Will Three Model S Fires make Tesla join the Long Line of Green Car Company Failures?

Posted by PITHOCRATES - November 10th, 2013

Week in Review

Tesla has had three car fires with their Model S in six weeks.  Causing their stock price to slide after surging earlier in the year.  Forbes wrote about those better days in a May article that is making the rounds again.  Explaining why Tesla was escaping the fate of so many other green car companies (see The Real Reason Tesla Is Still Alive (And Other Green Car Companies Aren’t) by Joann Muller posted 5/11/2013 on Forbes).

Add VPG to the growing list of recent green car failures: Bright Automotive (electric delivery vans) , Carbon Motors (clean diesel-powered police cars), Aptera Motors (three-wheeled electric cars), Coda Automotive (inexpensive electric sedans) and, arguably the most infamous, Fisker Automotive (plug-in hybrid sports cars).

All had applied for financing under a $25 billion U.S. Energy Department loan program to promote development of cleaner cars, but only Fisker and VPG managed to draw the lucky tickets. Fisker was awarded $529 million (but received only $193 million before the DOE cut them off because of missed milestones) and VPG received $50 million. But now, they’re all dead, or almost dead. (One exception: tiny Wheego Electric of Atlanta, an EV start-up that started out making glorified golf carts and now sells a handful of bubble-shaped two-seaters with a top speed of 65 mph. The company is talking about introducing a $44,000 electric SUV next, but I wouldn’t hold my breath.)

That leaves only Tesla Motors TSLA -1.27%, maker of the plug-in Tesla roadster and the new Model S sedan, still standing. Which begs the question: why has Tesla made it when so many others have not..?

Experience, for one thing. While most of the other green car start-ups were founded by traditional car guys with a dream but little experience running a company, Tesla founder Elon Musk, with degrees in physics and business, had already built and sold one successful company, PayPal, (to eBay in 2002 for $1.5 billion) and also runs SpaceX, a maker of rockets and spacecraft. He had the stomach to push through difficult times, and the chutzpah to twist the arms of reluctant investors…

Tesla has been clever in other ways, too. It sells credits it receives from the state of California for producing zero emissions vehicles to other automakers that aren’t so clean. At up to $35,000 per vehicle, it’s a windfall that has helped keep the company alive, according to Gartner analyst Thilo Koslowski. “At the end of the day, other carmakers are subsidizing Tesla,” Koslowski told the Los Angeles Times.

While true until now, Tesla says those credits will decline as sales spread beyond California and into Europe.  In the first quarter, Tesla said credits sold to other automakers amounted to approximately $68 million or 12% of its revenues.

So the long list of green car company failures tells us there is no market for these cars.  Making it a poor economic model.  Companies that have depended on selling cars to succeed have failed.  But if you’re creative and can think of other sources of cash you can keep a green car company in business even without selling cars.  But tax credits and government loans still weren’t enough to fund Tesla.

Musk, luckily, is a billionaire. He pocketed roughly $180 million as a cofounder of PayPal, and helped get Tesla off the ground in 2004 with an initial investment of $6.3 million. He put in another $20 million in 2007, and then in fall of 2008, with the company on the verge of collapse as the economy seized to a halt, Musk was virtually broke. He spent his last $20 million trying to keep the company afloat, while living off personal loans from friends.

The $465 million government loan helped, as did Tesla’s initial public offering in 2010, which raised $226 million.

Today, Musk is worth almost $3.8 billion — $1 billion more than Forbes estimated less than three months ago. Tesla stock has surged 40 percent this week alone, following the positive earnings report and the Consumer Reports review…

Musk could well make it happen because unlike those other green car companies, he has things you can’t get from the government: huge skin in the game, passion and talent.

This is why Tesla is still in business while those other green car companies are not.  Passion.  Something that is hard to truly appreciate unless you’re an entrepreneur.  And lots and lots of money.  While other companies ran out Musk was still able to go on by putting his money where his passion is.  Makes you want to cheer him on to success.  Even if you don’t believe the electric car is a valid economic model.  You love gasoline.  And you love the internal combustion engine.

Will those three fires in 6 weeks be too great an obstacle for Musk to overcome?  Will the passion and cash last?  Time will tell. 

