Bob Lutz and Elon Musk, two titans sparring over electric cars, may play out the ultimate irony in the car industry.
Both men have impressive business credentials. Lutz, a driving force behind Chevrolet’s Volt, held important positions at General Motors, BMW, Ford, and Chrysler. Musk is a member of the PayPal mafia and founder of SpaceX, Tesla Motors, Hyperloop and SolarCity.
So, when Lutz lashes out in Road & Track saying, “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…” people pay attention.
Three Major Complaints
Lutz criticizes Tesla’s cost, battery technology, and sales & distribution methods in particular.
Tesla’s are expensive, but 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. On an operating basis, Tesla loses $4,000 per car. Cheap gasoline isn’t helping Tesla’s case either. It makes gasoline combustion cars more attractive to consumers.
Lutz argues there’s never been any secret sauce to the company’s battery technology. Other luxury carmakers, including Audi, are entering the business seeking the same customers are Tesla.
Lutz is especially critical of the way Tesla markets its cars. Nobody has ever been successful with company stores, though plenty of manufacturers have tried them. It’s flawed to emulate Apple stores because the fixed costs for an Apple store are next to nothing compared with a car dealership’s. 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
For his part, Musk has challenged oligopolies in space transportation, the auto industry and the utility companies. Each bold step he takes, however, is funded by government subsidies (i.e. your money).
The Irony Of Two Titans Sparring Over Electric Cars
Lutz’s solutions for Tesla are the source of irony. He suggests Tesla cut costs, create an entry-level vehicle and re-evaluate its sales & distribution strategy. These solutions worked well in the 20th Century for the carmakers. No reason to think they won’t work in the 21st Century too, right?
But wait, even if you get past the irony of ‘old dog, new tricks,” there’s more to the story.
Lutz specifically recommends an entry-level model with a cheaper, range-extended hybrid driveline. Sounds like the Volt, doesn’t it? Lutz recommends this in spite of the fact that he criticized that very approach a few years ago,
In January 2014. Lutz, who now serves on the board of hybrid-truck maker VIA Motors, says that the Chevy Volt would’ve been better as a truck or SUV. The problem, as I see it, is convincing American truck and SUV buyers that paying a premium for a hybrid drivetrain is worth it. With a $38,000 starting price, imagine how much more expensive a Voltec drivetrain would’ve added to the cost.
Musk has remained silent in the face of the criticism, perhaps letting Tesla’s actions speak for him. Tesla is very tight lipped when it comes to sales figures, however, and it seems obvious the promise the he made to investors back in April that the company would deliver 55,000 vehicles in 2015 isn’t going to be kept. So, ironically, his attempt to stay above the fray may be a mistake.
How will this situation play out? Which of the two titans sparring over electric cars will be vindicated? Time will tell. And, we’ll continue to watch, as the winner will shape the auto industry in the 21st Century.