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Volt and Leaf will succeed, but Tesla S and Fisker Karma will not

It all comes down to simple math and tires give us a clue when it comes to comparing Chevy Volt and Nissan Leaf to Tesla Model S and Fisker Karma.


Delorean and Tucker. What two things do these automakers have in common? First, they were beloved by many of their customers and each inspired groundbreaking models that shook up the automotive world in terms of technology and styling. Second, they were economically unviable and they are history. Tesla and Fisker, will go this way, but that doesn’t necessarily mean it is all doom and gloom.

Given the money spent by Fisker and Tesla (and the US taxpayer) to create supercars for the 1 percenters, an investor might expect a return at some point. But why should they? In the category they compete in there are many choices, all good ones by the way, and very few buyers. No business school graduate on the planet Earth would ever suggest putting a new product into a crowded, mature, marketplace is likely to bring success.

The fact that the Fisker and the Tesla are electric just makes the path to success harder for them after the first early adopters have their cars. Clooney and Bieber have one. Who’s next in the showroom? With a completely straight face auto writers and media outlets are claiming the Tesla Model S is priced for the mainstream. The car STARTS near $60K.

With the package buyers actually want the car is in the Porsche Panamera price range. Which, by the way, makes a hybrid version for the buyer who can’t sleep at night due to environmental guilt. A green car enthusiast with a horsepower fetish can have a Chevy Camaro SS and a Chevy Volt for the same price the Tesla S will actually retail for.

When Fiskers burst into flames in driveways, garages, and in lots, and when Consumer Reports tests the car and it breaks, the media does not actually slant away from the company maliciously. “Consumer Reports Tests Supercar and All Goes Well” is not news. “Consumer Reports Tests New Supercar That Won’t Go” is news. Defending a burning car with “hey other cars burst into flames just like this one” does not work for small companies.

It can work for big companies. Follow the logic. GM competes with Fisker. Fisker burns. Head of the NHTSA, appointed by the leader of the main shareholder of GM says – “look into that.” A Volt burns and the same conversation is something like “Hey, take care of that.” Neither is a conspiracy. Both are perfectly normal, honest reactions. One gets investigated. One gets dealt with.

Let’s set aside the electric versus gas debate for a moment and talk rubber. Rubber is one of the few things on a car that the automakers themselves almost never make, and the cost of tires is significant. Look at the Fisker Karma and you will see 22 inch rims with low profile sport tires. No mainstream sports-luxury car has ever been fitted with 22 inch wheels.

Fisker doesn’t expect to ever make any money off the Karma, but let’s pretend they did. Why add thousands of dollars in cost to the car for no good reason? Style? Perhaps, but many cars rely on style for sales. Look at Toyota’s Scion FR-S. Is it stylish? Hard to argue that it isn’t. Successful? Hard to argue it isn’t. In October Toyota sold 1,107 Scion FR-S vehicles.

That is about the same number of Fisker Karmas that have been sold – ever. How much did Toyota pay for the tires on those Scions? I can tell you there is a chance that Toyota paid nothing for those tires. Zip. “How?”, you might ask. Here is how. Toyota uses that exact same rubber on another car. That model sells 250,000 units per year, thus an even 1 million unit tire order to the manufacturer lucky enough to get that purchase order. That could be $50 million in sales for one model number.

Do you have any idea what a company will do to land an order that big? The answer is simple – everything legal and then if nobody’s looking... Do you think a manufacturer might, say throw in 4,000 free tires? That would equate to a 1.6% discount. That is the least they can expect. The discount is likely something near 20%, (plus many, many cocktails, trips to fun places in the company of fun people, and more goodies than most readers could dream about.

I was in high tech business to business sales for 20 years, and I speak from experience). Toyota is paying nothing for tires and Fisker is picking out huge gumballs that have never, ever been used on any other automobile and paying the sticker price. Who has the edge here in profitability and who has the edge when they go looking for investor capital? This same analogy applies when Fiat builds a Viper.

