.

In short, the swappable electric scooter is no sure thing. There are plenty of obstacles that will make it difficult to catch on. But it’s definitely a step in the right direction in making people more accepting of modes of transportation other than imported gasoline.

(Photo credit: Gogoro)

Electric company: GM makes statement with Bolt, Volt

General Motors CEO Mary Barra has sent a strong message to the auto industry: It’s serious about producing electric cars for the middle class.

One of the most talked-about vehicles unveiled Monday at the North American International Auto Show in Detroit was GM’s Bolt, an all-electric concept car that could go on sale in 2017, the Detroit Free Press reported. The company also officially unveiled its redesigned Volt, a plug-in electric-and-gasoline hybrid that got a first glimpse at CES in Las Vegas last week.

The Bolt’s price tag is $30,000, including the $7,500 federal tax incentive, GM North America president Alan Batey said. It would get about 200 miles on one battery charge.

As the Detroit News reported, GM is positioning the Bolt as an affordable EV option:

“This is truly an EV for everyone,” Barra said. “For most people, this can be their everyday driver.”

Batey said the Bolt isn’t aimed at Tesla, noting Tesla’s current average transaction prices are above $100,000.

“They are for the rich and famous. This is for the people,” Batey said of the Bolt. “I would probably counter and say I haven’t seen Tesla with anything like this.”

Despite what Batey said, Forbes took the unveiling as a direct challenge to Tesla:

The Bolt is a clear shot at upstart rival Tesla, which has said it is working on a less-expensive version of its $70,000+ Model S. Dubbed the “Model 3,” it would cost somewhere between $30,000-$40,000, a clear attack on the most popular segment of the automobile market.

Barra is clearly looking to meet the challenge. The Bolt, she said, would be an “all-electric vehicle for the real world.” Tesla CEO Elon Musk is scheduled to appear at a related auto industry conference in Detroit on Tuesday afternoon.

As for the revamped Volt (with a “V”), the biggest news is that the battery range has gone up to 50 miles. At that point, the gasoline engine, a 1.5-liter “range extender,” kicks in, pushing the limit to 400-some miles before the vehicle needs a charge or a fill-up. With the electricity and gas range combined, mpg on the highway is about 41. In all-electric mode, however, it’s 102 for a gallon-of-gasoline equivalent, thanks to the new 18.4-kilowatt-hour lithium battery.

Auto Blog notes:

To compare, today’s four-seat 2015 Volt has a 38-mile range from a 17.1-kWh battery in a powertrain that offers 37 mpg and 98 MPGe. So, across the board, there are notable improvements.

The blog has much more about the dashboard improvements, and the Verge has a bunch more photos.

The Volt is expected to be in showrooms in the second half of 2015 as a 2016 model.

(Photo: General Motors)

More problems for Tesla: Analyst cuts sales forecast

Morgan Stanley auto analyst Adam Jonas has been bullish on Tesla Motors. But he added to the company’s woes Wednesday when he slashed its sales outlook in the face of falling oil prices.

Jonas predicts that the luxury electric-car maker will only be able to sell 300,000 vehicles by 2020.

Cheap gas prices could be partly responsible, since the narrative at the start of this month was that plunging prices had contributed to consumers returning to their SUV- and pickup-loving habits. (Electric vehicles didn’t sell badly in November either, particularly the Nissan Leaf.)

But this segment in CNN Money’s story presents an other interesting angle:

The biggest drag on Tesla sales will be the lower-priced, mass market Model 3 expected in showrooms in about three years.

Jonas’ doubts that Tesla will be able to price the Model 3 in the $35,000 range as many have been expecting. He’s now thinking the price could be closer to $60,000.

Tesla’s philosophy is that it won’t put out a vehicle that doesn’t meet its own, and founder Elon Musk’s, high expectations. See this post from November, about how the company wasn’t bothered about delaying production of the crossover-utility vehicle Model X, which is now expected in showrooms until the third quarter of 2015.

Tesla’s stock has fallen precipitously since Sept. 4, when it was $286.04. It closed at $197.81 on Tuesday.

Will falling gas prices hurt alternative vehicles?

