As Tesla pushes Model 3, doubts remain about firm’s future
Pittsburgh Post-Gazette
Jennie Zioncheck waited in line for more than two years.
The North Side resident was among the first to order a Tesla Model 3, billed as the first electric vehicle for the masses, in March 2016. Her car finally was delivered in June 2018.
“The waiting was difficult because they kept pushing it back,” Ms. Zioncheck said.
Nevertheless, she’s convinced that the two-year holdup was worth it.
“The wait creates anticipation,” she said. “It’s really an amazing car.”
The story of that vehicle is part of a corporate saga spanning years. The Fremont, Calif.-based company has been producing an allelectric luxury sedan, called the Model S, since 2012 and a larger SUV, the Model X, since 2015.
In March 2016, billionaire CEO Elon Musk plunged the company into a new market, revealing plans for a $35,000 car capable of traveling more than 200 miles on a single charge.
The new Model 3 appealed to
many customers.
“They’re reliable, they’re fast, and they’re very goodlooking,” Marty Earle of Shadyside said.
He already owns a Model S, but he jumped into the Model 3 line about a year and a half ago — attracted by the promise of all-wheel drive, he said. He does not expect to receive his vehicle for another three to five months.
American consumers typically don’t wait around for cars, but Tesla has won over many people like Mr. Earle and Ms. Zioncheck. The company reported that it had about 420,000 Model 3 orders on the books at the end of the second quarter.
The loyalty to the Tesla brand is remarkable.
“I never considered other cars,” Mr. Earle said.
Tesla was also the first choice for Ms. Zioncheck, who cited environmental concerns as a primary factor in her decision.
“[The environment] was quite important,” she said. “[Driving an electric car] is a small thing that I could do.”
Not everyone was willing to wait for the Model 3, but even some of those didn’t abandon the brand.
Even though he opted for the Model S instead of the Model 3, O’Hara resident Scott Tobe did not even consider heading elsewhere.
“I quickly looked [at other electric cars] and nothing even came close [to Tesla],” he said.
Mr. Musk’s company produced its first prototype cars in 2008, but it was not until 2012 that it launched its first production electric vehicle, the Model S. Tesla remains a small manufacturer, producing only a fraction of the cars made by larger companies like Toyota, GM and Ford.
The price tags, starting above $74,000, often made the vehicles pretty exclusive — with a Tesla sighting on the roads a bit of an event.
Now, the push to reach a broader, less affluent audience has triggered both the long waits and some existential issues for the company. In an investor conference call in 2016, Mr. Musk warned that Tesla was in for “production hell” as it tried to ramp up manufacturing capacity.
Investor news releases from Tesla predicted production rates of 5,000 cars per week by the end of 2017. Instead, the company only produced 2,425 cars during the entire fourth quarter.
The production delays continued into 2018. During the first quarter, Model 3 production was up to 9,766 vehicles, but still not even half of Mr. Musk’s goal of 5,000 per week.
Even the company’s signature reliance on automation was called into question. In a report to investors, the company said, “We made a mistake by adding too much automation too quickly.”
Asspring turned to summer,the company scrambled tospeed up manufacturing, constructinga second assemblyline in a tent outside its mainfactory in Fremont and flyingan entire battery productionline from Germany to its “Gigafactory” for batteriesin Reno, Nev.
Mr. Musk said on Twitter that he was sleeping at the factory while managing Model 3 production.
The work did pay off. A triumphant Mr. Musk turned to Twitter on July 1 to report an all-model production rate above 7,000 per week. In a statement the next day, the company confirmed that it had produced 5,031 Model 3s during the last seven days of the quarter.
“It’s amazing that [Mr. Musk] was able to build the first new car company in 6070 years,” Mr. Tobe said.
Despite the fanfare, Tesla still faces challenges.
In a July 2 note to investors, Jeffrey Osborne of Cowen Equity Research noted that the 5,000-per-week production rate may not be sustainable, and he expressed concerns about the quality of the vehicles being produced in Tesla’s hastily created tent assembly line.
“We see a lot more that can go wrong than can go right as the company transitions into Mr. Musk’s greater vision,” he wrote.
Mr. Earle agreed, saying, “I’m a little concerned that they’re grinding them out so fast.”
Tesla production also is still just a fraction of most major car companies, a point underscored by Steven Armstrong, head of Ford’s European division. In a wry tweet, Mr. Armstrong said Ford produces 7,000 cars in just four hours, compared with Tesla’s one week.
Even though Model 3 production has increased by a factor of 12 in just six months, total production of 53,339 vehicles in the second quarter pales in comparison with nearly 2.8 million cars produced by Volkswagen, 2.3 million by Toyota, and about 1.7 million by Ford.
Tesla also may face a cash crunch as its Model 3 ambitions clash with its next stated goal: profitability during the second half of 2018.
The company lost $785 million in the first quarter, and Mr. Osborne of Cowen predicted that it could need a $2.5 billion cash infusion as soon as the end of the year.
Despite production woes, customers who have received their cars seem to be happy.
Ms. Zioncheck said she loved the Model 3’s quick acceleration.
“It handles like a sports car,” Mr. Earle said.
The car saves money, too. Mr. Tobe said he spends between $30 and $50 on electricity to charge his vehicle each month, compared to the $250 he used to pay for gasoline.
Those attributes have kept customers flowing into Tesla’s showrooms on Perry Highway in Marshall and in Ross Park Mall. Customers ordering the Model 3 have to make a $1,000 refundable deposit and then an additional $2,500 deposit when they customize their cars.
The company’s website lists wait times ranging from three to five months.
Tesla seems to have very different faces for customers and investors as it attempts to transform transportation.
“I own stock, and I don’t care how much profit they make right now,” Mr. Earle said. “It’s still going to be effective long term.”