Tension high as Tesla retools
Model 3 is crucial to firm becoming profitable
SAN FRANCISCO — Tesla will shut down its Fremont, Calif., factory for a week in February to prepare the assembly line for its highly anticipated mid-market electric car, the Model 3.
“This will allow Tesla to begin Model 3 production later this year as planned and enable us to start the ramp towards 500,000 vehicles annually in 2018,” the company said Thursday.
It’s no exaggeration to say the success or failure of the Model 3 will mark a key event in automotive history.
Electric cars have been around since the invention of the automobile, but they’ve yet to catch on with the buying public. Of more than 17 million cars sold in the U.S. last year, fewer than 1% were pure electric. But that’s one place where Tesla is trying to shift events.
Already, Tesla has taken some 373,000 pre-orders for the Model 3, with customers putting down deposits of $1,000 each; that figure,
which the company made public last year, may have changed as more people placed orders or dropped out.
Michelle Krebs, senior analyst at Autotrader, said not only does the car represent Tesla’s “shot at becoming profitable,” it is “critical to Tesla’s financial success.”
Tesla plans to market the Model 3 for a starting price of $35,000 before any government incentives.
The company has yet to score an annual profit, but given its ambitions and capital requirements, that’s not surprising.
Chief Executive Elon Musk has conjured a grand vision for Tesla: a car company, a battery company and a solar energy company all wrapped in one.
But if the Model 3 fails to meet expectations, it could fizzle Musk’s dream. Tesla will need the massive cash flow generated by high-volume sales to pay for billions in investments and to provide a return to investors.
The production ramp-up won’t be easy. In 2016, the company delivered 76,230 of its Model S and Model X luxury vehicles. It plans to turn out half a million cars annually next year, most of them Model 3s.
The company is also contending with worker complaints and unionization efforts from some employees.
In a Medium post Thursday, Jose Moran, who said he works on the production line at the Fremont plant, blasts the company for forcing long hours on employees and causing “preventable injuries” through bad ergonomics. Worker suggestions for improvement are ignored, he said. “Worst of all, I hear co-workers quietly say that they are hurting but they are too afraid to report it for fear of being labeled as a complainer or bad worker by management.”
Workers are in discussion with the United Auto Workers union, he said.
In response, the company issued a prepared statement: “As California’s largest manufacturing employer and a company that has created thousands of quality jobs here in the Bay Area, this is not the first time we have been the target of a professional union organizing effort such as this. The safety and job satisfaction of our employees here at Tesla has always been extremely important to us.”
Stock market investors have assembled themselves into opposing camps, with bulls pushing the share price to record highs while short positions — bets against the company — are tapping record highs too.
The tension is pervasive as Musk attempts to smoothly combine a major new acquisition, SolarCity, into Tesla’s automobile business and lithium ion batterypack operations. The idea is to create a one-stop shop for solar rooftops with home battery storage units that can be used to juice electric cars.
Meantime, Musk is running SpaceX in Hawthorne, which builds rockets and capsules and shoots them into space.
Tesla has enjoyed remarkable success with its automobiles thus far. The company is widely credited with invigorating serious interest in electric cars.
Other automakers have taken notice, with most announcing aggressive plans for electric vehicles.
Already, Chevrolet is selling a competitive model, the Bolt EV, with an advertised range of more than 200 miles, similar to what Tesla promises for the Model 3.
The weeklong halt at the Fremont factory won’t affect total car production, a spokesman said: “We do not anticipate this brief pause to have a material impact on our Q1 production or delivery figures, as we have added production days to compensate.”
The Palo Alto company enjoys plenty of what marketing experts call brand equity: highly positive regard for the company’s name and what it represents.
Its Model S and Model X have generally received stellar reviews from auto writers. The company’s autonomous driving technology, much of which will be incorporated into the Model 3, is widely considered tops in the industry.
The Model 3’s four-door sedan configuration has given some analysts pause. Sedans are declining in popularity as low gas prices push consumers to crossovers and SUVs.
Musk has made clear that the company has other vehicles in the works, including a sport utility vehicle smaller than the Model X.
The biggest challenge for Tesla is execution: Can the company — which has been plagued by production delays in the past — get the car out, on time, before other automakers flood the market with their own electric cars?
Tesla plans to release its latest earnings statement on Feb. 22.