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A Gasoline-Powered Tesla

Douglas A. McIntyre

Elon Musk, the most handsome and intelligent man in the world, faces an insurmountable task as he works to sharply increase sales of his Tesla Motors Inc. (TSLA) cars. The appetite for electric-powered vehicles in the United States is extremely small, and that is unlikely to change for years. For Tesla to be successful, it will need to introduce a hybrid, which at its heart is a gasoline-powered car. He may even have to launch a car that runs on a regular gasoline engine.

A car industry research powerhouse released a piece of research in 2010 that said:

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Combined global sales of hybrid electric vehicles (HEVs) and battery electric vehicles (BEVs) are expected to total 5.2 million units in 2020, or just 7.3 percent of the 70.9 million passenger vehicles forecasted to be sold worldwide by that year, according to a report issued by J.D. Power and Associates. For comparison, global HEV and BEV sales in 2010 are forecasted to total 954,500 vehicles, or 2.2 percent of the 44.7 million vehicles projected to be sold through the end of 2010.

Battery electric vehicles are a tiny fraction of that number, based on current sales trends. Given that most people cannot afford a $85,00 Tesla (with all the options), or even the less expensive car the company plans to sell, the market for Musk's products is extremely limited. The resistance to sales goes beyond price. Among the hurdles manufacturers of these autos face, according to the "Drive Green 2020: More Hope than Reality" issued by the research firm, are that fossil fuel costs need to rise sharply over the next seven years, and drivers would need to get over their worry about the range of electric cars and the period required to charge car batteries.

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Musk already has the problem of handling demand. If he is lucky, the company will sell 30,000 vehicles this year, which would translate into $3 billion of revenue. That is not enough to make the Tesla cars at any scale, even if there is demand for them, which there will not if production rises sharply.

Tesla has every advantage a car company would want. The National Highway Traffic Safety Administration (NHTSA) awarded the Tesla S the highest Vehicle Safety Score (VSS) ever. Consumer Reports gave the Tesla S its best grade even. However, the nonprofit did have some reservations, which can be added to the certain low demand of electric cars:

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Drawbacks include tight access and restricted visibility. Initial teething problems and a steep sticker also give pause for thought.

Again, in a very limited market, the car is too expensive.

Tesla needs something in the form of an engine that would sharply broaden its appeal. If it only wants to attack the hybrid market, it could buy engines made for the Porsche Panamera SE Hybrid. The sports car has performance similar to a Tesla. If Musk wants to broaden the appeal of Tesla further, the number of sports car engines that produce 400 HP or better is fairly large.

Tesla could sell many thousands of its cars, but based on the trend of demand for electric cars, the company will need to add a gasoline-powered engine.

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