Tesla Re-Designs the Auto; In House.

Recently I had the privilege of touring Tesla Motors, the luxury electric vehicle manufacturer. Tesla is known for their high-end Roadster, which can go from 0-60mph in 3.7 seconds, and has a not-too-shabby range of 245 miles. Hey, that'll get you to Tahoe in one shot. This beauty of a car is accompanied by a luxury price range, upwards of $100K.

Tesla is now in pre-production for its sleek new car, the Model S. I'll admit that I'm pretty impressed by this sedan, which is all about no compromises. Tesla forecasts the Model S will be hitting the market in 2012.

While the products are selling points alone, what has impressed me the most about Tesla is its operational strategy. Tesla, contrary to popular business trends, has decided to vertically integrate as much of the company as possible. Tesla is taking complete control of the battery cells, battery, drive-train, and more. This type of hyper-vigilance has given them what they view as their competitive advantage. The best engineering, combined with the highest quality manufacturing, translating into a superior product. What's astonishing about this company's model is that it runs in completely the opposite direction of the auto industry as a whole. This is a bold move, but in light of recent bailouts and outsourcing issues, perhaps now is the time to buck industry norms.

For example, Tesla has decided to operate its own retail stores, as opposed to licensed dealers. This gives it not only quality control of the sale interaction, but also increased margins previously lost to dealers. After the sale, Tesla is able to provide direct support to customers, and have a straightforward relationship with its customer, ultimately translating to brand loyalty.

To me, all this bears a striking resemblance to the Southwest Airlines story. Southwest came into an archaic market, and shook things up wildly by examining those missing revenue opportunities, and re-designing the process from the ground up. When the airline industry was moving towards luxury travel, Southwest simplified the whole concept of air travel, and its hair-splitting cost-efficiencies proved to be the bellwether through rocky financial times for the rest of the industry. While Tesla is certainly not modeling after Southwest, this concept of fresh ideas to re-design an old market is worth noting. Might we see other auto manufacturers model the Tesla way after a few years of success?

From a consumer standpoint, I am impressed by the results. The new ironclad battery for the Model S actually runs thinly under the car, almost negating the need for engine space. For this reason the Model S was given a best-in-class storage ranking, and boasts a carrying capacity of 5 adults and 2 children. This undercarriage battery serves as an additional safety feature of the car, as it further reinforces the frame.

While the price is a bit high for many sedan-drivers at ~$60K, Tesla has run the numbers on operating savings, comparing a full battery charge to about the same price as a single gallon of gas. The price of operating a Model S is substantially lower over the life of the car, with many federal and state tax credits to boot. For a person considering a luxury sedan in 2012, to me the choice, monetarily, environmentally, and domestically, is a sleek new Tesla Model S.