Tesla Model 3 slow to roll off the line
Buyers appear willing to wait despite rise of electric competitors
Tesla’s long-awaited Model 3 sedan is finally reaching customers. But it isn’t alone.
Anyone interested in buying a mid-price electric car can go to Tesla’s website, put down $1,000 for a Model 3 reservation and get the car in perhaps 12 to 18 months, by the company’s estimate.
Or the buyer can go to a Chevrolet dealership and drive off the lot with a Bolt, which even boasts a little more battery range than the Model 3. The revamped Nissan Leaf, which has less range but a lower price, should hit showrooms this month.
Tesla’s struggles to ramp up production of the Model 3 lasted well into the final quarter of 2017, the Palo Alto company reported Wednesday. Tesla built 2,425 of the sedans — whose most basic version starts at $35,000 — and delivered 1,550 during the three-month period.
When CEO Elon Musk handed over the first batch of Model 3s in July, he predicted that Tesla’s Fremont factory would build 5,000 of them per week by the end of 2017. Now the company doesn’t expect to reach that pace until June.
During its short history, Tesla has built up the kind of cachet that most car companies can only envy. The company also has developed a reputation for blowing schedules and deadlines.
“People will be forgiving, but they may get antsy because things are not working out as planned.” Jessica Caldwell, Edmunds.com
Its fans, who often share Musk’s vision of a future beyond fossil fuels, have shown a willingness to wait. Many analysts expect that patience to extend to the Model 3.
But unlike Tesla’s three previous vehicles — the Roadster, the Model S and the Model X — the Model 3 is entering a market crowded with competitors.
Some of those competing cars, from established automakers such as BMW and Volkswagen, are more readily available than the Model 3, with its waiting list of 455,000. Model 3 production would need to average 8,750 per week to fill all those orders in 2018.
And while drivers getting in line now for a Model 3 probably won’t qualify for a $7,500 federal tax credit — which phases out after an automaker ships a set number of electric cars — buyers of a Chevy Bolt or BMW i3 will.
“People will be forgiving, but they may get antsy because things are not working out as planned,” said Jessica Caldwell, executive director of industry analysis at the Edmunds.com auto information service. “People may lose interest.”
Model 3 driver Winston Wong, however, says the car is worth the wait, even for people far back in the queue.
The San Francisco resident picked up his midnight-silver sedan on Dec. 27, and has been impressed by its maneuverability and acceleration. He’s found a few minor bugs with its software — the system for programming when the car recharges at home doesn’t work yet — but nothing substantial.
“It’s an extremely well-crafted vehicle, as a driving experience,” said Wong, 61, a physician executive at Kaiser Permanente. “There’s no doubt in my mind that the Model 3 will be as iconic as the Model T in revolutionizing the auto industry. I don’t think the Bolt represents that.”
Burning through cash, with only two profitable quarters to date, Tesla needs to speed up Model 3 deliveries to improve its balance sheet and satisfy waiting customers. It also needs to demonstrate — to customers and investors alike — that it can reach mass production without sacrificing quality. The rollout of the Model X SUV in 2014 and 2015 was slow and plagued by glitches in the cars — an experience Tesla must avoid with the Model 3.
“They can’t afford to get this wrong, because everything else they want to do is based on its success,” Caldwell said.
Tesla’s overall production has grown, even as the Model 3 struggles. The company built just over 101,000 vehicles last year, up 20 percent from 2016.
When Model S production began in 2012, Tesla occupied just a corner of the Fremont factory, previously the home of a joint venture between General Motors and Toyota. Most of the cavernous plant lay empty, the lights turned off to save money.
Now almost every square foot of the factory is filled with machinery, parts or people — nearly 10,000 workers. The main production line, for models S and X, snakes back and forth across the floor to cram it into the space available, while overhead conveyors move panels, seats and partially assembled cars into place.
To meet Musk’s ambitious production goals — he wants to hit a rate of a million cars per year, starting in 2020 — Tesla has pushed assembly of some auto parts out of the factory and into other buildings scattered across Northern California and Nevada. Model 3 power trains, for example, are built at the Tesla Gigafactory near Reno, as are the car’s batteries. A Fremont facility that Tesla once used to host a debut party for the Model X now makes car seats.
And Model 3 production, according to the company, has finally started to accelerate. Tesla reported making 793 Model 3 sedans during the last seven working days of the year, compared with 260 during the entire third quarter.
The Chevy Bolt, meanwhile, has seen steadily rising sales since it was introduced in December 2016. According to a monthly count by the InsideEVs website, the Bolt — whose price starts at $37,495 — is now the second-most popular electric car in the United States, with 23,297 sold or leased in 2017. Only the Tesla Model S fared better, with 27,060 delivered during the year.
And yet, unless the Model 3 develops a reputation for bugs and further delays, many analysts expect the car’s reservation holders to stay in line, rather than grabbing a Bolt, a redesigned Leaf (starting price $29,990) or any other competitors.
“You’ll have some attrition, but I think there’s probably more people waiting to get in line,” said Efraim Levy, senior equity analyst at the CFRA research firm.
Levy recently read an online post from a Model 3 reservation holder who knew that Tesla had started Model 3 production by building a more expensive version —with 310 miles of range and a starting price of $49,000 — than the one he ordered. Production of the more basic version, with a 220-mile range and a $35,000 starting price, is expected to start early this year. In other words, the prospective Tesla buyer knew that other people who ordered the fancier Model 3 would get theirs well before he would.
“They know they’re going to be delayed, and they’re still keeping their place in line,” Levy said. “They want it that bad.”
That’s doubtless due, in part, to Tesla’s image. But Bill Selesky, senior analyst with Argus Research, said people also may see the Model 3 as distinctly different from its competitors.
The Bolt, for example, looks and feels much like a typical car, albeit a particularly quiet and smooth one. The Model 3, in contrast, feels like a sports car and includes a futuristic interior whose dash has no dials or controls other than a single touch screen.
“I think the perception buyers have is they’re purchasing a high-performance luxury car for $35,000,” Selesky said.