Tesla is "doomed" unless it becomes more like GM, says Bob Lutz (father of the Chevy Volt)
Old guard vs. fresh thinkingBob Lutz is a legend in the automobile industry. He's worked at various companies on a number of iconic models (though not all of them were...), and so when he speaks, car nuts tend to pay attention. In recent years, he's better known as the father of the Chevy Volt. Interestingly, he said in interviews that it was Tesla's example that showed him that an electric vehicle could be done, and he used them to convince GM's board to green-light the project...
But he's not so impressed with Tesla anymore, apparently. He wrote a piece for Road and Track that explains why he thinks that Tesla is basically doing everything wrong and is soon "doomed" to failure unless they become more like GM and other traditional carmakers.
Lutz was a visionary at one time, but is he still able to see over the horizon in the 21st century, or has he become the reluctant old guard who just wants things to stay the same and comfortable, and who isn't ready to take risks to try to have a big impact?
Here are a few of his points, with my comments in between:
Tesla's showing all the signs of a company in trouble: bleeding cash, securitized assets, and mounting inventory. It's the trifecta of doom for any automaker
Tesla might run into financial trouble in the future, that's certainly not impossible. But it's simplistic to look at their current losses and conclude that they are in trouble. Fast-growing companies sometimes reinvest all the money that they make and more into expansion, making them unprofitable. But as long as the investments that they are making today are good, they are a net positive and creating value for the company. It's a short-term vs. long-term thing.
Tesla is pouring money into software R&D, a Supercharger network, a battery Gigafactory, Tesla Energy home and utility-scale batteries, new EV models, etc. Of course all of those things cost more money than what the Model S sales are bringing in, but if those bets pay off, the company will be in a much better position in 5-10 years than if they hadn't made those bets and had not invested and instead shown a profit today...
Lutz then go on to say that cheap oil must be hurting Tesla, because who wants to buy an EV when gasoline is $2 a gallon.
That's short-sighted, as we can't know where oil prices will be in the future. But it also misses the point: Electric cars are desirable for many reasons other than saving on the fuel bill. In fact, the Model S is probably more immune to gas price fluctuations than vehicles that don't have many other selling points than saving fuel. That includes the Chevy Volt. Don't get me wrong, it's a great car, but it's not as different from a regular vehicle as the Model S is.
In addition, there's never been any secret sauce to the company's battery technology. The automakers that bought into Tesla's tech early did so to avoid having to pony up development dollars on first-generation battery packs of their own.
That's just wrong. Lutz is jumping to the conclusion that because Tesla is using batteries cells made by Panasonic (right now, until the Gigafactory is operational), that there's nothing special about the battery packs. I'm surprised that Lutz would say something like this; it's quite obvious that two EVs using the same cells could have quite different performance characteristics because of how the battery packs, power eletronics, and software running it all are designed.
Lutz's next point is about the company stores that replace the traditional dealerships. He says that dealers are great because they offload a lot of problems from the company (real estate, inventory, etc). That's great in theory, but in practice, it's quite clear that not current dealers would have done a good job selling the Tesla Roadster and then the Model S (if the company could even have survived until the Model S launched using dealers). To sell an electric car, you have to be very knowledgeable about them, which most regular dealers aren't, and you have to explain why they are superior to gasoline vehicles. Dealers who also sell regular cars would have a huge conflict of interest, and since most of their business comes from traditional vehicles, it's clear where their bias would be.
I think that when Tesla becomes more mass-market, and it's vehicles are better understood, they'll probably go with dealers. But so far, their company-store strategy was probably the best way to do things.
If I were sitting in Musk's seat, I would take an urgent look at cutting cost. Not just taking cost out of the car, but reducing expense in general. When they have a situation where, on an operating basis, they're losing $4000 per car, they're in trouble. At some point, they're not going to get any more money.
I would seriously consider an entry-level model with a cheaper, range-extended hybrid driveline. Something with a much smaller battery that also looks great and drives great. Something that's electric most of the time, say 50 or 60 miles, but can carry on under gasoline power past that. Would an internal-combustion engine dilute the Tesla brand?
Here we again have the confusion about profits; Tesla isn't losing $4000 per car in a vacuum, they are reinvesting more than they are making to the tune of $4k per car on average. If they stopped investing in future growth and other projects, they'd be making nice margins on those vehicles.
And then Lutz says he thinks Tesla should make baby steps rather than bold steps and make plug-in hybrids. The problem with this strategy is that a hybrid is by definition a compromise; it's not the best electric vehicle because you have to lug around a heavy gasoline engine and you have a lot of added complexity, and it's not the best gasoline vehicle because you have to lug around a big battery...
The only reason why the Model S has won all those awards and high scores and has impressed customers is because it takes full advantage of things that EVs can do that gasoline cars can't. Instant torque, lots of space (flat floors, front trunk), better safety (larger crumple zones), etc. A hybrid would not doubt have much more traditional performance and design.
But also, Tesla can hope to beat traditional automakers on the EV playing field because nobody has much experience. Everybody is starting from almost zero. But if Tesla was to make gasoline engines and transmissions and such, they would have to compete against companies that have a hundred years of experience making those... If you're going to compete against an 800lbs gorilla, don't do it in the jungle, do it in the arctic or the desert.
He concludes by saying that "unless Tesla rights its organization and products in a hurry," the company will join the rank of "defunct" companies...
In other words, Lutz seems to be saying that Musk isn't just a risk-taker during his free time (more on his wing-walking adventures here)...
Via Road and Track