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On Bailouts and Sports Car

12/1/2008

Just sent this to Jason’s List… felt it was important enough to publish on the web. No comments here please… if you want to comment do so on your blog please. best jcal

Location: CalaCompoud, Brentwood, CA
Monday, November 30th, 3:01PM PST.
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Today, Randall Stross takes apart Tesla Motors’ request for a $400m
government loan in an illogical, factually incorrect editorial that
screams of a “Kill The Affluent!” ethos that spreads every time the
market crashes. Putting aside the issue of bailouts–which many of you
know I’m against–let’s look atStross’ reasoning. (story:
http://tinyurl.com/randallstross / Only the Rich can Afford it )

According to Stross, Tesla shouldn’t get a *loan* because:

1. According to the title: “Only the Rich Can Afford It.”
2. Battery pack life isn’t moving fast enough: “But 8 percent,
compounded, would bring too few benefits, too late to Tesla: it would
take nine years to halve the price of its battery pack.”
3. Randy says there is no upside to the loan: “Can you conceive any
way that federal dollars could be put at greater risk — and for no
equity in return, keep in mind — to benefit fewer people?”
4. Stross says the Tesla isn’t ready for prime time: “its all-electric
technology remains woefully immature and don’t-even-ask expensive” and
“The Roadster is not much more than a functioning concept car that
sells for $109,000.”

These points are all, well, somewhere between short-sighted and
outright false, leading me to think that Randy’s big problem with a
*loan* to Tesla is that he needs to write a piece that appeals to the
short-term sentiment of the country right now (“damn the
billionaires!”) rather than one that pursues the actual truth. Car
technology needs to advance, and the best place for that to happen in
in Silicon Valley. If the government is going to give loans to any car
companies, it should be the ones that have the best chance of
successfully innovating, not the losers who haven’t competed for
decades.

So, let’s take a moment to fisk* Randy’s story:

1. “Only the Rich Can Afford It. Should Taxpayers Back It?”
—————————
Yes Randy, the first version of technology tends to be expensive.
Personal computers used to cost $5,000, flat-panel TVs were $10,000
and–gasp–the first decade’s worth of solar panels were not worth the
price. You’re a *technology* journalist at the New York Times. You
understand all too well that expensive technology becomes commodity
technology within 10 to 20 years of its inception.

Personal computers now start at $200. Of course the first version of
an all-electric sports car is going to be expensive.

2. Battery pack life isn’t moving fast enough: “eight percent,
compounded, would bring too few benefits, too late to Tesla: it would
take nine years to halve the price of its battery pack.”
—————————
Really?

If Tesla cuts the cost of the battery pack in half over the next nine
years, they will have two choices: take about $20,000 off the price of
the car or double the range to 500 miles. You correctly point out that
Tesla over-did the battery range, as most folks are commuting way less
than 100 miles a day. Ever wonder why they did this? Well, skeptics
are obsessed with the limited range, and Tesla must fight the public
perception that an electric car is not viable. You’re, of course,
exacerbating this problem with your column today–something you should
really think long and hard about, since you’re so wrong and you have
such a big platform.

You, in fact, could be in the documentary “Who Killed the Electric Car
Part Two” as one of the contributors to the “It Can’t Be Done”
movement.

The fact is that Tesla could–right now–produce a car that is 1/3rd
to half the price if they set it to go only 100 miles. In nine years,
they will easily be able to produce a $40k car that does this. Is nine
years too long to wait for this technology to reach the price point
that 80% of the new-car-buying country could afford? I don’t think so.

Your interpretation of the three central facts here–average commute,
cost of the car and battery costs–all work about against your
argument when you consider them holistically. You say in the same
article that:

a) The Tesla is too expensive at $109k.
b) The Tesla’s range is too far, and only needs to be 50 or 60 miles
c) That battery technology doubles in nine years at the slow estimate

Well, that all adds up to a reasonably priced car that goes a
reasonable range today (100 miles), a reasonably priced car that goes
a very nice range in four years (say 150 miles), or a cheap car that
goes an absurd range in less than 10 years (250 miles). Your own data
would lead any reasonable person to the conclusion that Tesla is well
on it’s way to an affordable electric car.

