"car biz is hell"

Car biz is hell

Will Tesla's Model 3 ever make it to the market? 2018 remains a pivotal year for Tesla

Jeff Schuster, President, Americas Operation & Global Vehicle Forecasting

17 April 2018

Tesla and Autonomous Driving

Is there finally a scratch in Tesla’s Teflon® image?

As we have been saying since Tesla’s plan to move into the mainstream and launch the Model 3, designing and then manufacturing a vehicle at scale is a tough and complex business. Elon Musk is certainly finding that out the hard way, as are all the consumers that parted with US$1,000 nearly two years ago and are still waiting for their vehicle.

Not to take anything away from Tesla, which has innovated by challenging conventional wisdom with a   dealer-less sales process and deploying over-the-air updates to correct errors and offer new features. These initiatives have put the traditional auto industry on notice, with most OEMs, whether Premium or Non-Premium, following Tesla’s every move. However, going from a few thousand vehicles to hundreds of thousands remains quite a leap.

“2018 remains the pivotal year for Tesla’s future”

In fact, we question whether Tesla will ever reach its targeted volume, given the following:

  • Does Tesla even have the annual capacity to hit the numbers targeted? We question this given the layout of the Freemont plant and manual workstations/workarounds being utilized – all ahead of a second factory planned for China in 2020. We expect Model 3 production to fall short of 100k units in 2018, which is well below even the latest revised target.
  • The company has a significant number of deposits, but those are not sales and that money has been spent funding operations, with cash burn remaining significant. How long will consumers (and Wall Street) continue to wait, knowing that their deposits are fully refundable? Not likely too much longer. The tide may already be changing on Wall Street, which will spill over to the general public.
  • Competition is fierce with both high-volume and Premium brands launching EVs, many of which are targeted as Tesla fighters. In the US alone, we expect the number of BEVs (battery electric vehicles) on sale to more than double from 20 in 2018 to 51 by 2020, so the competitive advantage window is closing.
  • There are too many distractions or diversions.  If, as Musk has stated, the “car biz is hell,” then the focus should perhaps be on improving manufacturing instead of selling flamethrowers, launching cars into space, or making Tequila. In fact, why not contract someone else to manufacture the vehicles and concentrate on innovation instead? There can be little doubt that multiple OEMs, or even Magna, would line up at the door to partner with Tesla.

 

2018 remains the pivotal year for Tesla’s future, with everything riding on the Model 3 getting up to volume without being plagued by quality problems. There is only so much you can fix over the air. As we push toward the second quarter, we expect further delays with the Model 3. And yes, a delay is a delay, not a “time shift,” as Musk would have us believe.