Tesla Remains Bold but Challenges Lie Ahead

Tesla

Within the past month, Tesla Motors announced plans to expand its Supercharger network in  both the U.S. and parts of Europe. The company also unveiled plans to construct a massive Gigafactory that will mass produce  LI-batteries (lithium-ion) to power its vehicles. On top of that, on Wednesday Tesla announced that it has hired  Simon Sproule, director of communications for Renault SA-Nissan Motor Co., to be its vice president of communications and marketing beginning in April. These bold moves indicate that Tesla is determined to remain the forerunner in EV (electric vehicle) production, but challenges lie ahead for the trailblazing company.

With the company’s stock prices reaching an all-time high on Wednesday and many on Wall Street praising its consistent performance, the timing certainly seems right for Tesla’s planned expansion.

Tesla’s Supercharger network is an infrastructure of battery charging stations that Tesla auto owners may use freely. Though a coast-to-coast trip in a Tesla EV using the Supercharger network has been accomplished, an expanded network will allay concerns prospective buyers may have concerning their ability to readily find charging stations. Depending on battery size, a Tesla EV has a range of 200-300 miles per charge; it takes about a half-hour to charge an EV at a Supercharger station.

Tesla’s planned 10 million square foot Gigafactory will allow the company to mass produce LI-batteries to meet increasing demand for its vehicles. Tesla produced 22,477 vehicles in 2013 that were sold throughout Europe, Asia and the U.S.; it projects that 35,000 vehicles will be needed to meet demand in 2014. Beyond serving as a means for increasing Tesla’s battery supply, the Gigafactory will also serve as a research facility and testing ground for increasing LI-battery efficiency. Currently, Panasonic is in a partnership with Tesla to produce its LI-batteries through 2017. That would suggest the company targets opening the Gigafactory within that timeframe.

With its stock on the rise, Sproule soon to bring his 20 years of industry experience to the table, plans to expand the Supercharger network and the planned Gigafactory, Tesla Motor’s future looks as bright as it is bold; however, significant challenges still lie ahead for the company.

Producing its own LI-batteries for its vehicles will take Tesla into unchartered territory. Admittedly, Tesla has no knowledge in the production of LI-batteries and has yet to form partnerships to aid in the venture. The company also must meet projected sales of 500,000 units per year by 2020 for the Gigafactory to be successful; this is a significant increase from 35,000 projected units in 2014. Further, should Tesla be successful in forming the partnerships needed to begin producing its own batteries and also meet its projected sales goals, the company should still be concerned with thin LI-battery production margins. Panasonic’s LI-battery production has delivered a slim margin of 1.3 percent; it’s believed that Tesla would need to consistently outpace that number to see meaningful gains from its Gigafactory.

All projected sales and manufacturing issues aside, there is still one threat to Tesla’s continued success that the company has no control over: competing technology. One such technology that could seriously threaten Tesla’s continued growth is the hydrogen fuel-cell.

With Hyundai, Honda and Toyota all set to introduce hydrogen fuel-cell models to the California market in the coming months, it appears that the long wait for vehicles that can run on the most abundant known element in the universe is over. The introduction of the hydrogen fuel-cell vehicle into the California market was made possible through former California Governor Arnold Schwarzenegger’s Fuel Cell Partnership, which helped raise funds to finance the production of 100 hydrogen fuel-cell fueling stations.

Hydrogen fuel-cell vehicles are powered by electricity derived from pressurized hydrogen gas. They promise to offer a significant advantage over the Tesla EV models by tripling the range between fueling and they can also be refueled about ten-times faster. However, one of the greatest advantages Tesla has is its more widespread network of fueling stations and its EV models are considerably cheaper than the hydrogen fuel-cell models, but if more states follow California’s lead and build the infrastructure needed for hydrogen fuel-cell vehicles, it could be a real game-changer.

Being bold is what has propelled Tesla Motors to the top of the EV market and the company shows no signs of backing down, but with the challenges that lie ahead, it will be interesting to see if that boldness pays off, or if the company will go the way of Betamax.

By Scott Merrow

Sources:
Investors.com
BBC
Los Angeles Times
The Street
The Motley Fool
The Motley Fool
Quartz

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