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Tesla Poised to Transform Auto Industry

In an industry that is not welcoming to startups, Tesla Motors is turning heads, taking on the big auto companies and leading us to a world with electric cars. For the past few years, we’ve witnessed hybrid vehicles thrive in a time when people are increasingly concerned about fuel economy and our environmental impact, and it seems inevitable that electric cars may someday cause the gas-guzzler to go extinct. Yet while hybrids have become increasingly popular, various issues including insufficient range, inconvenient charging, and a diminished driving experience have been holding back fully electric vehicles. Tesla is committed to change all this and it is doing it in style, to the satisfaction of the company’s customers and investors: Tesla Motors recently posted its first-ever profit in its ten-year history, propelling its stock up over 150% since January.

Tesla is an unconventional car company, one that has gained their edge through innovation that other U.S. auto manufacturers have traditionally lacked. Tesla’s CEO and cofounder is billionaire Elon Musk, who is also a  founder of PayPal and SpaceX. Musk has demonstrated that he is a visionary and is now determined to change the way we think about electric cars. The company’s first car was the Tesla Roadster, which boasted nearly 250-mile range per charge as well as performance unmatched by any other electric car. The Roadster also came equipped with a hefty price tag of $109,000.

Since discontinuing the Roadster, Tesla has strived to make cars that appeal to a larger consumer base. First for sale in 2012, the Tesla Model S is a four-door sedan with comparable performance to the pricey Roadster, but with a more reasonable base price of $70,000. The Model S has garnered quite a lot of recognition since its debut, including being named the 2013 Motor Trend Car of the Year. The Model S has surpassed both the Chevy Volt and the Nissan Leaf to become the best-selling electric car in the first quarter of this year. On top of that, the Tesla Model S recently received a 99 out of 100 on the Consumer Reports Test, making it the highest rated car ever by the magazine.

Tesla has also announced their next vehicle, one that is scheduled to come off the line in 2014. The Tesla Model X is a four-wheel drive crossover that can seat seven and sports falcon-wing rear doors that make it look more like a futuristic spaceship than an SUV. With the addition of the Model X, Tesla is looking to make electric cars a practical option for anyone who can afford one.

Tesla has also made headlines when they recently released their new warranty program. The company claims the best service and warranty program in the world for their Model S and may make some wonder why they would go to such lengths to do so. Tesla now offers a free valet service and loaner top-of-the-line Model S whenever your car needs service or repairs. And if you prefer your loaner car to your own, you can simply keep it. The price of the loaner car decreases one percent each month and one dollar per mile, ensuring that Tesla’s loaner cars don’t get too old. The new warranty also covers the battery nearly unconditionally. Any sort of neglect or ignorance by the owner with regard to battery upkeep is covered and Tesla will replace the broken battery at no charge. With the company’s new over-the-top warranty program, they hope to make owning an electric car absolutely worry-free.

Many comparisons have been drawn between Tesla and Apple, and it’s not hard to see why. Elon Musk possesses many of the rare imaginative qualities that Steve Jobs needed when he brought Apple back from the brink of failure to become the Silicon Valley giant that it is. Both companies offer high-end products while making their competitors look five years behind them. So could Tesla become the next Apple and put their high-end technology in the garages of the masses? All indicators are pointing to yes, but there are first some obstacles that the company needs to overcome, and they are well on their way.

Elon Musk is well aware that a major hurdle to the proliferation of electric vehicles is the lack of infrastructure. While you can find a gas station no more than five minutes away from nearly anywhere, there are very few stations where you can recharge your electric car. There are also very few mechanics and dealers that work with electric vehicles, causing owners to travel great distances to get their electric cars serviced. Even though Tesla offers an outstanding product, they are not able to build the necessary infrastructure on their own. Tesla needs to have the entire auto industry moving towards electric vehicles behind them. In order to accelerate this process, Tesla has been licensing out their technology to major automakers including Toyota and Mercedes. Not only does doing this further their goal of establishing an infrastructure for electric vehicles, but it also gives the company a reliable revenue stream that has allowed them to fund their extensive research and development.

As we witness Tesla truly make inroads into the auto industry, we are able to see how Silicon Valley is able to give Detroit a run for its money at its own game. Elon Musk envisions his company creating a car with a price point near $30,000 within the next three to four years while maintaining an impressive 25% profit margin. If this goal can be reached or even approached, Tesla will become one of the most recognizable brands on the road.

 

Photo Credit: Randy Chiu

About Jeff Goodman

A Carmel, CA native, Jeff is NBR's Finance Editor. He likes squash (the vegetable not the sport) and Sporcle, a website devoted "to mentally stimulating diversions."

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