Friday, June 24, 2011

Tesla's next act: Cheaper electric cars...and a profit?

Electric Car
Tesla Motors can design cool-looking electric cars. Now it has to show the world that it can steer its finances just as well.

CEO Elon Musk said this week that Telsa's iconic Roadster electric sports car will no longer be on sale in the U.S. within a few months, marking a turning point for the company which helped catalyze an industry-wide technology shift to electric propulsion.

The move will cut off Tesla's main revenue source and start a transition to a new product--the Model S electric sedan. Whereas Tesla has still sold fewer than 2,000 Roadsters, the Model S will be made entirely by Tesla at a whole different scale of production in its new factory. That means still-unprofitable Tesla enters a period where it has little room for error as it takes on big changes in how it does business and its underlying product.

"Tesla's real challenge now is on the operational side. They need to switch to an operational model that actually makes them profitable and brings the cash flow to sustain them," said Oliver Hazimeh, the head of the e-Mobility practice at management consulting firm PRTM. "The question is how do they get the scale to make money on this car."

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