Tesla is struggling to build the Model 3 — here's why (TSLA)
Timothy Artman/Tesla
Tesla's third-quarter delivery numbers were both impressive — and depressing. The carmaker is on pace to sell 100,000 vehicles in a year for the first time in its 14-year history. But it's also far, far behind with the production of its new Model 3 sedan, the vehicle that's supposed to bring Tesla to the masses and spell the beginning of the end for gas-powered cars.
Tesla said that it would produce 1,500 Model 3's in September: it has managed less than 300 since the car was launched in July.
Getting to 20,000 in monthly production by December now seems like a hopeless expectation, as does CEO Elon Musk's prediction that Tesla will be manufacturing 500,000 vehicles annually by the end of 2018.
This means that the half million pre-orders for the Model 3 could go unfulfilled for several years, putting a huge number of $1,000 refundable deposits for each new car in doubt. That threat is real, but the markets are unconcerned: Tesla stock is still up 65% in 2017 and the brand has lost none of its captivating aura.
But it's also obvious that for a carmaker that's been around as long as Tesla should be good at, Tesla isn't: building vehicles.
So why is Tesla struggling to build the Model 3 on its own admittedly ambitious schedule? There are five main reasons:
1. The numbers don't mean anything.
Tesla has a long history of overpromising and underdelivering. Customers and investors have been more than happy to forgive the automaker for this transgression, largely because both groups understand that there's nothing to be gained if Tesla under promises and over delivers.
Tesla does not benefit from being normal. The company's entire DNA is organized around being special, different, extraordinary. Leave it to the General Motors' of the world to announce an all-electric Tesla Model 3 competitor, the Chevy Bolt, in 2015 and have it hit the streets by 2016.
Tesla's game is to astound (eventually), not execute. As such, the only predictions that matter are outsized ones. You don't change the world by restraining yourself.
And Wall Street doesn't care. Over the past two years, Tesla's stock has been wildly volatile. But it's still up over 1,200% since the company's 2010 IPO. Despite almost no profitable quarters and a balance sheet that can keep the company in business for only about a year before the cash is all gone.
2. The Model 3 is all-new production.
Tesla is reasonably good at manufacturing its expensive, luxurious Model S sedans and Model X SUV. Production of these vehicles was designed around a run-rate of about 100,000 per year, and Tesla will hit that mark most likely in 2017.
Of course, the Model X endured "production hell," as Musk memorably put it, during its roll-out in 2016. The Model S also endured early production issues that were later corrected. And Musk declared that production hell would be back for the Model 3. In fact, production hell often seems to be Tesla default state.
Traditional automakers are quite good at mass-production, but Tesla has been challenged to be a mass-production company until now. Musk talks about Model 3 production in terms of an "S curve," with a very slow ramp rapidly speeding up before leveling off at a desired point.
But Tesla also has a second S curve, related to learning. It doesn't know, exactly, how to build the Model 3. The company also skipped a beta-stage of production, in order to launch the Model 3 ahead of schedule this year. And although the Model 3, according to the Musk, was engineered for rapid production, it's still a new thing.
Established automakers build cheaper cars in volume all the time; Tesla never has.
3. Tesla enjoys endless patience from everybody.
Tesla's brand equity is probably its most valuable asset. Short-sellers aren't fans, and plenty of analysts argue that Musk is all hat and no cattle, but everybody else loves the company.
And Tesla knows it. Having built up massive positive brand equity over the years, Tesla has the advantage of "spending" it from time to time by, frankly, deceiving the public. Within this negative pact, however, is shared understanding: Yes, we aren't going to make our goals — but we also aren't going to lose focus on the big picture, which isn't to sell more cars, but rather to save the planet.
Unlike most other companies, even professedly do-gooding outfits in Silicon Valley, Tesla truly has a mission, one that's difficult to resist or criticize. Importantly, Tesla has earned this trust by delivering a genuine payoff to anybody who's willing to go along for the ride.
See the rest of the story at Business Insider
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