Electric Car Maker Tesla Delays Launch and Closes R and D Facility

DETROIT, Oct 15, 2008; Kevin Krolicki and David Bailey writing for Reuters reported that electric car startup Tesla Motors is delaying the launch of a planned five-passenger battery-powered sedan and cutting jobs to conserve cash as a credit crunch drives funding costs sharply higher.

The company, which sells the $109,000 Tesla Roadster, said on Wednesday it would rely on low-cost, taxpayer-backed loans to cover most of the development costs of its new vehicle, billed as a family car expected to cost about $60,000.

Tesla, which had launch delays on its two-seat Roadster, faces intense competition from established carmakers like General Motors Corp and Nissan Motor Co Ltd, and upstarts like Chinese battery maker BYD Co.

Chrysler also has said it was looking at an electric roadster based on a chassis from Britain's Lotus -- the same company that supplies the chassis to Tesla for the Roadster.

Tesla's restructuring showed how a financial crisis that has pressured the auto industry's largest players in recent weeks has also hit a high-profile entrant in the high-stakes market for zero-emission vehicles.

Elon Musk, founder of Tesla and earlier PayPal, announced the shake-up on his blog and said he would step in as chief executive officer of the San Jose, California-based company.

Tesla's former chief executive, Ze'ev Drori, who joined the company in December 2007, will stay on the board as vice-chairman, Musk said. Tesla will close a Rochester Hills, Michigan office near Detroit, Musk said.

"The global financial system has gone through the worst crisis since the Great Depression and the effects are only beginning to wind their way through every facet of the economy," Musk wrote. "It's not an understatement to say that nearly every business will be impacted by what has unfolded in the past weeks, and this is true for Silicon Valley as well."

AIMS TO STOP CASH BURN

Musk said Tesla was aiming to stop burning cash within six to nine months. To do that, he said the company would focus on the Roadster and selling electric-drive "powertrain" equipment to other car companies.

Musk did not say how many jobs would be lost, saying only the reduction would be "modest." The company has about 250 employees, including 30 in Rochester Hills mostly dedicated to engineering and interior development on the sedan.

Tesla has raised more than $100 million from various investors. Musk, who also founded SpaceX aimed at launching payloads and people into space, invested in Tesla in 2004.

In September, Tesla said it was building a $250 million Silicon Valley plant to produce a new electric sedan code-named Whitestar it expects to unveil next year. Production of the sports sedan Model S was scheduled originally for 2010.

Tesla's then-CEO Drori in an interview said he expected manufacturing of the Model S sedan aimed at the luxury car market to hit a rate of over 15,000 a year by end 2011.

Drori also said then that Tesla was a few months from obtaining up to $100 million in private equity financing.

The U.S. Department of Energy has also approved $150 million in loan guarantees to Tesla, the company said.

Musk said on Wednesday that Tesla would slow development work on the electric sedan until it gets the U.S. government financing.

"The net result will be a delay in the start of production of the Model S of roughly six months to mid-2011," Musk said.

Tesla unveiled the Roadster prototype in 2006. The car has been billed as the world's first all-electric sports car, able to accelerate from zero to 60 miles per hour in under 4 seconds, faster than a Ferrari.

Production began on the Roadster in March after a number of delays. Tesla had delivered 27 of the cars at the start of September and plans to have 300 built by the end of 2008.

The first cars also were delivered with what Tesla has described as an "interim transmission design" and buyers were allowed free upgrades to a new transmission.

Editing for Reuters by Tim Dobbyn and Gary Hill)