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Tesla Model S: The moon shot for battery-car market

CNBC's Herb Greenberg and Phil LeBeau take a look at the first "family" sedan from Tesla, the Model S, which costs between $57,400 and $77,400. The range is up to 265 miles fully charged.

Entrepreneur Elon Musk reached a major milestone last month when his SpaceX became the first private company to launch a cargo ship. But that was easy compared to his next challenge: Making his electric car maker, Tesla Motors, a viable competitor beginning with its landmark launch of the Model-S sedan Friday.

The battery-electric car, which sells for $50,000 to a bit over $100,000, will be delivered to its initial customers Friday and then will be made available for test drives later this summer for customers with reservations.

While Tesla has gotten plenty of attention for its previous $109,000 Roadster, a high-performance, two-seat sports car, the 2013 Model-S will be its first mainstream passenger car. The car is quite likely its make-it-or-break-it attempt for the Silicon Valley startup, which has run up losses off more than $750 million since its founding in 2003. Tesla stock (TSLA) was up 4 percent Friday.

“If it delivers on its promises – not only in sales volume, but also in quality and reliability – the S will propel Tesla into the black and provide working capital to develop of the next line of Tesla vehicles,” said green car analyst John Odell, of the automotive data firm Edmunds. 

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But Musk and company have made some big promises – with relatively little history to show they can deliver.

The Detroit Bureau

Tesla Motors CEO Elon Musk with a Model S.

The South African-born executive made his fortune as one of the founders of PayPal.  He has used the billions he got for selling that company to fund what some skeptics might call a series of fantasies. In a conversation with TheDetroitBureau.com, Musk revealed he has been fascinated with both space flight and with electric propulsion since his childhood. PayPal made it possible for him to enter both fields simultaneously.

After a series of initial failures, SpaceX finally succeeded in launching the Dragon capsule into orbit, docking with the International Space Station and safely returning the ship to earth. The company will now move ahead with a NASA contract while working on plans to develop a manned version of the Dragon.

Tesla, meanwhile, is already working up plans for an array of products, including the Model X crossover set for introduction next year.  But first, it has to convince a skeptical public that they want the 5-seat Model S, which carries a starting price of $49,900 – after a buyer receives a $7,500 federal tax credit.

That’s a big “if.”

Electric vehicles have been around for over a century. Henry Ford’s wife Clara preferred an electric runabout to her husband’s dirtier Model T, and Ford had hoped his friend and legendary inventor Thomas Edison might come up with a long-range battery that might make the electric vehicle more competitive. He failed, and so have generations of inventors to follow.

Ford Motor Co.

Henry Ford with the electric vehicle preferred by wife Clara over his Model T.

Even the most advanced lithium-ion batteries still carry only about 1 percent of the energy of a comparable mass of gasoline. The Nissan Leaf, the first modern battery-electric vehicle from a major manufacturer contains 24 kilowatt-hours of LiON cells onboard, or the equivalent of about two-thirds of a gallon of petrol, according to the EPA. The federal agency calculates a gallon is equal to 33.7 kWh. 

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The Leaf, like most of its new competitors – such as the Ford Focus Electric, the Mitsubishi i-MiEV and the upcoming Toyota RAV4-EV – can carry only enough batteries to get between 75 and 100 miles per charge, a key factor in customer rejection, according to industry analysts.

All told, battery-electric vehicles, or BEVs, as well as plug-in hybrids that increase range by adding a back-up gasoline motor, accounted for less than 25,000 U.S. sales last year. And while manufacturers have been projecting substantial growth this year, that hasn’t materialized during the first five months of 2012. Leaf sales have actually slowed, while the Chevrolet Volt plug-in’s are up, but not nearly enough to meet a 45,000-unit target.

“We firmly expect that the electric-car sales rate will continues (to) rise, though it will be slow,” Tesla’s Musk acknowledged in a recently published blog posting.

Tesla has targeted sales of 5,000 Model S sedans during this launch year, with volumes expected to double in 2013. It claims that 10,000 customers have already plunked down refundable deposits. 

That would be a significant improvement from the total of just 2,150 2-seat Roadsters Tesla has sold since 2008. But the original battery-car was as much publicity stunt as proof-of-concept, helping generate headlines, especially when high-profile customers like actor-cum-activist George Clooney drove off in one.

