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The (Hilarious) Bailout of Silicon Valley Auto Maker Tesla
This weekend Tesla Motors was back in the news as they are pleading with the U.S. government to give them some $400 million to continue their mission of building cars for the "rich". I say "give them" because even though the money is apparently a loan, if Tesla goes under, it then becomes "give them". Randall Stross from the NY Times wrote a piece which apparently bashed Tesla. In response, Tesla sent their first line of blogging defense, Mahalo CEO Jason Calacanis to take care of the matter. Calacanis has posted a number of counter-arguments to Stross’ post and I’d like to comment on the Calacanis post.
First, let’s begin with a number of disclosures. Something that you would think the $100 million-valued Huffington Post would require of their authors but apparently that’s not the case. Calacanis’ company Mahalo has received funding from Tesla Motors CEO Elon Musk. In addition, Jason’s brother-in-law and Mahalo investor Ryan Scott is also a Tesla Motors investor. Boy that’s something the readers of the Huffington Post piece should know, right?
As many of you know, I am a public transportation junkie. My belief is that all (or most) government funding should be used towards pushing mass transit. Creating cars powered by batteries, water, or anything else won’t fix our growing traffic issues. Take the millions and billions of dollars and create better transit systems in cities across this country. There’s so much that can be done with transit to create real environmental and human savings.
If we are going to look at ways to save oil, why not spend the money creating more efficient air travel? I have to imagine that the savings up in the sky would be larger than those on the ground but yet I never hear anyone talking about fixing air travel.
Ok, now let’s talk about cars and what appears to be the hot trend now, battery-powered cars. I am no expert in battery-technology but if the concensus is to move forward building batteries for cars, I am all for it. However, instead of dropping hundreds of millions into Tesla, put it into the great universities across this country. Create a cross-university research center where students, scientists and industry professionals can work together to create the battery technology. Once it’s perfected, then it could be sold/leased/provided to companies like Tesla. This would be a much safer investment than giving money to frankly any auto-company at this time. I bet this type of research project could even draw in some of our worldwide allies and help slowly regain some of our lost status in the worldwide community.
I haven’t seen anything from Tesla that speaks to the average American family. A $60k sedan isn’t for the average American family. Calacanis’ math is interesting — a person making $80k should be able to easily afford a $60k car. Boy that’s exactly how we got into the mortgage hell we are in now – people living beyond their means! And Tesla hasn’t displayed the leadership that would be needed for me to believe that they would be able to remain a going concern long enough to repay any loan. How many CEOs have they been through so far?
At the end of the day, we need better ways to move people from place A to place B. All transportation options should be considered and creating expensive cars isn’t the way to accomplish what we’re looking for.
Update: Philip James points us to this illustration of why we need more transit:
I agree 100% with your assessment that bailout money should be directed toward public transit…it would be criminal not to. The situation in America is deplorable…but given our independent nature and “pioneer spirit” *or subsidizing of the big 3 cough* we have put ourselves in our unfortunate position.
Exactly what you said last night Allen — follow the money!
Allen
I saw this poster the other day, and I think it backs up your “invest in public transport” theory:
http://randomdude.com/images/car-bus-bike.jpg
Philip
Thanks – added to the post and linked you up! What a great picture!
IMHO the government has no business bailing any companies out, whether it be Tesla or any other; doing so runs completely counter to the Constitution, but apparently that document has been shelved for this administration. That said, who cares if a company like this bites the dust? So we’re to reward another ill-managed company because of their failed ability to reach the consumer with what, overpriced feel-good elitist toys, under a guise of helping the environment? Maybe if they were offering items the mainstream consumer could use and afford, you’d be profitable and not need a “bailout.” How embarrassing begging can be.
I’m surprised JC isn’t in Washington with his hand out asking for Mahalo bailout money. After all the world wouldn’t go round if it was for Mahalo, right JC?
Fantastic post that raises points that Huffington would have were they not so cocksure of their place in the world.
Having researched intensively the Tesla for a luxury green magazine whose subscribers are all millionaires, it’s clear that the Roadster is a plaything for the rich who want to feel they’re doing their bit for the environment. And what average family looks at a $60,000 car and says, “Nice, we’ll take it.”?
Perhaps if Tesla had the gumption to make an affordable green car for all as opposed to go for a more fickle market, they wouldn’t be in the dire straits they’re in. Of course, that’s if they’re actually in ANY dire straits – I wouldn’t b surprised if they’re jumping on the greedy auto manufacturer bandwagon.
