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Tesla Delays Production Of All-Electric Sedan

Automaker said it will scale back the development of its all-electric Model S sedan until its Department of Energy loan guarantee becomes effective, citing the tough economy.

NEW YORK (AP) -- Tesla Motors Inc. said Wednesday that it will scale back the development of its all-electric Model S sedan until its Department of Energy loan guarantee becomes effective, citing the tough economic environment.

The move is expected to push back production of the vehicle, set to be unveiled early next year, by about six months to mid-2011, Elon Musk, the electric car maker's chairman and product architect, said in his company blog.

In addition, Musk said he will become Tesla's chief executive, replacing Ze'ev Drori, who will remain on Tesla's board as its vice chairman.

Musk said in the blog that as a result of the ongoing upheaval in the financial world, Tesla has decided to focus on area that are producing revenue: the production of its Roadster sports car and powertrain sales to other automakers.

He said demand for the $109,000 Roadster continues to grow despite the ongoing industrywide slump in vehicle demand, while the powertrain business is profitable and growing.

Musk said Tesla remains committed to the Model S, whose $60,000 price tag would appeal to more buyers, but the company will reduce activity on production engineering, tooling and supplier commitments until the loan guarantee comes through.

"The DOE loan guarantee will cover most of the Model S program at a very low cost of capital compared with raising equity financing in what could quaintly be described as a 'bear market,'" Musk wrote.

He said the funding can only be drawn down after the company receives environmental approval for its new San Jose, Calif., headquarters, which should happen in the second quarter of next year.

Musk said Tesla also will reduce its work force, both as a result of increased job performance standards and as part of a consolidation that will move engineering activities to the San Jose headquarters and close its Rochester Hills, Mich., office.

Musk did not specify how many jobs the company plans to eliminate.

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