Tesla and Daimler Play Let's Make a Deal

Tesla Motors, the electric car company with big ideas but an unfortunate propensity to not actually follow through with vehicle production in a timely manner were given a significant vote of confidence by automotive giant Daimler last week when the German automaker invested tens of millions of dollars into the company's rapidly draining coffers.

Tesla achieved a high amount of international exposure with the unveiling of the Tesla Roadster (pictured) in 2006, a sports car that replaced the traditional gas-guzzling internal combustion engine with an electric motor and provided impressive 0 to 60 miles per hour times of under 4 seconds, along with a top speed of 125 miles per hour. However, despite the subsequent introduction of a sedan variant using the same technology, the Model S, Tesla has been plagued by slow vehicle deliveries and production deadlines that continually extend into the future. This had lead many to question the economic viability of the company’s business plan.

Tesla’s partnership with Daimler is not just a financial windfall for the company. While the investment, purported to be in the neighborhood of $50 million dollars in exchange for a 10% stake, is certainly a much needed infusion of cash, there are also other factors at play. The electric car company, run by the charismatic Elon Musk will benefit from Daimler’s extensive testing and technological research and development facilities, along with the engineering expertise and resources that come hand in hand with major automotive player involvement. This should help Tesla to bring a more refined product to market and help them avoid the growing pains that could give their electric vehicles a bad reputation and keep drivers away from showrooms.

On the flip side, perhaps the most interesting aspect of the partnership from the perspective of car buyers is the potential for Daimler to incorporate Tesla’s electric vehicle technology into their wider fleet of offerings. Mercedes-Benz and it's fellow Daimler brand Smart, in particular, could stand to benefit from the proven electric rig found underneath the skin of both the Roadster and the Model S. Daimler’s enormous size will help them realize economies of scale that could see the pricing of any electric vehicles wearing the Mercedes-Benz badge start at less than the currently very expensive Tesla products. It also puts the pressure on other premium German car companies such as BMW and Audi to advance their hybrid vehicle platforms in order to remain competitive.

Tesla doesn’t own all of their electric vehicle patents outright, which somewhat limits the value of their technology sharing with Daimler from a purely financial perspective. However, in terms of gaining practical, hands on experience both sides profit significantly, which ultimately means that car buyers will end up seeing the benefits of the relationship a few years down the road. With the number of boutique electric car companies exploding, it is only a matter of time before larger automakers begin to choose their dance partners in order to ensure that they maintain access to cutting edge hybrid technology.