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A Tesla Motors 2014 punch list for success

We asked Tesla owners what they thought the company needs to do in 2014 to be successful. Their answers were not what we expected. Here is what they think and what we think Tesla needs to do in 2014.

In just about 2 weeks Tesla Motors will report its earnings for Q3 and also its overall 2013 financial performance. Although we will then report the Tesla financial news, good, bad, or otherwise, it is pretty fair to say this was a momentous year for the world’s most innovative automaker. We counted down what the Tesla owners and enthusiasts told us they thought were the most important things Tesla did in 2013. Now we would like to lay out our predictions for what the automaker will have to do to stay successful in 2014.

Searching for Tesla Motors news today, as I do every day, I found one “expert” that I had never heard of before predicting that GM will buy Tesla in 2014. As I am no fan of GM in general (though I love some of their creations) this would break my heart. GM represents every single thing that can possibly be wrong with the automotive world to me and Tesla Motors represents a glimmer of hope for change. Furthermore, since Tesla already works closely with both Mercedes and Toyota, why a sale to GM would happen now is a mystery to me.

Selling Tesla to anyone in 2014 would be a big surprise for me. Unless something unfortunate was to happen to Elon Musk, I can’t imagine why 2014 would be the sell year. The Model S is only 15 months old and it seems that the global market is wide open to Tesla for the S. Tesla just moved the ball down the field 80 yards for a touchdown in 2013. The extra point kick is 2014. Yes, the stock is crazy overvalued, even according to Musk, but he does not seem to me the guy who takes advantage of that now to try to sell Tesla Motors. On the other hand, he is busy with two other companies that are almost equally as exciting. Still, it seems premature.

2014 Punch List For Tesla Success
First, never mind what I personally think. The Tesla owners I poled informally on Tesla Owners’ forums I am lucky enough to be allowed to participate in (since I am not yet an owner) tell me that to them continued roll out of the Supercharger network is important to them. They think it is an exciting part of ownership and though many have used the network, other owners have not simply because it doesn’t take them anyplace they want to go – yet. Keeping the Supercharger network growing received the most feedback by far to my requests for input.

What came next to the Tesla owners was not clear, so from here on out the order is mine. Based on my own instincts I think that Tesla needs to make serious headlines in 2014 about the GEN III. This will be the “every-man’s” Tesla. Now clearly, the car is not slated for release for about 3 or more years. However, Tesla is bound to encounter more challenges next year and in 2015. This year all Tesla had to really push past (in terms of external challenges) was the hype over the fires. It has done so, and it will have to keep the PR machine going to offset that issue, but 2013 could have been harder. In the coming years external factors could bite Tesla. “Regime change” could occur here in America and the huge subsidies that EV owners enjoy could be challenged. It would not be out of the question for a 51% vote in congress to limit EV price supports to cars under $50K. Tesla can hold that off by continuing to remind America that it is really still pushing to bring out a car that can be in an owner’s driveway for about $35K.

Another important thing Tesla needs to do is continue to evolve the Model S. If you wish, combine the Model X with this section, since to me the X is simply an AWD Model S with a different body. If I am wrong about that feel free to blast me in the comments section, but let’s keep it civil. I love the S and I think building an X from as many common parts as possible is a great idea. I don’t mean it as an insult.

When I write that Teslas are cars, and that cars have problems, the fans of the brand freak out and send me hate mail. However, visit any Tesla forum and you can see the many issues that the owners struggle with. Water leaks, door handles that don’t pop out (specifically the rear ones), melting connectors for charging, the list is real, but manageable. Tesla needs to eliminate all these little things, just as any automaker does as a car matures in its lifecycle. The only reason fixing the small Model S issues is on this list is that it was a common point of feedback to my inquiry. Also, I worry that Tesla could look at its limited resources and at some point prioritize the new model over making the Model S the best it can be.

Piggy backed onto this would be more content in the Model S. The car simply does not have things that all of its price range competitors do. When I drove it this summer it had almost no driver aids by comparison to a Mercedes, Audi, or even Lexus of half its price tag. Some owners want autonomous driving. Simply stated there is no automaker farther from that goal than Tesla. It can catch up on its own or simply buy the needed equipment from suppliers. Either way, it needs to leap forward just to catch the pack.

A price reduction would also help Tesla in my own opinion. Even if it were simply a 3% across the board drop in price Tesla could claim it is learning how to save money in its operations and that would boost confidence. Teslas are very expensive. Owners claim that their savings on gas and the tax breaks offset that, but the truth is that a Prius can run for 100,000 miles on just $13,000 worth of gas. Hybrids come with tax breaks too. At some point the math model needs to actually improve for EVs and Tesla could offer up hope.

