Bob Lutz in Road & Track.

[Darren Donovan]

He talked about Tesla. Would love to read about TMC opinions.
Some things he mentioned (obviously this article was already done before the X rollout):

Tesla's showing all thee signs of a company in trouble, bleeding cash, securitized assets, and mounting inventory. It's the trifecta of doom for any automaker, and anyone paying attention probably saw this coming a mile away.

Low gas prices are not helping sales.

There's never been any secret to the company's battery tech. Other automakers bought into Tesla's tech early did so to avoid having to pony up development dollars on first-generation battery packs of their own. Now that Audi has announced it's getting into the EV game, Tesla should be even more concerned. If you're a luxury buyer, which car would you rather have?

Distribution problem. Nobody's ever been successful with company stores. BMW tried it in the 70s, didn't work.

Musk figured that if factory stores work for Apple, they'll l work for Tesla. But the fixed costs for an Apple store are next to nothing compared with a car dealership's. Smartphones and laptops don't need anything beyond a small storefront and a staff of kids. A car dealership sits on multiple acres, you need service bays, chargers, trained sales force, plus all finance and accounting people. It ties up a staggering amount of capital, especially when you factor in the inventory. Under a traditional franchise, the factory never has to carry that burden. Right now, Tesla does.

Stockholders may be clinging to the hope that the company's upcoming SUV will help put Tesla on track, but there's little evidence to bolster that optimism. A big, expensive vehicle with a compromised structure to accommodate gullwing doors can hardly be sales knockout.

If I were in Musk's seat, I would look at cutting cost. Not just taking cost out of the car, but reducing expense in general. When they have a situation where, on an operating basis, they're losing $4000 per car, they're in trouble.

I would seriously consider an entry level model with a range extending hybrid driveline. Something that has a smaller battery that also looks great and drives great, something that's electric most of the time, say 50-60 miles. Would an ICE dilute the Tesla brand? Maybe, but everyone said Porsche could never build a front-engine car, and look how that turned out.

I like Elon personally, and I think the Model S is a fabulous car, but history's filled with defunct companies with great products run by brilliant people. Unless Tesla rights its organization and products in a hurry, it'll join those ranks.

 

[techmaven]

Sometimes experience, especially hard won experience blinds one to a new reality. Mr. Lutz has some significant misunderstandings of Tesla's business and how that differs significantly from his experience. It leads him to make incorrect assumptions and projections.

I disagree vehemently with a number of your assertions, including the issue of cutting cost. They are not losing $4,000 per car, as that is extremely misleading and belies a fundamental misunderstanding of their business. It's the difference between entrepreneurs and accountants.

You then go down a series of projections, like PHEVs that are nonsensical if you really think about it.

 

[S'toon]

Same thing Lutz has been saying for years.

He's wrong about the losing $4000 per car thing. He of all people should know better, as it's the same misleading kind of figures that was used to bash the Volt. Take money spent, divide by number of cars built to that point, and whallah! Money lost per car. The problem is it's bad logic. First of all, that figure grows smaller with each car built. Secondly, they're not losing money with each car. Tesla is building up infrastructure. They're building a Gigafactory, new production facilities, and a supercharger network. They're making money on each car, but the expenditures are outpacing the money coming in until that infrastructure is built. Once it's built, then Tesla will be able to pay down the debt and then make a profit.

Does anyone ever expect to say that their competitor's product and business model is great?

 

[Darren Donovan]

He also didn't mention the supercharger network, the one thing other automakers don't have. IMO, Tesla will never build a range extending hybrid car, that will cause revolt by current Tesla customers. Absolutely no ICE. The cheap, entry level car that Lutz mentioned that Tesla needs, that's the Model 3. So, quite a few missing pieces of information in that article. I do agree with him that the X, as currently configured, will not be as popular as the S. It's the Model 3 that will make Tesla a major player with other automakers. If the Model 3 fails, so will the company. It's that important.

 

[RobStark]

A classic cash strapped business does not build a new $5B manufacturing plant and able to draw major partners in.

A classic cash strapped business does not open new stores and open in new national markets.

Filling the inventory pipeline around the world, building more stores and adding inventory not only of new test drive vehicles but adding a Certified Pre-Owned business and adding used car inventory is not "inventory stockpilling."

Ditto to the above as well.

BTW the Model X as currently configured starts at $130k. We know an ~$85K version is coming. In 2017 and beyond X will outsell the S.

 

[ItsNotAboutTheMoney]

Tesla's cash-strapped because of problems getting the X to production. As a result of that they're burning cash too fast.

