In one corner sits Silicon Valley electric auto manufacturer Tesla Motors, weighing in with a market value of roughly US$2.5 billion (Dh9.1bn), and in the other sits the $28bn Japanese car maker Nissan. Both companies are out to win market share in the nascent electric-car industry, which some analysts say is set to mushroom over the next decade. "The fierce race to develop and produce electric vehicles, spurred by both customer demand and government incentives, will mean that up to a third of all cars purchased in developed countries in 2020 will not be propelled by an internal combustion engine," predicts Deloitte, the global services firm.
According to Nissan: "The era of cheap oil is coming to an end. The fossil fuels that power cars, trucks and ships are becoming more and more expensive ... the current situation has to change, and fast." Some electric cars can run for 1.6km on about one cent on off-peak electricity, whereas in the US, a petrol-burning vehicle costs 20 cents per 1.6km - and double that in some European countries. Investor appetite for the new industry was evidenced when Tesla went public on June 29. Tesla raised $226 million on the Nasdaq and saw its shares climb 40 per cent during the day to close at more than $23. Tesla investors already include the Abu Dhabi-based Abaar Investments, which owns less than 4 per cent of the company.
Not since the heady days of the dotcom boom has Nasdaq seen such enthusiasm for a loss-making Silicon Valley start-up and many analysts appear mystified. "Right now, US investors always look for consecutive quarters of growth and, while the Tesla Roadster is a beautiful automobile, the fact remains that the company is unprofitable. But perhaps this will change when the next phase of the Tesla products launch takes place in 2012," says Scott Sweet, the senior managing partner at the US-based IPO Boutique.
Tesla's appeal is the all-electric Tesla Roadster. A sleek sports model with a price tag of $109,000, the Roadster will go from standing to 96.5km/h in just under four seconds flat, a performance few combustion engine sports cars can match. It has zero carbon emissions and can run for 394km between charges. However, the company is understood to have sold only about 1,000 Tesla Roadsters. But, according to Tesla's chief executive and co-founder, the 39-year-old Silicon Valley serial entrepreneur Elon Musk, the Roadster was intentionally designed to target early adopters; the people who used the first mobile phones, who bought flat-screen televisions 10 years ago and who stood in line for the first iPhones.
The Tesla Roadster appears to be the car of choice for California's elite. Hollywood stars such as Brad Pitt, George Clooney, Leonardo DiCaprio and California state governor and former Terminator actor Arnold Schwarzenegger all drive Teslas. Using this classic Silicon Valley marketing strategy, Mr Musk believes Tesla can do to the car industry what Google did to the media industry and what Apple did to the mobile music player industry. Wearing his trademark dark blue jeans and tan-leather boots, Mr Musk appears to have far more in common with Apple's Steve Jobs or Google founders Larry Page and Sergey Brin than with Henry Ford or Enzo Ferrari. He co-founded internet payments service PayPal, which was bought by eBay for $1.5bn and also the space exploration company SpaceX, in which Mr Musk is reported to have personally invested $100m.
Some key aspects of the Tesla Roadster also have their roots in Silicon Valley technology rather than in the traditional car industry. Its power source is the same lithium-ion batteries used in laptop computers. But whereas a laptop usually has six to 10 such batteries, the Tesla Roadster has 6,381, weighing 431kg. And Tesla says that owners should plug the car into a mains outlet each night in the same way they are in the habit of recharging their mobile phones.
With a push-button electronic automatic gear shift and all-electric engine, the car has none of the spark plugs, pistons or many of the other moving parts of a traditional vehicle. According to Tesla, this means its routine maintenance should comprise little more than an annual software update. The new technology is backed by governments anxious to find alternatives to fossil fuels. On June 22, the Obama administration backed a proposal to spend up to $6bn on subsidies for electric cars.
Tesla has received approval for about $465m in low-interest loans from the US department of energy, the bulk of which is earmarked for production engineering and assembly of the Model S, an all-electric family sedan shipping in 2012 with an expected price tag of $49,000 after a $7,500 US federal tax credit. But Nissan intends to deliver a knockout punch to Tesla by launching a mass-market electric family car before the end of this year. The Nissan LEAF is expected to have a price tag of only $32,780 after tax credits.
The LEAF uses what Nissan believes is a more advanced 48-module lithium-ion battery it has spent years developing. The battle between Tesla and traditional car makers such as Nissan will determine whether electric cars will be regarded by consumers as merely a cleaner version of their existing combustion-engine vehicles or, as Tesla believes, a must-have 21st-century technology. firstname.lastname@example.org