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Credit Crunch Hits Tesla Motors

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In case you hadn't heard, it's really, really hard to run a car company in late 2008.

That's true for the Big Three, of course, but it's also the case at Tesla Motors, the electric car startup founded by Elon Musk (last year's Entrepreneur of the Year, and the founder of SpaceX, a privately held rocket startup). Several weeks ago, Musk announced he was taking over Tesla as CEO, postponing plans to develop a mid range electric sedan, and instituting layoffs. The announcement immediately thrust the company into the spotlight, with the tech blog Valleywag promptly putting the company on deathwatch.

Now, Newsweek joins the fun (just as Time proclaims Tesla's electric sports car an innovation of the year). Dan Lyons writes:

Tesla Motors didn't just set out to build an electric car. It set out to teach Detroit a lesson. Back in 2003, when these guys from Silicon Valley were launching their company, they didn't apologize for knowing next to nothing about the automotive industry. In fact, they took pride in this. They were rebels, disruptors, technogeeks operating at Internet speed—and they were convinced they could do better than the lumbering, clueless Big Three...Well, five years after its founding, Tesla has shipped about 70 electric roadsters, and the car does in fact turn out to be a classic Silicon Valley product—it's late and over budget, has gone through loads of redesigns, still has bugs and, at $109,000, costs more than originally planned.

This is rough stuff—and it's an odd take given that things aren't exactly ducky in Detroit. (Bailout, please?) Stranger still is the glee, with which some Silicon Valley journalists have greeted Tesla's troubles. It's as if they were talking about a new edition of Windows, not a plan to reinvent transportation. (The fact that production is behind schedule and that the car costs 10 percent more than planned doesn't seem like a tragedy.) Moreover, severe as the company's problems may be, it has still managed to deliver 70 cars, and, although it may be losing money, it's certainly not losing billions every quarter. (Ahem, GM.)

In the middle of a credit crunch and a climate crisis, startups like Tesla (as well as green products from established automakers like the Chevy Volt), seem like the best hope for a renewed U.S. auto industry. But Lyons seems to think that the lesson is that Tesla shouldn't try. Maybe he's right—time will tell—but it seems odd to eviscerate the company for attempting something as ambitious as taking on the U.S. auto industry. I'm not saying Tesla deserves the government bailout (though some people are), just that a little bit of perspective is in order.

Last updated: Nov 17, 2008




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