Solve the X production issues, panic over.
Don't solve the X production issues within 6 months, company is dead.

 

[peteyswift]

Huh, he sure does a lot of thinking about Tesla...

 

[shrspeedblade]

I read it today, and even though I really enjoy Lutz's column I think a lot of it was just showing his age/biases.

-It's 281 miles from Detroit to Chicago, the first generation Model S can almost do this now and almost certainly could if you hypermile. Plus how may people aren't going to want to stop to pee/eat/caffienate in that stretch?
-He's rather arrogant, which I find makes him even more enjoyable/amusing to read, but like most arrogant people he tends to discount anything he didn't come up with.
-He can't think beyond the franchise model, which is a leftover dinosaur of the 20th century and only endures due to our corrupt political system. Tesla doesn't sell cars like other companies anyway so you don't need the sleazy finance managers and sales managers to fleece their customers selling a product they can only move because people really need it to function in the modern world.
-So a hybrid is the answer in his opinion? A car that by its very nature is a big compromise between two methods of propulsion, which up to this point neither has been done particularly well. Anyone who can do 4th grade math knows a fuel efficient ICE vehicle is almost always a better value, so if social responsibility is the primary motivator why not make it REALLY clean?
-Notice the car he describes is practically a 2nd generation volt, which is probably a good car, but nothing game changing. No, no bias there!
-When Tesla releases a sub $40k, great looking vehicle, that embarrasses its competition and travels 250 miles on a charge- and sells like hotcakes- will he eat his crow publicly? I doubt it.

 

[Grendal]

Most of the information Bob is pulling his information from is basic news stories. The man doesn't have all the information that we discuss here on TMC. Your basic media information that has a skeptical slant on Tesla stories fall right in line with the angle that Bob is taking.

I agree with most of the comments here that understand what Tesla is and what it is doing. Unless Elon's money people are lying to him, Elon doesn't seem too worried and the company is continuing to build everything it needs to build. The battery gigafactory is a huge expense, prep work for the Model X is/was costly, and Tesla is still building the Supercharger network at breakneck speed. All of that justifies Tesla's expenditures. I expect by January the Model X will be in full swing.

I'll note that Elon very recently said that he wants to show some profit in 2016.

 

[omarsultan]

As a car geek, I appreciate what Lutz has done for the industry in his time, but this is no longer his time.

 

[CHG-ON]

Lutz: GM building poor quality cars, Chrysler building poorer quality cars. Ford: OK, not great. A couple of halo cars at those manufacturers does not do it for me.

I simply cannot take his comments seriously. Yes, GM and Chrysler were coming back when he was there. That was not due to him. It was due to bailouts for Chrysler and GM being so big that they had enough momentum to continue to build crap cars and Americans would still buy them (AKA rebates). But their cars could not compete on quality or innovation against the Germans or the Japanese.

He has never proven himself to be a true innovator that thinks beyond the status quo of the market that he was in. The Viper may be a great car. But it is not the least bit innovative. It is just a hell of a lot more grunt. Albeit fun as hell. And while he was there during the development and delivery, they essentially delivered a poor quality car that went like spit. That's about it. Go back and read the reliability reviews. Why would we listen to him?

Musk and Tesla are pushing the boundaries to the absolute limit and the risks are very high. Yes, there is a very great chance that it will fail. But I believe that this is the change we need, not only for cars and personal transportation, but for the all of us to survive by getting unhooked from carbon intensive fuel. Who else has the passion of Elon Musk to force us to change our thinking? Today, very few. Think back to what Bill Gates and Steve Job did to move us from the status quo. We all thought now way. Look at us today.

The true test for Tesla will be if they can deliver the innovation AND the quality. They do need work here. And as always, time will tell.

 

[eye.surgeon]

I'm a fan of Lutz as are most who are passionate about cars. He's a car guy, he's smart, and he knows the business. Discounting his opinion is unwise. He is a big fan of the Model S as a car. I disagree with his pessimism about Tesla as a company. But there's no question Tesla has some significant financial hurdles to leap in the next 5 years to determine whether they will make it as an independent car company or whether they will be acquired.

There is no doubt in my mind that Luzt is correct on the dealer model issue-- Tesla will HAVE to adapt the dealer model and WILL do so prior to the M3 launch. Direct sales simply cannot support a mass market car. Musk knows this. He will be innovative in how he structures dealerships but it's unavoidable-- but I believe it will actually enhance the Tesla ownership experience rather than detract. Even now Tesla is straining to maintain satisfactory experiences for delivery of new cars, their sales volume has surpassed the current system's ability to work well. It was ideal for a niche low volume car.

