Tesla CEO Says He's Proving Car Maker's Critics Wrong

Tesla Motors Inc.’s Elon Musk says his company, backed by Toyota Motor Corp. and Daimler AG, defied skeptics when its electric Roadster came to market two years ago and will do so again with a battery-powered sedan due in 2012.

The California startup named after inventor Nikola Tesla is using funds from an initial public offering that raised $260 million in June, more than $324 million from private investment and $465 million in low-cost federal loans to get the $57,000 Model S rechargeable sedan into production at a former Toyota joint venture plant. So far, development costs are within Tesla’s $400 million budget for the car, Musk said this week in an interview with Bloomberg Television.

“In terms of supply chain deals we’re doing, in terms of costs of development, it’s tracking to our expectations,” he said in Hawthorne, California. “Accept the possibility that every now and again there’s going to be an exception to the rule. In this case, it’s Tesla.”

While Tesla, based in Palo Alto, California, has lost money every year since it was founded in 2003, the company has also led renewed interest in cars powered by electricity rather than petroleum. Late this year, Tesla’s $109,000 Roadster will be joined by rechargeable cars from Nissan Motor Co. and General Motors Co., with more to follow from other automakers.

The cost to produce Model S and other electric vehicles will eventually be too much for Tesla, said Eric Noble, president of The Car Lab, an automotive consulting company in Orange, California. Musk should plan for costs of $1 billion, or more than twice the current target, he said.

Model S

“It’s certain that the $250 million they’ve recently raised in an IPO, they’ll go through at least that,” Noble said. “Then probably that again, and twice again before Model S comes to market.”

Tesla’s second-quarter net loss widened to $38.5 million, or $5.04 a share, from $10.9 million, or $1.56 a year earlier. Revenue rose 5.4 percent to $28.4 million, the company said today in a statement.

Tesla fell 66 cents, or 3.1 percent, to $20.60 at 4:41 p.m., after the regular close of Nasdaq Stock Market trading. The shares had risen 25 percent from their listing at $17 on June 28 through the close of regular trading today.

Toyota bought a $50 million stake in Tesla last month and Daimler, maker of Mercedes-Benz autos, has invested about $57 million. Tesla is supplying lithium-ion battery packs for Daimler’s Smart minicars and last month said it’s developing RAV4 electric sport-utility vehicles for Toyota.

‘Conventional Wisdom’

“It is not unreasonable for conventional wisdom to say that Tesla will not be successful, because conventionally that’s been true,” said Musk, 39. “There have been some famous examples of car companies that didn’t succeed.”

One was auto designer John DeLorean’s failed DeLorean Motor Co., maker of a gull-wing sports cars featured in the movie “Back to the Future.” That company collapsed in 1982 after running short of funds.

“If I had a dollar for every time someone brought up DeLorean, I wouldn’t need an IPO,” Musk said.

Musk, who made almost $300 million selling PayPal Inc. and Zip2 Corp., has said he invested about $70 million in Tesla. He earned at least $24 million from the company’s share sale in June, according to filings.

“For critics out there who want to bash Tesla or who want to bash me personally in some cases, they should bear in mind that you’ve got companies like Daimler and Toyota partnering with us and doing real products with us,” he said. “These are not small things. These are not deals they’ve entered into lightly.”

To contact the reporter on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net

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