Tesla: Innovative or Doomed to Fail?

-IMG_1629Are we catching a glimpse of the future? Tesla wants you to think so.

Though it has only been making cars for several years, Tesla has completely upended the car market. Despite failure after failure by both electric car companies and traditional car-makers, Tesla’s success has set a new tone for what the future of driving may look like.

But while Musk’s success is laudable, it must also be noted that the company has relied on the government for a substantial part of its success. Can Tesla survive in the future without taxpayer subsidies?

Building a functioning, popular electric car didn’t seem possible. In seven short years, Tesla blew through more than $300 million, posting a loss of $55.7 million in 2009. Tesla founder Elon Musk constantly pushed his engineers to find a better way to combine batteries so that the car would have a long enough range to be attractive to consumers.

The company ended up building a large battery pack that weighed almost 1,300 pounds, placing it in the bottom of the chassis. Because of this extra weight, Tesla compensated by building its flagship car, the Model S, from lighter aluminum instead of traditional steel.

At first, prospective customers signed up on a waiting list to pay $100,000 for a Tesla. The company, struck by delays, looked close to failure at times. But thanks to an insane amount of work and a bit of luck in cheaply securing a factory in California, the company recovered from the brink of failure and is now producing tens of thousands of cars every year.

That success, however, was made possible by governments at the state and federal level. First, Tesla received a $465 million loan from the Department of Energy that saved it from failure. Though the company eventually paid off this loan, Phil Kerpen writes in National Review that the entire deal still cost taxpayers millions of dollars.

Though the Model S costs close to $100,000, the company has pledged to deliver several new models in the coming years – the Model X, a crossover with “falcon wing” doors, and the Model 3, which should cost closer to $35,000. Tesla has already invested in a national network of chargers so that Tesla owners can recharge their vehicles to 170 miles of range in less than 30 minutes.

If that sounds like a sweet deal, purchasers of the cars get benefits from the government too. Anyone who buys a Tesla gets a $7,500 tax credit from the federal government, and many states offer similar incentives. Since the wealthy are really the only ones able to afford a Tesla right now, this is the definition of a “tax cut for the rich” – and one that many Democrats support.

Tesla also received more than a billion dollars in incentives from Nevada to build a battery factory there, and it receives hundreds of millions of dollars from other car companies by selling environmental credits, a system that serves to protect Tesla from competition.

That being said, the cars are clearly exceptional. I had a chance to test drive the Model S P85D last weekend and was absolutely blown away. From the moment you unlock the car, the Tesla sets itself apart. The door handles are flush with the doors, and they expand almost magically as you approach while holding the key. (The “key” itself is really just a Tesla-shaped fob with a sensor.) The car automatically turns on when you sit in the driver’s seat with the key.

Interacting with the car is a breeze, with a 17-inch touchscreen controlling everything from the radio to a suite of cameras to the sunroof. Tesla is also perfecting autopilot technology, moving us even closer toward the era of self-driving cars.

There’s a reason Tesla has stood out compared to other electric car attempts. That’s because it’s actually cool. Testing the P85D’s 0-60 capability (3.1 seconds) was thrilling, especially with the car’s near-silent acceleration. It was like nothing I’ve ever driven before.

In his book about Elon Musk, Bloomberg Businessweek columnist Ashlee Vance described how quickly Tesla had shaken up the car market. Even though Tesla sells directly (cutting out the middleman of dealerships), excitement over Tesla’s every move has converted into solid sales for a brand new company.

“Rival car companies would kill to receive such interest and had basically been left dumbfounded as Tesla snuck up on them and delivered more than they had ever imagined possible,” writes Vance.

The dichotomy between Tesla’s entrepreneurial success and reliance on government favors could soon present a conflict though. What happens when taxpayers get tired of paying the rich to buy another fast car?

Tesla was the first car company to launch an IPO since Ford in 1956. It’s about time we saw innovation in the car market, and Tesla is leading the way. But could it really hold that position without government help? That will be the burning question over the next decade.

Published on Opportunity Lives