While battery innovation appears gradual, the incremental leaps add up over time. Battery innovation is improving around 5 to 8 percent per year, which can deliver a doubling in core performance metrics every ten years, which is ultimately really “revolutionary” said Straubel. Because of the large size and heavy physical weight of batteries involved with electric cars, the impact of battery innovation on the design of the car can be even more significant than Moore’s Law has on some computing products, added Straubel.

For car design, “It’s almost as if the properties of steel were improving at a rate of 5 to 8 percent per year,” said Straubel.

The new design and engineering of the Model S has been Tesla’s differentiator, and it is what the company is hoping will help it move into profitability and success as a more mainstream auto maker down the road. The car is one of the first electric cars in the world that was designed from the ground up as electric. In contrast most auto makers that have built electric cars have taken an existing traditional gas-powered car and put batteries in it.

The Model S, in comparison, has placed the battery along the bottom of the car, so that it doesn’t take up seating and storage space, and also so that the car has a low center of gravity and is more aerodynamic. The Tesla Roadster (it’s first car) and the Nissan LEAF are based on the bodies of gas-powered cars.

Shai Agassi, the founder and former CEO of Better Place, also touted the importance of the rate of battery innovation during his talk at the Cleantech Investor Summit. He said the energy density of batteries goes up 15 percent every 18 months; the cost per kilowatt hour goes down 15 percent every 18 months; the life cycles of the batteries (how many times it can charge and recharge) goes up 15 percent every 18 months; and the cost per lifecycle-mile does down 50 percent every 18 months. “If you don’t like the margins in this [electric car] business just wait 12 months,” said Agassi.

The crucial factor for both Tesla and Better Place will be surviving in an early market place as these improvements emerge. As with all startups, timing and execution will be key.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• The fourth quarter of 2012 in cleantech
• Cleantech and investment in 2013
• Cleantech third-quarter 2012

And while Tesla became associated with its ultra high end sports car, the Roadster, the vision for the company has always been to bring electric vehicles to the mass market. I caught up with Motor Trend’s Editor in Chief Ed Loh to discuss the challenges ahead for the leading EV company and whether Tesla really can capture the attention of a broader automotive market.

(This interview has been edited for length and clarity).

Q).  What were the key distinguishing features that helped the Model S win Car of the Year?

A). In all of our six criteria (performance and intended function, engineering, efficiency, safety, value, advancement in design), the Model S blew us away. It’s a good looking car. It’s very sexy. It’s got a great profile, reminiscent of the Jaguar XS or the Porsche Panamera. Yet it’s an electric car, one of these new green cars, but it’s not one of these hippie-mobiles like the Prius with a weird campback profile and small wheels. In terms of design it’s gorgeous.

When you talk about engineering excellence, it’s a seven passenger vehicle. Five adults and two children can fit and it has an amazing amount of cargo space. It has a front trunk and a rear trunk. It’s a great driving car. There’s no penalty here. It’s the fastest American built sedan based on our numbers. 0-60 in under 4 seconds for the signature Performance model and it also handles really well. And on top of it, it has this fantastic electric technology. Well you look at the criteria, it’s all of these that hit it out of the park.

Q). Tesla currently has 13,000 reservations for the Model S, it’s still a very small company. Is this the beginning of Tesla becoming a more mainstream auto brand?

A). We give the Car of the Year the award. We don’t give the business case of the year award. We have some industry heavyweights that are guest judges and that was a big part of the discussion. This is a very small company and some of the numbers don’t shake out. But that’s not what it’s about. The award is about the car.

We do think this is a significant turning point. Motor Trend’s been around since 1949, 64 years of giving this award, and the award has always gone to a car powered by gasoline with an internal combustion engine. That we gave it to an electric car is a big deal in our history.

At Tesla you view this as validation from someone in the establishment. Elon [Musk] and I were chatting and one of the things we said is that we hope this is an inflection point, a turning point in the history of the automobile where new technology is being embraced. I think Tesla is definitely banking on this as something that changes people’s minds.

