mmarshall

I'm a big fan of Bob Lutz....always was. I don't always agree with him 100% of the time (such as on the inevitability of low-profile tires, for existence)....but I have an enormous amount of respect for him. He knows the car business probably like no other executive today (better than Iacocca, IMO, who sometimes sounded like a snake-oil salesman), and when Lutz comes out and says something drastic about a manufacturer or product, you can usually take it seriously.

Lutz, BTW, does a monthly column in Road & Track, sometimes answering questions from viewers. This was one of those monthly columns, though it was obviously a narrative and not a Q/A session.

http://www.roadandtrack.com/car-cult...ob-lutz-tesla/


Tesla's showing all the signs of a company in trouble: bleeding cash, securitized assets, and mounting inventory. It's the trifecta of doom for any automaker, and anyone paying attention probably saw this coming a mile away. Like most big puzzles, the company's woes don't have just one source.

It's true that the world may be running light on buyers who will spring for a big-dollar electric vehicle that can't make the hike from Detroit to Chicago without stopping for a long charge. And cheap gasoline isn't helping Tesla's case. Right now, prices around the country are hovering close to $2 a gallon. If that's bad news for the Prius and the Volt, it's worse for the Model S.

In addition, there's never been any secret sauce to the company's battery technology. The automakers that bought into Tesla's tech early did so to avoid having to pony up development dollars on first-generation battery packs of their own. Now that Audi has announced it's getting into the EV game, Tesla should be even more concerned. If you're a luxury buyer, which car would you rather have?

And then there's the distribution problem. Nobody has ever been successful with company stores, though plenty of manufacturers have tried them. When I came to BMW in the Seventies, it had five factory stores. The idea was, like Tesla, to be in control of the retail environment and give customers an upscale experience. They were all money pits.

I think Tesla CEO Elon Musk figured that if factory stores work for Apple, they'll work for Tesla. But the fixed costs for an Apple store are next to nothing compared with a car dealership's. Smartphones and laptops don't need anything beyond a mall storefront and a staff of kids. A car dealership is very different. It sits on multiple acres. You need a big building with service bays, chargers, and a trained sales force, plus all the necessary finance and accounting people. It ties up a staggering amount of capital, especially when you factor in inventory. Under a traditional franchise arrangement, the factory never has to carry that burden. Right now, Tesla does.

Stockholders may be clinging to the hope that the company's upcoming crossover will help put Tesla back on track, but there's little evidence to bolster that optimism. A big, expensive vehicle with a compromised structure to accommodate gullwing doors can hardly be a sales knockout.

If I were sitting in Musk's seat, I would take an urgent look at cutting cost. Not just taking cost out of the car, but reducing expense in general. When they have a situation where, on an operating basis, they're losing $4000 per car, they're in trouble. At some point, they're not going to get any more money.

I would seriously consider an entry-level model with a cheaper, range-extended hybrid driveline. Something with a much smaller battery that also looks great and drives great. Something that's electric most of the time, say 50 or 60 miles, but can carry on under gasoline power past that. Would an internal-combustion engine dilute the Tesla brand? Maybe, but everyone said Porsche could never build a front-engine car, and look how that turned out.

I like Elon Musk personally, and I think the Model S is a fabulous car, but history's filled with defunct companies with great products run by brilliant people. Unless Tesla rights its organization and products in a hurry, it'll join those ranks.

mmarshall

I myself tend to be critical of what I sometimes think is unnecessary (and insulting) cost-cutting in new vehicles. But, in this article, Lutz, to me at least, seems to be criticizing Tesla's excessive cost of running their business and company-owned stores, more so than simply putting too much money into the vehicles themselves.

LeX2K

I have no idea why, Lutz has made some absolutely brutal predictions he said back in 2004 hybrid vehicles were a waste of time and could not be profitable except on high end high margin vehicles.

The guy is a moron.

mmarshall

Tesla is, in fact, showing the signs he is warning about. To call this guy a moron is IMO to simply ignore reality.

And a lot of what he initially said about lower-end hybrids turned out to be true. The Prius, for instance, though extremely popular (and the very symbol of the lower-line hybrid) has never been much of a money-making vehicle for Toyota. In fact, Toyota, at first, lost money on each one in its early years. Honda had to control costs in the Insight so much that it ended up being little more than a toy instead of a vehicle for adults.

