Can niche electric vehicles make money?

The recent history of the automotive industry is redolent with examples of attempts to create niche electric vehicle manufacturers. Indeed, the case of TH!NK is a veritable saga stretching back over decades of tumultuous highs and despairing lows and a cast of characters ranging from idealistic entrepreneurs, venture capital angels and government departments all the … Continued

The recent history of the automotive industry is redolent with examples of attempts to create niche electric vehicle manufacturers. Indeed, the case of TH!NK is a veritable saga stretching back over decades of tumultuous highs and despairing lows and a cast of characters ranging from idealistic entrepreneurs, venture capital angels and government departments all the way through to the major corporations of the industry.

This is a story that could be repeated with Tesla. It is already a romantic tale, centred on the visionary beliefs of CEO Elon Musk, who initially made his fortune with PayPal Inc. and Zip2 Corporation.

Musk has invested plenty of his own money into Tesla since its inception in 2003, with reports of up to US$70m circulating. He has also been highly successful in attracting other funding. The initial public offering in June 2010 raised a net US$184m, while the company has reportedly secured government loans and private investment totalling about US$789m.

for investors the hope is that the company they choose becomes the new Facebook or Google of the automotive industry

Moreover, Tesla has attracted the attentions and support of two of the most important OEMs in the business, Toyota and Daimler. The cars have attracted much media attention and critical acclaim, and have done much to transform the “worthy but dull” image of electric vehicles. All in all, it would be churlish to deny that Tesla has been a success so far.

On the other hand, the company declared a second quarter loss for 2010 of US$38.5m. In fact, Tesla has never made a profit. Furthermore, the CEO seemed disinclined to offer a forecast for the future profitability of the business short of tying forthcoming results to the launch of a new model in 2012.

So why invest in Tesla, or indeed niche electric vehicle production in general? It would appear that these businesses are seen very much in the same light as the myriad new entrants of the dot-com era. In other words, for investors the hope is that the company they choose becomes the new Facebook or Google of the automotive industry.

the Tesla story is a microcosm of the entire electric vehicle sector being repeated on a global basis involving billions of dollars of investments

It is a slightly sobering thought, especially when it is considered that many of the dot-com era concepts simply failed, and that even those which endure are in many cases short of outright profitability. A niche electric vehicle producer may one day become one of the new global giants in the automotive industry – or not.

Beyond the electric vehicle manufacturers themselves, into the supply chain, the infrastructure providers, and the new intermediary businesses hoping to leverage new mobility opportunities, the Tesla story is being repeated. The initial glimmers of hope for an electric vehicle market have solidified into some sort of certainty, albeit of uncertain scale.

With this sense of new opportunity has come a veritable deluge of new businesses, and garnering new investment. Hence, the Tesla story is a microcosm of the entire electric vehicle sector being repeated on a global basis involving billions of dollars of investments. Certainly the CEO at Tesla knows the importance of developing the business quickly, of keeping momentum, and of ensuring genuine customer value in the proposition. But in all the great sagas a great many victims litter the pathway for the triumphant few.

Dr Peter Wells is a Reader at Cardiff Business School, where he is a Co-Director of the Centre for Automotive Industry Research and leads the automotive industry research programme within BRASS, also in Cardiff University. Dr Wells is also a director of AutomotiveWorld.com’s sister website AWPresenter.com. He can be contacted on wellspe@cardiff.ac.uk.

The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.

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