Potholes Ahead for Tesla

WASHINGTON, DC: Tesla Motors is on a roll. Last year its share price quadrupled and it sold over 20,000 cars. There’s a waiting list for every four-door sedan that rolls out of the Fremont, California plant.

But with a single factory and a more complicated SUV expected down the line later this year, can Tesla nearly double production as planned? Other potholes include batteries, dealer protection laws, and an organizing drive from the auto workers union.

The $100,000 Model S rules the luxury electric vehicle market. For the rich, famous and green, the quick-accelerating Model S is the vehicle to own. Aggressively expanding, Teslas are now on sale in China, the world’s biggest auto market.

 Model S at Tesla Washington, DC showroom 

The Model S is taking off in Europe where it’s been available less than a year. In environmentally conscious Norway Tesla was the best-selling car in December. Tesla sales get a huge boost in Norway because they’re exempt from taxes that can double the cost of gasoline-powered car.

The ten-year-old Silicon Valley start-up is on its way to becoming a viable 4th US-based car company. Detroit is paying attention. Mark Reuss, G.M.’s chief of product development, is extravagant in his praise, telling the Detroit Free Press he spends a lot of time in a Model S. “It’s highly creative and fun to drive,” he says. Referring to 42-year-old billionaire and Tesla CEO Elon Musk, Reuss says, “he’s basically created a brand, which is very hard to do in a mature industry.”

Tesla lithium-ion battery

Musk, the South African-born genius behind Space X, SolarCity, and Tesla, runs the car company much like Steve Jobs ran Apple. Technology and design are paramount. There’s a keen eye on media and like Jobs Musk was on stage near LA in June to introduce the automated battery swap stations that will be placed across the country. Replacing an entire panel of 7,000 reusable lithium ion batteries is meant to take only 90 seconds.

Tesla super-chargers, as of February 1, 2014 

Determined to prove that the Model S can perform well on highways, Tesla has constructed a network of free supercharging stations situated at 200-mile intervals on a transcontinental route linking Los Angeles with New York.

A half-charge, enough to zoom on to the next station takes about 30-minutes. Typically six charging posts are in the unmanned facilities situated in shopping mall parking lots near on-off ramps. Tesla says supercharging will be free forever, meaning that Tesla vehicles can scoot across the country paying nothing for fuel.

The Tesla business plan is simple, ambitious and on track. First establish the brand with a luxury car. Create a buzz. Widen the product line and boost production. Then produce a smaller sedan priced at about $35,000, within reach of the upper middle class.

Even if Tesla can produce 35,000 vehicles this year, that’s a tiny number equal to half the Ford F series pickups manufactured each month. Tesla’s gull-wing crossover is expected by the end of the year, but the much-touted generation three family car isn’t due until 2017. Musk speaks of eventual production of 500,000 cars per year.

Musk concedes that getting enough batteries is a problem. His sole supplier is Panasonic in Japan. To overcome the bottleneck Tesla contemplates making its own cells. In November Musk speculated that it would be a giant facility. “We’re talking about something that is comparable to all of the lithium-ion battery production in the world — in one factory.”

Tesla currently has four-dozen showrooms with more on the way. But all sales are online. Tesla’s direct to the consumer approach collides with a maze of state laws that essentially require all new cars to be sold through dealers. Jack Fitzgerald, an electric car advocate and president of Fitzgerald Auto Malls in Maryland, says as long as Tesla remains a bit player, the dealership rules may not be a problem. But complaints are already coming in and dealers don’t want the precedent of buying on line to take hold. 

Tesla’s manufacturing facility is in Fremont, California in San Francisco’s East Bay. Originally built by General Motors the Fremont plant in the 1980s housed Nummi, a cooperative venture between GM and Toyota. GM later withdrew and Tesla purchased the sprawling plant for a mere $50 million.

At its peak Nummi employed nearly 5,000 workers who were represented by the United Auto Workers. Tesla’s current workforce of nearly 2,000 is non-union but with decent pay and benefits. The UAW has already set up an organizing committee. While Musk says he’s neutral on the union, Tesla’s headquarters are nearby in Palo Alto in the Silicon Valley where unions have been neither popular nor successful.

Finally, what about sales and service? Will American customers be willing to wait months to get a car they ordered online? And things go wrong with cars, even those without engines. How fast will customers get a replacement mirror or fender? For now Tesla is employing mobile service vans, an operation that would be overwhelmed by increased volume.

If its success continues to build, Tesla will encounter competition with established car companies. The game then could become brutal. In short, Tesla’s viability is not assured.

Michigan State Women's Basketball and Title IX

EAST LANSING, MI: On a snowy Sunday in mid-Michigan, 9,000 people came out to watch the Michigan State women’s basketball team play Big Ten rival Penn State. Admittedly, the crowd was somewhat swollen by 2,000 free tickets handed out to local Girl Scouts. But typically over 6,000 spectators show up for each of the 15 or so home games that the MSU women play from November to March.

