Getting Tesla From Here to There

23-Aug-2013

I like this.

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CPA/entrepreneur







Getting Tesla From Here to There

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Whether Tesla Motors can meet its ambitious growth targets — not to mention support its high-flying stock price — may well depend on people like Jason Berkley.

I met Mr. Berkley this week when I dropped into the Tesla showroom on West 25th Street in Manhattan. The spare white-walled space could easily pass for one of the art galleries on either side of it, the art in this case being the single “signature red” Model S on the showroom floor. Several customers were stroking its sleek curves and sculptural door handles as I walked by.

Mr. Berkley was seated at a desk around the corner, and urged me to pull up a chair. With his scruffy beard, Levis and loosefitting polo shirt, the 27-year-old graduate of Indiana University looked as if he’d walked out of Google’s New York headquarters a few blocks away. Actually, he’d been working in wealth management before joining Tesla in November.

I gave him a simple but seemingly insurmountable task: sell me a Tesla.

This was not just a journalistic stunt. I’m in the market for a new car since the lease on my current model expires later this year. Like most car enthusiasts I know, I love the Tesla story: South Africa-born entrepreneur Elon Musk, now an American citizen, reinvents the automobile with a zero emission, all-electric model that in performance, appearance, technology and comfort puts the legacy automakers to shame. Despite enormous skepticism, he takes his venture public, produces more cars than Tucker, Vector and DeLorean combined (to cite three of Tesla’s legendary but failed predecessors), draws rave reviews from the automotive press, and makes a fortune as Tesla stock soars to dizzying heights. It’s the American dream writ large.

Yes, I’d love to buy a Tesla. But a) I live in New York City and park in a public garage; b) drive on weekends to a house in rural upstate New York, far from any current or planned Tesla charging station; c) can afford only one car; d) occasionally make longer car trips far beyond the Tesla range; and e) the base Tesla S costs $71,000 before rebates.

I’m hardly alone in facing such obstacles. Everyone who walks into a Tesla showroom has to be persuaded by someone like Mr. Berkley to become an early adapter — someone willing to take a gamble on a largely unproven $71,000 electric car that needs to be both reliable and safe.

I discussed the Tesla phenomenon this week with Adam Jonas, a managing director and the leader of Morgan Stanley’s global auto research team, who agreed that getting potential customers past many of the same obstacles I face “is an important issue. The population that has the financial means and the motivation to buy this car tends to live in densely populated urban areas, where the parking and municipal infrastructures still aren’t there. Tesla still has a lot of work to do to get into parking garages and get municipalities to install charging stations.”

Mr. Berkley tackled the issues head-on as I raised them, and I liked that he said at the outset that the Tesla “might not work for you.” With Google Maps on his screen, he calculated that the route from my parking garage to my house upstate was 88 miles. With a charging station installed in my barn, I could charge the battery overnight, and comfortably make the 176-mile round trip, even with the lower-cost standard battery, which delivers an estimated range of 208 miles. Mr. Berkley said that if I adhered to 55 miles per hour on the highway, I was likely to get 230 miles.

That didn’t quite solve the problem, since the Tesla loses as much as 10 miles in range for every day it isn’t used, and my car sits in the garage during the week. That might cost me 50 miles a week, which would be cutting it close. I might have to get the more powerful battery, which adds $10,000 to the base price and extends the range to an estimated 265 miles, or 300 at the 55-mile speed limit.

What about longer trips? Mr. Berkley showed me a map of the country with current and planned high-speed charging stations, where Tesla owners can recharge the battery in 30 to 40 minutes at no cost. Two of these stations are up and running in Connecticut, which would have made it possible for me to drive the Tesla on a recent trip to Wellesley, Mass., which is 200 miles from Manhattan, with just one recharging stop. By the end of 2014, the company expects to have stations covering 80 percent of the continental United States, most near coffee shops, restaurants and other amenities.

That still might not get me to and from Cooperstown, N.Y., about 200 miles from Manhattan, where I drove last weekend. Cooperstown is well off even Tesla’s most ambitious grid. But how often do I go to a remote place like that? “Every once in a while you’d probably have to rent a Zipcar,” Mr. Berkley conceded.