One thing is clear, the media honeymoon Tesla has enjoyed is ending and many more pointed questions about the sustainability of their business model are being asked than even 6 months ago.

 

[TEG]

...I would seriously consider an entry level model with a range extending hybrid driveline. Something that has a smaller battery that also looks great and drives great, something that's electric most of the time, say 50-60 miles...

So basically he is suggesting that they build a Volt...

Oh right, he is "Mr. Chevy Volt..."
Mr. Chevy Volt, Bob Lutz, to be Inducted into Automotive Hall of Fame | Inside EVs

 

[RobStark]

I'm a fan of Lutz as are most who are passionate about cars. He's a car guy, he's smart, and he knows the business. Discounting his opinion is unwise. He is a big fan of the Model S as a car. I disagree with his pessimism about Tesla as a company. But there's no question Tesla has some significant financial hurdles to leap in the next 5 years to determine whether they will make it as an independent car company or whether they will be acquired.

There is no doubt in my mind that Luzt is correct on the dealer model issue-- Tesla will HAVE to adapt the dealer model and WILL do so prior to the M3 launch. Direct sales simply cannot support a mass market car. Musk knows this. He will be innovative in how he structures dealerships but it's unavoidable-- but I believe it will actually enhance the Tesla ownership experience rather than detract. Even now Tesla is straining to maintain satisfactory experiences for delivery of new cars, their sales volume has surpassed the current system's ability to work well. It was ideal for a niche low volume car.

One thing is clear, the media honeymoon Tesla has enjoyed is ending and many more pointed questions about the sustainability of their business model are being asked than even 6 months ago.

1) Tesla will almost surely survive as an independent company if not they will be acquired by Google or Apple. 95% chance they remain independent. Every time Tesla goes to the capital markets they get better terms than they were anticipating.

2) BMW may have failed with company stores pre-internet. The time and price to acquire data, move data,sort data,and manipulate data has fallen through the floor. Tesla's problem is not company stores but growing at a compounded 50% rate. Specifically manufacturing at a compounded annual growth rate of 50%. When Musk has mentioned in the past he will not discount dealers in the future it is in the context of not sounding inflexible in dealing with State legislatures and dealership groups in the political process.

3) Bob Lutz is a man of the 20th century. At BMW he was part of the team that created the 3 Series, at Ford he initiated the Ford Explorer project, at Chrysler he not only fathered the Viper but the LH cars including the 300, and at GM not only Volt but Equinox and corporate twins the most financially successful new product at GM in years. But when Lutz speaks of fuel cell technology or battery technology or really any fast moving auto related technology he speaks at least 5 years out of date. He thinks Tesla energy has zero possibility to succeed because lead acid batteries are so much cheaper. LOL.

 

[Mookuh]

Distribution problem. Nobody's ever been successful with company stores. BMW tried it in the 70s, didn't work.

Spoken like a true dinosaur. That's 40+ years ago, and as mentioned above, the internet and ability to obtain information for everyone is nowhere near what it was back then. "They tried it in the 70s, didn't work." could become a meme for people completely out of touch with reality to be honest.

Also, he stresses how expensive dealerships are, while completely ignoring that Tesla is not building traditional dealerships with dozens of cars in stock that tie up capital and need a lot of space...
So no, I don't think much of his opinions.

 

[sandpiper]

Mounting inventory? As near as I can tell, they're still building strictly to order and there is a backlog. As their sales volume goes up there will be some amount of inventory increase just because Tesla retains ownership of cancelled orders until delivery to a buyer instead of pushing the vehicle to dealer inventory where they sit.

Bleeding cash? Yes... but that's because they're building internal production capacity like mad. That they can do that and keep the cash position that they have is pretty amazing I would say. All of these assets will hold value, depreciate and the profit picture will change dramatically. When you're building decade old designs on fully depreciated production lines you certainly have an accounting advantage.

Tesla has no real choice in their actions. They have to go for broke. If they can turn into a volume EV manufacturer within the next few years they have a chance to survive. If they decide to wuss-out and either produce a Volt or remain a boutique builder, then they will either go broke, be acquired or both.

Mr. Lutz, with all respect, is being too conservative. EM and crew KNOW that there is a very real chance that the whole thing blows up on them. And there is a very real chance of wild success. They've accepted that and are rolling the dice. Mr. Lutz simply can't look at things that way.

 

[wdolson]

I don't think there is much of a waiting list for Model Ss these days, for deliveries in the US it's only about a six week wait. I saw one YouTube with a guy who took delivery at the end of September and he said he ordered the day Tesla started sending out invitations to the Model X signature holders to configure their cars. That's less than a month.

