Of every 10 companies started by entrepreneurs, half or more fail.
Some are sold for the parts or the people, a couple of lucky ones may be bought by larger companies, and only the very lucky ones survive as independent companies over the long term.
Tesla: Apple or Altair?
For every Apple, in other words, there are hundreds of companies that have vanished from the computer business, from Altair, Altos, Amdahl, and Apollo to Wang, Xerox, and Zeos.
Every venture capitalist knows this, and the most successful VCs hope to have a home run and a base hit out of every 10 companies they fund. The rest? Collateral damage.
Debating whether Tesla Motors (and its charismatic CEO Elon Musk) will be an Apple or an Altair is part of the excitement around the nascent electric car business.
Now Fortune senior editor-at-large Alex Taylor III has weighed in. You might deduce that he’s a skeptic about Tesla’s chances by the title of his article: “Tesla’s business plan: Riding on fumes.”
No economies of scale
His basic theory is that Tesla plans to price its upcoming, all-new 2012 Model S sport sedan to compete head-to-head with similarly sized luxury sedans from much larger companies that benefit from huge economies of scale.
He notes that the $57,400 price for the base Model S with a 160-mile electric range is roughly equivalent to that of a 2012 Audi A6, for instance. But Tesla will build less than 50,000 Model S and related cars each year, versus the huge cost advantages Audi enjoys as part of the Volkswagen Group, which builds many millions of vehicles each year.
Tesla Motors, Palo Alto, California
And he writes that despite the company’s questionable economics, “bullish securities analysts” have promoted Tesla as having the potential to “turn the Detroit Three [sic] and create the Big Four.”
Not so much
We disagree with that last statement. While there’s been plenty of hype about Tesla Motors [NSDQ:TSLA] since its undeniably successful initial public offering a year ago, most auto-industry analysts have a different view.
The majority of them feel Tesla has two possible outcomes: either the company fails to generate enough cash to fund ongoing operations, or its board will sell the company to a larger automaker.
Tesla Model S Alpha build
This article, from earlier this year, goes into more detail: Elon Musk Says Tesla Won’t Be Sold, But Elon Musk Is Wrong.
Understanding venture capital
Because High Gear Media is backed by venture capitalists, we get the chance to talk to VCs here and there. And it’s important to understand how venture firms finance companies: First they invest, and if they’re quite lucky the company IPOs (as Tesla did), and then they cash out or radically reduce their holdings.
Tesla Motors CEO Elon Musk with Tesla Roadster
Tesla has already beaten the odds by being one of the rare startups to have a successful IPO.
But once again, we return to the question that best sets the context for Tesla: What’s the last car company founded in the U.S. from scratch, by entrepreneurs, that’s still with us?
The answer is Chrysler, and the year was 1924. No one’s succeeded since, and given the billion-dollar-plus cost of any new vehicle platform, it’s one of the most cash-intensive businesses short of the oil or aircraft industries.
Tough timing
The timing of Taylor’s article is tough for Tesla Motors. It still says confidently that it will start building production versions of the Model S during the second half of 2012.
Starting tomorrow night, the company will spend four days showing off the latest version of its 2012 Tesla Model S all-electric sports sedan as it moves closer to launch. GreenCarReports will be there, reporting on the events as they happen.
Tesla Model S Alpha build
But we’re still betting that five years hence, the Tesla brand will be owned by a larger, global car company. That said, what do you think?
What will happen to Tesla: Will it crater? Will it be bought relatively soon after the Model S launches, when the company is being hailed in the media as a pioneer and a savior of the car industry? Or will it actually remain independent over the long haul (10 years, say)?
Leave us your thoughts in the Comments below.
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View original article at: “https://www.greencarreports.com//news/1066693_will-tesla-succeed-like-apple-or-vanish-like-altair”
