Tesla partners with SMART – a “smart” move for both
Earlier in the month, CNET reported that Elon Musk, the CEO of Tesla, announced a deal with Daimler at the North American International Auto Show in Detroit. At the same auto show, Tesla unveiled a higher-end Sport version of its Tesla Roadster electric sports car.
CNET reported as well that a deal has been surfacing for quite some time: In August, Financial Times Germany reported that the supply agreement was for electric Smart cars planned for a pilot to test lithium-ion battery Smart cars and a network of charging stations in Berlin, Germany.
It seems that Daimler is planning to re-position the SMART car as a sort of “larger” G-Wiz. Hopefully the car will not suffer the same problems that plague the G-Wiz, which is little more than a glorified electric golf cart, except smaller, less reliable, slower, and far more expensive.
The deal seems to be for 1000 electric power trains for a limited run of SMARTs. One could assume that if successful, and there is little reason to suspect otherwise given the focus of the SMART car, we could expect electric SMART cars in every dealer, even in the new American market.
Such a deal will prove critical to the success and profitability of Palo Alto, CA-based Tesla. Co-founder Musk explained on LeftLane News recently that poor supply chain management and negotiated agreements have left Tesla struggling to make a profit.
In December, Tesla asked the U.S. government for assistance as part of the auto bailout. It asked for a relatively small $350 million dollars. The difference between Tesla and the “Big 3”, however, is that Tesla is a producer of “green-only” cars. Tesla is a startup, and the company is taking a real leadership position to achieve government aims, including the reduction of oil consumption.
One key requirement for government money is that Tesla must make a profit. Key to this is increasing the Tesla Roadster’s price to meet higher-than-expected costs. Musk points out that a reason for former CEO Martin Eberhard’s dismissal was that he was unable or unwilling to push down the costs. According to LeftLane, the cost would have been $140,000 per car while the MSRP was only $92,000. With renegotiation, the cost of goods decreased, but Musk points out that profitability can be achieved only with a MSRP of $109,000, and customers would now have to pay for options on the car that would have otherwise been considered standard equipment. The consolation prize for late adopters? A $7,500 tax incentive.
The true innovation and societal/economic benefit from Tesla to the auto industry will not be realized until the US$350,000,000 comes through so that the company can fully develop the electric sedan project. That car is said to be priced at a (slightly more) palatable $60,000. That seems like a chunk of change, but economics shows us that with new technology, pricing always starts high, and as adoption rates increase, economies of scale are realized and the overall costs of ownership will come down to a more affordable price point.