Tesla Shows Model S at $49,900 Base Price. We Don’t Buy It.

Tesla Motors has unveiled its long-awaited Model S sedan in Los Angeles and it’s a beauty. The lines are clean and fluid, imparting a luxury orientation and features that are sure to please. While not as striking or low slung as Fisker’s Karma, it is an appealing electric car and shows that an independent automaker like Tesla has the potential to offer more depth than a single high-profile model. The company initially aimed high with a very expensive and limited edition electric sports car, but is now targeting a sweeter spot in the market … although still a well-moneyed one.

The Model S offers an array of notable features, not the least of which is its innovative seven passenger seating. It accomplishes this with a standard five passenger configuration with the addition of two fold-flat, rearward facing seats for children. Available cargo space is said to be greater than that of a typical station wagon. Tesla claims 0-60 mph acceleration of 5.6 seconds, a top speed of 130 mph, and a driving range of 160, 230, or 300 miles between charges depending on battery configuration…pretty impressive for an electric car. Charging can be handled via any outlet and at 120, 240, or 480 volts. Tesla also mentions a 45 minute QuickCharge or five minute battery swap capability in its literature.

“The battery pack for Model S uses the same basic design concepts as used in the Roadster,” Tesla’s director of energy storage systems, Kurt Kelty, tells Green Car. “However, since the launch of the Roadster, we have continued to make improvements in the battery pack technology. Likewise, our battery suppliers have continued to make improvements in the battery cells.” As a result, Kelty says the pack in the Model S will have a higher energy density than the pack in the Roadster. He adds: “These battery improvements, combined with the improvements in our drivetrain technology and vehicle efficiency, enable us to achieve these tremendous performance values.”

According to the company, it’s too soon to identify the battery’s cost, form factor, or number of cells, and we can understand that since production isn’t slated to begin until late 2011 for this presumed 2012 model. That said, we do know this much: According to the specs, at 3,825 pounds the Model S has a curb weight that’s 40 percent greater than that of the Tesla Roadster. Moving greater mass requires more energy. Thus, considering the $25,000 to $30,000 battery cost that Tesla has previously identified for its electric roadster, Green Car can’t help but wonder about battery cost for the Model S and how this will ultimately impact the price of this model. Plus, keep in mind that those ordering an entry level Model S at $49,900 will get the smaller battery pack offering and a 160 mile driving range. If you want to drive farther on a single charge then the price of entry will be more as a matter of course.

This talk of prices brings us to the heart of our very real complaint: What’s this about a $49,900 ‘base price,’ anyway?

At the time of this writing, the Model S is being highlighted on a page of Tesla Motors’ website that includes a prominent statement sharing a delivery date of 2011 and that reservations are now being taken. At the top is: ‘Base Price $49,900*. That seems clear enough until you read the fine print at the bottom: ‘The anticipated base price of the Model S is $57,400. All Tesla vehicles qualify for the full $7,500 U.S. federal tax credit on battery-powered cars. Teslas also qualify for state tax incentives, sales tax waivers, and rebates.’

So, color us confused. Is the base price $49,900 or $57,400? And when did incentives become factored in as part of a vehicle’s official base price?

Here’s why this is an issue. A ‘base price,’ or Manufacturer’s Suggested Retail Price (MSRP), universally identifies the price of a new vehicle model. Enormous effort goes into setting a vehicle’s base price to ensure that it returns a profit and is competitive in the marketplace. For this reason, auto manufacturers typically wait until the very last minute before a model goes on sale to announce its MSRP, which allows weighing the state of the market and the price of competitive models.

If incentives are offered, as is often the case in new car marketing, these incentives are applied to a purchase to lower the transaction cost to below the vehicle’s base price, or MSRP. It’s a proven way to spur vehicles sales. No auto manufacturer ever factors an incentive into a vehicle’s base price because incentives come and go, while a base price remains a constant until economic conditions or a changing market prompt an automaker to announce a change in MSRP.

To factor an official base price predicated upon a financial incentive is odd. To do so when that incentive is, in fact, a government subsidy, is just wrong and sets the stage for resentment.

This is not a statement against subsidies that encourage consumer behavior and ultimately benefit society. After all, tax credits have spurred the sale of hybrids and solar energy, which is good for all of us in the long run. But like traditional auto incentives, government subsidies may shift with the political and economic winds of our times, especially as those who do not benefit from public subsidies consider their personal impact. This reason alone underscores why a government incentive should never be factored into a vehicle’s base price. Things could change.

While a $7,500 incentive may seem a reasonable way to encourage electric and plug-in hybrid vehicles, crunching the numbers shows why there’s a good chance that a wide swath of consumers who will not be buying these electric-drive vehicles will ultimately complain, and complain loudly. Think about it: A $7,500 incentive provided to 10,000 buyers of vehicles qualifying for the full incentive is $75 million. Increase that to 100,000 buyers and it grows to $750 million, and when provided to 500,000 buyers the cost is $3.75 billion.

The total U.S. light-duty market is projected to be about 11 million vehicles this year, down from some 17 million in recent years, with current-generation hybrid vehicles representing somewhat higher than 2 percent of the total. If just 2 percent of this size market – 220,000 vehicles – is represented by electric cars or plug-in hybrid sales aided by $7,500 subsidies, the total of these subsidies would be $1.65 billion in a single model year. While not all electric and plug-in vehicles will qualify for the full $7,500 incentive, the illustration is worth considering.

Yes, this goes far beyond a single vehicle manufacturer or model, and Tesla’s decision to incorporate a government subsidy into its official base price has provided an opening the size of a truck for driving home a larger message. Plenty of people were angry that carpool lanes in some regions were opened to solo drivers of hybrid vehicles, a social incentive that's far less likely to get passions going than financial ones. Just imagine how mishandling the benevolence of a billion dollars in government subsidies to electric and plug-in hybrid drivers will go over if handled without due discretion by those who stand to benefit from them.