The author shows a poor understanding of car making business.
He tackles the whole topic from the demand side (how to have people liking and buying the product), but the real issue with the model 3 will be: can they PRODUCE it right?.
All the comparisons with Apple the iphone clearly show he's approaching this business as it was just consumer tech, which is really not.
Just think about the effects that shifting from a low volume-high margin business to a high volume-low margin one can have on return on capital...
And that's happening in a very capital intensive business, so tons of money re/invested at low ROE..
I wish Tesla can really make it happen but if I was a shareholder I would be quite reasonably scared.
You show a poor understanding of Musk's track record.
I just don't get people who hold this opinion. What exactly do you think is going to happen?
Do you envision Tesla admitting, say Q2 2018, "Serious supply shortages continue to prevent us delivering on the Model 3, we now hope for Q1 2019 delivery," and ultimately just go out of business, meanwhile competitors suddenly come up with incredibly compelling cars that they've somehow never managed to create before? Is that really the outcome you anticipate??
This is the same guy who's now successfully landed rockets . . . but you think manufacturing cars will be unachievable for him, even after Tesla has continually demonstrated rapidly climbing production and sales of the S and X?????
It actually seems like a pretty good understanding of Musk's track record to me.
They're obviously not going to go out of business as a result. But considering Tesla has already had earnings calls pretty much exactly like that with respect to slower than expected Model S production, yes I would expect Tesla in 2018 to admit that most people on the pre-order list are going to be waiting a very long time.
That leaves Tesla in the awkward position of either needing to massively ramp up every aspect of its production pipeline now (which is a HUGE undertaking) at the cost of not producing Model S and Model X on schedule, or facing a significant number of pre-order people giving up on waiting, and a constrained production capacity well into 2020.
The OP's comment was with respect to shareholder confidence, which is currently propping up the stock price based on future expectations. I believe the point was that if Tesla can't come even close to meeting the market demand for its vehicles, that's a signal of weakness on several fronts that would need to be priced into the stock.
I'm also not sure what landing rockets has to do with mass-producing cars. SpaceX's achievements are indeed amazing and I watch all of their launches, but figuring out how to land a first stage is an engineering challenge. Figuring out how to produce 300,000 cars in a short time is a logistics challenge. Not to mention no one yet knows how Tesla's model will scale to the larger market with respect to service, support, parts replacement, etc. Scale in the automotive market just brings with it a huge number of issues to tackle that don't exist in smaller volumes.
Most of your post there is valid. But for the record, if they meet their goal of delivering ~85,000 cars this year and can sustain the previous growth from 25k->50k->85k, then 2017 would see deliveries of ~100-110k and 2018 would see ~130k-150k, and 2019 ~160k-185k, which puts them very on track.
That's assuming continued linear growth of adding 20-30k per year. Musk has said repeatedly he is aiming for 500k by 2020. While I don't doubt that will be missed, it implies we'll see more than linear growth.
I understand there will be challenges -- I just have strong faith in their ability to surmount them.
Good point. However, Tesla also missed its 2015 production target because retooling the factory to produce Model X and to produce more Model S took longer than expected and impacted the existing production line at the same time. I think the exact same thing will happen with Model 3, only moreso given the huge ramp-up needed. Rather than linear growth it's probably going to be more like big staggered increases.
I love your counter-argument: "this guy landed rockets, so he will make happen whatever" :D
Oook...look I'm cheering for this but then there is this thing called "reality".
And I'm not even say it won't happen, but I'm doubting whether it will be sustainable in terms of the obligation a company has with its shareholders.
Producing so many cars requires crazy amount of capital and that capital will yield very little on this model...and yes on top of it competition will come...can Tesla be a sustainably profitable company pursuing this strategy? That's my question.
When you put it that way it sounds fairly reasonable.
Nonetheless I firmly believe the answer is yes, since the alternative means Musk has failed in his mission to move the world over to electric transport, and I have a hard time picturing him failing in that fashion.
I just find it incredibly hard to picture Musk in 2025 during an interview "Yes, we failed with Tesla because...etc etc, achieved an incredible amount of progress in 12 years but ultimately were unable to etc etc"
Like, he'd rather be homeless on the street than let the company fail. He'll give up his last penny for it. I know you consider this irrelevant, but I simply don't. His track record is too strong to ignore.
It would only require running out of cashflow and willing investors. I agree, it's hard to imagine, but Tesla doesn't exactly have a great bond rating...
I admit I don't understand the full consequences, but it's very easy to imagine them being on the verge of launching a product but being unable to raise more money given their at-the-time dilution, valuation, etc etc etc etc.
He tackles the whole topic from the demand side (how to have people liking and buying the product), but the real issue with the model 3 will be: can they PRODUCE it right?.
All the comparisons with Apple the iphone clearly show he's approaching this business as it was just consumer tech, which is really not.
Just think about the effects that shifting from a low volume-high margin business to a high volume-low margin one can have on return on capital... And that's happening in a very capital intensive business, so tons of money re/invested at low ROE..
I wish Tesla can really make it happen but if I was a shareholder I would be quite reasonably scared.