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Elon Musk’s Hyperloop is Probably as Good an Idea as High-Speed Rail

Posted by PITHOCRATES - August 18th, 2013

Week in Review

We transport heavy freight over land by train.  And transport people over land by plane.  Have you ever wondered why we do this?  Especially you train enthusiasts who would love to travel by train more often?  Here’s why.  Cost.  Railroads are incredibly expensive to build, maintain and operate.  Because there is rail infrastructure from point A to point B.  And at their terminus points.    Whereas planes fly through the air between point A and point B.  Without the need for infrastructure.  Except at their terminus points.  Making railroading far more expensive than flying.

If planes are so much cheaper to operate than trains then why don’t we use planes to transport all our freight?  Here’s why.  Price.  Trains charge by the ton of freight they transport.  And they can carry a lot of tons.  An enormous amount of tons.  Which makes the per-ton price relatively inexpensive.  A plane can carry nowhere near the amount of freight a train can carry.  It’s not even close.  Which makes the per-ton price to ship by plane very, very expensive.  So only high priority freight that has to be somewhere fast will travel by plane.  Heavy bulk items all travel by train.

We may be having an obesity problem but in the grand scheme of things people are very light.  But take up a lot of volume for their given weight.  The space their body physically occupies.  And the greater space around them containing the air they must breathe.  That holds the food and drink they must consume.  And the toilets they need to relieve themselves.  Now let’s look at a 747-400 with 450 passengers on board.  Let’s say the average weight of everyone comes to 195 pounds.  So the total flying weight of the people comes to 87,750 pounds.  Assuming flying costs for one trip at $125,000 that comes to $1.42 per pound.  If we add 15% for overhead and profit we get a $1.64 per-pound ticket price.  So a 275-pound man must pay $451 to fly.  While a 120-pound woman must pay $197 to fly.  Of course we don’t charge people by the pound to fly.  At least, not yet.  No, we charge per person.  So the per-person price is $224, where the lighter people subsidize the price of the heavier people.

The 747-400 is one of the most successful airplanes in the world because it can pack so many people on board.  Reducing the per-person cost.  Now let’s look at that same cost being distributed over only 28 passengers.  When we do the per-person cost comes to $4,464.  Adding 15% for overhead and markup brings the per-person price to $5,134.  A price so high that few people could afford to pay for it.  Or would choose to pay for it.  And this is why we transport people by plane.  That can carry a lot of people.  And we transport heavy freight by train.  That can carry a lot of tons.  And why this idea will probably not work (see Elon Musk Is Dead Wrong About The Cost Of The Hyperloop: In Reality It Would Be $100 Billion by Jim Edwards posted 8/16/2013 on Business Insider).

Tesla CEO Elon Musk’s plan for a space-age Hyperloop transport system between Los Angeles and San Francisco would cost only $7.5 billion, he said in the plans he published recently…

But the New York Times did us all a favor by calculating the true cost of the Hyperloop: It’s going to be ~$100 billion…

The Hyperloop is a pressurized tube system in which passenger cars zoom around on an air cushion, at up to 800 miles an hour.

There is no greater infrastructure cost between point A and point B than there is for high-speed rail.  Because these rails have to be dedicated rails.  With no grade crossings.  All other traffic either tunnels underneath or bridges overhead.  These tracks are electrified.  Adding more infrastructure than just the tracks.  All of which has to be maintained to exacting standards to allow high-speed trains to travel safely.  Which is why high-speed rail is the most costly form of transportation.  Why there are no private high-speed rail lines as only taxpayer subsidies can pay for these.  And for all these costs these trains just don’t transport a lot of people.  Making high-speed rail the most inefficient way to transport people.

The Hyperloop will be more costly than high-speed rail as this is an elevated tube system of exacting standards.  Requiring great costs to build, maintain and operate.  While transporting so few people per trip (28 per capsule).  Not to mention high-speed travel is very dangerous.  Unless it is up in the air separated by miles of open air.  But on the ground?  When a high-speed train crashes it is pretty catastrophic.  And it can tear up the infrastructure it travels on.  Shutting the line down.  So traveling 800 miles an hour inside a narrow tube is probably not the safest thing to do.

Of course the biggest fear in a system like this is some politician will pass legislation to build it.  Because of all the taxpayer-subsidized union jobs it will create.  As they are constantly trying to build high-speed rail for the same reasons.  For the politics.  Not because it’s a good idea.  For any idea requiring taxpayer subsidies is rarely a good idea.

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