Here are two things I think Tesla need not do in 2014. I don’t think it needs to hit the 55,000 unit number for Model S production some are bandying about. Why should Tesla do that? In my opinion it should keep the supply tight. That makes the car more desirable. Grow the production, but it does not have anything to prove that requires that production actually double.

Tesla also does not have to make money in 2014. By that I mean it does not have to be cash flow positive. I slammed Tesla in Q3 when it lost money not because it is a bad thing for the company financially, but because the managers had been stupid enough to claim that they would be cash flow positive in 2013. Tesla has mountains of cash to use and it should use it. Go big or go home is a reality in the auto world. Amazon, GM, Ford and many other huge names in the American business world have gone long stretches without making money and still have very bright futures.

2014 should be an easy year for Tesla relatively speaking. That does not mean bad decisions can be overcome, or that the company won’t be exciting to watch. If we have skipped an important goal you think the company should shoot for in the next 12 months please add it below with your reasoning.

Model X image courtesy of the Tesla Motors public page.

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Comments

Weapon (not verified)    December 26, 2013 - 2:50PM

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GM is not going to buy Tesla, that is a given. Even if worse comes to worse, I don't think Mercedes is going to let that one through.

The most important thing in 2014 is expanding the supercharger network, followed by introducing AWD and yes add more sensors.

As far as politics go, I see no reason why they would touch the tax credit. The 7.5k tax credit is a static number, not a %. It does not favor expensive EVs and less or more than cheap ones. If anything, the biggest thing that puts the 7.5k tax credit towards the richer is that it is non-refundable and non-defer-able. Which means you need to be liable for 7.5k or more in federal taxes. The tax credit by itself would begin expiring in 2016 as automakers hit their 200k quotas. There was actually talk of raising the tax credit to 10k.

And yes, Tesla does need to hit 55k production. At issue is that Tesla's goal is to release the every man's Gen III or Model E. For that they need to scale production. Without that, economies of scale will not set in to make the Gen III possible. Even at 55k units, considering Tesla plans to grow to more and more countries, your going to be seeing limited supply as demand will be way more than that. Introduction of AWD, adding of sensors and growth of supercharger network will help increase sales.

And by the way, Tesla is cash flow positive in 2013. So I don't understand why you would bash them on that. Tesla also did not lose money in Q3. At issue is the fact that GAAP has no provisions yet for facilitating Tesla's new financing with buyback so it files it as a lease. The difference between a lease and what Tesla has is HUGE. As far as financing goes, when you have a lease you make money every month on payments. Tesla earns 100% of the money upfront. To Tesla it is exactly the same as a purchase. But GAAP has no way of filing it so Tesla is forced to file it under non-GAAP. It is like how the DMV asks you to put how many gallons of gasoline your electric car has. Some rules just need to be updated. But end of the day, Tesla has this money on hand and it is free cashflow.

John Goreham    December 26, 2013 - 3:02PM

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Thanks Weapon. These are all very good points. Not to be combative, but I thought that as a "credit" as opposed to a "deduction" the $7,500 federal tax incentive is always beneficial. Just like the "Earned income tax credit" and the tax credit that teachers are awarded for supplies. Either way, nobody with zero tax due is buying a Tesla (or almost nobody). So it sort of moot. - - I like your take on the Tesla Q3 loss (or not loss). I would point out that all automakers are paid up front on all third party leases just as Tesla is. I have leased a few cars that I selected from new dealer stock in a normal showroom and then the dealer decided to use a lease from a third party. Though that was a while ago. An automaker "selling" a car to a lease company is not new, though I will not argue that you are correct that Tesla sees the Q3 results differently than the Generally Accepted Accounting Practices see them. You and I agree on all the big points. Thank you very much for adding your thoughts. They make the story much better.

Weapon (not verified)    December 26, 2013 - 5:34PM

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A tax credit is usually more beneficial than a deduction. But at issue is the tax credit is non-refundable and you can't defer it to other years.

So lets look at a scenario, assuming you are single and make 30k salary. Your tax bracket is 15%. Assuming no deductions you owe 4.5k in taxes. So if you buy say a nissan leaf. You would pay 0 taxes but you saved only 4.5k, not 7.5k. You will not get a rebate for 3k (non-refundable) and you will not be able to take 3k away from next years taxes (non-deferable).

For you to make use of the 7.5k you would need to make 50k taxable salary as joint (after deductions) or over 36,250 as single (after deductions). So you pretty much have 50% of people who can't make use of the full 7.5k in 1 year.

