Will Tesla lose the battle but win the war?

Things are not looking too good for Tesla these days. One of the most painful developments was Consumer Reports’ decision to remove its “recommended” rating and downgrade it to “worse than expected.” The magazine had once rated Tesla the best ever tested.

But the big blow came this week in an article in Road & Track by Bob Lutz, former vice chairman of both General Motors and Chrysler and one of the most respected auto gurus around. Titled “Is Tesla Doomed?,” the article made the following evaluation of Elon Musk’s company:

Tesla’s showing all the signs of a company in trouble, bleeding cash, securitized assets, and mounting inventory. It’s the trifecta of doom for any automaker, and anyone paying attention probably saw this coming a mile away.

Lutz said the car’s range “can’t make the hike from Detroit to Chicago without stopping for a long charge.” And he pointed out that $2 gas was undercutting the rationale for all electric vehicles, not just Teslas.

Lutz is not inexperienced in electric vehicles. He developed the Chevy Volt and is the former CEO of battery maker Exide Technologies. Therefore his criticism of Tesla’s battery situation carried weight as well.

… there’s never been any secret sauce to the company’s battery technology. The automakers that bought into Tesla’s tech early did so to avoid having to pony up development dollars on first-generation battery packs of their own. Now that Audi has announced it’s getting into the EV game, Tesla should be even more concerned. If you’re a luxury buyer, which care would you rather have?

But wait a minute! Isn’t that exactly what Musk said he wanted all along? Didn’t he release Tesla’s patents so that other carmakers would join him in the effort? Only last January, speaking at the Detroit Auto Show, Musk said:

Most of the good that Tesla will accomplish is by cutting a path through the jungle to show what can be done with electric cars. The big impact Tesla will have is the reach to which we induce other car companies to accelerate their plans for electric vehicles.

The big impediment to electric vehicles, after all, is infrastructure: There have to be enough charging stations around to make them convenient. But the complaint has always been that there aren’t enough EVs around to make charger investment worthwhile. If enough companies get in on the act and start producing EVs, then investment becomes possible. (These days drivers are actually fighting over scarce charging stations in California.)

So the competition keeps coming. One of the biggest stories this week is the emergence of a “mystery car” being planned in California. Faraday Future, a company believed to be backed by Chinese multibillionaire Jia Yueting, is planning to build a billion-dollar factory somewhere in the United States to produce another electric vehicle. Like Musk, Faraday is dangling the project in front of several states and is rumored to be considering sites in California, Georgia, Louisiana and Nevada. It is being almost more ambitious than Musk, saying it will be launching its first vehicle by 2017.

That’s just one player. Porsche and Audi have already declared they are ready to get in on the game. The Chevrolet Bolt will go on sale next year in all 50 states, as opposed to the Chevy Volt, which has only been available largely in major cities and on the West Coast. Volvo will have an all-electric by 2019. “We believe that the time has come for electrified cars to cease being a niche technology and enter the mainstream,” said Volvo Car Group President and CEO Hakan Samuelsson in a recent statement. “We are confident that by 2020, 10 percent of Volvo’s global sales will be electrified cars.”

People are beginning to take note that electric cars tend to concentrate on the West Coast and in other select parts of the country. Atlanta was a hotbed for the Nissan Leaf until the state imposed a $200 registration fee on EVs and removed a $5,000 state tax credit. Then sales plunged 89 percent from 1,338 in June to 148 in August.

Last week the Sierra Club published a paper titled “Charging Up,” which tried to analyze why EV sales have been so sluggish in the Northeast. The report blamed the auto companies for downplaying EVs and failing to give them much advertising time. It noted that the Ford Focus Electric advertisement released by the automaker in 2015 was the first ad for an EV model since 2011. A secret survey conducted by Consumer Reports and published in 2014 found that dealers often have little knowledge of the electric vehicles they sell and, in some cases steered buyers away from them and instead toward gas-powered cars. The report suggested that utility companies should get involved in promoting EVs, and that auto companies try marketing beyond California.

So what does all this say about Tesla’s fate? The company will certainly have a hard time selling the half-a-million cars that Musk has promised for the rollout of the $35,000 Model 3 in 2017. Does that mean its financial negatives will finally overtake it? The company is losing $4,000 on every one of the Model X’s that it sells now.

Yet the established auto companies are now taking to electric vehicles so rapidly that they soon may become mainstream. Is it possible that this will create a tidal wave that will carry Tesla along with it?

As Matthew DeBord wrote last week in Business Insider, in response to Lusk’s critical article:

Lutz goes on to maintain that, despite his admiration for Musk, Tesla could be headed toward the same fate as nearly every other startup automaker in the past 100 years: failure.

I’m not so sure. Almost a decade ago, I also wrote about how Tesla wasn’t long for the world. And although Musk and Co. went through several crises and flirted with bankruptcy, the company hasn’t merely survived — it’s prospered. I learned then to be very careful about underestimating Tesla’s resilience.

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