Why Tesla's Elon Musk Could Be the New Preston Tucker
Tesla Motors, the best hope of Silicon Valley's nascent clean-transportation industry, is headed over a financial cliff. The only question is how many customers the electric sportscar maker will take for a ride.
Tesla's lead investor, Elon Musk, installed himself as CEO last fall. That's just one of the many parallels between his story and that of Preston Tucker, the doomed automotive entrepreneur whose dream of an innovative new car died amid charges that he was taking people's money for cars he couldn't build. Musk's Tesla Roadster, a $109,000 sportscar which races from 0 to 60 miles per hour in less than 4 seconds, could be the next Tucker Torpedo.
In October, Valleywag reported that Tesla Motors was down to $9 million in the bank. Musk confirmed the company's cash position, and promised he would raise another $40 million in convertible debt from existing investors. But the fundraising is taking longer than planned. At a recent town hall meeting with customers, Musk reportedly told Tesla buyers that the company almost ran out of money in December, before it raised part of the round. Tesla is still seeking new funds.
And it has turned to existing customers as a source of those funds. The company is losing money on every Roadster sold, Musk says. Having already spent their deposits, Musk ordered a price hike on the $90,000-plus car's options, adding charges for everything from delivery to the car's electric charger to its sound system. (It is rather like Tucker's move to sell accessories to car buyers before he had even built one.)
Musk claimed he needed to raise prices to assure the company's viability. If the company does not look like it will make money soon, it will not be eligible for some $400 million in Department of Energy-guaranteed loans on which Musk has been counting to start production of a mainstream $50,000 sedan, the Model S, which has already been delayed until 2012.
But according to a Tesla tipster, Musk's decision to raise prices has caused severe damage to the company's operations. Production ceased while manufacturing waited to hear what options to install. And the company's salespeople were consumed by the task of calling back customers and asking for more money, rather than pursuing new sales. While cars stopped going out, money stopped going in. He also faces a real risk of customers asking for their deposits back; California's vehicle code provides strict consumer protections against such fiddling with prices. Tesla buyers, though, tend to be wealthy true believers, so they may well pony up more money — if they can still afford the car at all, that is.
Now Tesla has cancelled plans to build a factory in San Jose where it planned to build its Model S, a mass-market sedan. Musk is still planning to take deposits from Model S customers starting March 5.
This sounds exactly like the sort of trouble Tucker (left) found himself in, with an engineer accusing him of never bothering to buy production machinery for a factory he'd never bothered to build, while taking money from investors and customers.
Tesla and Musk may somehow pull through this. But he has already told customers they may lose any money they've given him. In November, he offered to personally guarantee the deposits of any Roadster buyer should the company fail. But at this week's town hall meeting, he told customers their deposit money would be at risk if they did not go along with his price hike and Tesla went bankrupt.
Musk, a successful Web entrepreneur whose PayPal sold to eBay for $1.5 billion, is also in the business of building rocket ships through his other company, SpaceX. He's talked about carrying out a privately funded mission to Mars. At this point, that looks more likely than Tesla getting off the ground.