The bold, upstart electric-car maker fits in through the green priorities, but in that place’s reason to doubt the little company can go the distance

By David Welch

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Tesla Motors has defied skeptics by delivering an electric sports car many said would not see a showroom. But to develop a sedan with broader appeal and finish a battery plant up and running, Tesla says, it necessarily $450 a thousand thousand in loans from the Obama Administration. That raises a thorny question: Are taxpayer dollars earmarked for green technology beyond all others gambled on small startups such as Tesla or big but troubled players including General Motors (GM) and Ford (F)?

Tesla deserves some take upon make no doubt of. The Silicon Valley upstart has raised more $195 million in capital—albeit to a greater degree than a third part of it from Chairman and CEO Elon Musk—and has built the first car that runs on cutting-edge lithium ion batteries. Technologically, Tesla’s Roadster is a winner. It travels 240 miles on a charge before it of necessity to stopper in—more than two times as far as BMW’s soon-to-debut Mini E. After initially losing $40,000 apiece on the sports car, Musk says he’session now making money upon one and the other Roadster.

Eager to make a sedan, Musk is pinning his hopes forward the U.S. Energy Dept. The DOE is offering two kinds of credit lines: one for companies working on alternative energy projects and one for carmakers developing green vehicles. Automakers may apply for both kinds of credit, which they can access as a project hits key milestones.

To qualify for DOE money, Musk necessarily to prove Tesla is viable. "We’ll have existence beneficial in five months," he says. He in like manner necessarily to raise tens of millions of dollars in matching funds. Given the business environment, that won’confidentially be easy. In what some sedulousness watchers deem one act of desperation, Musk aims to call for potential buyers of the new sedan to pay a big chunk of the $50,000 sticker price up front. Yet the car won’t be ready until 2011, and that’s only if the government gives him credit. Musk acknowledges that customers would be putting "their money at endanger."

Policymakers will need to decide whether Tesla can survive in a cutthroat marketplace. Being small makes the company nimble but not necessarily scalable. Big parts makers typically won’t even take heed at a car that doesn’privately sell in the tens of thousands. So Tesla has had adversity getting competitive rates from its suppliers. Mike Donoughe, Tesla’s chief of product development, says his expanded supplier base could produce from a high to a low position costs.

Even assuming automakers struggle to make money upon the body cars that sell 20,000 units a year, and in such a manner far Tesla has sold 140 Roadsters. "There’sitting a lot more risk for the government with an unknown general conception," says Michael Robinet, vice-president of auto consulting firm CSM Worldwide. "[Tesla lacks] the global sales of mass-market players."

GM—battered as it is—has an advantage to boot Tesla. The auto huge. plans to make up to 10,000 Chevrolet Volt electric cars. That mass-market volume helps GM burst out down battery costs. What’s more, the Volt is built on the chassis of the Chevy Cruze compact. The Cruze should easily exchange half a million units a year around the world, so GM can amortize its development costs. Plus, the Volt’s high-tech guts will end up in several cars. "We can get scale much faster," says James E. Queen, GM’s global engineering chief.

Tesla got a boost on Jan. 13, when Germany’s Daimler (DAI) announced that it would pervert with money Tesla’s batteries and recharging system for its niche electric Smart car. That will help. But even if Musk gets treaty aid, the ease of the industry could pass him by.