Tesla Motors coming of age as an automaker SFGate

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Every tech startup eventually must leap across the Valley of Death — the gap between developing a product and mass producing it.

But for Tesla Motors, that chasm is particularly wide.

Tesla made its name building high-powered, high-priced electric sports cars for the glitterati. The company’s iconic, $109,000 Roadster, introduced in 2008, was never meant for the mass market. Its production run will end at a mere 2,500 cars.

Now, Tesla is leaving its days as a boutique automaker behind. The Palo Alto company, founded in 2003, will make the jump to full-scale production with its next car, the Model S, to be built at the old New United Motor Manufacturing Inc. factory in Fremont. Next year, the company plans to assemble 5,000 of the electric sedans at the plant.

In 2013, that number should reach 20,000. The Model S will cost $57,400 to $77,400, depending on the capacity of its battery pack.

We could afford to make our mistakes on a small scale, in order to avoid making them at a large scale, said Chief Executive Officer Elon Musk. We’ve got all the lessons learned from the Roadster, so we’re applying those to the Model S to make sure those mistakes are not repeated.

It’s a daunting leap. At this point, one year after the company went public, Tesla appears to be midway across its own Valley of Death, trying to ensure a smooth landing.

Construction crews are transforming pieces of the old Nummi plant, in some cases tweaking the existing machinery, in others, bringing in equipment bought from Detroit at fire-sale prices. Most of the gear will be installed by October, and the plant should be ready to begin production by mid-March, according to Gilbert Passin. Tesla’s vice president of manufacturing.

I’m sure there’ll be things we’ll have to deal with, but from my vantage point, I feel pretty good, Passin said, touring the plant on a recent afternoon. There’s a lot to do, and we’re doing a lot.

Raised $232 million

In addition, the company raised $232 million earlier this month with a secondary stock offering and private placement. The money will help develop the Model X. an electric crossover vehicle that Tesla plans to introduce by the end of 2013.

And yet, Tesla still hasn’t earned a profit.

The company brought in $116.7 million in revenue last year, but lost $154.3 million overall. Production of the Roadster will end early next year, months before the Model S hits the market in the middle of 2012. In between, Tesla’s revenue will come from selling electric power train components to such companies as Daimler and Toyota. not from selling Tesla cars.

Profitable in 2013

Musk expects the company to reach profitability in 2013, once Model S production tops 7,000 or 8,000. Skepticism persists, however. Last week, the Motley Fool investment website discussed Tesla’s prospects in a story headlined These 2 Companies Will Never Turn a Profit, arguing that revenue won’t rise fast enough to keep up with debt payments. (The other company was Internet radio service Pandora.)

But investors continue to buy the stock. Since its initial public offering on June 29 last year, Tesla’s shares have risen 71 percent. It closed Friday at $29.02.

‘Still some doubters’

They’ve got their share of challenges, said Scott Doggett. associate editor for the Edmunds.com auto information website. But a few years ago, if you would have asked a number of industry experts if Tesla was going to make it, a lot of them would have said no. And there are still some doubters, but that number is getting smaller.

Certainly, the purchase of the former Nummi plant has improved Tesla’s chances.

The company paid just $42 million for the facility, which used to crank out 500,000 vehicles a year under a joint venture between General Motors and Toyota. The sale price did not include the plant’s equipment, some of which Tesla later purchased for $17 million.

I cannot imagine trying to build that facility from scratch in the Bay Area today, Musk said. I suspect you’d probably spend about a billion dollars. The plant’s paint shop alone, he said, would cost $150 million.

Tesla won’t use the entire 5.5 million-square-foot facility, at least not yet. Most of the main building remains empty and dark, stripped of machinery.

Tesla Motors Electric Cars

It’ll be mothballed, but believe me, we have plans to fill it up, Passin said.

Model S sedans will be assembled in the plant’s southernmost corner, with robotic vehicles carrying each chassis across a gleaming white floor. A small indoor driving track with a surface like cobblestones will allow workers to test drive every car once it’s assembled.

If there are imperfections, you’ll hear it, Passin said.

In another building, construction crews have installed a press line — three stories tall and shipped from Michigan — that will stamp body panels from pieces of aluminum, using pistons the width of tree trunks. Workers had to rebuild the cement floor to support the towering machines.

Other gear Tesla bought from the Nummi joint venture is already up and running. Angelo Limnios, a Tesla manufacturing technician who used to work for Nummi, studied an injection molding machine as it melted small plastic pellets and shaped them into a bumper.


It feels good to see it moving again, hear it moving again, Limnios said.

High-end image

Tesla plans to grow into the plant, expanding to accommodate each new car model. Each model will cost a little less than the last, reaching further into the mass market. That shift will pose its own challenge.

Tesla must try to hold on to its high-end image, even as its cars become more affordable.

Maybe we won’t be seen as super-elitist, but that’s OK, Musk said. What really matters is, are you delivering really high-quality products that amaze and delight people? A car may feel like it’s inexpensive, but it should never feel cheap.

In the pipeline

With Roadster production coming to an end, Tesla Motors plans several new models of electric cars.

Tesla Motors Electric Cars
Tesla Motors Electric Cars
Tesla Motors Electric Cars
Tesla Motors Electric Cars
Tesla Motors Electric Cars

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