TESLA’S BUSI­NESS MODEL: IT’S COM­PLI­CATED

Automobile - - Design Of The Year -

OUR CHOICE OF the Tesla Model 3 as De­sign of the Year does not mark the first time we rec­og­nized the de­sign and en­gi­neer­ing acu­men of Sil­i­con Val­ley’s “dis­rup­tive” car com­pany. Our 2012 Au­to­mo­bile of the Year was Tesla’s break­out prod­uct, the Model S. In the six years since, Tesla has grown. The only is­sues hold­ing it back from be­com­ing a mass-mar­ket au­tomaker are its strug­gle with ac­tu­ally man­u­fac­tur­ing elec­tricpow­ered cars and SUVs, and slip­ping de­mand for elec­tric ve­hi­cles in mar­kets such as Hong Kong af­ter a gov­ern­ment tax break or sub­sidy is elim­i­nated.

Tesla CEO Elon Musk ap­pears to look at the bat­tery-elec­tric ve­hi­cle mar­ket only from the sup­ply side. Prior to sell­ing the first Tesla Model 3s, he said pro­duc­tion of the $35,000 (base price) sport sedan would reach a rate of 5,000 per week by the end of 2017 and quickly rise to 10,000 per week later this year. Those plans called for pro­duc­ing 500,000 Tes­las, mostly Model 3s, in 2018. Pro­duc­tion of con­sumer sal­able Model 3s be­gan last sum­mer, and by the end of the third quar­ter the com­pany had built just 260 and sold 222 of them (mostly to em­ploy­ees and in­vestors), Musk said dur­ing a Wall Street an­a­lysts’ con­fer­ence call. The CEO fa­mously called the Model 3’s launch “pro­duc­tion hell.” He said a sub­con­trac­tor had “ro­bot cal­i­bra­tion is­sues” but blamed him­self and his team for sign­ing the sub­con­trac­tor. “We had to re­write all that soft­ware—20 to 30 man years of soft­ware—in four weeks,” Musk told the an­a­lysts.

Musk amended his pro­duc­tion tar­gets in that call and said Tesla would ramp up to 5,000 Model 3s per week by the end of the first quar­ter of 2018. By the time you read this, the goal will be on its way to be­ing met. Dou­bling that num­ber to the ul­ti­mate goal of 10,000 per week would be easy, Musk said, be­cause Tesla can make the ro­bots “go re­ally, re­ally fast.” Whether Tesla meets Musk’s late first-quar­ter goal or not, it’s clear the 455,000 (net) global cus­tomers who placed $1,000 de­posits on a Model 3 will not all get their cars be­fore 2018 ends.

A cou­ple weeks af­ter Musk’s con­fer­ence call, he un­veiled a pro­to­type for a semi truck at his Hawthorne, Cal­i­for­nia, fa­cil­ity. It ar­rives in 2019. A new Road­ster, also shown at the event and which looks more like a four-seat targa top GT, comes in 2020. Musk promised a 5.0-sec­ond 0-60-mph time and a 500-mile range, and that’s for the truck. The Road­ster will have a 200 KWH bat­tery pack ca­pa­ble of 620 miles of range, a 1.9-sec­ond 0-60-mph time, and a top speed of more than 250 mph. The com­pact Model Y SUV, based on the Model 3, is due the same year as the Road­ster. “Don’t set your watch by this, but rough pro­duc­tion starts in about three years,” he said of the Y in the thirdquar­ter earn­ings call.

Tesla crit­ics won­der where Musk in­tends to build all th­ese cars and trucks. If he meets his stated goal of 500,000 Tes­las per year at the com­pany’s Fre­mont, Cal­i­for­nia, fa­cil­ity, he will sur­pass New United Mo­tor Man­u­fac­tur­ing’s best year, 2006, when it as­sem­bled 428,633 Toy­otas and Pon­ti­acs. NUMMI av­er­aged 6,000 units per week be­tween 1984 and 2009. One pos­si­bil­ity is Tesla’s Gi­gafac­tory in Ne­vada, though Musk has given no in­di­ca­tion the com­pany will assem­ble cars in a plant de­signed to mostly pro­duce lithium-ion bat­tery cells. No mat­ter where the new mod­els are as­sem­bled, Tesla will have to in­vest hun­dreds of mil­lions of dol­lars, even bil­lions, in new tool­ing and an ex­pen­sive paint booth tall enough to ac­com­mo­date big-rig trucks.

Per­haps it doesn’t mat­ter to a new car com­pany that con­tin­ues to lose money ($619 mil­lion in the pre­vi­ous third quar­ter) while show­ing a far more promis­ing fu­ture than ev­ery up­start au­tomaker since Pre­ston Tucker. Some ob­servers steeped in auto-man­u­fac­tur­ing lore be­lieve tra­di­tional au­tomak­ers have a bet­ter shot at fund­ing the EV rev­o­lu­tion with the healthy prof­its from con­ven­tional gas- and diesel-pow­ered ve­hi­cles. Sil­i­con Val­ley con­sid­ers that 20th cen­tury think­ing. The Cult of Elon, much like the Cult of Mac nearly a gen­er­a­tion ago, will tell you that when cli­mate change be­comes a clear, im­mi­nent threat to global eco­nomic forces in a few years, Tesla will be po­si­tioned to be­come the world’s dom­i­nant au­tomaker. AM

A SUB­CON­TRAC­TOR HAD “RO­BOT CAL­I­BRA­TION IS­SUES. ...WE HAD TO RE­WRITE ALL THAT SOFT­WARE—20 TO 30

MAN YEARS OF SOFT­WARE —IN FOUR WEEKS.”

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