Saturday, March 09, 2013

Challenges with Electric Cars - Tesla continues to struggle

In my previous Blog: Challenges with Electric Cars, I had outlined the main problems with electric cars an year ago. Even now, most of those problems exist - and can be seen with the troubles at Tesla Cars.

The fourth quarter results of Tesla motors showed a bigger loss - $89.9 Million and the new car sales are still not enough to break-even. Though Elon Musk gave a rosy picture on the fourth-quarter results - talking about record bookings and increased production & revenues, the troubles seems to be deep rooted and persistent.

To begin with, the company's financial position is messy, piling losses has converted Tesla into a  cash burning machine. Tesla has been racking up losses and burning through cash so quickly that it was forced to issue a secondary stock offering in the hopes of drumming up a rescue operation

Another problem, a deeper and more dangerous technical problems with battery technology still remains. Tesla cars use the same Lithium-Ion battery technology as Boeing used in 787 Dreamliner. Since the batteries are extensively used in commercial airlines, the battery problems were exposed faster.

The Lithium-Ion batteries have another major technical problem - popularly called as "Brick". Once the battery is ever totally discharged, the car becomes a "brick": a completely immobile vehicle that cannot be started or even pushed down the street. The only known remedy is for the owner to pay Tesla approximately $40,000 to replace the entire battery.

See: Tesla Motors' Devastating Design Problem

Given the high cost of  replacing battery pack, not all first time customers are likely to become second time customers and not all bookings are being converted into actual sales.

There are two other hidden challenges: Tesla plans to expand its network of super-fast, free charging stations along highways. The next charging stations will appear on the East Coast and in Texas, Washington, and Illinois. Building this network of charging stations will be a big drain on the company's financial position.

Another challenge for Tesla is the falling crude prices. With USA, Iraq, & Libya increasing crude oil production - the average crude oil prices are dropping. This coupled with countries dropping subsidy to solar power generation, implies that cost of green technologies will remain high and noncompetitive for years to come. So beyond the initial hype of a fast electric "green" car, Tesla will have no markets - which implies that the proposed increase in sales volume is unlikely to happen.

With increasing costs and lower sales, Tesla will eventually have to visit Chapter-11!

Also see: Challenges with Electric Cars

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