The Tesla Electric Car's Creators Chase Their 'IPhone Moment'

The Tesla Motors (TSLA) design studio in Los Angeles is a huge open space that usually has a couple of prototype cars on the floor and parts scattered along the walls. Tonight, it’s a lounge, with red lighting, white leather couches dotting tiered plateaus of AstroTurf, Daft Punk on the sound system, and women in little black dresses serving cocktails. A few hundred guests mingle and snap photos. Most are local owners of the Model S, the luxury sedan Tesla introduced last year to near-universal acclaim.

The crowd parts for the star of the evening, Elon Musk, Tesla’s chief executive officer, and closes behind him as he works the room. After about an hour, Musk, wearing a black velvet jacket, hops onto a stage outfitted with the kind of wheel guides and drive-over repair pit you’d see at a Jiffy Lube. He tells them they’re about to witness history: a refueling contest between gasoline and electricity. “You’re here for the title fight!” he says.

A $70,000 Model S rolls onstage and stops over the pit. Simultaneously a live video feed of an Audi (NSU:GR) entering a gas station appears on a big screen. An on-screen timer starts, and the Audi driver begins pumping gas while robot arms beneath the stage replace the battery pack on the Model S. After 93 seconds, the Tesla rolls off the stage; the Audi is still refueling. A second Model S stops over the pit and finishes its battery swap after 91 seconds—just as the Audi tops off at 20 gallons. “There are people that take a lot of convincing,” Musk tells the adoring audience. “Hopefully, this is what will finally convince people that electric cars are the future.”
To combat “range anxiety”—the fear of running out of juice—Tesla has announced a rapid expansion of its network of charging stations. To allay concerns that electrics are too expensive, the company has also announced a leasing option and plans to begin production of two cheaper models in the next couple of years. For those worried about resale values should electric cars prove a fad, Musk has pledged his $5 billion-plus fortune to guarantee the value of the Model S. (Musk declined to be interviewed for this story.)

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Wall Street needed assurances, too. In Tesla’s 10 years of existence, the company has suffered through embarrassing delays and leadership overhauls, verged on bankruptcy at least once, and been a favorite target of short sellers. In May it posted its first profitable quarter, with earnings of $11.2 million; sales for the first quarter rose 83 percent, to $562 million. Musk raised the 2013 sales estimate by a thousand vehicles to 21,000, an eightfold increase over 2012. A few weeks later, Tesla paid off a $465 million government loan early and then raised $1 billion from investors. The stock price has soared in the past six months, from $32 a share to $129.90 on July 15, before falling $18.21 in one day after Goldman Sachs (GS) published a skeptical report about the carmaker’s margins. Tesla has a market cap of about $13 billion, or about the size of Mazda Motor, which, according to a Bank of America Merrill Lynch (BAC) estimate, will sell about 1.3 million vehicles globally in 2013.

Courtesy of TeslaThe extra trunk up front is called a “frunk”

Some of the stock’s rise may have come from short sellers covering their bets, but you don’t get revenue increases like that without a decent product. The Model S does zero to 60 miles per hour in 4.2 seconds, has plenty of room (including a “frunk,” a second trunk under the hood), and gets the energy usage equivalent of 95 miles per gallon. Last November it became the first electric to win the Motor Trend Car of the Year award; in May, Consumer Reports gave the Model S its highest car rating ever—99 out of 100. “It’s what Marty McFly might have brought back in place of his DeLorean in Back to the Future,” the magazine said.

After the battery-pack demonstration, Tesla’s chief designer, Franz von Holzhausen, can barely contain himself as he talks about the design of the Model S. “It’s like the leap of faith Apple (AAPL) took with the iPhone,” he says, explaining why the car has a touchscreen instead of the usual physical buttons. “There’s a cleanliness to the interior. The screen is the hero. We are in the midst of that transition toward a new way of thinking. For me, it’s that iPhone moment.”


Source: Wall Street Journal