Tesla, the Automotive Analysts and the Electrifying Competition

The “warm-up acts”
Normally, the job of a warm-up act is to make the audience feel at ease and ready to be entertained by the headliner. That was not quite the case at the recent Society of Automotive Analysts conference held at Detroit’s Marriott Hotel in the heart of the Renaissance Center during preview days for the 2009 North American International Auto Show.

Finbarr O’Neill, president of J. D. Power and Associates, speaks to Society of Automotive Analysts conference.

Corp! went to hear the headliner, Elon Musk, the chairman of Tesla Motors, which currently (pun intended) is selling its all-electric Roadster for more than $100,000 to a variety of people including the governor of California (and one-time owner of a Hummer). Before Musk spoke, however, the audience of more than 100 people who actively follow every aspect of the automotive industry heard from a variety of speakers who had little positive news to impart.

Finbarr O’Neill, the president of J. D. Power and Associates -“ the people best known for automotive surveys -“ pointed out that the current recession in the automotive sector is a global phenomonon with sales in the U.K., for instance, projected to have an even greater decline
(-21.2 percent) than the U.S. (-13.9 percent) in the coming year. O’Neill, one-time head of the North American operations of Hyundai and Mitsubishi, also noted that because of tightening credit availability the incentive cost for each vehicle was going up by an industry average of 30 percent, thus reducing corporate profit margins even more. Because of previous credit practices of lowering monthly payments for consumers by lengthening the life of their sales contracts, millions of consumers today are living with cars that are worth less than what they still owe on them.

Rod Lache, Managing Director of Deutsche Bank, surrounded by the media.

Rod Lache, managing director of Deutsche Bank, pointed out that GM may be headed for bankruptcy unless it is able to get its costs in line with sales. Answering a flurry of reporters’ questions after his presentation, Lache said that a “forced restructuring” of GM by a bankruptcy court or its equivalent could accomplish that because only a court -“ not Congress -“ could abrogate existing contracts with labor and dealers and arbitrarily convert debtholders into equity owners -“ all of which are hindering GM’s attempts to return to profitability. “Call it bankruptcy or restructuring or whatever you’d like,” Lache said, “it may end up taking that kind of action to keep them afloat long enough for the economy to turn around, and it doesn’t have to be as messy as it’s been portrayed.” In his forcast for the next couple of years Lache said that existing GM shareholders would “likely be wiped out” as GM’s $84 billion in existing debt is forcibly converted into approximately $40 billion of “restructured” debt.

Emily Kolinski Morris, senior economist for Ford, thought that the economic picture for the first half of this year might continue to follow the last half of 2008 -“ if the credit markets continue to loosen and the price of gasoline remains around $2 per gallon and the results of the economic stimulus package begin to show promise. The second half, says Kolinski Morris, is the key question. Both she and fellow panelist Paul Taylor, chief economist of the National Automobile Dealers Association, agreed that a key indicator of future automotive sales is housing. With 2009 housing starts predicted to be 76 percent fewer than at the peak of the current cycle (some three years ago,) that makes it second only to 1933 when housing starts reached a nadir of 90 percent fewer than the peak of some eight years earlier. The average figure for recessionary periods is only a 50 percent decline.

Possible bright spots, according to Kolinski Morris, are the impact of the economic stimulus on consumer confidence as well as on consumers’ wallets. The population of the U. S. is growing, the average age of cars on the road is increasing and thus there is a pent-up demand on the horizon. Forecasting the reality of that demand becoming actual sales is the real challenge.

Musk fields query from a Japanese TV reporter.

The headliner
With all that as background, Elon Musk talked about Tesla Motors, the Silicon Valley startup he founded. Musk was born in South Africa and has undergraduate degrees from the University of Pennsylvania in physics and business (from the Wharton School). According to his biography, he “began a graduate program in materials science and applied physics at Stanford but dropped out after two days to start his first Internet company, Zip2, in 1995.” Four years later, after selling Zip2 to Compaq Computer, Musk co-founded PayPal, which he sold to eBay three years later for $1.5 billion.

