An All-Electric Sedan, Awaiting Federal Aid

http://www.nytimes.com/2009/03/27/technology/start-ups/27tesla.html

March 27, 2009
An All-Electric Sedan, Awaiting Federal Aid
By CLAIRE CAIN MILLER

LOS ANGELES — Tesla Motors on Thursday unveiled its Model S, an all-electric sedan it hails as the beginning of a generation of fossil-fuel-free cars and a profitable company.

But before that happens, the company must find the money to build the vehicle. Tesla is pinning its hopes on Washington and a $450 million government loan. The company expects to hear from the Energy Department this year.

“We are highly confident that Tesla will be selected, and it will occur this year,” said Elon Musk, the company’s chief executive, after displaying the car to customers, analysts and reporters in a gigantic hangar set up to look like a lounge at SpaceX, Mr. Musk’s rocket factory. His other venture is to build a spacecraft.

Tesla, which was founded in 2003, was heralded as Silicon Valley’s solution to the nation’s energy problem. If a struggling Detroit could not make an electric vehicle, then a Silicon Valley start-up would.

Today, Tesla is facing the same plight as many green-energy start-ups. These huge, capital-intensive projects have been paralyzed by the credit crisis, and their survival depends on federal loans that have only just started to flow.

“Silicon Valley has mocked the government for decades and is now completely dependent on it,” said Michael Kanellos, a senior analyst at Greentech Media. “They can’t get a project off the ground without these loans.”

The Model S is Tesla’s second car. Its first is the $109,000 Roadster sports car. An elite group of 300 own the car and the waiting list is 1,000 names long.

The Model S, which Tesla says would be the first mass-manufactured all-electric car, will cost $57,400, or $49,900 after tax credits. Mr. Musk said that, when gas savings are taken into account, buying a Model S will be comparable to buying a $35,000 Ford sedan. “Would you rather have this car or a Ford Taurus?” he asked, pointing to the sporty silver prototype.

The car will travel 300 miles on one battery charge, he said, and the battery can be recharged in 45 minutes. The car is big enough to carry five adults and fit two children in rear-facing seats in the trunk. There is a touch screen in the console connected to the Internet and storage under the hood.

The Model S is supposed to be ready in mid-2011, but that will depend on securing the government loan and finding a site for the auto plant. Mr. Musk said Thursday that Tesla was close to signing a deal to build a plant in Southern California.

Tesla has spent $50 million developing the Model S and needs $250 million to $300 million more, he said. Once Tesla finds a site and gets the money, it will take 24 to 30 months to begin production, he said.

Tesla has raised $186 million from investors, $55 million of it from Mr. Musk, who made his fortune when PayPal, which he helped found, was sold to eBay. Other investors include Google’s billionaire co-founders, Larry Page and Sergey Brin, and Draper Fisher Jurvetson, the venture capital firm.

Mr. Musk has said that he underestimated the money, time and effort needed to build a car company.

Tesla hopes to receive one of two government loans it is seeking. One, a $250 million loan, would come from money Congress authorized in 2005 for clean energy projects. The first loan guarantee under the program was made to solar company Solyndra last week.

The second loan Tesla is seeking, $450 million, would come from $25 billion Congress authorized in 2007 for electric vehicle technologies.

The Energy Department has not granted any loans under that program and has been criticized for moving slowly. But the energy secretary, Steven Chu, has said he plans to distribute some of the money in coming weeks.

Tesla is also financing the development of the Model S with deposits from people on the waiting list, who can pay $40,000 to reserve one of the first 2,000 cars or $5,000 for later cars.

For those who are worried about what will happen to their deposits if the car is never produced, since the money will be spent on development and not held in escrow, Mr. Musk said: “The worst-case scenario is they would lose their money. They are at risk.”

Still, he said: “This car will be manufactured, it will come to market. You should have zero doubt about that.”