The Automotive Industry, Briefly

Is History Going to Repeat Itself?

06.22.16 - Tesla CEO Elon Musk

The technology of today has advanced the automotive industry beyond what some of us have ever thought possible, but one company stands out ahead of the rest when it comes to the overall use of advanced technology. This company is Tesla which is a startup in the automotive industry that has put all the technology into their cars they can and is venturing on an extremely risky path. Recent announcements have us to understand Tesla plans to produce nearly 500,000 vehicles per year in less than two years, even though they have never even reached 100,000.

While this is one of the most aggressive approaches a car company has ever had, to increase the production by over five times, what Elon Musk and the rest of the Tesla team should pay attention to is not falling victim to their own bravado and excess. Such was the fate of Tucker Motors founder Preston Tucker back in the 1940s. Although Tucker was acquitted of any fraud, the fact his business was under this type of scrutiny eventually ruined him when he was brought to court because his business suffered serious losses with the loss of trust consumers had in the Tucker name.

Preston Tucker tried to capitalize on the fact that the automotive industry had shut down during World War II as the government had turned the factories into plant to build war machines. Once the war was over he tried to jump in with both feet and offer an all new car that would offer the latest technological advances including disc brakes, fuel injection, rear engine positioning and rear-wheel drive. The plan was to offer this new Tucker car at a great price and it was soon one of the most popular cars on the road and the Tucker name was talked about in households all over the country.

In order to build the car and offer what the American public wanted Tucker set up a sales force with dealers paying pre-order fees of $20 for each car which raised $10,000,000 and then he offered an IPO of the Tucker stock which brought in another $17,000,000. At the time the Detroit automakers were putting pressure on their governmental officials to investigate Tucker which eventually happened with the SEC began to look into everything that has been happening. This investigation was quickly all over the news and the stock price for the Tucker stock plummeted.

Even though Tucker and the other leaders of the company that were put on trial never had to mount an actual defense in order to be found not guilty the damage had been done. During the time of the trial the plant had been closed and the company had become worthless even though there wasn’t a single finding of any wrongdoing at all. The fifty cars that had been built along with all the assets of the plant were sold off in a bankruptcy auction and Preston Tucker was a ruined man all because of speculation and government pressure.

If we look at Tesla today we see a car that is boldly selling electric cars directly to the public without using an established network of dealerships. In addition to making enemies of car dealerships, established companies, and those invested in fossil fuels, Tesla has taken over 400,000 orders for $1,000 on the Model 3 directly from consumers (Tucker’s orders were taken from dealers) which makes for a potentially volatile situation considering the number of orders and the public perception that can be ruined for this brand.

While Elon Musk and Tesla have butted heads with many officials and have even been banned from selling their cars in some states there is the possibility of investigating a company that promises a vehicle with no delivery date in mind. Will this cause laws to be passed to protect consumers from what Tesla has to offer or will Tesla be able to continue without so much as a fight? The good news for Tesla is the fact that the company is extremely well funded and could probably handle the investigation and loss of immediate income in a way that Tucker could not stand off.



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