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PHOTO CAPTION: Tesla CEO Elon Musk drives show car version of Model S electric sedan

Can Tesla Become a 'Real' Carmaker?

David Welch concludes it won't be an easy road for the 'spunky startup'.

Published: 24-Jun-2009

Once again, the federal government is handing billions of dollars to auto companies. The last round of loans raised the question of whether General Motors and Chrysler could shake off their creaky ways and survive to pay the money back. The question this time: Can Tesla Motors become enough like one of those old car companies?

See also: Tesla Model S Gets Federal Go-Ahead

The latest round of handouts is coming from U.S. Energy Dept. funds to boost development of greener vehicles. The department issued $8 billion in loans on June 23, granting Ford Motor (F) $6 billion, Nissan Motor (NSANY) $1.6 billion, and tiny electric-car startup Tesla $465 million. While it's fair to say that Ford and Nissan have staying power, Tesla is a riskier bet.

The Silicon Valley company faces a massive challenge to generate the kind of cash needed to develop new cars that will sell in sufficient volume to make real money eventually. While Tesla is racing to lower costs and hone the development of its first-generation Roadster—along with a fleet of less expensive, more mainstream cars—it's tough for any company to make a significant profit on low-volume cars.

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