LeX2K

I'm sure you can back that up. And yes when it comes to the auto industry Lutz is a moron look up the cars he has brought to market many of them were laughable and a commercial failure. BTW hybrid tech was a massive PR boost to Toyota and solidified in the minds of many that Toyota was a leader in the industry. The halo effect alone paid for itself many times over, but Lutz was not on board he couldn't see past a 1 year balance sheet. Typical of the guy.

dseag2

The only way they can take cost out of the car would be the drivetrain, as mentioned. They certainly can't make the interior materials any cheaper than they already are.

SW17LS

I would definitely challenge the notion that the Prius is not a moneymaker for Toyota...

dseag2

I know this article is from 2010, when gas prices were much higher and the economy was in the dumpers, but at that time Toyota was making a nice profit on the Prius.

http://www.dailytech.com/Honda+Toyot...ticle15002.htm

Probably not as much today without those two variables, but it hardly looks to be a money pit.

mmarshall

It is now.....it was not in the past

SW17LS

It has been for a long time.

1QWKGS4

iTrader: (3)

I always liked Lutz, he's an old school auto guru of our time. I do respect the guy and what he says is some what a reality even though he might have missed on a few things, nobody is perfect.. Yes, he was wrong about hybrids and a few other concepts but overall I think he has the general idea down.

I am a huge fan of Tesla and I "Did" plan on buying one until I saw a documentary that went to into their factory and got an insider look on daily operations. I saw how all the cars were put together and I don't know, they seem to be "Unorganized" they had cars with wires hanging out everywhere and they had a stack of cars parked in one bay like 50 of them, where they were completely built cars and they didn't work for some reason, he even said during the filming, "Hey guys, lets get those cars (newly built) lets get them working so we sell them".. Wow, How does one produce a car and it not being able to operate at all?

In my youth, I've work in an aftermarket auto shop like a Car Stereo Shop and I've had my share of taken many car's interior apart, taken dashes apart to where you see only like spaghetti of wires everywhere so I wasn't just shocked from seeing a bare Tesla car. The way they did things at their factory gave me a feeling like were just "slamming" (term we use in auto shop), they were just throwing the car together as fast they could and hoped that it worked and the cars that didn't work goes into this one side of the building, What!!??

There seem to be no method or procedure like say a Ford Assembly line *which Ford from our history perfected the assembly process*. I didn't like how they were just had cars park all together, jammed together like sardines, they were not in a line or rows, just parked every which way it can fit..

I still like their concept and innovation but IMO their company is still young and like i said they have not perfected on how they built the cars. I would still like to own a Electric car and maybe a Tesla once the company matures, if that will ever happen. In today's world, the electric car is great innovation but still a very risky venture. IF its wasn't so Risky, don't you think the Toyota Giant would already have done so..?

Still credit should be given to Musk for his innovation and his RISK for bringing Tesla to life. Its going to be a struggle and i do hope they make it, but until then I won't be buying one until they get their business in order.. plus $100K isn't any value in a car, its too costly for an everyday person. But, for people with $100K disposable cash to burn on a toy or neat contraption is fun, enjoy it. But until Tesla becomes as stable as Honda. Buying a very expensive car with almost no support unless you live near their factory is a bit foolish especially when the company can go under anytime.

That Documentary I watch was on NetFlix. You can check it out for yourself.

blacksc400

iTrader: (4)

I do enjoy his monthly column with road & track...

Fizzboy7

Lutz was stuck in the same time-warp that dragged GM down a few generations ago. I have respect for his personal life, but from everything I've read and gathered over the last 30 years, he's created a lot of strife for GM.

And him blasting other car makers half the time kind of solidifies insecurities and jealousy he may hold against more successful companies. Bullies often bully when they feel substandard. Just my guess.

mmarshall

Not sure I follow you? Lutz wasn't with GM back then, when they went seriously downhill. GM's biggest problem was Roger Smith, who probably did more to ruin the company (and especially its vehicles) than just about anyone else I can think of. After Lutz joined GM, they actually started to make some respectable vehicles again.

tex2670

Let's not discount the fact that an article that says "Prius, as a model, is not a money maker, but pays off for Toyota in marketing." doesn't sell magazines. They don't print columns by him to put forth generic, strictly fact-based pieces. They put him in there to be controversial.