Good Strategy, But Executing Will be HardTesla's long-term strategy is brilliant. Early on, they figured that as a small startup with no economies of scale and limited resources, they couldn't ever hope to make inexpensive mass-market vehicles from the beginning. They needed to ramp up progressively, with each step funding the next one, and they also needed more time for the technologies that power electric vehicles to get less expensive and better (batteries, power electronics, motors, lightweight materials, etc).
To do that, they would start with a low-volume, high-priced model (the electric Roadster), then move to a higher-volume, mid-priced one (the current Model S electric sedan), and then later go to a high-volume, inexpensive model. It's a great plan! But unfortunately for Tesla, they don't have much luck when it comes to timing. In the past century, the U.S. has known long stretches of prosperity, but as Tesla begins to try to sell its expensive electric Roadster, do an IPO to raise money, and then sell the still expensive Model S, they run into the worst financial crisis in decades, and that crisis looks like it just won't end, as we're still feeling its aftershocks today. This makes it a lot harder to execute the strategy.
Speaking at NCES, Musk said:
The challenge Tesla faces over the next several months, which is a very difficult one, is to scale up production and achieve enough of a gross margin on the product that we get to a situation where we're cash flow positive. If we aren't able to do that we will join the graveyard of all the other car company startups of the last 90 years.
It's definitely going to be a pretty tough period over the next six months. We can't afford to make a lot of mistakes. If we don't make too many mistakes we'll get through that period and then be able to bring out larger volume cars that are more affordable.
But always the optimist, Musk even sees a silver lining in the possible scenario of Tesla's demise:
We can show that it's technologically possible to other manufacturers. If Tesla doesn't make it I hope we have nonetheless served that purpose. I don't want to sound dour but it's definitely going to be a tough six months.
Indeed, even if Tesla was to close its doors today, its legacy would be felt as a catalyst to a whole industry, and also as a great marketing machine for electric vehicles. In 2006-2007, they changed pretty much everybody's perception from 'golf cart' to 'wow!'.
But hopefully it won't come to that and Tesla Motors will live long and prosper.
Via AOL Energy