Why Elon’s ambitions are unlikely to be fulfilled by Tesla’s lower-cost Model 3

ATesla electric car appeared in my street in London the other day, causing passers-by to stop and stare at its elegant shape and peer in the window at its revolutionary dashboard and controls.

A few minutes later another drove by causing heads to turn, and in the space of an hour I saw four. At the weekend in the country a friend took me for a ride in his gleaming Model S, which he reckons is the best car he has ever owned – including, he remarked modestly, his Ferrari, which now sits idle in his garage.

Tesla’s luxury model, starting at £62,000 (Dh296,801) in the United Kingdom, was launched six years ago but worldwide production of its two existing models, the S and the X, was still only 82,000 in 2016, not many of which reached the streets of London. This weekend, however, Tesla launches its eagerly awaited Model 3, designed as the world’s first mass-market electric vehicle which will, according to its South African-born creator Elon Musk, “transform the automotive industry forever”. Not since John DeLorean unveiled his DMC-12 gullwing sports car in 1980 has a new model created such worldwide interest.

But don’t rush just yet to buy one: 400,000 Tesla fans have already put down deposits on the Model 3, which will have a price starting at US$35,000, and the first models will go exclusively to Tesla employees. Next year Tesla hopes to ramp production up to 500,000 cars a year and a million by 2020, but even that, if he can produce them, will not meet demand.

Unlike DeLorean, whose Belfast-based car maker ran out of cash and went into bankruptcy after making just 9,000 cars, Tesla has attracted as much interest on the stock market as it has among the public. The prospect of the Model 3 has driven the share price from $50 to a peak of $390 in the past four years before it encountered headwinds on rumours that Mr Musk, not for the first time, could not deliver on his production promises.

In a torrid week early this month, the price fell all the way back to $306, a fall of 20 per cent in just two weeks, before rallying again to $342. Investors are hoping for a smoother ride in the car than on the stock market.

Even at its current price, Tesla commands a daunting market value of $54 billion, bigger than either Ford or General Motors, which have both been around for more than a century. GM alone made nearly 10 million vehicles in 37 countries last year, with sales of $166bn, and in the past two years – while Tesla has burnt up more than $2bn in cash – GM has generated more than $20bn. It has also hedged its bets by launching its own mass-market electric car, the Chevrolet Bolt, undercutting the Model 3. Analysts, who have stripped the car apart and costed every component, reckon GM, probably the lowest-cost producer in the world, cannot make money at Tesla’s starting price for the Model 3 but can afford to sell it at a loss for as long as it takes. That could be a long time: sales have hit only 7,200 so far this year, while customers have lined up outside Tesla showrooms to register their interest, raising comparisons with the rush to buy the iPhone when it was first released almost exactly a decade ago. Mr Musk is emerging as the car industry’s equivalent of Steve Jobs, probably the most effective showman in automobile history.

There are plenty of doubters, of course, and sceptics point to Volvo’s recent announcement that as from 2019 all its models will either be wholly or partly electric. Volkswagen, still smarting from its diesel scandal, promises to install an electric motor in all its cars from 2020 and the Chinese are said to be lining up to produce even cheaper models once they have got their hands on the Model 3.

There are also growing fears that Mr Musk, with his grandiose plans to solve the world’s energy problems with revolutionary battery power and conquer space, will inevitably come unstuck – or worse. The Financial Times recently fulminated that his grandiose proposals to colonise Mars could not just threaten his car company but seriously damage the environment of the unexplored Red Planet. “The world would be far better off if Mr Musk concentrated his brilliant mind on preserving Earth, and forgot about Mars until that job was even halfway done,” it wrote.

But investors know all that and are not put off in the slightest. When Mr Musk needed more money this year, he effortlessly raised another $1.4bn to top up his coffers and could have had more if he needed it.

This weekend, however, the focus will remain firmly on earth as Mr Musk’s greatest contribution to a cleaner environment, the Model 3, shuffles off the production line and into the history books. For the moment at least, Mars will have to wait.

Tesla‘s eagerly awaited Model 3 is designed as the world’s first massmarket electric vehicle