Q). Tesla is using a retail experience model rather than a dealership model. What is Tesla doing differently and do you think it’s going to work?

A). It’s a little early to draw any conclusions. It’s fascinating. The veterans are incredibly cynical because Tesla has positioned itself head to head against NADA (National Automobile Dealers Association). They’re challenging them because auto company owned stores or dealerships are against the law. A lot of people want to put Tesla out of business simply because they’re operating these retail outlets. Even though from Tesla’s point these are not traditional dealerships, you can’t walk in, buy a car and drive it off that day.

Obviously George’s (Blankenship) impact is clear. These are Apple stores for Tesla. They’re situated in high traffic, ritzy high end locations. I went to the opening of the one in Santa Monica and George told me, “yeah I remember ten years ago standing here on the opposite side of the street just over there” and pointed at the Apple store. They want that Apple experience… you’re dazzled by the hardware, and you get to touch it and interact with it. The key difference is you can buy an iPad. This builds the excitement.

My core concern is will enough Americans be accepting of this purchasing processing? We’re famous in the world for wanting it yesterday and buying whatever’s in stock. I spoke to a guy at Rolls Royce and he said for the American customer, the dealer has so much power because it orders all the cars. When you’re a Rolls Royce customer you can customize it to the nth degree yet nobody in America does that whereas in China and Europe the customer is happy to wait for the car and get it exactly the way they want. The millionaires in America walk in, want a white one, here’s the check, and I want the keys right now. With that kind of purchasing history mindset, will they accept a Tesla store that requires you to wait three months to get your car?

Q). Do you think now that the Model S is a bonafide competitor for the German automakers?

A). Yes and no. Until they’ve achieved volume, which is a considerable feat, the answer is likely no. It’s a rounding error for the 5 series BMW or the E class. They’re not afraid if a few people go with a Model S.

But, absolutely when you look at the specs, dimensionally, performance and in terms of cachet. It is a premium luxury sedan, it’s right in the wheel house of the Porsche Panamera. It really does span the full scope of an E class or a 5 series. It’s got better economy than a [BMW] 528 yet it performs at the level of an M5.

Q). Tesla has had some issues scaling and is behind schedule. How much of an issue do you think scaling the manufacturing process will be?

A). That truly is one of the core questions that came out of our deliberation process. Building one is a feat in itself and something they should be lauded for, but getting scale is an entirely different shooting match.

They’re not as supplier-constrained as a typical auto manufacturer. They do a lot of the building in house. Elon has put it that they bring in raw metal and plastic pellets and spit out a car. They’ve brought in a lot of what were the traditional relationships with vendors because the parts are just not available. To get up to a larger production scale, they’re already facing challenges. They are late. Any new technology is a painful process.

Q). Tesla has laid out an ambitious roadmap. It’s talking an SUV, the Model X, for 2014, for 2015 a scaled down Model S for around 30K, another Roadster and crossover SUV after that. Do you think Tesla can succeed in making EVs viable in the market?

A). The major signpost will be once the smaller battery versions of the Model S, the 40KW and 60KW models, start shipping. Obviously the Model X will be a huge step in the right direction in terms of greater volume because that’s a huge market segment.

Truly the lower priced, the mass market electric car is the biggest goal. If they can hit that and get into the Prius category, like a loaded Prius, you’ll start to see a major shift. It’s actually pretty easy to build a Bugatti Byron Veyron, a 3 million dollar no limit supercar. It’s a lot harder to build a Camry or a Prius, that gets purchased by everybody because it has all the right features at the right price. Tesla’s demonstrated they can build something at a high end, high level. If they can bring something out that can bring out the masses, that’s a big challenge.

As for the phase after that, a new supercar or a smaller SUV, those will not happen unless they can get through the Model X and the mass market electric car.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• The fourth quarter of 2012 in cleantech
• Cleantech and investment in 2013
• Cleantech third-quarter 2012