Everyone is saying that falling gas prices will ruin the market for alternative fuels and vehicles. But it isn’t time to give up on them now.
Ethanol and methanol are still two liquid fuels that will easily substitute for gasoline in our current infrastructure. Ethanol is making headway, particularly in the Midwest, where it is still cheaper than gasoline and has a lot of support in the farm economy. The big decision will come when the EPA finally sets the quota for ethanol consumption for 2015 – if the agency ever gets around to making a decision. (The decision has been postponed since last spring.) A high number should guarantee the sale of ethanol no matter what the price of gasoline.

That leaves methanol, the fuel that has the most potential to replace gasoline and would it fit right into our present infrastructure but must still run the gamut of EPA approval and would require a change in habits among motorists. Methanol is still relatively unknown among car owners and is hindered by people’s reluctance to try new things. But the six methanol plants that the Chinese are building in the Texas and Louisiana region could break the ice on methanol. The Chinese have 100,000 methanol cars on the road now and are shooting for 500,000 by 2015. Some of that methanol might end up in American engines as well.

Another alternative that is still in play is the electric car. In theory, electric cars should not be affected much by gas prices because that is an entirely different infrastructure. The appeal is not based on price so such as the idea of freeing yourself from the oil companies completely and relying on a source of energy.

The Nissan Leaf has not been badly hit by oil prices. Tesla’s cars, of course, have not gone mass market yet, but the company is relying on a new breed of consumer who does not worry too much about the price and will appreciate the car for its style and performance. Elon Musk has shown no indication of backing down on his great Gigafactory, and Tesla is still aiming to have the Model III (its third-generation vehicle, which will come at a much lower expected price point of $35,000) ready by 2017.

This leaves natural-gas-powered vehicles as the only group that might be hurt by falling gas prices, and here the news is not too good. Sales of vehicles that have compressed natural gas as their fuel declined 7.2 percent in November. As David Whiston, an analyst at Morningstar, told the Houston Chronicle’s Ryan Holeywell: “I hear all the time from dealers: As soon as gas starts to go down, people look at light trucks.”

CNG’s appeal has always been that it will be cheaper than regular gasoline, so plunging gas prices make it lose much of its appeal. It costs $5,000 to install a tank for CNG fuel, and that is not likely to attract a lot of takers with oil prices low. For a gas-electric hybrid, there is similar math. For the Toyota Corolla, the electric portion adds another $7,000 to the price. That’s why the CNG-based solutions never caught up with the light-duty vehicle. They are still attractive for high-mileage vehicles like buses and garbage trucks. “For the consumers doing the math, if gas goes below $3 per gallon, the payback period goes out a number of years,” Whiston told Holeywell. “And the break-even point makes sense for fewer people.”

The collapse in gas prices is not the end of the road for alternative fuels. In a couple of months, the price may be up again, and all those people who have rushed out to buy light trucks will be stuck with them. The changeover to alternative fuels is a slow process, fraught with false starts and misleading signals. But in the end, it will be well worth it to reduce our dependence on imported oil and achieve some kind of energy independence. Car buyers have very short memories and an inability to look very far into the future. Remember, it’s always a passing parade. Consequently, their reaction has been only short-term. But once people buy those trucks, they’re stuck with them for the next 5 to 10 years. If the price of gas goes up again, they may live to regret it.

Report: Electric car buyers hate the dealer experience

Researchers at the Institute of Transportation Studies at the University of California at Davis have made a startling discovery: Consumers in the market for an electric vehicle hate dealing with the traditional car dealers that sell EVs.

Green Car Congress has a story on the UC Davis study, which found that purchasers of plug-in electrics were less satisfied with their experience with the sales departments at car dealerships than purchasers of traditional gas-powered vehicles.

And the feeling is mutual, it seems: Sales people at dealers that sell EVs alongside traditional cars often don’t like to take the extra time (for time is money) to explain the basics of how EVs work. As Green Car Reports notes, “Customers tended to be more discriminating, they said, which demanded more time and effort by the staff to answer questions and arrange test drives.”

The exception to the rule of customer dissatisfaction is Tesla, which doesn’t even use dealers: Buyers pick out the model they want in the showroom, then order online.

Car Dealers Not Plugged into the EV Revolution

How do we get information when we want to buy a new car? Often, it’s online with car review websites and automaker’s sites & advertising, and hopefully UCS’s clean vehicle information. But when it comes time to see and test drive cars, you can’t replace going to the new car lot. Unfortunately, recent reports say that many new car dealerships lack the knowledge or desire to effectively sell electric vehicles (EVs).