Tony Hsieh makes another crazy bet, orders 100 Tesla Model Ss to rent to Downtown Vegas residents (Updated)

By Michael Carney , written on April 2, 2013

From The News Desk

Tony Hsieh is not one to limp into a project. Consider the fact that he's investing $350 million of his own money to renovate a city – in the freakin desert – that's not even his hometown – with the hopes of making it a destination for tech entrepreneurship. What’s more, this is a bit of a pattern for Hsieh. Previously, he took his $30-odd million dollars in earnings from the sale of LinkExchange and poured nearly every cent of it into his VentureFrogs incubator, which eventually led to Zappos.

The man is crazy ambitious, and supremely confident. He also likes to have fun. (Disclosure: Hsieh is an investor in PandoDaily.)

So it should come as little surprise that Hsieh is reportedly backing Project 100, a hyper-ambitious transportation system that at launch will make 100 Tesla Model S electric luxury sedans available to Downtown Vegas residents. According to its website, which went live today after weeks of denying the project, the Elon Musk-designed electric luxury supercars are just the beginning.

The website reads: “Over the next few months we’ll be testing a lot of different types of vehicles. A big question we ask is when a member wants to travel ten blocks to a store, is a Tesla the best way to go? It’s a large vehicle that requires a regular parking space. Is something like a low-range Polaris GEM a better vehicle for quick trips? We think it might be.”

The mobile app-powered program will be membership-based and similar to ZipCar, but with elements of Uber woven in. For example, the cars belong to the company and must be reserved and “checked out,” but the service will offer on-demand drivers as well. The program is designed to replace car ownership “100 percent of the time.” Oddly, Project 100 also includes a bike share program, a la viaCycles, for those casual trips across the 120 degree Vegas asphalt.

The underlying technology is being supplied by a startup called Local Motion that builds software to power large transportation systems. Vegas Tech Fund partner and Project 100 head Zach Ware recently highlighted the company as one of three local startups on which he was the most bullish.

No price has been announced yet, but the website says it will be similar to the cost of a traditional monthly car payment plus insurance, or around $400 per month. (ZipCar, by comparison, is $50 per month for “About 8 hours of pre-paid driving per month,” but is not available in Vegas.) That’s fairly steep for many people who won’t use the vehicles much, or travel more than a few miles to the grocery store – which locals gripe is still nowhere near the redeveloped downtown, although we hear that too is in progress. But for the privilege and glamour of ballin in luxury, some may be willing to write that check.

It’s definitely way cooler than a pink mustache.

As Sarah Lacy said when first reading the news, “File this under swatting a fly with a machine gun. It’s no doubt cool and it solves a transport problem, but really? Is this the most cost effective solution?”

Cost is a real issue. Hsieh has deep pockets, yes, but they’re not bottomless. The lack of a grocery store is just one of a number of real infrastructure problems that Hsieh’s big check hasn’t yet solved. Transportation was certainly on the list, but at a base price of $62,400 – after a federal tax credit, and before any bulk or entrepreneur-to-entrepreneur discount from Musk – we’re talking real money that could have been spread across a number of high-value areas.

If you consider the challenges of recruiting young entrepreneurs away from the coast and into the desert – and keeping them there long term – you might write part of the expense off as marketing for the Downtown Vegas project. After all, how cool is it for a startup founder that’s living with five other dudes in a two bedroom and subsisting off of Ramen and late night buffett's to be able to ride around in the hottest car in Silicon Valley? But again, we’re talking millions of dollars and roughly 2 percent of the entire project budget.

Hopefully Hsieh sees a quick return on his investment, through both membership revenue and an increase in awareness for his Downtown Vegas project. Like a lot of the storied Vegas moguls, he’s certainly not taking the safe route.

Update: We connected with Vegas Tech Fund partner and Project 100 lead Zach Ware shortly after publishing. He revealed that the Downtown Vegas team has been working on transportation solutions for more than a year, including exploring the possibility of bringing ZipCar to town, or one of the many ridesharing platforms. Just two months ago, the team decided to “bring it all together,” in Ware’s words, and just last Friday did it place the order to Tesla.

The key words here are "place the order." Because that many cars aren't even available now, it is not precisely the same thing as "buying" them, despite the original headline on our story. (We tweaked it to make sure we were being absolutely clear with readers, given the back and forth in the press on this story already.) The deposit is fully refundable and it's possible that the Downtown Vegas team scales back its ambitions or orders no Teslas altogether. But Ware has told us in subsequent emails that the intention is to buy 100 Teslas and that's what they are preparing for.

The choice of Teslas have as much to do with the technology incorporated in the vehicles, as it does their consumer appeal. Project 100 has been working with both Tesla and Vegas Tech Fund portfolio company Local Motion for months, although Ware clarified earlier reports saying that the relationship with the startup has yet to be formalized. He also noted that Tesla does not offer any discounts – apparently even if you’re Tony Hsieh, or if you buy an entire fleet – and that they company will be paying full retail for the vehicles.

Pricing for the service is still very much up in the air, and will likely vary based on the nature and volume of usage. Ware expects to launch Project 100 into private beta in three months, if all goes according to plan, but he could not guarantee that there would be Teslas available on that timeframe. The initial rollout will allow the company to evaluate the underlying app, which will play a critical role in managing demand and allocating vehicle inventory efficiently.

Users of the Project 100 app – which is unlikey to bear that name at launch – will input preliminary data about their location, destination, and the purpose of their trip, from which the system will recommend a vehicle type and rental structure. For example, if someone is heading to the strip, where parking can be an issue, the app might recommend a Tesla with a driver, or a smaller self-driven car. However, if someone is planning a trip to Salt Lake City, along a route where charging stations are limited, both a Tesla and a driver are impractical.

Project 100 is being constructed as a for profit enterprise, which if successful, could be duplicated in other cities. The big takeaway from my conversation with Ware seems to be that Project 100 aims to “replace one [car] key with one app,” in his words, meaning that the service wants to address 100 percent of your transportation needs, whatever they may be.