Tesla is spending money at a rate that works out to $4000 more per car than they are bringing in, but that's only because they have a very aggressive capital investment program going on. If they were just going to build Model Ss and not do any more R&D, or weren't building the Gigafactory, or weren't building the supercharger network, the company would be making a profit off car sales. They are losing money by choice, not necessity. GM before the bankruptcy was losing money by necessity, there really wasn't anywhere to make enough cutbacks to stop the hemorrhage. Tesla could cut back and become profitable, but there is no upside for that and a potential downside (competition catches up and eats their lunch).

As others pointed out, BMW tried company stores and it didn't work in the 1970s. What he didn't acknowledge is Tesla sells a lot of their cars on the internet, which requires very little overhead. Tesla's stores are also a different animal than a standard car dealership. They sell CPO cars and demonstrators from the stores, but most sales are orders to the factory. And as far as CPO cars go, almost all new car dealerships sell used cars too.

Lutz has a lot of experience in the car business, but he's old school and he's been put out to pasture for a few years. He's not even current on what the mainstream auto makers are doing behind closed doors.

Articles like these show me just how Tesla is going to survive. Tesla is a different animal making a product that shares the road with traditional cars and looks like a traditional car, but it's as much like a traditional car as the early mammals were like dinosaurs. Both were animals, but different families. One family survived a major change to the world and the other didn't.

People steeped in the traditional car company culture can't see what Tesla is doing. It just looks like insane behavior to them. Just like in the 1990s when old grandparents who didn't know the first thing about computers or the internet were often baffled by what their grand kids were doing and figured they were just wasting their time with a fad.

Because cars are a heavy industry business with a huge installed user base, it changes very slowly. However, the world has changed. Something may happen and Tesla may not be the early mammal that evolves, but enough people see what they have done that someone is going to make BEVs a mass market item and it will be long before the mainstream car makers really thought it would happen.

 

[techmaven]

I don't think there is much of a waiting list for Model Ss these days, for deliveries in the US it's only about a six week wait. I saw one YouTube with a guy who took delivery at the end of September and he said he ordered the day Tesla started sending out invitations to the Model X signature holders to configure their cars. That's less than a month.

You have to be careful about taking a few data points and extrapolating too far. Earlier this year, Tesla changed their algorithms for batching and deliveries.

Previously, Tesla did a lot more regional batching, where overseas markets get a higher allocation of builds at the beginning of a quarter and the North American market was concentrated in the last month of a quarter. Therefore, the deliveries in the first two months of a quarter typically were eclipsed by 50-100% by the deliveries in the 3rd month of the quarter. That also meant that every quarter, various stock watchers would see the drop off from the last month (3rd month of a quarter) to the current quarter (1st month of a quarter) and scream that Tesla sales have plummeted! Then, in the 3rd month, delivery times to North American customers would collapse as Tesla was building those orders extensively - again, sales collapse since it only takes 3 weeks for a P85 or P85D to be delivered in CA! Then, the 3rd month actual global deliveries numbers come in and its higher than these stock watchers expected. Repeat next quarter as delivery wait times for North America go back up, delivery counts in the 1st month of the quarter go back down, etc.

In this year, Tesla changed to using rail much more extensively for deliveries in North America and Europe, resulting in a higher finished goods inventory due to higher shipping times. Further, they changed the allocations to have less of this regional batching effect. So production delays for customers in North America, especially to the west coast is pretty quick overall compared to before the allocation changes. Deliveries to other parts, not so quick. We don't have good metrics for actual demand and we are a bit in the dark with production rate increases. It's tough right now to really have any good view of the business, especially with such major changes happening to the business and we need some time to gather sufficient amounts of data to get a good view.

 

[shrspeedblade]

We'd all better hope that Tesla is able to survive as an independent company. I have no doubt that there are some big automotive boardrooms salivating at the prospect of snapping Tesla up at a bargain price if the stock plunges and saving themselves billions in building brand recognition and R&D. Hell, I've seen Chrysler bought twice and they stunk both times! (I do love my stow n' go Grand Caravan, though.)

My greatest fear is that if they start to struggle, a Chinese company comes in and snaps them up then proceeds to use them to crush the U.S. auto industry. This is far more likely than them going bankrupt and closing up shop.

 

[electracity]

Huh, he sure does a lot of thinking about Tesla...

Like a married man constantly concerned about gays.

Bob really wants a Tesla.

Bob's take on dealerships is interesting. My take is that most senior auto execs hate dealers.