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Daryl Siry talks about Tesla's business model

Discussion in 'Tesla Motors' started by tonybelding, Dec 1, 2007.

  1. tonybelding

    tonybelding Active Member

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    In Autoblog Green Podcast #15 Sam had a nice long chat with Daryl Siry while cruising around in a Roadster.

    http://www.autobloggreen.com/2007/11/30/autoblog-green-podcast-15/

    From where I sit, the most interesting thing is the discussion of Tesla's business model and how it may evolve. I'm not going to transcribe it directly because I'm too lazy for that, but I'll try to convey the gist of it, along with my own views.

    I'm sure you all recall the original plan was to use the Roadster to fund Whitestar, and then use Whitestar to fund production of Bluestar, and to grow step-by-step into a full-range, full-volume car maker.

    There have always been two major problems with that plan. First, it requires mind-boggling amounts of capital. Tesla has hundreds of millions in venture funding. They need billions to become a high-volume car maker. Second, it requires the company to grow at a crazy rate. Last I heard they had 250 employees, but they'd need tens of thousands. Nobody has any experience growing a company that big that quickly, there is no textbook for doing that.

    So. . . Now at least some of them are thinking, maybe we can become an electric powertrain company, and we can get our batteries, motors and control electronics into cars made by established, large car makers. They already have the capital, they have the employees and the experience building and selling cars, and they're accustomed to taking risks in the automotive marketplace. So. . . If our goal is to get lots of electric cars on the road, maybe partnering with them is the way to go.

    This doesn't mean Tesla would stop making cars. As Daryl points out, you can't be really good at developing powertrains for cars unless you build some cars. But. . . What he describes seems to be a lot like the business model of Lotus. The main part of their business is Lotus Engineering, who do engineering consulting work for just about every car maker under the sun. (I once read that half the cars on the road had some bits worked on by Lotus.) However, it would be very hard for them to have a viable business without Lotus Cars. The cars they make showcase what they can do, so they are a rolling advertisement for Lotus Engineering. Developing them provides the real-world experience of producing "the whole widget" that Lotus's engineers need.

    Daryl seems to envision Tesla turning into an American, EV-oriented counterpart to Lotus.

    In many ways I like this plan. I had similar ideas months ago, and I thought it would be a good direction for Tesla to go. It does entail some risks however. . .

    Will Tesla find partners? A few years ago when Tesla was founded, nobody wanted to build electric cars. BEVs were poison, and the big car makers wouldn't touch them with a ten-foot pole. That appears to be changing, but how much of that change is sincere and how much is just a green PR smokescreen?

    In the long run, will this be a viable business? If the big car makers go to electric powertrains in a big way, won't they ultimately feel compelled to control that technology and bring it all in-house just as they have the ICE? Also. . . If you're going to copy somebody else's business model, you might want to copy somebody who's hugely successful and profitable. That's not how I would describe Lotus (though they definitely are survivors).
     
  2. tonybelding

    tonybelding Active Member

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    clarification. . .

    Just to clarify, it wasn't Daryl Siry who drew the parallel between Tesla and Lotus, that was my idea. Daryl actually used the example of Porsche Engineering.

    http://www.porscheengineering.com/peg/en/
     
  3. BlackbirdHighway

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    Dell Computer had a similar very rapid expansion, but the computer business is very different, and not nearly as capital intensive.

    Seems like a pretty good plan, except that Lotus remains very small volume, and I'd still like to see Tesla grow much larger and reach much higher volumes, even if it did take longer.

    I think Tesla is in a unique situation, with the price of oil already high, but likely to go wildly higher in the next few years. This will both decimate existing carmakers, and provide spectacular opportunities for alternative companies to step in, if they are ready. Decades pass between dramatic industry shifts of this kind.

    The mainstream carmakers that will get pounded into dust in the coming upheaval are the same ones that would most likely need engineering help from Tesla. The carmakers who are most likely to do well in the new environment, Toyota for instance, are the least likely to need Tesla's engineering expertise. So I see some not insignificant risk there in depending primarily on the engineering business.

    There is significant capital available out there, just look at Cerberus buying Chyrsler earlier this year. So Tesla could grow a lot if they want to.