Vipers don’t have to pay for radio knobs and door handles. They just take the ones dropped on the floor when the Chrysler 300s are being built. Most of the parts of mainstream automobiles are ridiculously inexpensive - if you buy literally 1 million of them. Buy 4,000 and you place your order on Amazon and pay your own freight. The examples used here are two fun cars, but the same logic applies to the electric Volt and the Leaf which are made by huge companies with revenues ginormous enough to swallow electric car losses, but which can minimize those losses through commonality of parts and other methods.

So why did a successful genius like Elon, or a cool car-guy like Henrik decide to try the impossible? They didn’t. They wanted a project. They wanted to spend some of their money on something they were passionate about. If it succeeded economically, cool. But that wasn’t their main objective. They wanted to get the car built and prove a point. Successful guys like this are so good at so many parts of business, relationships, and technology, they can almost always achieve that goal – prove the point. Then the economics gets ugly when they try to sell more than the collector’s item volumes that the cars really justify.

There is also a second way to succeed financially, or at least recoup one’s losses. That is to mature your product to the 80% state and then sell it to a much larger competitor. Why do competitors buy companies? Many reasons including; Eliminating a product from a niche they choose to dominate, to secure part of the product’s technology portfolio, to satisfy regulators (“we need 5000 more electric cars fast, or we can no longer sell our trucks in California”), or in some cases they might just love the product and want to see it work. That hasn’t actually happened yet in the car industry, but there was a sniff of that in the Volt’s germination.

Real news would be “Elon Musk talking with GM’s Akerson at Starbucks.” Or “ Ford’s Alan Mulally seen dining with Henrik Fisker at Nobu. “ That is the story that will be written at some point and God I hope I break it. Dan Neil already has a Pulitzer. I just want one scoop!

Please see the update to this story at this link.

This article was inspired by our readers’ feedback. Thanks to Howard Marks and an anonymous reader who replied to David Herron’s recent Tesla stories writing “Now if GM and Ford would start doing the same would be a smart thing for them, and at the same time with the production capacity that GM or Ford have they would be able to bring the cost down to probably half and that would give enormous sales…”

John Goreham tweets at @JohnGoreham. Please, follow him and send tips.


Anonymous (not verified)    November 7, 2012 - 6:15PM

The original Kindle cost $400, the original iPhone cost even more. Now, thanks to the support of early adopters, we can have these for under $100.

It's insanely awesome that Tesla managed to create a viable electric vehicle. It's just one aspect of what we need for an alternative energy transportation economy, and you should be happy.

John Goreham    November 8, 2012 - 1:13PM

In reply to by Anonymous (not verified)

When you make stuff up it weakens your argument. I phoned ATT today and asked the person I deal with there what the cost of an iPhone was. The current model. The phone costs the store, that then provides it to the customer on a contract (which is well over $1200 per year, 2 years minimum), between $700 and $900. That is not significantly different from the first iPhone when it launched. I think you might find that the original cost less. In Mass. the customer has to pay the sales tax on the phones discounted retail cost. The sales tax alone on an iPhone is over $40.00. "Can be had for $100" is meaningless since you pay for the phone via the contract over time. The Kindle marketing model is not the same, but you do have to pay money to make it work.
- On the second point, I am generally pretty happy.

Anonymous (not verified)    November 8, 2012 - 8:58PM

In reply to by John Goreham

I wasn't referring to the most up to date iPhone model. The iPhone 4 is practically free with a plan. It's an excellent phone, and less than a decade ago it would have been unimaginable. Apple could do this because rich people have subsidized the development of a new generation phone.

Do believe when I say that Tesla will, in a decade, start offering very affordable electric vehicles. It wouldn't have been possible without the model S. We still have much work to do, in battery tech, lithium extraction, quick charging tech, and even better solar panels. Everything is converging now.

Perhaps you're an older gentleman, and you've become disenchanted with EVs. I don't blame you.

dsm363 (not verified)    November 7, 2012 - 7:06PM

You do realize that Tesla and Fisker got DOE loans, don't you? The tax payer is only on the hook if they can't repay the loan. Articles like yours always seem to fail to mention that Ford received $5 billion and Nissan received $2 billion dollars from the same ATVM loan.

