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Tuesday, November 3, 2015

Bob Lutz Is Wrong, Tesla Isn’t Doomed


Bob Lutz was once a titan among the automotive industry. Throughout his expansive career, Lutz helped countless American automakers steer away from financial ruin. However, in a column published in Road & Track, the former CEO is grasping at straws and in some cases, getting facts patently wrong about electric car maker, Tesla.

In the article titled Is Tesla Doomed?, Lutz posits that company has been condemned to death for quite some time. He elaborates, “Tesla’s showing all the signs of a company in trouble: bleeding cash, securitized assets, and mounting inventory.

It’s the trifecta of doom for any automaker, and anyone paying attention probably saw this coming a mile away.” However, if Lutz would follow his own advice and actually pay attention, he’d likely retract his statements.


Lutz’s first volley at Tesla is aimed at cheap gasoline and the car’s “poor range” that requires long stops to recharge. Indeed, the average price of gasoline is around $3 a gallon, and while that’s lower than it has been, gas prices will shoot up again as the resource becomes more scarce.

To counter Lutz’s second indictment, recently, a team involving Carl Reese, Deena Mastracci, and Alex Roy completed a coast-to-coast trip in a Model S in an extraordinary 57 hours and 48 minutes. While it’s far longer than previous records, it isn’t slow. Battery technology is getting increasingly better with each successive generation, and within the next decade, we’ll likely see batteries double, if not triple, in range.


Furthermore, Tesla has increased the number of supercharging stations across the US.  These stations allow cars to charge to over half full in about 30 minutes, which is not exactly the excruciatingly long wait Lutz suggests.

Tesla’s currently pouring its assets, i.e. “Bleeding cash,” into the construction of the new Gigafactory, which would allow Tesla to increase production and build the more affordable Model 3.

 Currently, Tesla only caters to more wealthy customers, leaving a vast majority out of the consuming public. The Model 3 aims to change that, which could see Tesla truly compete with BMW, Mercedes, and Cadillac.

Tesla Hacked

Lutz’s commentary on Tesla’s mounting inventory is also problematic since it’s been the exact opposite for the company, which hasn’t been able to deliver cars fast enough.

According to BMW Blog, in Europe, the Model S has decimated its competition. “For the first nine months of 2015, Tesla sold 10,600 of its Model S sedans. During that same time, Audi sold 4,700 A8s and BMW only sold 2,650 7 Series. However, the Model S only sold 800 units shy of that of the Mercedes S-Class,” a far cry from a shriveling group of buyers.

Tesla Store Red

It’s then that Lutz calls out Tesla on dealerships, which is intriguing since the company doesn’t maintain any.

“I think Tesla CEO Elon Musk figured that if factory stores work for Apple, they’ll work for Tesla. But the fixed costs for an Apple store are next to nothing compared with a car dealership’s. Smartphones and laptops don’t need anything beyond a mall storefront and a staff of kids. A car dealership is very different.

 It sits on multiple acres. You need a big building with service bays, chargers, and a trained sales force, plus all the necessary finance and accounting people. It ties up a staggering amount of capital, especially when you factor in inventory. Under a traditional franchise arrangement, the factory never has to carry that burden. Right now, Tesla does.”

Here we must ask, has Lutz ever been to a Tesla location? Normally these stores have a smaller staff than any of Apple’s, and lack any real inventory. If Tesla had not gone a direct sales route, then yes, dealerships would have been a major hurdle. But they haven’t. To buy a Tesla, you don’t even need to go into a store, and can be done solely online.

Tesla Model S image

Does the company have hurdles in its path? Yes, just like every other automaker in the 21st century. We live in an age where increased autonomy and electrification are key to manufacturer’s future survival, and currently, no other manufacturer has been as successful adopting those tenants as Tesla.

Bob Lutz then, is wrong. Tesla is in fact, not doomed.