Experts Doubt Elon Musk’s ‘Improbable’ Tesla Model 3 Plan

Jul 07, 2017

The first Tesla Model 3 is expected to roll off the assembly line Friday, turning CEO Elon Musk's long-held dreams of producing an affordable electric car into a reality. But even if Musk may be celebrating this weekend, the wait is far from over for many of those awaiting delivery of their shiny new sedan.

Nearly 400,000 Tesla customers have pre-ordered the Model 3. But most won't get them soon. Following a "handover party" for the first 30 buyers later this month, Tesla says production for the $35,000-and-up vehicle will reach 100 vehicles per month by August, "above" 1,500 per month by September, and then a hefty 20,000 per month by December. However, given Musk's history of missing his own ambitious deadlines, some experts question whether Tesla will actually reach those figures without hitting speed bumps along the way.

"It seems improbable, doesn't it?" said Mark Mills, a technology forecaster and senior fellow at the Manhattan Institute, a New York City-based think tank. "In this case, past performance is certainly indicative of the future."

"Those targets do seem a bit steep," added Jeremy Acevedo, a senior analyst at automotive site Edmunds. "Growing pains are going to be expected."

Those growing pains may take the form of production issues as Tesla seeks to dramatically ramp up its output without a sacrifice in quality. Supply chain problems have long plagued Tesla, which began selling high-end niche electric sportscars in 2008 and is now on the cusp of launching what it hopes will be a mainstream electric car revolution. The Model X SUV in particular has suffered from production issues. Some observers have offered grim predictions of similar problems for the Model 3, though Friday's rollout is slightly ahead of schedule. (It was a Twitter user's recent plea for Musk to "have mercy" and stop the "speculation on [the] Model 3 final release date" that seemingly prompted Musk to tease an update on the new vehicle.)

Just this week, Bloomberg reported that a decline in shipment deliveries due to a battery pack shortage has left industry analysts concerned about the company. They're wondering whether Tesla will be able to hit its Model 3 production goals, particularly since it has typically taken Tesla three months to make the number of cars it hopes to build this December alone. Producing a few dozen cars is one thing — producing tens of thousands is something entirely different.

“While it is nice to see Tesla finally hit a stated target on time, we question whether 30 vehicle deliveries essentially built by hand count as ‘mass production,’” Cowen and Co. managing director and senior research analyst Jeffrey Osbourne wrote in note to clients Wednesday, Bloomberg reported. “We also are surprised that this ‘mass market’ vehicle does not have official photos, options, pricing or really any details available.”

In the face of growing deadline pressure, Mills said that Tesla might rush to meet its targets, resulting in a decline of quality. But he added that Tesla's brand prestige and fan following put it in a unique position that could help it survive setbacks.

"It will be unsurprising if we see six months from now reports about recalls. But people buying Teslas are more tolerant of recalls then the typical automobile," Mills said. "They like the story and Elon handles it very well."

Mills said the real challenge for Tesla is whether it can navigate what he described as a "reverse route." Tesla is taking an unusual path by establishing itself as a premium, expensive manufacturer first, before shifting to more affordable vehicles. "The nature of how you manufacture and sell things that cost $100,000 is radically different from manufacturing things that cost three times less. It's a different process with different metrics and a different customer base," Mills said.

"Chevrolet makes the Corvette, which is undeniably a nice car," Mills added. "But their expertise in making consumer cars was already among the best of the world. I'm skeptical that Musk can integrate that market."

Still, others see a sensible plan in Tesla's strategy. "I think it's a successful Model that [Musk] has laid out,"Acevedo said. "You look at what Tesla has done, these vehicles with unprecedented demand — Tesla has become an aspirational brand. Now you reduce the price tag and the entry fees and you see things like those nearly 400,000 [Model 3] preorders."

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