Tesla has a lot riding on Model S sedan’s success

On a gleaming white factory floor in Fremont, workers buzz over freshly assembled cars that represent the future of Tesla Motors.

The workers search for flaws. They check the paint, the wiring, the fit of door against body. They run the cars over a bumpy indoor track to simulate rough roads. They douse the cars with pressurized water to make sure nothing leaks.

The cars — sleek, sumptuous and powered only by electricity — are the Model S. The S is only the second model introduced by Tesla and the first that the upstart automaker will build on its own. Tesla plans to start delivering the luxury sedans to customers on Friday.

“That’s the kind of focus these guys have — making sure everything is right,” says Gilbert Passin, Tesla’s vice president of manufacturing, as a team of “quality auditors” examined a car under banks of bright lights last week. “We have, obviously, a lot to achieve.”

The Model S introduction is a make-or-break moment for Tesla.

The Palo Alto company gained near-cult status with its first offering, the Tesla Roadster, a ferocious sports car that made electric vehicles seem sexy. Driven by A-list actors and political luminaries, the Roadster helped turn Tesla’s chief executive officer, Elon Musk, into a Silicon Valley celebrity long before his other company, SpaceX, launched its first supply ship to the International Space Station earlier this year.

But with a starting price of $109,000 the Roadster was never meant for the masses. Production was limited to 2,500 and ended last year.

The Model S, in contrast, starts at $57,400 and ranges up to $105,400, before state rebates and federal tax incentives are factored in. Tesla plans to make more than 5,000 this year and 20,000 in 2013.

It’s all part of Tesla’s long-term strategy to infiltrate the mass market bit by bit, from the top down. Each car model the company introduces will be less expensive than the last.

Starting with the low-volume Roadster gave Tesla time to perfect its technology and develop its supply chain before moving on to mass production. The Model S may be more utilitarian than the Roadster, seating five adults instead of two and taking 4.4 seconds to go from 0 to 60 miles per hour, instead of the Roadster’s 3.7 seconds. But it makes the Roadster’s high-performance technology affordable to more people, even if it still isn’t cheap.

In some ways, the Model S represents an improvement. The most expensive of the car’s three battery pack options can go 300 miles on a single charge. The Roadster could only drive 245 miles on a charge.

“People were buying the Roadster as a curiosity,” said Jeremy Anwyl, chief executive officer of the Edmunds.com auto information Web site. “It wasn’t a mainstream vehicle. With the S, they’re trying to move into the mainstream. And it’s going to be really interesting.”

Until now, Tesla has functioned as a classic Silicon Valley startup, designing a high-tech product and paying someone else to make it. Lotus Cars of England built most of the Roadster, with Tesla handling just the final assembly.

With the Model S, Tesla becomes a manufacturer. The company bought Fremont’s shuttered New United Motor Manufacturing Inc. (NUMMI) plant in 2010 and refurbished part of it to build the Model S. The federal government helped bankroll the renovations with a $465 million loan.

Tesla, which went public with an initial stock offering in 2010, now employs more than 1,700 people. It will sell the Model S through a network of Tesla stores spanning North America, Europe and Asia.

“Up to this point they’ve been doing very well, but it really comes down to how the Model S launch goes,” said Ben Schuman, senior research analyst with Pacific Crest Securities. “Whether they can produce vehicles at high volume without flaws — that’s still to be determined.”

Tesla has bet its financial future on the Model S. The company has lost money every year since its founding in 2003 — $254 million in 2011 alone. More than 10,000 people have put down $5,000 apiece to reserve a Model S. Musk estimates that the company needs to sell 8,000 per year to reach profitability. He expects the company to hit that milestone next year.

Tesla employees and shareholders, however, aren’t the only people with a stake in the new car’s success. Fans of electric vehicles hope the Model S will stoke public interest in all plug-in cars. Sales of the electric Nissan Leaf and the plug-in hybrid Chevy Volt have been lackluster in much of the country, with California a notable exception.

Unlike the Model S, neither the Leaf nor the Volt could be considered a luxury car. And the Leaf’s battery range is less than half that of the Model S — about 73 miles per charge. But if it proves to be a hit, the Model S could still serve as a “halo car,” casting a favorable light on other electrics.

“The S is supremely important, just because of the moment it’s arriving,” said Felix Kramer, founder of CalCars, a plug-in vehicle advocacy group. “It’s at this moment when electric cars are finally coming, and their success isn’t guaranteed. Getting some home runs now would really help. The S looks like it’s going to be a home run.”

The Obama administration also wants a win. Its clean-tech loans have been under fire since solar module-maker Solyndra, based one mile from Tesla’s factory, went bankrupt last year despite collecting $528 million in federal money. Republicans have targeted Tesla in particular, saying the federal government had no business funding boutique cars for the rich.

GOP presidential candidate Mitt Romney, in an opinion piece published by the Orange County Register last fall, criticized the loans to Tesla and its southern California rival Fisker Automotive, which makes luxury hybrids. Both companies, he noted, received financial backing from Democratic donors. In Tesla’s case, the donors included both Musk and former California state Controller Steve Westly.

“Alas, like Solyndra, these loans are turning out to be historic opportunities to line the pockets of major campaign fundraisers,” Romney wrote.

Tesla countered that it had applied for its loan during the Bush administration.

Given Tesla’s short history, analysts say the company needs a glitch-free launch to make the Model S a success. Even minor technical problems could attract intense scrutiny. “Getting the quality right is really critical,” Anwyl said. “When you’re dealing with a new company, and it’s considered a risk to begin with, anything that reinforces that impression of risk is a problem. The marketplace is a lot less forgiving than it used to be.”

David R. Baker is a San Francisco Chronicle staff writer. E-mail: dbaker@9sfchronicle.com