One reason for Tesla’s optimism is that the maker is packing in enough batteries to downplay, if not entirely offset, so-called range anxiety. It will offer a standard kilowatt-hour battery pack it claims will yield about 160 miles of driving per charge, with optional 230-mile and 300-mile packs. 

Feds List Tesla Model S at 89 MPGe, 265-Mile Range

The largest pack contains a whopping 85 kWh of lithium cells, more than three times the size of what’s in the Nissan Leaf, yet still equal to barely 2.5 gallons of gas. But the EPA rates the hyper-efficient Model S at 89 MPGe, or miles per gallon-equivalent. The agency, meanwhile, slightly downgraded the official range rating for the car, the biggest pack showing just 265 miles on its Munroney window sticker.

Ostensibly, a motorist could just squeak in a drive from New York to Boston with the 85 kWh package. But more typically, that would allow a motorist to run around without constantly worrying about making it home or having to find a public charging station – of which there remain relatively few.

Charging times will vary, meanwhile.  Using the most high-power Tesla system could cut times to as little as about 3 to 4 hours, according to the maker. That charger actually requires more current than the typical U.S. home could provide. With a more conventional charger that time could climb to as much as 18 hours, according to TheDetroitBureau.com’s calculations.

Tesla

Tesla has targeted sales of 5,000 Model S sedans during this launch year, with volumes expected to double in 2013. It claims that 10,000 customers have already plunked down refundable deposits.

At $49,900, the lowest-cost version of the Tesla Model S is in line with a number of similarly sized luxury vehicles, in fact, about $10,000 less than the $59,825 list price for the Lexus GS hybrid. Meanwhile, an absolutely fully-loaded Tesla Model S with the 85 kWh battery and range-boosting aero package comes in at $101,550 – or roughly the same as a well-appointed version of the Fisker Karma plug-in hybrid.

“Tesla will have no problem finding the initial wave of buyers for the first couple of years, as evidenced by the 10,000 pre-orders they have already received,” said Jesse Toprak, senior analyst with TrueCar.com. “The bigger challenge will be to convince the mass market to consider the Model S, which means going beyond the trendsetters and convincing the average buyer that the economics of the car makes sense.”

That is anything but a “slam dunk,” Toprak cautioned, adding that Tesla may need to come up with an attractive lease program to reach out to buyers who might be interested but still skeptical of the viability of actually owning a battery car.


Complicating matters, Tesla will have to move the metal through only 14 stores around the country. Nissan has at least that many dealers handling the Leaf in most states. Musk’s team is hoping that its high-tech approach, emphasizing online marketing and deposits, will overcome the showroom limitations.

The maker certainly has to hope so.  It ran up $759 million in losses since its founding – the red ink increasing in recent quarters as it halted sales of the original Roadster.  Without the assistance of a $465 million loan from the Dept. of Energy today’s sales launch would have never occurred.

Meanwhile, Tesla now has a new factory to support, a suburban San Francisco facility that had served for two decades as a joint venture between General Motors and Toyota. Toyota took full control after GM’s bankruptcy, then closed it before selling the Fremont plant to Tesla.

The good news for Tesla is that Toyota also invested $50 million into the nascent manufacturer – and is using a Tesla battery drivetrain in its own new battery car, the RAV4-EV. Meanwhile, Tesla is also working on several projects with Germany’s Daimler.  But while those deals will generate some much-needed revenue, it’s Model S, then Model X and other projects now in development that will ultimately determine Tesla’s fate.

Today’s official sales launch will actually start with Model S number three. The first saleable car was quietly delivered to Silicon Valley entrepreneur and early Tesla investor Steve Jurvetson early this month. The second car went to Musk himself.

As with SpaceX, the boyish-looking entrepreneur has plopped down a significant amount of his own capital to fund the launch of Tesla.  But while he may come across as tense and driven he seldom seems to be worried.  As with the potential for commercial space ventures he is ever-confident in the long-term viability of electric propulsion.  Even if Tesla fails, he told TheDetroitBureau.com last year, he is sure the technology will ultimately prove successful.

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