1:00pm | In a move that some believe drives the final nail into the coffin of Long Beach’s hopes to lure Tesla Motors to produce their cars in Long Beach rather than the nearby city of Downey, Tesla CEO Elon Musk announced recently that the new production site will be announced in the next several weeks.
Of course, Musk said the exact same thing in January, and one month before that, Downey mayor Mario Guerra said that a deal was almost finalized. Of course, Guerra was also supposed to make an official announcement last November, and here we stand without a deal. So who knows how serious Musk was with his announcement. With anticipation building, it’s easy to jump to conclusions.
The Downey Patriot uncovered some actual developments this week when they obtained a draft environmental assessment that was filed with the Department of Energy, showing which buildings on the former Downey Studios lot that Tesla intends to use for production. According to the Patriot, the company plans to lease the land for 11 years with an additional five-year option. Tesla would not commend on the plans, but it does show how advanced the automaker’s negotiations with Downey have become.
Tesla also showed early interest in a Long Beach site that was formerly used to produce Boeing airplanes, but little news has been heard lately while rumors of a confirmed Downey deal have only grown stronger. Was it that Downey made a more concerted effort to attract Tesla? Does Downey’s property simply work better for Tesla’s needs? Were the millions of dollars in incentives offered by Long Beach to Tesla not enough? Or too late?
Tesla won’t say, and neither will Musk, probably until a deal is signed and finalized.
In several past articles, I’ve outlined the specific challenges that Tesla will face once they’ve acquired a production site. The company has only produced one model so far, the electric high-performance Roadster, and that was a modified Lotus. It made Tesla a household name, but the automaker’s next task is the one that will take it from unproven darling to true industry player.
With the electric four-door sedan Model S, the company needed to acquire land to produce the vehicle themselves. The Model S was unveiled one year ago and is slated for showrooms in late 2011, so it’s a bit unnerving that Tesla has still not begun building the car – not to mention they have not yet officially acquired any land.
It was even more unsettling that Tesla had already begun accepting customer deposits on the Model S before they had developed a site to produce the car, and before proving that they could produce a new model on their own in the first place. For a time, Tesla was operating almost exclusively on customer deposits.
Then the Department of Energy kicked in a $456 million low-interest loan, and Daimler chipped in a reported $50 million for a 9% stock in the company, which puts Tesla in a significantly improved position to produce the Model S. They’ve reportedly been hiring between 50-60 top automotive and manufacturing minds per month in anticipation of production. On that front, Tesla has done everything right.
Still, Tesla is operating almost exclusively on a massive loan that they will have to repay, and customer deposits that will ruin their reputation if they can’t produce the Model S as quickly as they promised. That leaves Daimler’s $50 million investment as most of Tesla’s operating budget, and you can bet that they’ll be pushing the electric superstar hard to deliver on its promises.
If there are any delays, it could keep customers from opening their wallets to back up their deposits, and that leaves Tesla with a $456 million loan to repay and massive lease payments on what will be a very expensive piece of property in Downey. Literally, Tesla’s entire future hinges on actually building the Model S in mass quantities, on time.
It takes time to produce cars. Especially for a young automaker that hasn’t done it before, and especially when said company is still rumored to be acquiring land for production when the date they promised to customers – who, again, have already placed deposits – is rapidly approaching. Best of luck to Tesla no matter where they decide to build the car, because they do represent the industry’s best hope for appealing, reliable and affordable electric cars. But with the clock ticking and Tesla’s financial future shaky at best, they face an uphill battle from here on.
So yes, it’s an important development for Tesla to be nearing a deal to produce the Model S in Downey, and literally the most important thing the company has going on right now, because they need that site to produce the car that will keep them financially viable into the future. But to still be at this point one year after the Model S was unveiled and about 18 months away from the car should be available to customers is hardly confidence-inspiring. Tesla should have had this settled months ago, if not earlier. Trouble meeting the production deadline could mean serious revenue problems, which would be bad news for anyone expecting money from the automaker.
You know, the Department of Energy. Customers. Downey.
Best of luck.