What Chicago can expect from working with Tesla's Elon Musk: A delayed, cash-guzzling success

Anyone familiar with the Chicago Transit Authority is familiar with the message “Blue Line train experiencing delays.” Chicagoans should expect the same when it comes to plans by Elon Musk’s Boring Co. to build a high-speed transit tunnel between the Loop and O’Hare International Airport.

As CEO and product architect of Tesla, Musk has proved that electric vehicles can sell and be sexy, but customers and analysts have come to expect production delays, quality concerns and financial shortages.

“He’s got a history of breaking barriers and doing things no one else has done,” said Karl Brauer, executive publisher at Autotrader and Kelley Blue Book. Brauer referenced Musk’s SpaceX company, which is the first to reuse rockets that can take off and land, as well as being the first company to succeed in the premium electric vehicle market. “All those accomplishments have come with more cost than originally planned, with a longer time frame than originally planned, and an unsustainable business model.”

Tesla could be an indicator of what to expect with Boring, which projects a cost of less than $1 billion with no money expected from the city.

“He’s struggling to come up with cash to keep Tesla afloat,” said Russ Mitchell, a reporter for the Los Angeles Times who covers Tesla. “We’ll see if he can come up with cash for this.”

Boring would keep the revenue from the system’s estimated $20 to $25 transit fees and any money generated by advertisements, branding and in-vehicle sales, according to the Chicago Tribune. But raising $1 billion up front?

“Elon is extremely creative in acquiring money,” Brauer said in a phone interview. “He doesn’t build a product and sell it for a profit; he touts an idea and sells it to a lot of investors.”

The Silicon Valley company has been both the darling and dud of Wall Street. Last year, Tesla had a market capitalization that exceeded those of GM and Ford. But the company has not made an annual profit since its inception in 2003.

“The company has survived so far thank to billions of dollars from stock sales, junk bonds and loans,” Mitchell said via email.

As Tesla ramps up production of its fourth model, the compact Model 3, the business model has been scrutinized as it transitions from a low-volume luxury automaker to a mass producer of electric vehicles.

Tesla announced Tuesday that it was cutting nearly 9 percent of its workforce in a restructuring move aimed to cut costs. Musk called the move “difficult, but necessary” in a tweet that included an internal email.

“What drives us is our mission to accelerate the world’s transition to sustainable, clean energy, but we will never achieve that mission unless we eventually demonstrate that we can be sustainably profitable,” the email said. “That is a valid and fair criticism of Tesla’s history to date.”

It’s equally fair to state that Tesla is much more than just a sensation. With technology such as over-the-air software updates that can fix a vehicle without taking it to a dealer, Tesla has become the intersection auto manufacturing and technology in the 21st century.

“Musk forced the auto industry to get more serious about electric cars,” Mitchell said. “He’s also pioneered technologies like Autopilot and over-the-air software updates, although Autopilot is coming under increasing criticism after several fatal crashes.”

Michelle Krebs, expert analyst with Autotrader, was also guarded about Tesla’s role as a leader. “It could be argued he spurred the rest of the industry to follow Tesla,” she said. “But there have been situations where Musk has over-promised and under-delivered.”

Dubbed the electric vehicle for the masses, the Model 3 is available only in the long-range 310-mile rear-wheel-drive configuration. It starts at $49,000; the $35,000 base model is expected for late 2018, but Tesla is notorious for delays.

In 2008, The New York Times reported that the cash-strapped production delay of the Model S “follows a long line of other delays.” This was right as its first car, the Roadster, a lightweight two-seat convertible based on a Lotus Elise with a 200-mile range, went to market.

It was discontinued in 2012, selling about 2,500 units. But it enabled Tesla to develop and produce the flagship Model S performance sedan. Then came the Model X three-row SUV, on the same platform as the Model S. Most automakers use the same platform for different models without much difficulty, but the Model X was plagued with production problems that delayed it for two years, and the vehicle suffered initial recalls because of quality concerns.

Musk acknowledged adding too many new features and technologies all at once, like falcon-wing doors and single-post seats. In 2016, he cited “some hubris there with the X.”

He also admitted to over-automating the Model 3 production line.

“He confessed that the company is now trying to parse out what humans do best and what robots do best,” Mitchell said.

This learning on the fly seems to be working. In the first quarter of 2018, the Model 3 is the best-selling electric vehicle in the U.S., followed by the Toyota Prius Prime, Model S and Model X, according to Bloomberg. And Tesla is one of the largest electric vehicle companies worldwide.

What does that mean for Chicago’s long-hyped, never-delivered high-speed route from downtown to O’Hare?

“Chicago needs to hold his feet to the fire in delivering what he’s promising,” Krebs said of Musk.

“Like most of Elon’s visions, if they can become reality, they can be fabulous,” Brauer said, citing that getting from O’Hare to downtown in 12 minutes would have him visiting Chicago a lot more frequently. “Chicago sounds like a perfect location, one of the busiest airports on the planet, for one of the biggest cities on the planet, for the theory of the Boring Co.

“The reality will be fascinating to watch. It’s never boring.”

rduffer@chicagotribune.com

Twitter @DufferRobert

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