I can understand why they would not want to make the tax credit refundable as that would require setting aside budget. But if they wanted to make it full usable by the majority of the population it would have to be at least deferable to other years. But then again the lower income 50% most likely buys used cars anyways. Since the average price of a new car is almost 32k.

And there are probably people who owe 0 who buy a Tesla if they pay most of their taxes abroad. But I was talking about tax credits for EVs in general, not limiting to Tesla.

As for 3rd party leasing, I am not sure if they get the money upfront or not. But I do know that most leases are not done by 3rd parties. But that might depend on who you go to. From my experience it generally is much better to go with the car company for leasing as they tend to be more forgiving (though that is only my personal experience and I can't guarantee that constitutes for everyone).

If the car company does get 100% of the money up front, I see no reason why financially a company has to break it up over time. But whether GAAP acknowledges that Tesla earned that money or not is irrelevant because what matters is that Tesla has the money in their pocket. Because Tesla has purchasing power with that money that can go into R&D, new equipment and factories.

But yes, on the major points we agree.

John Goreham    December 27, 2013 - 10:40AM

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I found this very helpful. Thank you for going through it. Until now I thought the credit was "refundable" meaning it would be sent as a check like the earned income tax credit is. I hope some readers see this as well. - - The interesting thing about covering EVs is I have done quite a few articles talking about how much it costs to own an EV. If I were to include your text above about how some might not get the full tax credit, I would get blasted by the EV fans for trying to make EVs look overly expensive. Separately, when I point out that some Tesla owners are wealthy I get blasted by EV fans who say that I am wrong. They say almost all the Tesla owners are just plain working folk who make out great on a $100K car due to the $2500 they save on gas every year.
- This was very good commentary. I hope you will consider adding comments in the future.

Weapon (not verified)    December 28, 2013 - 2:07AM

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There are options for claiming the tax credit if you do not make enough income to take advantage of it. If you lease an EV, the leaser can claim the tax credit. That would lower the cost of your lease.

You then can technically buy the EV after the lease expires as the cost of the EVs tend to depreciate with the tax credit factored in. Assuming there is no new technology out by then.

I think the best way to describe the tax credit is describe it as-is without being judgmental. I know writing is about adding personality to the writing but sometimes it helps to just put out the facts and let readers interpret it. Or you can do a round about approach by telling people to consult their accountant. Most people do not do their own taxes and would trust their accountant more than a writer on the internet. Another option is as I explained above is to look at whether people should consider leasing or buying an EV. This way you can explain how it works without generating angst.

As far as Tesla owners being wealthy, I think the blasting has more to do with the stereotyping rather than anything else. There are many middle class families that can take advantage of the full tax credit. Even more so in cities which have higher cost of living. To be more precise, most people finance their car be it leasing or straight out financing. Which means they are making monthly payments. So when you factor in a cost of a car, most people look at the price tag but as far as affordability goes, you have to look at the true cost to own. And look at the monthly payments you are making. So a Tesla may make a Tesla Model S that has a price tag similar to say an M5 as affordable as a 5 series. But obviously it is not going to be as affordable as a Ford Fiesta unless maybe your a taxi driver and the Tesla is used 3 shifts a day.

I think at issue is not the discrepancy in wealth but the difference between what people consider "middle class" or "average". For example, if you live in California, your median income is slightly above 56k. But if you live in Mississippi, your median income is slightly below 37k. This discrepancy becomes even bigger if you live in the city vs in the country side. In San Francisco the median household income jumps to around 73k. Now obviously the cost of living in cities tends to be much higher, but if a person knows how to manage their money, (don't buy that 5$ coffee every day) and an average household can save up to afford a Tesla or any expensive car or house. (One of my biggest complaints about the school system, they teach you all the math formulas you will never use in life but don't teach you how basic financing works. They let you read every Shakespeare book and interpret them which most people forget the following week but not once teach you how to read and interpret a legal binding contract, anyways let me not get too side tracked). For someone who lives in Mississippi and earns an average salary is not going to be able to afford a Tesla. Now for someone who lives in the city like in the state of California, the monthly payments for a Tesla is about how much you pay for rent. Considering the savings on gasoline, you can wiggle it in. Even more so if your state offers an additional tax credit on state taxes, access to HOV lanes and free toll roads.

John Goreham    December 28, 2013 - 2:11PM

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I like the way you think and I agree with your school system opinion. I once did an analysis of what my 2007 Miata cost me per year and I discovered it cost about the same as a 2-pack per day smoking habit ( I don't smoke but about 20% of families have a smoker in the house in America). Without question leasing an "affordable" EV has big advantages compared to buying. - - I live in Mass. As far as I can see there is no sales tax exemption and no excise tax exemption. Year one, on a $100K car that equals $8,750. Let's stop there for a moment and just catch our breath. Year two the tax drops to about $2500 and then it is $25 per thousand valuation forever. I have had many leases in Mass. They pass excise tax along as an added charge you do not finance into a lease. You can finance the sales tax. However, then you pay interest on taxes. Sort of like two pokes in the eye. - - Also, how did you know that I drink at least one Venti at Starbucks everyday?

