Bob Lutz knows a thing or two about the car business. He has held important positions at General Motors, BMW, Ford, and Chrysler. He is credited with bringing such cars as the BMW 3 Series, Ford Explorer, Saturn Sky, and Ford Explorer to market. He was the force behind the Dodge Viper and the 2004 Pontiac GTO. Were it not for an unfortunate spike in oil prices, his awesome Cadillac Sixteen — a concept personal luxury car with a 16 cylinder engine — might have been the crowning achievement of his career. So when Bob Lutz speaks, people listen.
In the current issue of Road & Track, Bob Lutz spends a lot of time talking about Tesla Motors and he doesn’t have much good to say. For starters, he says Tesla cannot afford to continue to lose money on every car it builds (the subject of whether Tesla is making or losing money is a debate with passionate adherents on both sides of the issue). “Tesla’s showing all the signs of a company in trouble: bleeding cash, securitized assets, and mounting inventory. It’s the trifecta of doom for any automaker, and anyone paying attention probably saw this coming a mile away,” Lutz says.
Here, Lutz is also especially critical of the way Tesla markets its cars. He appreciates that Elon Musk wants to emulate Apple when it comes to marketing by using company stores instead of franchise dealers, but he says there is a big difference between selling cars and selling electronics. In fact, Lutz says dealers can take a lot of the financial load off the shoulders of manufacturers — if you let them.
“I think Tesla CEO Elon Musk figured that if factory stores work for Apple, they’ll work for Tesla. But the fixed costs for an Apple store are next to nothing compared with a car dealership’s. Smartphones and laptops don’t need anything beyond a mall storefront and a staff of kids. A car dealership is very different. It sits on multiple acres. You need a big building with service bays, chargers, and a trained sales force, plus all the necessary finance and accounting people. It ties up a staggering amount of capital, especially when you factor in inventory. Under a traditional franchise arrangement, the factory never has to carry that burden. Right now, Tesla does.”
So what would Bob Lutz do if he were running Tesla Motors? “If I were sitting in Musk’s seat, I would take an urgent look at cutting cost. Not just taking cost out of the car, but reducing expense in general. When they have a situation where, on an operating basis, they’re losing $4000 per car, they’re in trouble. At some point, they’re not going to get any more money.
“I would seriously consider an entry-level model with a cheaper, range-extended hybrid driveline. Something with a much smaller battery that also looks great and drives great. Something that’s electric most of the time, say 50 or 60 miles, but can carry on under gasoline power past that. Would an internal-combustion engine dilute the Tesla brand? Maybe, but everyone said Porsche could never build a front-engine car, and look how that turned out.” Sounds like Lutz would take the same approach Chevrolet has taken with the Volt, doesn’t it? That seems to be in spite of the fact that Lutz himself criticized that very approach a few years ago, and said that a larger electrified truck/SUV-type vehicle (like the Tesla Model X?) was the answer.
The bottom line is, Bob Lutz has seen car companies come and car companies go (his own, included!). He warns, “I think the Model S is a fabulous car, but history’s filled with defunct companies with great products run by brilliant people. Unless Tesla rights its organization and products in a hurry, it’ll join those ranks.” But is it possible that Lutz is one of those marketing dinosaurs who just doesn’t get Elon Musk’s “build expensive cars now so we can build less expensive cars in the future” philosophy? Time will tell.