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Financial Crisis Zaps Electric-Car Startup

Electric-car maker Tesla Motors faces tough times, including layoffs and delays.
October 16, 2008

Speedy electric: Tesla’s Roadster, an electric car that reaches 60 miles per hour in less than four seconds.

Credit: Tesla Motors

Tesla Motors, a Silicon Valley startup that sells a high-performance electric sports car, is feeling pressure from the ongoing financial crisis. It announced on Wednesday that it is closing an engineering facility in Michigan, laying off an unspecified number of workers, and delaying its next vehicle, a long-anticipated luxury sedan, while it waits on government loans to provide new funding. In addition, Tesla’s CEO is being replaced by Elon Musk, Tesla’s chairman and a leading investor, whose money nearly single-handedly got the company off the ground. Now the company, instead of pushing full speed ahead on developing new cars, will focus on making itself profitable by selling its sports car and motor and battery technology.

That’s bad news for people who had hoped that the company would eventually produce an electric car they could afford. Tesla got attention because of its sports car, a powerful car that is fun to drive and helped change the image of electric vehicles. But the $109,000 vehicle is beyond the reach of most people. Much of the appeal of the company has been its long-term goal of making electric vehicles affordable. The proposed luxury sedan, with a price tag of $60,000, would be a significant step in that direction, but the cutbacks at the company raise questions about whether it will be able to meet its long-term goal. Tesla’s sedan was originally to have gone into production in 2009. But that’s been pushed back to mid-2011 at the soonest. That’s after GM is to come out with an electric sedan of its own, the Volt, which is supposed to cost about $40,000. And several other automakers will be launching electric vehicles in roughly the same time frame. With a late start on a production sedan, will Tesla be able to go toe-to-toe with the big carmakers? Will it become “one of the great car companies of the 21st century,” as Musk hopes? Or will it, as now seems likely, remain a boutique car company, selling specialty vehicles to the relative few?

To be sure, this isn’t the first time that Tesla has seen sharp cutbacks. The company, founded in 2003, is already on its fourth CEO. At the beginning of this year, it reportedly laid off about 10 percent of its workforce in what former CEO Martin Eberhard is said to have called a “bloodbath.” It’s also faced delays before, particularly when it had problems with the transmission on its sports car. And yet the company continues to plug along. The late-coming sports car has nevertheless sold out and has a long waiting list. And Musk, who has considerable personal financial resources, has said he will do whatever it takes to ensure that the company will have enough capital. It’s certainly far too early to write the company off.

Credit: Tesla Motors

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