Posted Sep 11th 2012 5:15PM
Is it easier to put a man in space or an electric vehicle in every garage? Ask Elon Musk, the iconoclastic entrepreneur who heads up both Tesla Motors and SpaceX, the first private space venture to launch a vehicle and successfully dock it with the International Space Station.
The passing of Neil Armstrong, the first man on the moon, comes to mind when thinking about Musk's dual quest to remake the auto industry with electric vehicles and to privatise space travel. Back when Armstrong took that first small step, it was thought that if we could put a man on the moon, it was proof there was nothing mankind couldn't accomplish, including stamping out poverty and curing cancer.
If history is a guide, it turns out it's easier to do the moon shot than tackle a myriad of pressing social issues.
That is precisely what Musk may eventually discover – namely that it is far easier to build spaceships than it is to build an electrically powered family car that will appeal to the masses.
With SpaceX, Musk is entering a relatively level playing field in which the door has been opened to private enterprise. NASA's decision to end the Space Shuttle program has provided a big boost to these efforts. Businesses and governments alike still need to lift satellites and material for the ISS into orbit. SpaceX is reported to have nearly $2 billion in government and private contracts on the books and has a demonstrated track record of successful launches. While SpaceX is building Falcon rockets and Dragon capsules, its main product isn't the boosters and capsules themselves, but rather the service of transporting men and material into space. Product improvements are made to make these rocketships more powerful or efficient in order to complete the mission rather than making changes to merely to meet the whim of the market. And most important of all, SpaceX retains total control over its hardware throughout the lifecycle. With no shortage of customers, a limited number of competitors, and demonstrated competency in its core business, SpaceX is positioned to thrive.
Meanwhile, Tesla is taking on a mature industry with many competitors and excess capacity in an uncertain economic times. The automobile business requires huge investments on products that sell for relatively small margins. And while Tesla is an EV-only company, other major manufacturers, like Nissan, Honda and Ford, compete with Tesla with pure electrics of their own.
Tesla is taking on a mature industry with many competitors and excess capacity in an uncertain economic times.
Furthermore, the Model S will compete not only with other pure electrics like the Nissan Leaf, but also conventional gasoline-, diesel- and hybrid-powered cars that offer more range, quicker refueling times and lower sticker prices. And while Musk promises more affordable EVs in the future, the cheapest Model S, which starts at around CAD $50,000, is still around CAD $20,000 more than the average new car, which retails more in the neighbourhood of CAD $30,000. The truth is that unless internal combustion is banned by the government, there will always be less expensive alternatives to the EV, barring some miraculous breakthrough in battery technology.
There's no doubt that Tesla has demonstrated that it can build EVs, as shown by the run of 2,000 or so Roadsters and that the new Model S offers credible performance (see MotorTrend's recent test where the sedan clicked off a 96 kp/h (60 mph) sprint of 3.9 seconds while delivering more than 320 kilometre or 200 mile range).
But the real test of Tesla isn't so much the ability to roll the Model S off the assembly line as it is how these vehicles perform in the real world. Its success lies equally with the performance of the hardware and the soft side of the business – sales, service and warranties. SpaceX is more like a business-to-business proposition on the wholesale level, while Tesla is dealing strictly at the retail level. Being able to please individual customers on a large scale is a difficult task, one that Tesla has yet to prove itself. Will its factory-owned dealer network be up to the task? How will the first recall be handled? Is it prepared for the product liability lawsuits that are an everyday fact of life for mainstream manufacturers?
The real test of Tesla isn't so much the ability to roll the Model S off the assembly line as it is how these vehicles perform in the real world.
If things don't go well for Tesla, one scenario could have Musk selling Tesla off to either Toyota or Daimler, both of which have taken a stake in the company for its EV technology. In addition, under the new 54.5 mpg CAFE requirements, Tesla is in line to receive fuel economy credits that will prove to be extremely valuable to manufacturers who don't have EVs.
Tesla has crossed the first formidable hurdles by producing the Model S at its California plant and delivering cars to consumers. But now the real work begins.