How is the Model S a 'supercar for the 1 percenter'? I can only assume you are referring to the Tesla Roadster which is no longer in production. None of the $465 million dollars Tesla received went towards the Roadster program, just the Model S.

Also, the Fisker Karma is as electric as the Volt is so really more of a hybrid. Did you also know that Tesla has powertrain and other deals with both Toyota and Mercedes? The Model S even has a few Mercedes parts in it so I assume Tesla could work out a deal on cheaper parts or tires as well.

John Goreham    November 7, 2012 - 7:30PM

In reply to by dsm363 (not verified)

Thanks for reading and your comments. I appreciate it.
- Yes. I do know about the US government loaning money to Fisker and Tesla. The American taxpayer is an investor without voting shares. The taxpayer gave the company money to use to build a supercar. The company is supposed to pay it back. Yes, I know Ford's loans. In an article I wrote last week I detailed the Ford balance sheet, specifically pointing out the dept Ford carries and its debt to on-hand cash ratio (it is all good news).
Ford has been profitable for 13 straight quarters. Good place to loan money some would say. One difference a person might note is that Ford does not offer any electric or hybrid supercars. All of the electric and hybrids they produce are under $40K, and some are under $30K. That is a car that many Americans can afford, and do actually buy.

-I consider any car that costs between $57,000 and $77,00 (base price before options) to be a car that only 1% of Americans can afford.

- Yes, the powertrain deals with Toyota are a good example of "to secure part of the product’s technology portfolio." Prior to a full purchase it is very common for a company to do a license deal. They can then learn about the other company and its deal-makers. Can they be trusted? How do they negotiate? Is there any leverage that can be uncovered. I see the Toyota RAV-4 deal as Toyota possibly peeking under Tesla's kimono a bit to see if they maybe should buy the company. I see it as a good thing for all parties.

dsm363 (not verified)    November 7, 2012 - 8:39PM

In reply to by John Goreham

Thank you for the reply. Can you point me to your source saying tax payers funded the Tesla Roadster? Again, the DOE loan was specifically for the Model S and not the Roadster from what I understood at least. Are you calling the Model S a 'supercar'?

If you want to argue to federal government should never invest money in companies it thinks can push the technological envelop then that's fine. I'd argue the $5 billion in oil subsidies should also go away.

Also, we have a long history of supporting industries that are early in their life cycle and even beyond such as oil, ethanol, railroad, mobile phones...etc. EVs are no different. Using the argument that it's a 1% product so we shouldn't help it out misses the point. If the 1% doesn't spent their money to buy products like this, the 99% will never get the chance.

John Goreham    November 8, 2012 - 11:23AM

In reply to by dsm363 (not verified)

Yes, I am calling a car that can beat a Porsche to 60mph a supercar. I am calling the Tesla Model S which will sell for between 60 and 80K a supercar. Bear in mind there is no evidence that the Tesla Model S can be built profitably for anyplace close to its sell price. In the article I can't see anyplace that I talk about the Tesla Roadster, which is no longer in production.

Anonymous (not verified)    November 8, 2012 - 2:17PM

In reply to by petero (not verified)

The Volt really doesn't lose 49 K on each car it sold, that rumor is applying fuzzy math. The report that says it loses is based on the entire research cost divided by the number of units sold (excluding future units and also excluding the development for the power train used for future models).

One the surface it makes sense, but that math should only be applied to mature products. Once you start attributing the entire R&D costs to first or second year sales, it begins to be very inaccurate and changes from day to day based on new car sales.