 Girl Scouts and others at the Michigan State women’s basketball game, January 19, 2014 

 Amazingly, the extraordinary nationwide boom in female athletics is the result of a landmark 1972 law that banned federal money from institutions failing to promote gender equity. Prior to passage of Title IX of the Equal Opportunity in Education Act, a mere 310,000 girls played high school or inter-collegiate sports. Today that number has exploded by 1,000% to 3.4 million.

College sport is big business and men’s football and basketball are the money-spinners. At many universities, profits from basketball and football finance non-revenue sports like rowing, wrestling, tennis, and track. Michigan State fields 25 sporting teams, slightly more for women than men.

With a university budget that exceeds $1 billion, MSU derives about $90 million from ticket sales and broadcasting. That’s about $2 million more than it spends on athletics. Experts say overall women’s sport is a long way from being profitable. Only 43 of 340 women’s basketball programs break even. And of those profits don’t exceed $500,000. While only four women’s basketball programs generated income of $4 million in 2011, 86 men’s basketball teams did.

But profitability was never the goal of Title IX. Its real benefit is widening athletic excellence and opening opportunity to girls. A ticket taker at the MSU Penn State game recalls the sorry days of the late 1970s when only a few hundred attended women’s basketball even though the price of admission was only $2 or less. “The caliber of play was pretty bad,” he says, adding “but look at it now. It’s come way, way up.”

And with every improvement in quality, attendance has grown. While significantly trailing the men’s game in attendance, MSU women’s basketball is broadcast live to an expanding audience.

 Michigan State women’s basketball team at left, as Girl Scouts present colors 

Of course attendance is linked to winning. On this wintery Sunday Michigan State came up short, losing the game 66 to 54. Disappointing yes, but the fans didn’t seem too worried. Many will be back next week, helping MSU maintain its position in the top ten nationally for attendance in women’s basketball.

Optimism in Detroit as Autos Lead Recovery

For the first time in a decade there is optimism in Detroit. Not only is the blighted city slowly beginning a turn around, the industry that gave it life is restructured and fit, having climbed back from near collapse in 2009. In 2013 US brands accounted for 46% of domestic sales, outselling their Japanese, Korean and German competitors.

Light vehicle sales climbed to 15.6 million, the highest level in six years. A resurgent General Motors held top place with an 18% market share. Ford followed with 16% and Chrysler had 12%. Toyota and Honda led the Asians with 14% and 10% shares respectively. The Detroit 3 outpaced the competition with sales gains of over 9%.

For the Detroit Three the watchwords in 2014 are change and transition. From January 15,th General Motors will be headed by an engineer, Mary Barra, who will be the first female CEO of a global car company. She has spent over 30 years moving through the ranks at GM.

Mary Barra 

With the Treasury having sold its remaining shares in GM in December, the chapter on the $80 billion bailout of GM and Chrysler is closed. GM is no longer ‘government motors.’ Ford, which sold assets and mortgaged its future to avoid bankruptcy, is keeping its management team in place.

Alan Mulally, 68, the former CEO of Boeing Commercial Airplanes, has led Ford since 2006 and presided over its revival. On Tuesday Mulally ended months of speculation that he would take the top job at Microsoft and said he would remain at Ford until the end of 2014.

 

Alan Mulally                                                          Sergio Marchionne 

 Big news came to Chrysler on New Year’s Day when Sergio Marchionne sealed a deal that gives Fiat outright ownership of the US firm. Marchionne, who grew up in Canada, heads both companies. He is credited with bringing the struggling US company back from near death. Fiat is paying $4.3 billion for the Chrysler shares owned by the healthcare trust of the United Auto Workers that the union received at the time of the bankruptcy. Incredibly, with newly profitable Chrysler providing much of the cash, Fiat’s payment is a mere 10% of the $38 billion Germany’s Daimler paid for Chrysler in 1998.

Analysts expect the auto industry recovery to persist as the market is benefiting from low interest rates, longer-term loans, and rebounding consumer confidence. Edmunds consultancy predicts 2014 sales of over 16 million, only one million units below the year 2000 sales record. Kristin Dziczek, a specialist at the Center for Automotive Research in Ann Arbor, says the post-great recession US auto industry is now highly competitive versus all global rivals.

It is also much smaller. The US based auto industry is 35% smaller than ten years ago. Where it used to employ 1 million people today it is 650,000. In Michigan auto industry employment is down 50% in ten years even as over 100,000 jobs have been added since 2009.

Wages are also lower as new hires earn about $15 per hour, half the level of a decade earlier. However, the booming sales of 2013 have set the table for record profit sharing. In the next few months an estimated 130,000 unionized workers are likely to receive per person bonuses of up to $12,000.