If you’re thinking of buying an all-electric or hybrid car, here are a few things to consider.
SAN FRANCISCO — 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 $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 birthing issues at a factory Model 3 ceremony in July. He predicted “production hell.”
Indeed, for an upstart automaker used to small volume sales, scaling up from around 100,000 Model S and X luxury SUVs to around 500,000 annual production for all three models is a mammoth undertaking.
But those issues have been compounded by news last week of around 400 to 700 layoffs out of a workforce of about 33,000 employees. In addition, a Wall Street Journal report suggested Model 3 builds so far were slow, handmade affairs.
Tesla says the undisclosed number of dismissals were performance-based and did not, for the most part, involve factory workers. The company confirms that it plans to replace most of those who were let go.
Tesla also has been contending with moves to bring the United Auto Workers Union into the factory in Fremont, Calif., south of San Francisco, which management has pushed back against. Ongoing lawsuits from some employees claim unsafe working conditions.
As for the Journal’s contention that the Model 3’s assembly line wasn’t fully operational until just a few weeks ago, Tesla said the outlet’s reporting was “fundamentally wrong and misleading,” adding that “every vehicle manufacturing line in the world has both manual and automated processes, including the Model S and X today … it will take time to fine-tune the line for higher volumes.”
Fans of Tesla’s sleek design and envelope-pushing automotive technology may be willing to grant the company that time, but less besotted car shoppers may not.
“Tesla has a cult-like presence with legions of true believers who are willing to put their money up for what appears to be the future of the automotive,” Cogan says. “But while some people may take their (Model 3) whenever it comes, for others they’ll eventually need the car to show up when they need it.”
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