I was at Tesla in March, hosted by Kurt Kelty, their head of battery technology. As I’m sure most people who are following Tesla know, it’s basically a stretched Lotus Elise with a different body. This was largely made possible by Lotus’ use of aluminum extrusions bonded together (rather than welded or mechanically attached). Two basic things struck me during my visit to Tesla.
The first was the complete lack of any sports cars in the parking lot. Most of the cars were either family cars, outdoor sport enthusiast cars or hybrids, which is very strange for a company building a sports car. Apparently, not many car nuts work there. This would be OK at some level, but part of the reason GM and Ford lost their market is that they stopped building cars on gut instinct and started building cars purely based on financial metrics. Fundamentally, a combination of the two is needed. Most cars are not appliances, they are often part and parcel of people’s identity and that requires a certain amount of ‘soul’. Companies like BMW and Mazda have really taken this to heart and it has translated into market success. GM, with the aggressive guidance of Bob Lutz, is getting back to building cars with ‘soul’, like the new Pontiac G8 and the Cadillac CTS-V. Even though most consumers won’t necessarily buy these cars, they represent brand aspirations and image that matter to buyers of less performance oriented models.
The second was that Tesla designed and built a USA-certified car for less than $200 million. Just to but this into perspective, it has traditionally cost car companies $2-3 billion to do this, and Tesla, with no experience, has done it for $200 million. Sure, part of this is due to the shear brilliance of Lotus’ extrude bonded chassis, but that’s not the only story. Most of the investment in fact went into power electronics, specifically the torque vector control motor electronics, the motor and charging system. Still, $200 million for total development costs (including setting up the company and marketing) is peanuts in the car business.
What does all this have to do with Fisker? Well, for Tesla to bring on a true revolution in the automotive business, it must move beyond selling 10,000 exotic sports cars. Their are plenty of companies out there that have been successful in the low volume, high price market, most of them in Italy and the UK (Zonda, Aston Martin, Marcos, etc). The real breakthrough will be to build 100,000 mass market cars. To do this, Tesla needs to bring both it’s electronics engineering expertise and appealing design. For the latter, it had hired Henrik Fisker, one of the most well known current automotive designers, and generally regarded as the designer of some of the most beautiful and desirable cars currently on the road. This relationship has since ended in a lawsuit. And it’s not surprising.
While working with Tesla, Fisker was working on his own mass market electric car, the Karma. The Karma has been seen testing a prototype recently and is due to be available in the next 12 months, likely before Tesla has their mass market car ready. So what does this mean for Tesla? Well, Fisker is capable of building a car with ‘soul’, he has done it before. Fisker has demonstrated a working prototype of the Karma and has a track record of delivering roughly in stated timeframes. Remember the parking lot I mentioned earlier? If Fisker comes out with a mass-market car before Tesla, Tesla might be relegated to a low-volume, high-dollar niche manufacturer, without the drive of car nuts like Bob Lutz. At that point, GM or someone else will probably buy Tesla, although GM might not need to since they are about to launch a rival of their own, the Volt.
And remember those exotic motor controls Tesla spent millions engineering? Turns out a bunch of people on the internet had already done it. Fundamentally, the real lesson with Tesla is not that it’s possible to build an electric car, but that the barrier to entry to the car market has been lowered to $200 million, which is almost VC money. And that’s a revolution.