What’s the problem here exactly? You’re saying that America could have
a brand new startup car company that produces an affordable car that
goes an absurd range just 10 years from now? The cost is a $400
million dollar loan? You’re problem with this is what?

Also, Tesla has publicly stated that they are pursuing a flagship–or
tent pole–release of their cars. This means they start with the sexy,
fast and expensive car for affluent folks, then move on to the sexy
sedan for middle income folks. Finally, they take all the
technological advances from these two models and move them into the
affordable car for everyone.

This is, in fact, the best practice for the automotive and technology
industries–you, of all people, know this! How do you think it’s
possible for cars under $30,000 to include GPS,antilock breaks, and
air bags? Those items were once reserved for only the most elite cars,
as you well know.

Why is what’s good for Intel, GM, and countless other tech and
automotive companies so bad for Tesla in your mind?

3. America has no upside from the $400m loan
—————————
First, these loans come with a very innovative concept: interest. The
country would get *interest* on the loan. Second, the country gets
added value from the following:

a) Sustainable, high-paying jobs for potentially thousands of Americans
b) Those employees spending money, buying houses and paying taxes
c) Tesla licensing its technology to other non-US companies (as they
are *already* rumored to being doing with Mercedes)
d) Who says Tesla can’t give the country warrants on two percent of
their stock as an added bonus?
e) The country would not need to send mountains of cash to the Middle East
f) Smog levels would drop, and with them massive health care costs
associated with smog
g) We would be doing our part to slow down global warming (and every bit counts)

That stock kicker in (d) above I just invented. Perhaps all the
companies we give loans to should be required to give a two percent
preferred share stock bonus to the United States in exchange for
originating their loans? That could be an amazing bonus.

4. Tesla isn’t ready for prime time: “its all-electric technology
remains woefully immature and don’t-even-ask expensive” and “The
Roadster is not much more than a functioning concept car that sells
for $109,000.”
—————————
I own the number 16 production car of the Tesla, and I’ve been driving
it for two weeks now. Anyone who owns the car can tell you that a) it
is not “woefully immature” and b) that it is not a “concept car.”

The Tesla has been through many crash tests. It has air bags and, yes
Randy, even a cup holder. It is a thrill to drive, safe and
dependable. It gets the range it reports and the early owners have
been delighted with the refinement of the car and the lack of
problems. You are flat-out wrong when you say it’s “woefully immature”
and a “concept car.” It’s a production car and when compared to my two
other cars–a Mini Cooper and a Corvette–it blows them away. How
Tesla could create a car that competes with two cars that have been in
the “Top Ten cars of the year” for the better part of the past 10
years is just mind-blowing. You and the New York Times should really
alter these incorrect facts in the article.

Question for Randy: on what basis do you label the car “woefully
immature?” Here’s what other publications said (I found these in five
seconds on Wikipedia–why didn’t you?):

Road and Track: “The Tesla feels composed and competent at speed with
great turn-in and transitioning response.”

Motor Trend: “undeniably, unbelievably efficient” and would be
“profoundly humbling to just about any rumbling Ferrari or Porsche
that makes the mistake of pulling up next to a silent, 105-mpg Tesla
Roadster at a stoplight.”

Slate: “A week ago, I went for a spin in the fastest, most fun car
I’ve ever ridden in—and that includes the Aston Martin I tried to buy
once. I was so excited, in fact, that I decided to take a few days to
calm down before writing about it. Well, my waiting period is over,
I’m thinking rationally, and I’m still unbelievably stoked about the
Tesla.”

5. Factually Incorrect: Tesla is asking for help producing a rich man’s car.
—————————
Yet another factually incorrect statement Randy. Tesla is NOT asking
for a loan to build the Roadster. They are asking for a loan to build
a second, family-friendly, $60,000 version of the car called the Model
S. The Tesla production run and technology is already paid for–Tesla
has said this over and over again.

You know this, yet you spun the entire article with the headline “Only
the rich can afford it.” Only the rich can afford a $60,000 car?
Really? I’m sure you make at least $80 to $120,000 as a New York Times
writer, and your book advances have to be well into the six figures.
Guess what, you can afford the Model S!