As an example, if you spend 100 million dollars to make a product, the product has a life span of 8 years, and you are in year 2, and sold 10,000 units and each unit has $2,500 margin that is above and beyond manufacturing/sales costs

25 million (profit)-100 million (R&D)/ 10,000 = Cost the company 7,500

Fast forward to year 8, total units sold is 100,000 units
250 million (profit)- 100 million (R&D)/100000 = 1,500 profit

Rob (not verified)    November 8, 2012 - 5:33PM

In reply to by John Goreham

At least the authors of the $49k number had a basis for their estimate, albeit an entirely flawed basis as they divided the total R&D costs by the number of vehicles produced in the first 12 months.
Currently monthly sales are almost 3 times higher then the equivalent months from 2011 with 2961 Volts sold in October 2012 compared with 1,100 in 10/2011. As vehicle sales increase that $49k in amortised costs falls rapidly, it is already below $20k per vehicle sold.
What basis or source do you have for your $100,000 estimate?

John Goreham    November 8, 2012 - 9:18PM

In reply to by Rob (not verified)

My estimate starts where the other one does, then adds the cost of highly paid marketing and sales executives, plus lobbyists, over a 5 year span. It also includes the huge marketing expenses incurred to launch a new type of car. Those costs would not have been incurred had the Volt not been created.

Dan5 (not verified)    November 11, 2012 - 8:18AM

In reply to by John Goreham

So you think that the marketing lobbyist expenses to launch the Volt were around 1.8 billion OR about 1/3 of the total year marketing budget for GM. You said it not me,

100 K-45 K is 55 K (your difference)

55 K * 33 K units sold worldwide = 1.8 billion

Please show your calculations and provide data to support your claim because I don't think anyone is buying the 100 K lose argument.

Also, if your claim is true, then the whole premise of your article is gone, since Tesla and Fisker have spent next to zero in marketing a new car and GM spent billions.... Can't make up billion dollars picking up knobs and negotiating tires on bulk tires.

Time for you to back pedal again...Again...

Rob (not verified)    November 11, 2012 - 9:11PM

In reply to by Dan5 (not verified)

The maths is actually far worse then that. The original 45k estimate was based on the R&D spend divided by the first year sales. Since then sales have more then tripled so the per unit spend is now down below $20k and falling. So for the total loss to be 100k you would need 80k per vehicle for marketing etc. or almost half if GMs total marketing budget. Just silly.

dsm363 (not verified)    November 8, 2012 - 2:32PM

In reply to by John Goreham

A Porsche Boxter is 0-60 in 5.5 seconds and around $60k+. There are more than a few cars that can beat that and almost no one would consider them Supercars. Most people are thinking Buggati Veyeon, McLaren...etc when someone says supercar. You have a very different definition of supercar I think than most people.

Are you really calling the base Model S with 0-60 in 6.5 seconds a Supercar? The only 'Supercar' version of the Model S is the Peeformace version for just under $100k. I guess you'd call an M5 a supercar as well? It's your own definition and right but understand you throw people off when you call a car with 0-60 times over 5 seconds a Supercar.

If your point is that the Model S is expensive then you got us but it is not a 'Supercar'. By that definition every 5 series BMW and E class Mercedes and above would be a Supercar just on cost alone.

John Goreham    November 8, 2012 - 4:30PM

In reply to by dsm363 (not verified)

I contend that the sell price of the Tesla is deflated. And I contend that most built will not be the $57K base model, but rather the $77K base model. The ones being given to testers are near $80K. Where are you getting 6.5 seconds? The published third party tests have this car under 4 seconds. 3.9 seconds is a lot faste than 6.5 seconds. That is the difference between a Miata and an Audi R8. The M5 is absolutely a supercar. AMG versions of the E class are also supercars.

dsm363 (not verified)    November 8, 2012 - 5:21PM

In reply to by John Goreham

I agree most cars will be the 60 kWh version (0-60 in 5.9 seconds) or 5.6 seconds for 85kWh pack. 6.5 seconds is for base 40kWh pack.

You are talking about the $93k Performance version which is 4.4 seconds. That will not be theist common model sold.

I guess we have different definitions of supercar. What do you call something like the Bugatti Veryon to set it about a 6 second car? I'd call that a supercar.

petero (not verified)    November 9, 2012 - 5:15PM

In reply to by John Goreham

Mr. Goreham. It pains me to agree with you that most "S" orders will be north of $70K. However... economy cars are often purchased at the base price, luxury cars are ordered loaded. Personally, I feel the $57K (less $7,500 + other state rebates and incentives) is an amazing value.

