Tesla 3: Can Musk deliver?
Promise of $35,000 car has plenty of fans as well as skeptics
Tesla chief executive Elon Musk has come one step closer to realizing his long-held dream of bringing affordable, zero-pollution vehicles to the world’s highways.
After months of secrecy, he unveiled the prototype for his planned $35,000 (all figures US) Model 3 battery electric car last week to hundreds of adoring fans, a generally enthusiastic automotive press and a massive global presales response.
By Friday morning, Musk said, Tesla had received more than 198,000 deposits of $1,000 each for future deliveries of the sleek and low four-door sedan — an unprecedented response for a car that hadn’t even been shown in photographs when the deposits were made and that won’t be delivered to customers for at least 18 months.
Musk and his production team face an enormous set of challenges. They must turn the prototype into a working car, find a way to sell it at the stated price point, get their growing auto plant and new battery factory up to full capacity, and bring the Model 3 to market in time to beat the competition.
Critics of the Fremont, Calif., electric car company don’t believe any of that can be done. Musk has trouble meeting his own deadlines and building automobiles sufficiently bug-free for a mass market.
Musk seemed to realize the monumental task ahead, tweeting Friday: “Definitely going to need to rethink production planning.”
Some doubt he can produce the Model 3 for $35,000 without losing money on every car he sells.
“I don’t believe they can make any money selling this car for much less than $50,000,” said Mark Spiegel, CEO of the hedge fund Stanphyl Capital Management. “Unless something changes, the more Model 3s they sell, the more they will lose.”
Tesla has stated it will produce more expensive versions of the 3 first, filling orders for the most heavily option-laden vehicles before building and delivering the base models. Some early recipients of the $81,200 Model X paid as much as double that price for theirs.
“Tesla has a history of introducing a vehicle with a reasonably low price and then selling versions that are much more expensive,” said Jack Nerad, market analyst at Kelley Blue Book.
But by the time purchases of the Model 3 can actually be made, other inexpensive plug-in battery electrics, from more established companies with better production track records — and a better capacity to sell cars with low profit margins — will already be in showrooms.
The $37,500 Chevrolet Bolt is expected to be a strong rival. Other plug-in electrics are said to be coming from BMW, Mercedes, Volvo and others.
Musk himself acknowledged the possibility that the car will not be available in time to meet the promised late-2017 delivery date.
At the Tesla Design Studio outside Los Angeles, Musk promised delivery of the Model 3 by “next year,” then drew indulgent chuckles when he added, “I do feel fairly confident it will be next year.”
In the first 24 hours, Tesla received 180,000 preorders. Estimating that the average transaction price for the vehicle would be about $42,000, Musk estimated his 24hour haul at $7.5 billion. “Future of electric cars looking bright!” he tweeted.
In fact, the company’s take was closer to $180 million — nothing to sneeze at, but only seed money in the capital-intensive automobile production business.
I don’t believe they can make any money selling this car for much less than $50,000. MARK SPIEGEL, CEO OF THE HEDGE FUND STANPHYL CAPITAL MANAGEMENT