Tesla opens its first Canadian retail location in Toronto’s Yorkdale Mall in November, part of a crucial phase of expansion for the Model S electric car. It’s a product hailed as a feat of engineering with the potential to ease the stranglehold of internal combustion. Tesla has believers and skeptics in equal measure. “The electric car hasn’t been proven to be commercially viable, and Tesla itself has not proven it can manufacture a vehicle from the ground up and sell it at a positive margin,” says Ben Schuman, an analyst at Pacific Crest Securities.
Since going public in 2010, Tesla has been beset by production delays and rising costs, surviving the occasional brush with death. That kind of turbulence is not unusual for a tech-based startup that must weather a long unprofitable period while rolling out a new product. But there’s a more entrenched problem with electric cars that Tesla must overcome—the battery.
With its luxury vehicles, Tesla is aiming for a battery capable of long ranges on a single charge. That requires a lithium ion battery that is both very expensive and very heavy. “A fully electric car will never be a mainstream car like a Honda Accord until the battery is much cheaper and lighter. And we’re many years away from that,” says Khurram Malik, a clean-tech analyst at Jacob Securities. A battery required to power an Accord would cost more than $20,000, Khurram says.
Yet, in Musk many trust. He started Tesla with the fortune he made from selling his stake in PayPal, a company he co-founded and later sold to eBay. He’s also the man behind SpaceX, which in May successfully docked a capsule at the International Space Station, earning Musk the admiration of NASA.
Even if few doubt Musk’s vision, there’s a long way to go in commercializing the Model S. Tesla first began shipping the car in June and expects to deliver about 3,200 this year, well short of its target of 5,000 cars. Some analysts doubt the company’s ability to meet its goal of 20,000 deliveries in 2013. By the end of the year, the company will have 34 locations worldwide. The purpose of the Toronto store is not just to sell cars, which, in Canada, range in price from $64,500 to $100,400, before provincial rebates. Rather, staff are charged with educating Canadian customers and building relationships. The marketing value of a mall location is to attract foot traffic and build a buzz around the brand in the hopes of generating a kind of cultural momentum. It worked for Apple.