Tesla
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a tiny slice of the consumer market. Models S and
X will instead compete with gas-burning BMWs
and Lexuses. And because Musk is assured his
EV technology will prove superior in performance
(and emissions), it will thus succeed.
Over the course of several years, Tesla sold
about 2,400 Roadster sports cars. The company
is planning to produce about 6,000 Model S cars
this year, but next year it intends to scale up to
20,000. These numbers are not large for a big
carmaker—Toyota sells more Camrys in a month
than Tesla plans to sell in a year. Still, for an
automotive startup, they seem heroic. But most
of the auto analysts I spoke with think Tesla’s
sales projections are still far too high, a belief
reinforced by modest sales figures for the Leaf
and Chevy Volt. “Is 20,000 in sales optimistic?
That’s the billion-dollar question,” says Brett
Smith, a codirector at the Center for Automotive
Research in Detroit. “I think there is a market
for Tesla’s product, but I don’t know how large
that segment is. And frankly I’m not sure it’s as
large as they hope.” When I talked with Bob Lutz,
the former GM vice chairman who spearheaded
the development of the Volt, he told me he be-
lieves the Model S, which he considers a striking
design, will be a success. He is less certain about
the sales numbers or Tesla’s long-term success.
And he doubts the company is doing anything
in terms of technology that the bigger carmak-
ers couldn’t do if they decided to enter the EV
market with gusto. But Lutz doubts that will
happen soon. “Look, neither the Nissan Leaf nor
the Chevy Volt are being yanked out of the hands
of producers by eager consumers,” he admits.
“The media might have you believe, Gosh, in 10
years it’s all going to be EVs. But it’s just not hap-
pening. The average American consumer is
delighted with gasoline vehicles and is in no
rush to change.”
Not long ago, I spoke with Paul Scott, a long-
time EV advocate who now works selling Nissan
Leafs in downtown Los Angeles. The demand
for the Leaf through 2011, he said, “was just out-
132 fastcompany.com april 2012
standing.” Scott sold nearly 200. But then Leaf
production caught up with demand and what
Scott perceives to be an initial group of early
adopters all received their vehicles. “Then Janu-
ary came,” Scott says, “and I didn’t sell a single
car the entire month.”
The EV market remains enigmatic. And future
sales may depend less on performance—or
environmentalism—than on economics. At the
moment, what’s actually driving EV sales is gov-
ernment policy. Car companies, with their sights
set on meeting high-mileage and low-emissions
requirements for their fleets, view electric and
hybrid vehicles as crucial to their vehicle port-
folio. At the same time, customer rebates of up
to $7,500 from the federal government and up
to $2,500 from the state of California bring these
cars into the realm of affordability. Yet two other
factors shift the equation: The price of gas, though
climbing, has remained fairly low over the past
year, and the price of lithium-ion batteries is
fairly high. By the calculations of Menahem An-
derman, arguably the country’s leading lithium-
ion battery analyst, gas would have to be about
$10 a gallon to recoup the lifetime cost of an EV
like the Leaf. Anderman believes the economics
look far better for the new plug-in Toyota
Prius—$6 gas makes it a sensible economic
proposition. In sum, his firm projects that the
global EV market in 2015 will be quite modest
in size (250,000 in sales) and will be dominated
by Japanese and German automakers. Tesla, in
his estimation, would be lucky to sell 15,000 cars.
He might be wrong, of course. A number of
car analysts have far rosier projections for Tesla.
And in any event, Tesla’s Model S presents a con-
fusing test case. It’s a stylish, high-performance
car, with a battery pack that gives it greater range
(between 160 and 300 miles before recharging,
depending on the model) than any other electric
car. And EVs like Tesla’s seem to be evolving at
an astonishing rate. Straubel, Tesla’s CTO, has
little doubt that EVs will soon become competitive,
even without incentives, with gas cars. “There’s
no fundamental law in physics that says you can’t
make batteries with much higher energy density
and much lower costs,” he tells me. By Straubel’s
calculations, if batteries get 50% better, it will
put EVs on an even playing field with gas cars.
“Between the time we did Roadster and Model
S, the batteries have improved by about 40%,”
he says. “That’s a pretty big number. That’s about
four years. And if that same thing happens with
Model S, you could have an upgrade battery pack
that’s half the size in five years than what it is
today.” Such leaps are unheard of in car technol-
ogy, he adds. “Engines don’t drop in size by half
in a few years. It doesn’t happen. It’s almost like
the properties of steel are changing year by year.”
This line of sight gives Straubel and Musk
faith in their business model. But they’re also
buoyed by customer enthusiasm, which may be
telling skeptics something the economic models
can’t. When I ask Musk if it’s possible that Tesla
could fail to sell 20,000 Model S cars annually,
he says that it already has more than 8,000 pre-
orders. And Tesla does not advertise, does not
give discounts, and has never given any test-
drives. Word has spread virally.
One afternoon in California, I make a visit
to the Tesla factory in Fremont, about 30 minutes
northeast of the company’s HQ. For years, the
factory was operated jointly by Toyota and GM;
it was known as NUMMI (New United Motor
Manufacturing Inc.). Tesla bought most of the
factory buildings in 2010 for $42 million—the
equivalent of pennies on the dollar. With the help
of a $465 million federal loan (another example
of federal policy nurturing the fledgling EV industry), the company began a strenuous effort
to rehabilitate the old space. When I visit the
plant, the final beta versions of the Model S are
making their way through a gleaming new assembly area. When it’s up to speed, the factory
should turn out 80 a day.
If there are any suspicions that Tesla has
more modest ambitions than it lets on, a visit
to the 5.5-million-square-foot plant will quickly
dispel them. “Elon wants to fill up this factory,”
Gilbert Passin, Tesla’s VP of manufacturing,
tells me during a tour. Passin, a native of France
and a manufacturing wizard who spent his
career at Toyota and Volvo, is driving us around
in a golf cart. The plant is almost too large to
walk through; we go past the production lines,
the tool dies and presses, the plastic molding
