As Losses Mount, Tesla's Model S is Make or Break

Tesla Motors' sobering revenue report last week makes it plain that the company's fortunes rest almost entirely on its Model S, a sleek performance sedan slated for mid-2012. As things stand, Tesla is producing very little revenue from its sole model, the Roadster, which has been on the market since 2008. The company delivered its 1,500th car in late 2010, but it has sold only 500 since the start of last year.

The Model S is a cash drain
The Model S, which is being built from the ground up, is rapidly consuming what had been a pretty hefty amount of cash from Tesla's IPO ($226 million) and Department of Energy loan ($465 million). The Model S, an estimated $500 million program all-in, is costing the company $50 million a quarter in development costs.

Nothing evaporates cash faster than an all-new, ground-up car program. Most carmakers looking to launch a battery car have either based their EV on an existing model (such as the Ford Focus electric) or bought a foreign chassis (Wheego's LiFe and Coda's sedan). Only Nissan, with its Leaf, has started from scratch, and that's an even bigger gamble than the Model S, with a $1.7 billion investment.

It could be a hit
The Model S is potentially a game changer as the world's first high-performance battery sedan, and at $57,500 it's realistically priced for what it promises to deliver. But Tesla will have to somehow make a profit with a miracle car -- with twice the utility of its Roadster (now stagnant after 1,500 sales) at half the price. Oh, and it better meet the 230-mile range goal, too. (The 300-mile version, a real stretch, comes later.)

I should be clear here that I'm not making dire predictions about the Model S program. From what I've seen (including the bare "body in white" at the Detroit Auto Show and some recent styling upgrades), the company is hitting the right marks. But even if the car is good, Tesla will have some hurdles getting to 20,000 cars a year. The Roadster was supposed to be a 2,000-car-per-year model, and it still hasn't reached total sales of 2,000 after more than two years on the market.

Tesla reported a $51.4 million loss for the fourth quarter of 2010 (deeper than the $34.9 million loss the previous quarter) and a net loss of $154.3 million for the full year (also bigger than the $55.7 million loss in 2009). Tesla reports $184 million cash in hand. Car sales dropped as a source of revenue from $102 million in 2009 to $79 million in 2010. And it moved a miserable 149 Roadsters in the fourth quarter.

If not the Model S, then... nothing?
Tesla has been able to offset the car sales decline somewhat with revenue from its partnerships. Revenue for the quarter rose 95 percent in the fourth quarter, to $36.3 million. The company is providing 1,800 battery packs to Daimler for the electric Smart car, and expects to clear as much as $69 million from its work on the Toyota RAV4 electric. There are also some undisclosed deals with other carmakers for battery work, and a growing relationship with Panasonic (which invested $30 million).

The Model S is indeed critical for Tesla as a going concern. The company has plans for other models going forward -- it wants to build a crossover SUV, code-named Model X, on the Model S platform, and could show a prototype by the end of 2011. But that's a long way from actually producing the car, which could take several years. Tesla is a potential takeover candidate -- Toyota or Daimler are likely to be interested. But everyone wants to see how good the Model S is going to be.

Once the car is out, Tesla will have to make headway against low public awareness about battery cars. Tesla does marketing better than most other electric start-ups, but it hasn't been able to keep momentum going with the Roadster, especially since it's not three years old. The company just opened a new store (its 16th worldwide) in Washington, D.C. CEO Elon Musk is a masterful ringmaster when it comes to getting media attention, as the video below shows. I wouldn't count Tesla out by any means, but it's a high-wire act any way you look at it.

Related:

• By Refusing To Be a One-Car Company, Tesla Sets Itself Up for Big Success
• The Next Big Challenge for Electric Cars: Cold Weather
• Europe Proving a Tough Nut for Tesla to Crack