An old sage of the auto and battery industry put the ‘king’s new clothes’ argument to a US TV audience recently. Bob Lutz, GM’s former vice-chairman and onetime CEO of Exide, predicted the demise of Tesla on the US TV show CNBC this morning.
A rather blunt Lutz shared his views, claiming that Tesla’s constant cash burn, combined with a barrage of competitive models that are about to hit the market, is likely to indicate the company is “doomed”.
As for Tesla’s gravity-defying stock price, Lutz attributed the company’s soaring market cap solely to Musk being the “greatest salesman in the world” along with his being “aided and abetted by some analysts”.
“Even the high-end cars that they build now cost more to build than they’re able to sell them for,” Lutz claimed.
“Mercedes, BMW, Volkswagen, GM, Audi and Porsche are all coming out with 300-mile [range] electric luxury sedans…I think Tesla is doomed.”
At that point, the CNBC host was forced to step in and ask: “What does doomed mean?”
And Lutz expanded his point “What does doomed mean? Their stock price comes in? They go out of business? They have regular competition like other companies?”
Lutz was happy to entertain the question and explained to the shocked CNBC hosts that when variable production costs exceed products sales price…”well, that’s a problem”.
“Their upside on pricing is limited because everybody else sells electric vehicles at a loss to get the credits to be able to sell the sport utility vehicles and the pickup trucks. So that puts a ceiling on your possible pricing.”
Lutz added: “And if he can’t make money on the high-end Model S and Model X’s which sell up to $100,000, how in the world is he going to make money on a $35,000 small car? Because I have news for you, 42 years of experience, the cost of a car doesn’t come down proportional to its price.”