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Now comes Tesla's time of testing


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Now comes Tesla's time of testing

Patrick May / San Jose Mercury News

San Jose, Calif. -- Tesla's entrance last week onto the world stage of finance was a high-voltage affair, with the electric-carmaker's IPO stock price soaring nearly 41 percent on its first day. But the company faces a future where all sorts of things could still short-circuit.

The challenges before Tesla as it races to get its Model S sedan into production run deep and wide. From burgeoning competition to union issues to groundwater contamination at the plant it just bought in Fremont, Calif., the young company will be tested right out of the IPO gate. And according to analysts, academics and other observers, it's unclear whether CEO Elon Musk's brainchild can keep its head above water, much less achieve profitability in what promises to soon become a viciously competitive automotive space.

Having said it was "neutral as to the formation of a union," will Tesla make nice with the United Auto Workers who under Toyota and General Motors helped make NUMMI a well-oiled and highly successful automaking plant? Can Tesla's boy wonder, who just turned 39, lead his company toward triumph, or might Musk be distracted by his current, messy divorce and his love for his space exploration company, SpaceX?

And perhaps more important, can a company with neither a ton of cash nor a proven track-record in automaking move into a fixer-upper factory and start cranking out electric cars less than two years from now?

"How does Tesla fulfill the promise and hopes of the investors pumping more than $200 million into this company?" asked John O'Dell, an analyst with the auto blog Green Car Advisor. "This is a company that's never made a profit. And while it has experience in converting an existing vehicle to electric drive" -- Tesla's Roadster model is built in conjunction with Lotus in England -- "it doesn't have experience in building a car from the ground up. Not to say they can't do it, but it's a significant undertaking."

Although Tesla has been tight-lipped during its pre-IPO quiet period, the company and its CEO have expressed confidence in the new Model S sedan and the company's future. "Think closer to an Apple, or Google, than a GM or Ford," Musk said, at one point calling Tesla a "technology velociraptor."

While Tesla has been selling its Roadster sports car for nearly two years and remains the only company selling highway-capable electric vehicles in volume, Sven Beiker with the Center for Automotive Research at Stanford University says the real key is Tesla deciding what it wants to be when it grows up.

Tesla "needs to figure out what it wants to be in the automotive world," he says. "What volume do they want to target -- 1,000 vehicles a year, or hundreds of thousands? And the answer obviously has many implications in terms of work force and manufacturing process. Going with a small volume would be completely different than becoming a mass-market producer."

While Tesla hopes eventually to produce 20,000 Model S vehicles a year, it has not made clear what its longer-term production plans are. Some observers say its fate may ultimately not be tied exclusively to carmaking, since Tesla already has a proven track record in selling its expertise to other automakers.

Regardless of its long-term future, Tesla faces unique challenges as it moves into the uncharted waters of the budding electric-vehicle industry. It must build out its own dealership franchise and create a dependable supply chain with cutting-edge parts often provided by single-source suppliers. One hiccup and that chain could be compromised.

At the same time, Tesla will have plenty of other established automakers with electric-vehicle plans of their own breathing down its neck. Nissan plans to deliver its all-electric and moderately priced Leaf later this year, Toyota will soon start rolling out it quasi-electric Prius plug-in hybrid and other auto companies are jumping into the fray with all four tires.

In a way, says Edmunds.com CEO Jeremy Anwyl, a lot of this pressure is Tesla's own fault.

"Because of their qualified success so far, Tesla has helped create this acceptance of the idea of a luxury electric vehicle," he says. "Now the notion that electric vehicles actually do have a place in a range of transportation options is no longer a radical idea. So the competition Tesla faces will be fierce, and it'll be from people who have been building cars for a long time.

"Whether Tesla can carve out a niche in an industry with huge economies of scale," Anwyl says, "is a huge question."

From The Detroit News: http://detnews.com/article/20100704/AUTO01/7040306/1148/auto01/Now-comes-Tesla-s-time-of-testing#ixzz0soeHWXQZ

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