Possible bumps in the road for Tesla

2017 has been an excellent year for electric car manufacturers, in particular Tesla, whose value now exceeds that of General Motors. But the launch of the US carmaker's much ballyhooed Model 3 could be delayed because of a labor dispute at its engineering subsidiary Grohmann in the western German town of Prüm. Workers there are demanding higher wages.

"We received an unacceptable offer from the company," spokesman Patrick Georg of the local metalworkers' union, told the "Welt am Sonntag" newspaper. "We'll be examining this week whether strikes are a possibility."

A key production point

Machinery manufactured at Prüm is crucial to the production of a watershed Tesla vehicle. So industrial action would represent a real wrench in the works. With a price tag of around $35,000 (33,000 euros), the Model 3 has been conceived as Tesla's entry into the car-buying mainstream. Production is scheduled to commence in July ahead of what is a big autumn for the maverick carmaker. In September, Tesla also plans to unveil its first pick-up truck.

But not everyone is convinced that success will come automatically. Workers in Prüm also want job guarantees and a "contract ensuring their futures." Workers' representatives say they're concerned because their company, which Tesla only acquired at the start 2017, gave up its other customers to work exclusively for the US carmaker.

"What if the wager on the electric car doesn't pay off?" staff council chairman Uwe Herzig asked in conversation with Welt.

That's a question he's not alone in posing.

Power and price are issues

Tesla stock values have rocketed in recent months, going from $213.69 to $304 (200.75 to 286 euro) in the first three-and-half months of this year, on speculations that electric vehicles represent the medium-term future of transportation. European share values have risen comparably. But Elon Musk's company hasn't ever turned an annual profit, and not all of the data concerning electric cars is positive.

Germany, for instance, is known for both its environmental consciousness and love of automotive innovation. Yet while sales here have been steadily improving, electric cars remain very much the exception on the country's roads. The German government has made 1.2 billion euros ($1.27 billion) available for subsidies of up to 4,000 euros ($4,257) per person for people who buy electric vehicles. But according to the trade publication "Automobilwoche," through March only around 55 million euros ($58.5 million) of that money had been claimed.

Some experts think subsidies distract attention away from the real issues surrounding what the Germany call "e-cars."

"Charging stations are much more important than these completely superfluous purchase premiums," Walter Mennekes, CEO of the automotive parts manufacturer Mennekes Elektrotechnik, told Welt. "People today don't ask what an electric car costs but where they can fill it up with power. That's a challenge that needs to be addressed."

Read more: E-car makers team up for European charging network

There are currently some 7,400 charging stations in Germany serving around 34,000 purely electric cars, according to the joint government and industry organization National Platform for Electromobility (NPE), and that number has been growing steadily. But to service the mainstream, a lot more will be needed. The NPE says that if the target of one million electric vehicles in Germany by 2020 is met, they will require 70,000 charging stations - nearly 10 times the current number.

That entails a major infrastructural change, which is not without uncertainty. Some critics fear massive hikes in electricity costs, which could create a popular backlash and hinder electric carmakers from the crucial business of cutting costs.

Read more: Germany may slow movement towards green energy

Making batteries economically efficient

The biggest technological issue electric carmakers face is batteries, which restrict vehicles' range and make them much more expensive to buy than combustion-engine autos. Much of the faith in the electric car is based on progress made in this area, particularly by Tesla. Battery prices dropped by roughly 80 percent between 2010 and 2016.

Both the McKinsey business consultants and the independent think-tank International Energy Agency (IEA) believe that if car batteries can reach an efficiency of $100 (94 euro) per kilowatt hour, they will become cheaper to buy and run than conventional vehicles without subsidies.

Musk says Tesla may be able to achieve that by 2020, which is one major reason McKinsey concluded earlier this year that "consumer demand is starting to shift in favor of electrified vehicle and has strong disruption potential." And if there are massive oil shortages and commensurate price increases by 2022, as the IEA predicts, Tesla and other companies could succeed in revolutionizing the market.

A bet with an uncertain outcome

But could doesn't necessarily mean will. In a weekend interview with the "Stuttgarter Zeitung" newspaper, the president of Germany's Mechanical Engineers Association, Carl Martin Welcker, criticized what he considers the country's one-sided focus on battery operated cars.

"No one knows whether the battery car will win out or not," Welcker said. "Electric cars will come, either as hybrids or fully electric vehicles. But I don't think it's been decided whether the e-motor will be powered by a battery or by technologies like hydrogen or synthetic fuels. Why are we so sure that the battery, which isn't one of the most environmentally friendly products in the world, will determine the mobility of the future? We're no longer looking for the best solution. We're pumping billions into a transitional technology."

And even if the battery wins the day, it's unclear whether any particular company like Tesla, despite the stock market hype, can recoup the continually high costs of research and development.

"Tesla isn't Facebook," wrote the "Frankfurter Allgemeine Zeitung" newspaper. "Once a social network is there, the costs hardly rise, regardless of whether one million or one billion people use it. This effect is far less pronounced with cars. Every new model demands a similar investment of labor and raw materials. Whether Tesla can shoulder such gigantic investments is still a bet with an uncertain outcome."