    If Tesla grows too big in carmaking, they could be seen as too much of a competitor to win much engineering business, but I don't see that as a big concern when you look at how much competing car companies already work together.
     
  4. siry

    siry Member

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    business model

    I definitely prefer the parallel to Porsche, particularly as it relates to the positioning of the cars. Another company that has a healthy car business and drivetrain business in Honda. Porsche and Honda enjoy the best gross margins and net margins in the industry.

    Darryl
     
  5. malcolm

    malcolm Active Member

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    #5 malcolm, Dec 2, 2007
    Last edited: Dec 2, 2007
    Looks like Whitestar will be an up-market, low volume production four seater. Makes sense if battery technology development slows. And I'm sure that this can/will be used as an official reason by those lacking engineering vision.

    Does this business model require Whitestar to be made available to the general public at all? If you make a business of selling drivetrains to other car makers, you just need a demonstration model. In Roadster-like numbers. Maybe fewer. They only need to work and go round a track and turn up at auto shows. They don't really need to sell to the public.

    Can't help feeling that Tesla will just become Brabus-with-a-touch-of-Ascari, ( http://www.brabus.com/index_en.html http://www.ascari.net/ ), providing exclusive technology and toys for the mind-numbingly rich auto maker or individual.

    Car makers who buy tesla drivetrains will use them to claim green credentials to ward off the legislators, whilst complaining no-one buys them. They will ensure that we pay through the nose for the slow migration away from oil and the ICE.

    As Tesla's business becomes more dependant on the custom of big auto, so they will be "encouraged" to be more modest in their own automobile engineering efforts. It wouldn't do for the vendor to make the rich customer look slow, unimaginative, backward and devoid of innovation.

    All this isn't exactly what I was hoping for: http://www.teslamotors.com/blog2/?p=8

    Sorry not to be more upbeat Darryl. The double-speak is sticking in my throat. Not your fault, I know.
     
  6. WarpedOne

    WarpedOne Supreme Premier

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    Sorry, but I do not believe there will be a WhiteStar at all.

    Maybe a drawing, maybe a concept, but no sellable pure EV 4 seater sedan. Those are not the right people at Tesla Motors to do that.
     
  7. tonybelding

    tonybelding Active Member

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    I think Tesla Motors is a company still in search of itself.

    The conflicts and changes in upper management, the difficulty finalizing WhiteStar's design and moving forward with it, and the continuing talk of different business models. . . This all speaks of a company that hasn't figured out where it's going or what path to get there.

    As a customer I'm not ready to bail out, but it does make me nervous. I hope Ze'ev will bring some clarity to the situation.
     
  8. WarpedOne

    WarpedOne Supreme Premier

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    #8 WarpedOne, Dec 2, 2007
    Last edited: Dec 2, 2007
    Maybe, but I see no need for that. They could easily stick to what they already had. Finalize and produce roadster and then improve on it. For a few years they would easily sell all they could make. It's a given.

    This searching steams from new people in charge that lack the original vision and do not really know what they want to do.

    Edit: Canceling the selling of ESS to Think was the first sign, I guess.
     
  9. siry

    siry Member

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    @malcolm

    I firmly believe that to be the best in drivetrain engineering you absolutely must develop and sell cars. I also think that the engineering challenges of a drivetrain for a sedan is very different than that of a roadster. This means we need to continue to develop and build different cars including W*.

    Vision is one thing, but working through the very difficult decisions as to how to proceed is an entirely different thing. Making tens of thousands of sedans requires a lot of capital, and it also compels you to think thorugh many different alternatives. I don't think that doing this means that you have lost your vision, it simply means that you are trying to figure out how to get there.

    Porsche started as a specialty car maker. They are now on the verge of purchasing the largest automotive company in Europe, Volkswagen.
     
  10. malcolm

    malcolm Active Member

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    #10 malcolm, Dec 2, 2007
    Last edited: Dec 2, 2007
    My apologies Darryl. I realise that my last post implied that I thought what you had written was double-speak. I was actually referring to Tesla saying one thing and then removing Martin.

    That "Vision is one thing, but..." line of yours is great. Elon should put it on the Tesla homepage to replace "No Compromises"
     

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