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How Tesla Motors Turned Electric Cars into a Profit

It's just not clear how long it will take for viable electric cars to trickle down to the masses.
April 2, 2013, 3:30pm
Tesla's saving grace, the Model S. Via Wikipedia

On Sunday, Tesla Motors reported that it was profitable through the first quarter of the year, which is the first time in the electric car maker's history that it turned a profit during any financial period. Now, it is true that we're just talking about three months of money making after years of losses. But Tesla has now made the point that many folks in the auto industry once thought it never would: electric cars can make money.

Tesla was founded way back in 2003, but it wasn't until 2008 that it started selling its Roadster, an electric sports car based on the high tech, lightweight aluminum chassis of a Lotus Elise. Developing a sporty car around an existing chassis is cheap and makes for a good image, but the inherent compromises of the car–small range, small seats, small margins–meant it was unlikely to take Tesla to profitability. The simple fact is it's hard to sell a lot of two-seat roadsters, especially when you add range anxiety into the mix.

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But while plenty of folks gave Tesla grief for those Roadster issues and more, CEO Elon Musk is nothing if not a dude who plays a long game. In 2012, Tesla dropped the Model S, a big luxury sedan that had everything the roadster lacked from a business standpoint. More seats meant more mass appeal, and positioning the car as a luxury ride (with the top of the range cresting $100k) means Tesla can pull in the revenue it needs with a lower volume.

More importantly, the Model S comes with one Roadster-beating stat that's all-important in electric car adoption: the largest battery pack available gives the car a range for 250-plus miles (Tesla claims 300, the EPA 265). I've seen more than a few of them cruising about, and there's no denying that it's an attractive car, as you'd expect for the money. But everything aside, the Model S proves that, in the US, range is still key.

That's proven in Tesla's own numbers. The Model S is offered with three different battery packs: an 85 kw/h for that 300 mile claimed range, 60 kw/h for 230 miles, and 40 kw/h for 160 miles. That base model, without add-ons, runs $59,900, and Tesla says only four percent of its customers went with that setup. The rest went for more options, sure, but they also went for more range. Overall, the company beat its 4,500 unit sales projection by a few hundred cars during the quarter.

Next up, Tesla's releasing a small SUV called the Model X, which is shown above. Again, this is a more logical money-making solution than something actually awesome like the Roadster. Here in the US, the reality is that if you're an automaker who wants to make money, you figure out how to get small SUVs–glorified station wagons, really–into the hands of the country club crowd.

Now, if I've gotten a bit too dorky here, my apologies. I dig cars, and it's great to see Tesla find a modicum of success. But I'll try to sum it all up for you: Expecting more is an American tradition, for better or worse, which means a whole lot of people have never wanted a car that's limited to 100 miles before charging when we've got a country full of roads that one day you might drive on, especially when with many gas-powered cars, you need to feel the tank less often than you need to empty your bladder.

But Tesla, and Musk, have finally been able to flip that on its head. We've got range–at least enough to go a long ways, and the Supercharger quick-charging network is rolling out–along with more luxury and more exclusivity than a Prius or Volt (or Mercedes, for that matter). And while other companies' offerings have found mixed success, Tesla is showing signs it might actually pull off its mission, despite having zero manufacturing or sales infrastructure before going electric.

So yes, electric vehicles aren't going to make it in the US as glorified, greenwashed golf carts, as efficient as those would be. The technology is still new, batteries still aren't great, and it's all still super expensive. But baby steps. People are ditching Audis and Jaguars for Teslas, which means selling electric cars can be feasible. It's just not clear how long it will take for viable electric cars to trickle down to the masses.

@derektmead