Though I suppose they’ll look better flying in on an eco-friendly jet than the Big Three did… ;-)
And Jason Calacanis? Say no more… ;-)
A few random comments/views to chip in with.
Great work on the disclosures point – frankly it saddens me that people don’t feel the value of disclosing their conflicts AND that editorial level people don’t feel the need to have their contributors (be they permanent or guest) to do so.
I do take issue with your point on the bailout money. Aside from how I’d like my tax dollars to be spent in the bailout, you say that if they go under then the loan is a gift. Well, that is true with any investment – if the company goes under and can’t liquidate then the investment becomes a gift. Yes, it’s *my* investment/gift but then realistically how am I as a taxpayer going to see ANY return on ANY of the businesses receiving a bailout?
The price of the Tesla cars are a controversial one, but equally I don’t blame them for the price point at this current iteration of the evolution of the technology. Frankly, it’s only playboys who can afford to spend $110k on a car AND know that it is first generation, buggy technology (they’ve still not got the gearbox sorted out on the Teslas) and it only does 250 miles range.
You have to start somewhere and if they’re going to put something in the market better to aim it at people to whome $110k is toy money. And for the second iteration of car that is true for the $60k sedan. Jason is wrong that $80k sallaried person would be the market, however, as they can’t afford to be beta testing buggy technology either.
Those who know me will know I’m a big car nut. I don’t like the shape of the tesla and would rather buy a $60 Lotus Elise or Exige (it’s older brothers – Teslas are partly made by Lotus and share similar components) and put $20k towards carbon offset.
I’m also a big public transport user, being a brit and all and will happily take public transport where I can here in SF – despite the fact that it is often dirty, smelly, and sometimes dodgy.
But despite how much money the US government puts into public transport, many US cities are not feasible to have ramped up public transport. LA is a great example of this. It just won’t work because of the size of the place. Rail – which has merits over the car – needs to be integrated into town planning and obviously that hasn’t happened for many US cities and is hard to retrofit.
There is no easy solution to America’s transportation issues but I think the work Tesla are doing should be congratulated rather than panned. I don’t think Jason is their best spokesman, but I guess Cluetrain dictates you need actual customers to do the conversational marketing for you and most eco-peeps are not going to be customers thus they get Jason’s baggage ($80k/year salary person can buy a $60k car, etc).
I love your suggestion of the government investing in mass transit. I thought California’s mass transit system was less than desirable until I moved to Michigan. While the collapse of the auto industry has had a very real impact here, I would welcome the funding of mass transit and university research. In the short time I have lived here it has always been my position that the future of the Auto industry is becoming a knowledge industry rather than an auto maker. As for Tesla – who are they? This bailout mentality grows more ridiculous by the day.
Many valid points in here and I don’t disagree with much of what you’re saying.
However, one thing the photo doesn’t show you (and something all advocates of public transportation ignore) is the fact that all people are not going from and to the same point A and point B. Which means that, although public transport is great for major routes (arteries?), it still leaves the bits at the ends (capillaries?) for people to fend for themselves. Only in enormously centrally planned cities like Singapore (where they are tearing whole sections down one by one and rebuilding them around a hub-and-spoke transportation architecture) can public transport really reach all of the population. In the US in particular, where there is a massive sparsely populated suburban area, covering the entire population is impossible.
In the picture, what you don’t see is that, whereas the illustration is true on routes shared by many people, only one car is required for the last mile of one person’s journey (e.g. from the highway to their suburban home), but the whole bus is still required to take that one person that last mile, requiring far more fuel and road space than the car at that point. Bikes, of course, still have the edge over both the other two… :-)
Governments should focus on the arteries but accept that, in the US in particular, people are very much going to have to continue to provide their own transportation for many routes and large chunks of other routes. See the European countries (notably the UK, where I’m from) for examples of how even when you have a massive government commitment to spending on public transportation (and significant disincentives to driving like high taxes/tolls etc.) you still have a very significant need for private transportation.
Thanks for your comments Jan – I totally get the bits at the end – just look at Atlanta or San Francisco for good examples. On my last trip to SF, unless I wanted to wait for a bus every time, the subway is useless for getting out to most startups. Same in Atlanta.
Transit will never be perfect but can be improved xxxxxxx% over where it is now. We also need to change our culture.