So the Tesla seems feasible, which got me to the cost. Seventy-one-thousand dollars (let alone $81,000) is far more than I’ve ever paid for a car. I’ve read that most Tesla customers are already driving BMW 7 Series, Mercedes S-Class, Porsches and other high-end performance cars. I drive a Mini Cooper.

Mr. Berkley thought I could get by with relatively few options, holding the cost down. Every Tesla buyer gets a $7,500 federal tax credit. The fuel savings also add up. He estimated that every $1 of electricity is the equivalent of $5 in gas, even more if the charging is done during off-peak hours. And while there isn’t a track record to gauge Tesla’s resale value, Tesla offers a guaranteed buyback after three years of 50 percent of the purchase price. And I’d be willing to bet that early Teslas will be valuable collector’s items. The more Mr. Berkley talked, the more reasonable the Tesla seemed, more like an investment.

Then we got into the car, which has ample headroom and only two buttons on the dashboard. Almost everything is controlled from an iPad-like touch screen embedded in the center of the dashboard. It’s also an Internet connection and was displaying the home page of The New York Times. I worried that might be a little distracting, but Mr. Berkley said it’s nice when you’re stuck in traffic.

The car is indeed gorgeous to look at. Why do the G.M. Volt and Toyota Prius seem so stodgy by comparison? It’s not that those companies couldn’t have hired the same design talent. (Franz von Holzhausen, who did the much admired, now discontinued Pontiac Solstice roadster while he was a designer for G.M., designed the Tesla S.) I was soon testing color, upholstery and wheel cover options on a large wall display, and was ready to schedule a test drive.

Mr. Berkley and his colleagues in Tesla’s more than 50 stores and galleries worldwide are obviously doing something right. Tesla said it delivered 5,150 Models S cars in the most recent quarter, exceeding the company’s target of 4,500. An annual selling rate of 40,000 by the end of next year looks “pretty safe,” according to Mr. Musk. The news sent the stock surging two weeks ago.

Tesla shares, lately around $161, have nearly quadrupled in the last year At $19.5 billion this week, Tesla’s market capitalization is now about 40 percent of G.M.’s, which is $48.5 billion. In an appearance on CNBC this week, Mr. Musk conceded that the market was being “very generous” to Tesla and “the valuation is more than we have any right to deserve.”

Mr. Musk has been compared to the Apple founder Steve Jobs as a master showman, and he surely knows that Tesla’s valuation isn’t based on sales or any other traditional metric. “The stock market loves a great story, and this is about as compelling as it gets,” Mr. Jonas told me. “Great stories can be overvalued. You could argue the stock’s valuation has gotten ahead of its foreseeable success, but who’s to say? As long as the story is working, which it seems to be, there’s a lot of potential. At 150 bucks, if Tesla were to miss expectations, there would be a severe correction. Until that time, it’s all about the journey, not the destination.”

Should there be a fire or accident, despite Tesla’s outstanding safety record so far, all bets might be off. After I left the showroom, I imagined myself gliding down the cobbled street outside in a new Tesla, generating zero emissions but plenty of curiosity from pedestrians and other drivers, and probably no small measure of envy. I haven’t felt that way since my first car, a used 1964 Falcon convertible. But then reality started to intrude. What if I lost power in the country, as happened for four days after Hurricane Irene? I guess I’d have to invest in a generator or have a second, gas-powered car for emergencies. And do I really want to pay $71,000, only to be lining up some weekend for a Zipcar?

“It’s not yet practical as an only car,” Mr. Jonas told me, as I was coming down to earth. “You have to treat it as a toy and be completely cool if it doesn’t work. But there’s still tremendous potential. Before the first-quarter results, people were betting Tesla wouldn’t last the year. Now the question is, These guys are for real, but how big can they be? There’s been a seismic change. The auto industry hasn’t seen anything this disruptive since the dawn of the Japanese manufacturers.”


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