Video: Supercharged

msnbc.com staff and news service reports
updated 10/17/2008 6:15:39 PM ET 2008-10-17T22:15:39

Tesla Motors — maker of a $109,000, all-electric, emissions-free sports car that can do 0-60 mph in 4 seconds — this week said it had hit a financial wall, specifically a shortage of cash.

Citing the tough economy, the Silicon Valley company said it will have to scale back the development of a $60,000, all-electric sedan until its U.S. Energy Department loan guarantee becomes effective.

Production of the vehicle, set to be unveiled early next year, will likely be delayed by about six months to mid-2011, Tesla Chairman Elon Musk said Wednesday on the company's Web site.

In addition, Musk said he will become Tesla's chief executive, replacing Ze'ev Drori, who will remain on Tesla's board as its vice chairman.

Musk said Tesla also will reduce its work force a "modest" amount and close its engineering office near Detroit, Mich., moving those jobs to new headquarters in San Jose, Calif. He did not specify how many jobs would be cut.

"Our goal as a company is to be cash-flow positive within six to nine months," he added.

Focus on the sports car
Musk said Tesla has decided to focus on areas that are producing revenue: the production of its Roadster sports car, which has a one-year wait list, and powertrain sales to other automakers.

He said demand for the Roadster continues to grow despite the ongoing industrywide slump in vehicle demand, while the powertrain business is profitable and growing.

With an exterior design based on the Lotus Elise sports car, the Roadsters will continue to be built mostly at the Lotus factory in Britain and flown to California for final assembly.

Tesla has been a darling in Silicon Valley since its founding in 2003, attracting investors like Jeff Skoll, former president of eBay, and Google cofounders Larry Page and Sergey Brin. Musk himself made a fortune as cofounder of the online payment service PayPal.

It has also attracted afficionados — not those looking for loud muscle cars, but people who appreciate what electric power can do for performance and the environment. Celebrities who've ordered Roadsters include California Gov. Arnold Schwarzenegger and actors George Clooney, Leonardo DiCaprio and Matt Damon.

Another niche: Software engineers. The company in late September sent its latest Roadster prototype — formally known as "validation prototype No. 11" — to the Seattle area, showing it off at the Microsoft campus and offering test drives to locals who had made a downpayment as well as to several journalists. (Microsoft is a partner with NBC in the joint venture that owns msnbc.com.)

Waiting for the Model S
Musk said Tesla remains committed to the Model S, whose $60,000 price tag would appeal to more buyers, but the company will reduce activity on production engineering, tooling and supplier commitments until the loan guarantee comes through.

"The DOE loan guarantee will cover most of the Model S program at a very low cost of capital compared with raising equity financing in what could quaintly be described as a 'bear market,'" Musk wrote.

Image: Tesla Roadster
John Brecher / msnbc.com
This Tesla was test driven in Bellevue, Wash., by locals who'd made a downpayment as well as a few journalists.

He said the funding can only be drawn down after the company receives environmental approval for its proposed 89-acre facility in San Jose. That should happen in the second quarter of 2009, he added.

Tesla was way ahead of bigger carmakers when it came to all-electric vehicles, but now faces the possibilty of rolling out the Model S six months after General Motors comes out with its electric Chevrolet Volt.

The Volt will have a gasoline engine as well, but GM says that most drivers would only need that on infrequent longer trips. The Volt's all-electric range will be about 40 miles a charge, more than enough for most commuters, GM argues.

Other carmakers catching up include Nissan, which plans an all-electric vehicle for the U.S. market in 2010, and Toyota, which is developing a plug-in hybrid.

The New York Times reported that Tesla is trying to raise $100 million to add to the $146 million it has already raised in five years.

"We are not far from being cash flow positive," Musk wrote, "but even if that threshold ends up being further than expected, I will do whatever is needed to ensure that Tesla has more than sufficient capital to get there."

msnbc.com's Miguel Llanos and The Associated Press contributed to this report.

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