Tesla Says It Won't Make Sedan or Build Factory Without $350 Million in Federal Aid

Tesla Says It Won't Make Sedan or Build Factory Without $350 Million in Federal Aid

The fate of Tesla Motors' next generation all-electric sedan rests in the same pot of federal money lawmakers want to use to bail out General Motors and Chrysler.

The maker of the $109,000 Roadster electric sports car (right) is seeking $350 million in low-interest government loans to develop a $57,499 four-door plug-in electric sedan tentatively called the Model S, CEO Elon Musk told Bloomberg news service Tuesday. The company won't build a planned $250 million manufacturing facility in San Jose, California, for the new car without the aid, he said.

You may recall that on Nov. 21 we reported that the young Silicon Valley electric-vehicle maker had applied for about $400 million of a multi-billion government loan package designed to help automakers produce more efficient vehicles and meet new fuel economy standards.

And, you may recall that on Nov. 3 we reported that Tesla's directors had approved $40 million in convertible-debt financing to step up production of the Roadster and the Model S and to expand its battery-electric powertrain sales unit. We were told that most of Tesla's major investors had pledged a combined $40 million to ensure that amount would be met.

But according to Bloomberg, Musk said the recently completed $40 million debt offering "wasn't very easy."

Ed Kim, director of industry analysis for AutoPacific Inc. in Tustin, California, told Bloomberg that "these are the sorts of troubles and challenges that many small startups see."

"What Tesla is attempting to do is very ambitious, but they are small and the vision and dream that the company has involves very expensive cutting edge technology," Kim said.

Tesla, based in San Carlos, California, is applying for loans under a $25 billion Energy Department program created by Congress to encourage the development of energy-efficient vehicles. Lawmakers and the Bush administration are debating using $15 billion from the fund to keep GM and Chrysler operating.

Intended Purpose

Musk said Tesla wants to use the government aid for its intended purpose of building a new generation of vehicles.

"We don't need the government to survive," he said, according to Bloomberg. "They need the government," he said, referring to the Detroit automakers. 

Even without the loans, Musk said, Tesla will be profitable by the middle of next year because of sales from its battery technology and its Roadster. Tesla delivered its 100th Roadster Tuesday and expects to sell about 1,100 of the electric vehicles next year.

The zero-emissions car has a body made by Group Lotus and uses a rechargeable battery pack made up of 6,800 lithium-ion cells to accelerate from 0 to 60 miles per hour in less than 4 seconds. It can travel up to 240 miles on a single charge if driven in a sedate manner.

Without the government assistance, Tesla will remain a boutique car dealer for the rich and could have trouble staying in business, Kim said in a telephone interview with Bloomberg reporter Adam Satariano.

Without some sort of financial aid coming, Kim said he has a hard time imagining Tesla "being around much longer unless some new magical investors were to step in."

He noted that the company is having major cash-flow issues and isn't producing cars fast enough to keep the lights on.

A Tesla insider took umbrage at Kim's remarks, telling us that Kim has never been to the company's headquarters or flagship retail store nor has ever spoken with a Tesla executive or media representative.

Scott Doggett:  is an AutoObserver.com Associate Editor.