Finally, Tesla isn’t asking for a handout, they are a asking the tiny,
tiny piece of an incentive program from 2007 called the Advanced
Technology Vehicle Manufacturing Incentive Program that was designed
to give large automakers support in developing more energy efficient
vehicles.

How did you miss this basic fact in your article? It’s not a
bailout–it’s a loan that is part of an existing program for just this
purpose! If we are going to give a loan for advancing vehicle
technology shouldn’t we give it to the only company which has actually
produced 100% electric cars? How about the company that has over 1,200
orders for those cars? How about the company that has gotten absurd
reviews from the press for their extremely capable car–a car you, and
only you, call a “woefully immature” kit car.

How could pack so much bias, incorrect facts and absurd conclusions
into one article Randy?!

6. Some perspective please!
—————————
Randall says “Can you conceive any way that federal dollars could be
put at greater risk — and for no equity in return, keep in mind — to
benefit fewer people?”

Sure, how about the Iraq war, which costs around $400m a day–dollars
that we have no chance of ever seeing again (as opposed to a loan,
which is paid back with interest).

Your editorial should have started with this fact: if we leave Iraq a
week early, we can give two billion dollars in loans to *five*
electric car companies. That’s your lead right there, Randy. That’s
leadership, that’s the truth and that’s your job as a journalist. Not
this “damn the billionaires” crap. In fact, the billionaires in this
country have done a hell of a lot (see Gates, Buffet, Turner and
countless others)…But that’s for another email. Let’s get back on
the subject.

You need to put things back in their proper perspective instead of
obsessing about the fact that some of the investors in Tesla are
really rich, that the first version of the car is slightly more
expensive than a luxury car, and that battery power is *only* going to
*double* every ten years.

You really should rewrite the editorial and give the public a fair
world view instead of one warped by some short-term populist
propaganda. Tesla isn’t about rich Silicon Valley guys in sports cars:
it’s about extracting ourselves from the environment-killing,
human-rights violating, terrorist-supporting regimes in the Middle
East. The only reason we deal with countries that suppress women and
homosexuals and give money to terrorists who kill based on a religion
is because we are dependent on their oil. If we didn’t need their oil,
we would treat them like we treat other rogue regimes–isolate them
until they got their act together.

Companies like Tesla are the direct path to our independence from such
treachery.

In Conclusion
—————————
The reason I bought the Tesla was to help fund the Model S–and
because I like things that are fast, sexy and high-tech. I’m a proud
sports-car lovingtechnophile American and it gives me great joy that
the best sports car money can buy is produced by an American company
that is paving the way to independence from dirty, foreign oil.

I’ve already committed to buying the 16th Model S (Tesla lets you get
to keep your production slot in future models), and if another company
makes a better electric car, I’ll replace my Mini Cooper with that.
Supporting American technology companies is one of the most patriotic
things you can do–the technology industry is the reason our country
has such a high-standard of living and why we can afford to spread the
democracy virus around the globe.

You should be proud of Tesla and support them, as well, because if
Tesla gets the *loan* (a loan, not a gift), you just might be driving
an electric car built in the United States by American workers. That
consumer purchase is a vote which, once cast, will help us shift our
interactions with the Middle East back to condemning them for
violating basic human rights instead of our dual-headed approach of
insincere appeasement and inappropriate force. That approach hasn’t
been working out to well, has it?

Good luck rewriting the article–which you or another New York Times
journalist will wind up doing in another two or three years, I’m sure.

Jason

ps – If you’re ever in Santa Monica lets drive the Tesla down to the
Promenade and you can see first hand what normal Americans think of
the car–they love it.

* Fisking: The act of delivering criticism on a line-by-line basis
established by conservative bloggers to check the British journalist
Robert Fisk.

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English Bulldog

Hello, my name is Jason. Welcome to my blog on the interwebs. You can reach me on twitter @jason and by email at jason@inside.com. My Skype is jasoncalacanis, and my mobile phone is 310-456-4900.

I only pick up numbers I recognize, and in terms of emailing me, the best strategy is to write short, blunt and to the point requests. I can quickly respond to short messages, and many times I simply don't have the time to read five page pitches. In terms of taking meetings, I only do that after reviewing an actual product (not a business plan). So, the best time to ping me is when you have mockups or an alpha site. I don't read business plans, and I've never written one.

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