2009 Tesla Roadster recharging.

That year, Musk founded SpaceX, a private developer of space exploration technologies. He had initially hoped to use conventional providers of payload boosters to send an experimental “greenhouse” to Mars. When he discovered the costs, Musk decided to develop an alternative.

On Dec. 23, 2008, NASA announced that after 2010 his company would be the replacement for the aging space shuttle fleet as the cargo transporter to the International Space Station.

Meanwhile, back on the ground, Musk’s other project is Tesla Motors.

The Tesla Roadster battery pack.

Named after Nikola Tesla, the Serbian-born American scientist who is considered the father of alternating current, Tesla’s primary vehicle is the Roadster. With the ability to go from 0-60 mph in under four seconds and with a range exceeding 200 miles, the Roadster shows that all-electric vehicles need not be dull.

A trunk full of batteries -“ built in California -“ power a motor “the size of a watermelon” according to Tesla promotional materials. They can be recharged at the end of those 200 miles in a few hours although a “quick-charge” unit that will allow 45-minute recharges -“ “enough to have lunch and use the restroom,” according to chief designer Franz von Holzhausen -“ is in the later stages of development.

Frantz von Holzhausen, Tesla Motors’ chief designer.

Designing the newest edition in Tesla’s fleet is a challenge, says Holzhausen, because battery technology is changing so rapidly. “What I have to do is design a vehicle that does what we think it should -“ and leave room for some sort of powerplant,” he continues. “Fortunately, because we control almost every step in the process except for government certification, we can go from start to production in about two years. What’s neat about the Roadster and our cars going forward, is that we will be able to provide owners with software upgrades over an Internet connection to the car itself. At the same time, owners can do some of their own customization via a laptop.”

Interior of Tesla Roadster with three-position shift lever: Drive, Reverse or Neutral.

Last December Tesla delivered a Roadster to its 100th customer, Sam Perry, the president of a Silicon Valley consultancy. His name may not be familiar to most readers, but his face would be recognizable as the man on whose shoulder Oprah Winfrey was seen crying on national television as Barack Obama accepted his election as President-elect in Chicago on election day 2008.

The next release from Tesla is scheduled to be a five-passenger sedan that is targeted to sell in the low $50,000 range.

The news from Tesla at the Analysts meeting, however, was the announcement that Tesla would be supplying the power package for 1,000 electrically-powered Smart cars in partnership with Daimler. Musk said that they would be available in late 2009, but that delivery would be determined by Daimler.

The (domestic) electric competition

Chevy Volt exterior, complete with recharging cord

Elsewhere in the North American International Auto Show, electric vehicles and hybrids were on center stage. GM spotlighted the Chevrolet Volt and introduced a Cadillac concept that would use the Volt powerplant. Ford announced plans for a suite of electric vehicles, beginning with a commercial van in 2010, and Chrysler is pinning its hopes for the eco-friendly market on what it’s calling its ENVI electric-powered drive system with an estimated 500,000 vehicles to be on the road by 2013.

One feature common to most of the electric vehicles -“ from Tesla Roadster to Volt -“ is found on the shift lever. Gone is the old PRNDL or combinations thereof. Now there’s just R and N and D. Computers seem to do all of the rest, delivering the necessary engine torque and RPMs as needed.

Saturn Vue plug-in concept.

The ultimate prize for eco-friendliness, was in a sidebar from Tesla. One of its owners, Dr. Rob Wilder, CEO of WilderShares LLC and manager of the WilderHill Clean Energy Index, the first Index/Fund on Wall Street for renewable energy, better energy efficiency, and zero-carbon solutions, charges his Roadster battery pack with juice from the same solar panel array that produces six kilowatts to run his “green” home.

The take-home message from the Analysts’ conference and the Auto Show was that it’s going to be an interesting and probably nail-biting race to see which will have the greatest -“ and the fastest -“ impact: the economic stimulus package and an economic turnaround or a further slide into total economic uncertainty.

Corp! will keep you plugged in.