Tesla to seek share of $25 billion U.S. funding

DETROIT/LOS ANGELES (Reuters) - Tesla Motors Inc, the Silicon Valley electric car start-up forced into a Detroit-style restructuring, expects to secure a share of the $25 billion pool of taxpayer-backed loans recently approved by the U.S. government to benefit the auto industry.

"We'll put it to probably the best use of any other company," Elon Musk, Tesla's founder and now chief executive told Reuters.

"We'll spend it very effectively for the taxpayers, and I don't think the taxpayers will get better value from any other car company," he said.

Any share of the $25 billion loan program Tesla secures would be in addition to another $200 million in still-pending loans from the U.S. Department of Energy.

The San Jose, California-based company is counting on the taxpayer-backed loans to offset up to 80 percent of the development cost of its next model, an electric sedan expected to cost $60,000 and compete against the likes of the BMW 5-Series for luxury and performance.

Tesla markets the $109,000 Roadster, the first battery-powered performance car and a vehicle that has become both a symbol of the promise of electric cars and the financial perils of rushing the new technology to the market.

Tesla has delivered only about 40 Roadsters despite having received over 1,200 orders. The company ran into a series of problems with the car's transmission that caused cost overruns and production delays before settling on BorgWarner Inc as its supplier.

"There were definitely some errors made on the Roadster that made it more expensive than it needed to be," said Musk, who made his fortune as founder of the online payment system PayPal.

When Tesla failed to secure a $100-million investment round earlier this month, Musk moved to cut 24 percent of the company's work force and to delay development work on the electric sedan, known internally as the "Model S." He also took the CEO post from Tesla's former chief executive, Ze'ev Drori.

"I think if the economy had not gone as negative as it did, I would not have made the change and taken the full CEO responsibilities myself," said Musk. "I just had too many chips on the table with Tesla not to take on the management myself."

Ze'ev Drori is vice chairman of Tesla.

For now, Tesla is not actively seeking funding from venture capitalists or private equity, Musk said, adding that despite its problems, he is not interested in selling the company to an established car maker.

"We have had expressions of interest in buying Tesla," he said. "Unless I was very confident that Tesla would flourish as part of that car company, I wouldn't be interested in selling."

Though Tesla is among the most high-profile makers of electric vehicles, it faces intense competition from established automakers like General Motors Corp and Nissan Motor Co Ltd, and upstarts like Chinese battery maker BYD Co Ltd

VAPORWARE FROM CHRYSLER?

Chrysler also has said it was looking at an electric sports car based on a chassis from Britain's Lotus -- the same company that supplies the chassis to Tesla for its Roadster.

But Musk brushes aside established competitors who have promised to bring electric cars to market that are cheaper than Tesla's, saying the company would be competitive.

"It's difficult for any one company to put another company out of business," he said. "I wouldn't put too much stock in what Chrysler is displaying now. There's not too much reality behind it."

Musk said he expected Tesla to turn profitable in six to nine months. But he stressed his vision for the company was as much about shifting the auto industry away from its century-old reliance on internal combustion engines as it was about short-term financial returns.

"I didn't do this because I thought this was the fastest way to make a buck," Musk said. "The car business is not known as a wealth-creation industry."

To reduce Tesla's cash burn, the company will hike the price of the 2010 model-year run of the Roadster to $119,000 and seek new revenue from a completed but not yet announced deal to supply electric powertrain components to an established automaker.

Musk also is looking beyond the launch of the Model S sedan, now planned for mid-2011. Coming Tesla models could include an all-electric SUV, he said.

"We're not trying to be General Motors, but I don't see any reason why we won't continue making more models," Musk said.

(Editing by Carol Bishopric)