Hoping to drum up interest in his company ahead of its planned Initial Public Offering, Tesla CEO Elon Musk hit Wall Street and made a Road Show presentation to potential investors in which he revealed three new products the company is planning based off the Model S platform.
The new models will use the Model S’ underlying platform and powertrain with new bodies on top. Sketches revealed in the Road Show presentation included a two-door Cabriolet that bears a strong resemblance to the Model S, but with more aggressive styling; a van similar to the Ford Transit Connect; and a crossover that looks like a beefed-up Model S wagon. The Model S platform means the battery stays tucked under the floor to keep the weight low regardless of body type. Tesla is also working on liquid-cooled batteries and electronics for the Model S to boost efficiency and component life.
Along with the Road Show, Tesla’s complete IPO filing with the SEC is available now and reveals some interesting facts about the company and its products. As we learned last week, Tesla has been losing money since its inception, and its IPO shows that the company is heavily dependent on selling carbon credits to other automakers, a $450-million loan from the U.S. Department of Energy, and the money it hopes to raise in its IPO. The company also receives funds from a deal to supply batteries to Daimler’s Smart brand, but will lose that income when Daimler brings its battery development in-house. Further, the company expects to continue losing money until the Model S actually starts selling in significant quantities.
The company is also dependent on its unfinished agreement with Toyota to buy a portion of the closed NUMMI plant in California for production of the Model S. Should the deal fail to germinate by December 31, 2011, it is null and void. Even if it goes through, it only covers the building, not the equipment, which Tesla will have to secure on its own.
Tesla’s concerns run deeper than that, though. As of March 31, the company had only 110 outstanding orders for its Roadster model, of which 1063 had been sold to that date. Most of Tesla’s sales have been fulfilling orders that have been on the books for months or even years. Despite the limited orders, the company has an agreement with Lotus to purchase 2400 Roadster chassis. The company currently has 2200 non-binding reservations for the Model S as well, a car that the company says won’t see production until at least 2012 with deliveries following months later.
Some experts have questioned that timeline, given that the IPO also notes that the company has only a driveable prototype built at this point, not a production-intent car, and has not selected its suppliers yet. The filing also reveals that Tesla acknowledges having no experience with designing or using a common platform, and design of the Model S platform isn’t even complete yet. Other technical limitations include an admission that no facility yet exists that can swap out the Model S’ battery pack as the company has suggested in the past and that the company realizes its current battery pack found in the Roadster will lose up to 40 percent of its capacity, and therefore the vehicle’s range, after 100,000 miles, or about seven years.
On the non-technical side, Tesla also faces pressure from regulators, customers, and competitors. Tesla’s model of company-owned retail outlets and Internet sales is unproven and could run afoul of dealer franchise laws in some U.S. states and European countries. Its service program, with its mobile service technicians, is also unproven. Any new crash, safety or other regulations could slow development of the Model, S and its mainstream competitors are better equipped financially to face the burden of developing an all-new car.
If the company has overestimated the market for its expensive, high-end models, it will make it harder to turn a profit and invest in more affordable models. And of course, the company will be without a source of revenue after 2011 when the first-generation Roadster ceases production along with the Lotus Elise it’s based on. Production of a second-generation car won’t begin until after the Model S is on sale.
While Tesla is clearly optimistic as it continues to expand its brick-and-mortar stores and product, there’s no telling how Wall Street will react. The company is hoping to pull in $178 million in its IPO in the next few weeks, but even if it’s successful in that endeavor, it still faces a number of challenges over the next several years as it struggles to reach financial stability on the backs of its products rather than temporary deals like carbon credit swaps. What do think will happen?