Worried about your Tesla Model 3 order? No need to panic — yet
Tesla has been sideswiped lately by news — hundreds of layoffs, reports of delays — that seem to foretell production woes for its critical Model 3 sedan.
But if you’re among the 400,000 customers who put down a $1,000 deposit for Tesla’s entry-level electric vehicle, it’s likely too early to panic.
Here’s what you want to keep your eyes on: Can CEO Elon Musk meet his promised volume of 5,000 Model 3s per week by the end of the year and 10,000 a week by sometime next year?
Only then can Tesla hope to deliver on all those preorders next year and begin filling new orders in 2019. Any significant lag in that timeline could see deposit holders and prospective customers get impatient and head for the off ramp.
“The Model 3 has been under a microscope for a long time,” says Ron Cogan, editor of Green Car Journal. “So much depends on this, and they know it.”
Musk assured investors during an August call that the target would be reached. “People should have absolutely zero concern that Tesla will achieve a 10,000-unit production week by the end of next year,” he said.
But time isn’t on Tesla’s side. Unlike the premium Model S and X sedans, which when fully loaded with options and extra features can top $100,000, the promise of a basic $35,000 Model 3 has captured the attention and wallets of a different demographic that might not be as patient.
“That’s people with $1,000 out of their pockets, so you’re talking tens of thousands of people who might be basing that car purchase on how fast their Model 3 will be ready,” says Karl Brauer, executive publisher at Autotrader and Kelley Blue Book.
“If you’re just looking for a functional, inexpensive EV, there are plenty of (Chevy) Bolts on the lot at attractive lease deals,” he says.
Reasons your Model 3 may yet be delivered in a timely manner:
The pressure is on for the company to get this venture right because its entire mission is based on being a mass-market player in the electric car space, which is part of a three-legged consumer stool that includes solar panels and power storage units.
Musk has pulled a rabbit out of his hat before when his six-figure Model S and X sedans ran into issues such as the X’s elaborately tricky upward-opening “falcon-winged” doors. In each case, he managed to keep customers hooked as his team worked out last-minute bugs.
Bullish investors have helped the stock soar 81% year over year to $350 a share, making capital easy to raise for a company that has burned through some $6 billion so far. Tesla has a market cap of $58 billion, valuing it at only $8 billion less than General Motors despite production of far fewer vehicles.
Alliance Bernstein analyst Toni Sacconaghi, who believes EVs will be 20% of the auto market by
2020, up from 1% now, remains optimistic that Tesla will reap great financial rewards as a visionary leader in the industry. But he’s not without concerns.
“Tesla will continue to burn billions of dollars of cash for the foreseeable future, and we therefore worry that any near-term missteps in Tesla’s executive of Model 3 could cause a major retreat in its share price,” Sacconaghi wrote in this month’s portfolio manager assessment titled, “Tesla: Supercharging the Electric Revolution.”
Earlier this month, Tesla reported 26,000 third-quarter deliveries, of which 220 were Model
3s, that went to employees and some early investors. Tesla had predicted 1,500 Model 3 deliveries, but cited “production bottlenecks” for the lower figure.
“If you’re a fan and you look at Elon’s history, he’s shown he has snatched victory from the jaws of defeat many times,” Brauer says. “So you have to give him the benefit of the doubt today. But if six months go by and things are looking painful, some customers may bail.”
Musk himself telegraphed that the Model 3 venture would be fraught with issues at a factory Model 3 ceremony in July. He predicted “production hell.”