Jude Thibault (not verified)    December 26, 2013 - 3:21PM

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What Americans need is a simple car ! Yes, a few optional amneties like A/C, heater,comfortable seats, reliability , economy in operation and parts that will last longer especially in the drive train which are labor extensive,such designs need to be simplified.
Gadgets are expensive and trouble some, naturally expensive to repair. AM / FM radios are near obsolete with the Satellite radio service. They don't need all that extra wiring to have them at fingertip control being extra expensive.
My 1st. car was a 1948 Chevrolet 2 door Stylemaster, 6 cylinder, standard 3 speed,excellent in snow using sand thread tires, it gave 27 + MPG, very reliable, accessible and simple to service.Its cost in 1954 was less than $400.00 with odometer at 67,000 miles,in excellent condition ! Of course, inflation has changed all of that.
Make optional all the frills like electric windows openers, shaded glass which reduces visibility especially at night, remote electronic radio controls, seat adjustment controls, and more..

John Goreham    December 26, 2013 - 5:00PM

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I was just saying that this week. My pal rented a new Ford Focus. No My Ford Touch. Just basic stuff. She loved it. It would not have been better with a voice activated dog polisher. I'm not sure Tesla is the vehicle for those that want simplicity, but I do agree with you that things are way out of hand when you have to tap a screen three times just to get to the volume controls on a "radio."

Charly (not verified)    December 26, 2013 - 4:29PM

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If Ford buys Tesla, it will make it a viable part of its lineup. If Govt. Motors buys it, it may be closed down to eliminate competition for its current lineup of inadequate vehicles. GM would have gone bankrupt, and rightly so, if Obama hadn't taken taxpayers money and given it to the UAW in return for votes. And, GM would be better off today had they been allowed to go Chap 11, reorganize an inefficient corporation, reduce its model lineup to 3: Chev cars, Cadillac cars and Chevy trucks. This would have reduced production costs by eliminating duplication of facilities, parts and advertising. Evidently there are a sufficient number of buyers who are willing to buy a Chevy with a Buick grille and pay 10K extra just for the privilege of impressing their neighbors. Oh well, Ford does the same with the Lincoln. I hope Tesla has the chutzpah to tell the big 2 to take a hike. We don't need another look alike with jelly bean design. It would be nice to continue to have something unique in our choices.

DeeAgeaux (not verified)    December 27, 2013 - 6:27PM

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Nobody, including Government Motors or Grossly Incompetent Motors, is going to buy a $19B company simply to shut it down to thwart a competitor.

Another Electric Vehicle Company will arise with Venture Capitalist in Silicon Valley very excited with wallets open.

No ICE Auto Company can keep buying EV companies to simply close them down. There is a global market to sell profitable luxury EVs. The genie is out of the bottle and it can't be put back in.

Rick (not verified)    December 27, 2013 - 7:25PM

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Compare Prius to Tesla is like compare a Bentley with a Kia, I had a Maserati and it did not have all the aids you are talking about and for your info is way more expensive than Tesla. You know what you get with a Tesla....... A new technology a unique cars, you should ask yourself why people like me are changing high end cars for Tesla.

John Goreham    December 27, 2013 - 9:18PM

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Thanks Rick, you really got me thinking. I didn't know I compared the Prius to a Tesla. Toyota has so many luxury hybrids in that brand and its Lexus line is more what I was thinking in this particular story. Lexus sells more green cars to all demographics, but it sells more green cars to upscale buyers in particular than any other car maker. In any case, our most outspoken Tesla owner, Charlotte, who's interview we published, owned multiple Prius (Prii?) before her Tesla. To your point about cost, you're right except for the leading seller over at Mazer. I only test drove one Tesla and it cost $109,000.00. The Maserati most closely matched to that Tesla (4-door sedan) is The Quattroporte S which costs $108,000 according to the configurator. That is a boring Maserati if you ask me. I have long considered a pre-owned GranTurismo Convertible. That car new is about $190K, but pre-owned they can be had for about what a Tesla costs. My main worry is depreciation. - - I totally get why high end car guys buy Teslas. What really shocked me were the older, female customers of relatively modest means who are moving from Prius and ICE fuel sippers to the Model S. That blows my mind. Please keep the feedback coming. We don't get many Maserati owners commenting and we wish we did. I appreciate your readership very much.