One minor point. If TM used traditional retail dealers, these 'good guys' would be adding $15-30K added market value to the MSRP.

John Goreham    November 10, 2012 - 9:36AM

In reply to by petero (not verified)

It is an unbelievable deal - Actually not believable. The prices are deflated is my opinion. The few hundred folks who got one at that price are getting tremendous value. I also contend they will be collector cars much like the Delorieans and the Tuckers (and GTOs etc. etc). I don't think that once sold they will ever devalue. If and when Tesla is bought out or goes under the values will spike up.

petero (not verified)    November 10, 2012 - 10:37AM

In reply to by John Goreham

Mr. G. You can still make a reservation for a base "S" at the $57K (less rebates) you will have to wait over a year but you can still order one. The problem with an "S" is like being a kid in a candy store - you want everything.

Many critics of BEVs and Hybrids compare the difference in price and gas savings between economy cars and their EV/Hybrid counterpart and say it will take 8-10 years in gasoline savings to break even. Thisis very true for economy cars, they get the greatest mileage at the lowest price. IMO, this is just the reverse in a luxury BEV/ICE comparison. Comparing an $80K "S" and a $80K BMW, the electric vs. gasoline savings are immediate. Do you realize there are only 17 moving parts in the motor and transmission of the "S?" On the bright side, BEVs are just starting their journey into the market place. As volume and infrastructure rise so will economy of scale and of course R&D.

I may order a second "S," a $57K base model with $1,500 leather upgrade interior. To me, it is a heck of value. The funny thing is you can't tell the difference between a base model S with leather and a fully loaded model with 19" wheels. I'm sure that will change. One of the things I admire about Mr. Musk is his minimalism kind of "less is more" sense of design. On the main dash board there are only two, small, physical buttons - emergency flasher and glovebox.

One of my passions is vintage collector cars. Deloreans have not so much escalated (unless they have the ultra valuable Mr. Fusion and other Doc Brown options). The Tuckers are a different story. A poor condition Tucker is worth almost $1 million and they recently sold a pristine one at auction for almost $4 million.

I sure hope Tesla succeeds...if only to show the traditional manufacturers to open their eyes and build much better cars - not parts bin recyclables.

Aaron Turpen    November 10, 2012 - 1:42PM

In reply to by petero (not verified)

I love this "mechanically simple" argument. Unit for unit, there have been more recalls for battery electric and plug-in electric cars than there have been for their ICE counterparts. Just because they have fewer moving parts doesn't guarantee they're more reliable. Electronics issues, chemical battery problems, wiring problems, etc. etc. are all going to happen. Because the tech is new. Maybe a decade or two from now, after things have been vetted, the "mechanically simple" argument will hold true, but for now? Nope.

petero (not verified)    November 10, 2012 - 3:28PM

In reply to by Aaron Turpen

Aaron. Very good point. I will only speak about Tesla. It is too soon to cast a vote, afterall, a new: car, factory, assembly line, vendors, new, new. I'm sure TM will have its' share of teething problems. The "S" will be a work in progress, it is very much like a laptop on wheels and there will receive constant software upgrades/downloaded over the net. TM has already issued several software updates and is working on others to give customers features they want and to improve performance. One such upgrade is "creep," the ability to slowly move forward when you take your foot off the brake.

I admit the "S" will be the most 'updated' automobile in history. Mechanically, I don't see a lot of problems and most of the areas you have mentioned IMO may not be mechanical (motor, transmission, brakes, suspension).

Anonymous (not verified)    November 8, 2012 - 4:00PM

In reply to by John Goreham

So by your definition a 427 and Z06 Corvettes are a super car? That can also beat a Porsche in 0-60 and starts around 75K. In reality, those Corvettes aren't even the top line Corvettes either.

