HAWTHORNE, Calif. -- Tesla Motors showed off its Model S Thursday and announced that it plans to make the sedan in Southern California instead of San Jose.
Standing in between a white and a silver Model S, Tesla's CEO Elon Musk said his company has signed a term sheet for the Model S assembly plant near his other company, Space Exploration Technologies (SpaceX) in Hawthorne, Calif., which is close to the Los Angeles Airport. But he wouldn't disclose the exact location.
Tesla, founded in 2003, was looking at building the factory in San Jose, Calif. last year. But that was before the credit crunch crimped its ability to raise enough money to build the $250 million factory in Silicon Valley.
Model S is Tesla's second model, which it designed from the ground up to ready it for mass production. Its first model, the Roadster, is an expensive sports car that Tesla used to prove its engineering know-how.
Tesla, based in San Carlos, Calif., is waiting for the U.S. Department of Energy to approve roughly a $350 million loan to enable it to build the Model S factory (see BrightSource, Tesla Expect Fed Loans Soon). The government favors giving loans to manufacturers who use land that already has been used for manufacturing for at least 20 years.
Musk said he expects to know whether Tesla gets the loan by the end of this year. Despite of the uncertainties with the financing, he sounded confident that Tesla will be able to meet its manufacturing goals.
"This car will be manufactured. It will come to market. they should have zero doubt about that," Musk told the repo
rters and others at the unveiling of the Model S.
He and his executives gathered at SpaceX's headquarters to unveil the Model S, a four-door sedan that is both slick and practical. Musk touted its roomy interior, saying it could hold five adults and two children. There is cargo space under the hood as well as the usual place in the rear trunk.
"It has more cargo room than most SUVs," Musk said.
The sedan is priced at $57,400. If you count the $7,500 federal tax credit for owning electric cars, then you would be paying $49,900. The starting price will get you a battery pack that will last 160 miles per charge. Customers will have to pay more for larger battery packs that can last 230 miles or 300 miles. The company has not yet settled on prices for the longer-lasting batteries.
Production is scheduled to start in the third quarter of 2011, Musk said. Tesla plans to produce 20,000 of the car each per. Musk said the company should reach that production rate by mid 2012.
The world now waits to see if electric cars, and Tesla, can go mainstream (see Tesla to Be Profitable by Mid-2009, CEO Musk Says).
The Model S is based around essentially the same battery and other technology developed for the Roadster, but the marketing and sales channels are vastly different. The $109,000 Roadster is made for car enthusiasts and in relatively small batches. Tesla makes about 20 week and wants to sell about 1,000 cars a year.
Buyers, like most sports car buyers, are not looking for commuter and family cars. Price often is not an object: Many supercars sell for more. By contrast, the Model S will be pitched at people who buy cars from Lexus and BMW.
But will an electric car with its limitations suit the family driver? Americans typically drive less than 40 miles a day, easily within range of the Model S. But families also take road trips and the Model S won't be able to go as far as a Mercedes unless the driver pulls over for a charge, which can last three to five hours. Toyota execs have said that consumers were very interested in the company's all electric RAV 4 sold several years ago, but few closed on the car when issues like charge time and battery life came up.
The Model S will also come to market at the same time or after other electric and plug-in hybrid cars from General Motors, Toyota, Nissan and Ford hit the road. These companies already have large factories and longstanding relationships with component manufacturers. This could allow them to hit volume numbers and lower prices quickly. Tesla has linked up with Daimler on certain battery projects, but it's not a comprehensive alliance.
Plug-in hybrids, which mostly drive on electricity but can go longer distances because of built-in gas engines, are also expected to cost less because they have smaller battery packs.
Another hitch: The high demand for the Roadster and the relatively limited manufacturing quantities allows Tesla to collect for the cars before they are assembled. Consumers put down a deposit, and then forward the rest of the purchase price before final assembly. This technique, similar to how Dell builds PCs, may not hold with larger volume manufacturing and more direct competition.
Still, on a positive note, it only takes a test drive in an electric car to make one a believer in the future of the technology. The acceleration, the comparative lack of noise, the handling and other factors make electric cars exciting to drive. The American love affair with the auto could begin again.
The road to become a successful carmaker has certainly been full of twists and turns for Tesla. The startup emerged with a huge fanfare. When it unfurled the first prototype of the Roadster, Arnold Schwarzenegger and Mike Ovitz came to the party at the Santa Monica Airport.
An A-list waiting list for cars formed quickly. Then, came the delays that were due to technical difficulties. Tesla also switched management teams. Press coverage went from admiring to critical.
It then faced a huge hurdle last year when the credit crunch crimped the company's ability to raise the $100 million it needed to build a $250 million assembly plant in San Jose, Calif. for Model S. Musk scrambled to raise money from existing investors (see Cash-Strapped Tesla Raises $40M, Loses Lawsuit).
Musk took over as CEO last year and announced a delay in launching the Model S from late 2010 to mid 2011, along with plans to layoff some employees and consolidate operations (see Tesla Puts Musk at Helm, Expects Layoffs and Model S Delay and Musk: Tesla Hit by Market 'Freefall'). The company also killed off plans to make a plug-in hybrid, a concept first aired with first CEO Martin Eberhard, who had a bitter falling out with Musk.