Tesla and Tata Race Into a Future They Could Dominate

By Matthew DeBord
Sunday, April 26, 2009

The big automakers are supposed to be in the business of telling us what we'll all be driving for the next 50 years, but they've had their (greatly diminished) thunder stolen over the past few weeks by radically new visions of how we'll be getting from A to B. A few weeks ago, Silicon Valley-based start-up Tesla Motors finally yanked the cover off its much-anticipated Model S, an all-electric sedan that will, after tax credits, sell for just under $50,000. Earlier, India's Tata Motors, part of one of the largest manufacturing entities in the world, officially launched its Nano "People's Car," which will go for $2,000, making it the planet's cheapest ride.

Tesla and Tata are the opposite poles of a mobile future that could look utterly unlike what we have today: Electric cars that burn no gas and produce no carbon emissions and "micro cars" that can run on different fuels (including battery power), achieve high mileage with low emissions, and are affordable to much of the world's citizenry tooling around on bikes, mopeds and scooters. In between, no more Pontiacs, Buicks, Mercurys or Chryslers.

Green luxury on one side and semigreen basic transportation on the other. These extremes could wind up defining our collective mobility choices. But will either Tesla or Tata survive to be part of this bifurcated destiny?

Unfortunately, both companies are grappling with significant business issues. Tesla's are more troubling. The nearly six-year-old firm is still playing catch-up on delivery of pre-orders for its debut 2008 model year, of its exotic $100,000-plus electric Roadster. According to the company, it has put 300 customers, out of 600 who pre-ordered an '08, behind the wheel of this very fast, very sexy car.

Last year, before securing a round of investment, the company was running out of operating cash. However, $350 million in loans from the Department of Energy was (and still is) out there, like low-hanging fruit, reserved for alternative-energy projects. Tesla has latched on to these funds as a sort of virtuous bailout. (It's worth noting that the Detroit Big Three, pre-TARP, were also eyeing Energy loans to retool their plants for more fuel-efficient vehicles.)

Skepticism about the Model S has always run high. It remains elevated, although the gorgeous vehicle that chief executive Elon Musk unveiled last month did wow the media. At the moment, it's a prototype plus pictures. If Tesla fails to get the Energy money, Model S production, slated to begin in 2011, is uncertain. Yet Tesla must move forward with the Model S, even as it tries to pursue profitability through Roadster orders and a deal with Daimler to supply power trains for an electric version of the Smart car. The company needs to demonstrate viability -- an important concept these days in the car business -- to stay in the running for the loans. And to Tesla's credit, even though it's endured some setbacks, the company has managed to thwart the naysayers.

Tata has its own problems. Last year, the firm -- which made $126 million in 2007 but lost $52 million in 2008 -- bought Jaguar and Land Rover from Ford. But as the global automobile industry has tanked during the financial crisis, Tata hit a wall on $2 billion in loans it took out to obtain the British brands. As has been widely reported, the Nano can't help the company out of its pinch because a Nano factory in Bengal ran into massive local resistance. A new plant won't be able to start building Nanos until next year, so Tata will have to piece together the first generation of the car using other manufacturing facilities.

Ultimately, Tesla is selling a more technologically revolutionary vision of the automobile and is under greater pressure to succeed. The company has been criticized by automotive prognosticators (myself included) who think the firm has been taking in deposits to fund expansion while stalling on deliveries and teasing the public with vaporware. Without the Energy Department loans, it may well be game over for the company unless Musk can persuade additional investors to pony up.

Tata has engaged in its own brand of spin with the Nano. Initial production may be far more limited than predicted, but that hasn't stopped chief executive Ratan Tata from presenting a European Nano at the Geneva Auto Show and later promising an American Nano. Both the Nano Europa and Nano Americano would require a lot of additional safety and emissions equipment, but even if they cost twice as much as the Indian Nano, they'd still be priced at half of the cheapest North American car that still has four wheels and a roof.

So a betting man would say that the Nano is inevitable and the Model S, given how much it costs to develop a new vehicle (the Toyota Prius cost $1 billion), is in deep, deep trouble -- as is Tesla. But what's potentially happening is a new kind of market segmentation as sustainable destiny. Tesla's goal is to build three vehicles: the Roadster, the Model S and a crossover-type family vehicle that could bring electric-vehicle ownership to the masses. Objectively, the company already has a competitive advantage over the big automakers; GM's Chevy Volt, which isn't actually a pure electric vehicle, won't arrive until 2010 and may be priced above the far more seductive Model S. Chrysler is entering Tesla's ballpark with its ENVI program, but, given its gloomy financials, it may never get its electric products off the assembly lines.

Electric vehicles will eventually become the iPhones of the developed world's personal-mobility consumers; just as buyers did with the Prius, they'll pay extra to do the right thing for Planet Earth. In regions where personal mobility doesn't involve an enclosed experience, the Nano is a game-changer. And although it runs counter to the argument that we don't need any more cars and horrifies some climate scientists, it's the best option for the developing world.

If our coming era is going to be one of frugality and green investment, and if they can make it through the next two years, Tata and Tesla could come to dominate the transportation world.

© 2009 The Washington Post Company