Let's get put your definition of super car out there

0-60 in less how many seconds?
Price greater than how much?
Top speed?

I'm sure I can find 4 door sedans that a person would not consider a super car to fit that category

I think your definition of super car varies significantly than the general population. Ferrari= super car, Lamborghini= super car

John Goreham    November 8, 2012 - 4:34PM

In reply to by Anonymous (not verified)

Under 4 seconds as tested by MT. Yes, a Corvette 427 is a super car, and Chevy makes one better. Price does not matter. If you prefer to call the Tesla S a $ 106,900.00 sports-luxury car, so be it. That was the price of the tester being sent about to auto media outlets by Tesla.

Rob (not verified)    November 8, 2012 - 5:14PM

In reply to by John Goreham

Some supercars;

Bugatti Veyron. $2,500,000
Mercedes-Benz SLR McLaren. $495,000
Koenigsegg Agera R $1,600,000
Porsche 911 GT2. $194,000
SSC Ultimate Aero $650,000
Koenigsegg CCX. $550,000
Saleen S7. $585,000
McLaren F1. $970,000
Zenvo ST1. $1,800,000
Noble M600. $330,000
Gumpert Apollo. $450,000
Lamborghini Aventador. $380,000

A $57,000 to $80,000 car that saves about $2,000 per year in fuel costs? Not so much. The ironic thing is that the Tesla Model S sig performance at ~$100,000 has performance numbers that come awfully close to some of the ~$350,000 on the above list, that's gonna bruise some egos.
Supercar performance? Pretty damn close. Supercar price tag, not even vaguely close.

John Goreham    November 8, 2012 - 9:30PM

In reply to by Rob (not verified)

Just for grins and giggles I Googled "Tesla Model S Supercar. Businessweek, Bloomberg, and CarBuzz all refer to the Model S as a supercar. So maybe that is where I heard it, or maybe supercar and exotic car are similar I dunno. The one the car writers are being shown and allowed to drive ciost $99K AFTER the federal tax rebate, and it is the fastest 4 door car for sale in the United States. How'd we get all caught up in this? I have no beef with the Model S, I'm simply pointing out Tesla will be bought out or go out of business at some point. And when you pay $106K for a car, who cares how much gas costs?

Rob (not verified)    November 8, 2012 - 10:56PM

In reply to by John Goreham

Wow, way to blatantly misrepresent others comments, you are welcome to your own opinions on Tesla, you are not welcome to your own facts.

Bloomberg said "Tesla’s $102,000 Electric Model S Surges Like a Supercar" and business week is a Bloomberg publication which reprinted the exact same article which describes the Model S as having performance "like a supercar" it specifically does not describe the Model S as being a supercar.

Carbuzz said "A flagship electric supercar is on the cards for 2016" referencing comments by Elon that he would like in the future to release a Tesla supercar and specifically implying that they have not yet released one.

Finally as you point out these descriptions are specifically about the $100,000+ now unavailable limited edition signature performance model, even if they had described that model as a supercar, which they have not, the base models between $57,000 and $77,000 are in a completely separate and far more affordable league. You make the assumption that anyone with $100,000 to spend on a car has no issue with wasting money, most wealthy people (except those born wealthy) got that way by not wasting money.

John Goreham    November 9, 2012 - 4:21PM

In reply to by Rob (not verified)

Fair enough. I honestly just did what I said - Googled it and saw all the headlines. Whatever kind of car it is, the one that Automobile tested, and then deemed Automobile of The Year has a "Price as tested" numbr of $106,000. I have read that the buyer is also required to purchase a $600 per year maintenance contract. have you heard that? It could be wrong.

Rob (not verified)    November 9, 2012 - 6:18PM

In reply to by John Goreham

The $600 is an optional everything included annual maintenance package, a little like maintenance insurance. Covers computer updates, tyre rotation, annual inspection any unexpected issues and includes mobile ranger service at a location of your choice within a certain range of a Tesla location.
You can pay for maintenance as needed, the $600 allows you to prepay and avoid unexpected maintenance bills.