Musk, Tesla face pivotal test in 2018
Auto innovator fell short of goals for electric car
Tesla, the upstart that has defied the rules of the auto industry, is finishing up a year when the challenges of manufacturing a mass-market electric car in large quantities finally hit home.
After years of bragging about its advanced manufacturing techniques, the Silicon Valley automaker faced a reality check when it came to making its first mainstream car, the Model 3 electric sedan.
Output failed by a wide margin to meet CEO Elon Musk’s promise of 5,000 vehicles a week by the end of December. Tesla could face a make-or-break 2018.
Speeding the rollout of the Model 3, which at about $35,000 will be roughly half the starting price of Tesla’s luxury models, is essential to the company’s financial health.
“Is this the year investors will say, ‘Enough’s enough,’ or will they continue to fund Tesla?” Autotrader.com analyst
Michelle Krebs said. “That’s the big question.”
Investor enthusiasm remains high. In April, Tesla briefly passed General Motors as the most valuable automaker in the USA. Tesla shares sailed to an interday high of $389.61 in September but have since settled back 20%, closing Wednesday at $311.64.
Tesla is valued at about $53.3 billion, less than GM’s $59.4 billion.
Tesla’s main focus is on the Model 3, which will require exiting what Musk has called “production hell.”
Tesla denied reports that workers at the automaker’s factory in Fremont, Calif., were assembling some parts by hand. Tesla did acknowledge it hit significant “bottlenecks” in production.
Morgan Stanley auto analyst Adam Jonas estimated that Tesla would make 8,000 Model 3 vehicles in the first quarter, falling tens of thousands short of the company’s initial hope.
Musk blamed the company’s underwhelming Model 3 production partially on an unidentified supplier that failed to live up to expectations.
He acknowledged that the company struggled to perfect the newly automated and advanced processes it designed to make the Model 3.
Here are the keys to Tesla staying on track in 2018:
Model 3 production must be fixed — and fast. The longer the sluggish output continues, the more likely the company will lose customers who placed refundable $1,000 deposits to reserve their place in line.
Tesla desperately needs to begin offsetting the red ink from its costly production expansion with sales revenue. “2018 should be a year of reckoning for Tesla,” AutoPacific analyst Dave Sullivan said in an email. Musk can’t spread himself too
thin. The visionary innovator leads Tesla, which has been merged with rooftop solar energy company Solar City, and rocket maker and launch company SpaceX. He’s building a tunnel-making outfit called the Boring Co. Is it too much?
“He’s got these big visions and on multiple fronts,” Krebs said. Labor strife must be avoided. After Tesla fired hundreds of employees at once in the fall, questions arose about the company’s relationship with its workforce.
The Detroit-based United Auto Workers, which aims to unionize Tesla’s Fremont plant, accused the automaker of firing employees who rallied workers to the union’s side.
Musk blasted the suggestion that the firings were inappropriate, declaring that the company has “an extremely high standard” and that workers were let go after customary annual performance reviews. Tesla must keep allies happy. While Tesla did not publicly identify the supplier it blamed for production bottlenecks, it’s not the first time the company has had a falling out with a partner.
Tesla is engaged in a crucial battery partnership with Panasonic. But Panasonic turned heads in December by striking a battery partnership with Japanese automaker Toyota.
Though Panasonic said the deal did not affect its collaboration with Tesla, the move put Tesla on notice: Suppliers have other ways to make money.
“Is this the year investors will say, ‘Enough’s enough,’ or will they continue to fund Tesla? That’s the big question.” Michelle Krebs Autotrader.com analyst