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Tesla's Model S

The Tesla Roadster
Uncle Sam stands a better chance of getting its money back from Tesla than from GM or Chrysler

Tesla Motors has received approval from the United States Department of Energy for up to $465 million in low-interest loans. The electric car manufacturer had faced significant financing difficulties due to the global credit crunch and resulting recession, despite having an order backlog of over 1,500 vehicles. This forced a delay in the acquisition of a Californian production facility and the subsequent plans for several models.

The loans are part of the Advanced Technology Vehicle Manufacturing Program, which provides incentives to new and established automakers to build more fuel-efficient vehicles, including hybrid and electric vehicles. The ATVMP was created in 2007 and appropriated funding in September 2008. The $25 billion program is supposed to reduce America’s dangerous dependence on foreign oil and create “green collar” jobs.

The program is not related to any economic stimulus package or bailout funding that General Motors and Chrysler have received.

“Tesla will use the ATVM loan precisely the way that Congress intended -- as the capital needed to build sustainable transport,” said Tesla CEO and Product Architect Elon Musk. “We are honored that the US government selected Tesla to be among the first companies to participate in this progressive program.”

Tesla Motors plans to draw $365 million for production engineering and assembly of the Model S, an all-electric family sports sedan that carries up to seven people and travels up to 300 miles per charge. The company expects to start production of the Model S in late 2011 in a new assembly plant employing approximately 1,000 workers.

Tesla will use the remaining $100 million for a powertrain manufacturing plant that will supply all-electric powertrain solutions to other automakers, greatly accelerating the availability of mass market electric vehicles.  The new factory is expected to employ about 650 people in California. Tesla is currently in the final stages of negotiation for both facilities.

The firm recently signed a deal with Daimler, which will provide engineering and financial support in exchange for a ten percent equity stake. Daimler will use Tesla's powertrains in its second generation electric Smart cars starting in 2012.

Tesla remains privately owned, with several hundred million dollars in funding coming from Elon Musk (former President of Paypal) and several venture capital funds. Google co-founders Sergey Brin & Larry Page are significant investors, as is former eBay President Jeff Skoll.

The company plans to reach a breakeven point by the end of this year, as it increases sales by opening half a dozen new stores throughout North America and Europe. Its new London store will open on June 25.

If all goes well with production and sales of Model S vehicles, Tesla intends to produce an affordable third model, codenamed BlueStar. This electric vehicle for the masses is targeted to cost around $30,000, with development being  funded by profits from the Model S sedan.

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RE: It's Good to be in DC
By captainpierce on 6/23/2009 1:14:55 PM , Rating: 2
Don't be too hasty to lump this in with the bailouts.

I agree it's not a bailout. The government is engaging in industrial policy and displacing private capital. This is hardly an efficient way to run an economy. Should an entity that is trillions in debt be making loans in the first place?

RE: It's Good to be in DC
By TomZ on 6/23/2009 1:32:10 PM , Rating: 1
If the government wants to pick winning technology in the market, then sure, displacing private capital is a good way to do that. After all, two wrongs make a right, don't they?


If the business case was sound and it was a good investment, there would be plenty of private capital available to invest in Tesla.

RE: It's Good to be in DC
By ArcliteHawaii on 6/23/2009 3:59:56 PM , Rating: 3
If the business case was sound and it was a good investment, there would be plenty of private capital available to invest in Tesla.

In normal times, that would be the case. The problem is that investment companies were so burned by CDOs and other "investment vehicles" that they are being overly cautious to the point of hibernation. And the banks aren't lending b/c they're expecting to have to cover huge investment and foreclosure losses.

The government has a history of successfully investing in technology (Apollo project, Manhattan project) and investing in things too large for investors to tackle. Given the timing, I think this is the right thing to do. Oil won't be around forever and a transition off of oil will take 20 or 30 years. It's in all of our interest to have that technology in place, both from an economic standpoint and a national security one.

RE: It's Good to be in DC
By lco45 on 6/23/2009 10:00:17 PM , Rating: 2
This investment is more appealing to the government that to private investors, because the government can achieve two goals:
1. Get a modest return on investment.
2. Encourage the market to make the infrastructure changes that would otherwise require more direct government cost.

The private investors don't need to worry about the nation's infrastructure, so the "modest return" side of the equation isn't valuable enough for them to part with their funds.



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