On the heels of Tesla’s quarterly financial results released earlier this week, the company notified us reservation holders of an update in our Tesla Model 3 reservation. Eagerly hoping the date had been moved up because they’re promising a 5,000/week production rate, I logged into my Tesla account and was disappointed to see the above delivery estimate. Instead of moving up the delivery estimate, it’s now delayed another 6 months or so. And I’m not the only one – my Facebook feed is filled with people complaining about this.
On March 31, 2016, I and a couple hundred thousand other people lined up at Tesla offices around the world to put down a $1,000 deposit on a Model 3. That was BEFORE even showing the car to the public – the reveal event wasn’t until that evening. I and those couple hundred thousand others had enough faith in Tesla Motors to put down a $1000 deposit on a car we’d never seen. And when they DID show the car that evening, a bunch of others got so excited that the reservations total ballooned to a half million or so.
Two years later? We see news that Tesla is “struggling” to get the production volume to the promised level. Apparently the biggest difficulty is battery pack production at the Gigafactory. Two years is an awfully long time to wait for a car. And to have the delivery date pushed out another 6 months is astonishing.
Let’s be clear on something. A promise made is a promise made, and this is a promise broken. Sort of. Technically speaking at every step of the way Tesla Motors did not make a firm PROMISE, instead Tesla always gave an ESTIMATE for delivery. But … The customers don’t always hear such nuances.
As such it’s understandable that a number of reservation holders are now in revolt, and have proclaimed an intent to cancel their reservations. I’m tracking discussions in several Model 3-related Facebook groups and see that fallout.
Which raises concerns about the health of Tesla Motors as a business. On Tuesday I wrote about the false assumption that the company was about to dissolve into bankruptcy because of the huge losses shown every quarter. The basic premise is true in that the losses are due to the hugely aggressive rate Tesla is building its manufacturing capabilities, and also the hugely aggressive R&D program to develop new vehicles (the Tesla Semi, 2nd Gen Roadster, the Model Y, the Pickup, and all the solar and storage things at Tesla Energy). Tesla, the company, could become profitable in a heartbeat simply by slowing down those investments. But the company believes it must stay on that schedule in order to gain the market foothold required to achieve corporate goals of eliminating fossil fuels and becoming a financially going concern.
The problem with that story is – it requires that the customers be rabidly fanatic fans who are willing to put up with some foibles because we all believe in the story.
But – what if the customers get pissed off one too many times and turn from fans to critics?
Tesla’s business plan all along has been to develop high-end products from which it earned a healthy “margin” (profit) and to plow those profits from expensive high-end products into developing mass market lower cost products. To keep that pattern alive, sales must remain large enough to fund developing those mass market lower cost products.
Having customers who are rabid fans would support such a business plan. But turning those fans into critics runs a high risk that sales will dry up and the whole thing caves in on itself.
We don’t know what the result of this disappointment will be. Are there enough angered people to tilt the balance? What matters is whether there’s enough Model 3 customers remaining that sales is enough to pay for the business.
I’ll close by noting one observation from the Model 3 discussions on Facebook. Namely that Tesla Motors is focusing on rolling out the Model 3 to those customers ordering the pricier configurations that have a higher margin. The picture above carries a small amount of proof for that assertion.
The Model 3 is billed as a $35,000 MSRP electric car with a 200+ mile range. It turns out that’s only when you buy the base model, and that Tesla has a number of options available that raise the MSRP well above $50,000.
I am not someone who can afford a $50,000 car, nor do I think that’s a wise price to pay for a car. Cars are just boxes on four wheels to me, and I cannot risk my personal financial situation on buying an expensive box on four wheels. Therefore I have stuck with getting the $35,000 base model, and possibly selecting the larger battery pack.
But – the online delivery estimator on the Tesla website shows that I’ve selected the dual motor all wheel drive model. I did no such thing, I have stuck with the base model all along. My attempts to reselect the base model fail, and instead the delivery estimator keeps setting it to the dual motor all wheel drive model as shown above.
Obviously that model is going to be more expensive – enough that I would say “I can’t afford that”. The more expensive model will have a higher margin/profit and help Tesla’s financial bottom line. I have to wonder whether this is a bug in Tesla’s website or a ploy to get more of us to buy the expensive car? And we have to wonder whether Tesla will ever deliver on the promised $35,000 MSRP car?
That is – the pattern being set up is customers for the $35,000 MSRP base model are being pushed back and pushed back and pushed back, seemingly so that Tesla can deliver the higher priced higher margin cars and make more money. Tesla has an obvious motive, the have to staunch the losses incurred every quarter. What if Tesla keeps delaying delivery for the base model customers long enough? Will I and the other base model customers get so pissed off to cancel our orders? Will Tesla at some point do what they did with the 40 kWh Tesla Model S and just cancel the base Model 3?
To cycle back to Tesla’s stated goals and business plan. The goal is to eliminate fossil fuel consumption and to create a corporation with a big enough operation to make a significant impact on worldwide fossil fuel consumption. I am 100% behind such a goal as are many others. Eliminating fossil fuel consumption means replacing all kinds of gasoline powered vehicles with electric. Meaning the $10,000 cheapo cars must become electric.
Bottom line is that Tesla Motors must at some point shed its image as a luxury car maker. The Model 3 is targeted at the low end luxury car market and is priced to match. Perhaps in the due course of time Tesla will be as successful at the low end luxury car market with the Model 3 as they have been in the mid-range luxury car market with the Model S and Model X.
When will Tesla start to truly get into proper mass market cars? Or will Tesla always stay in the luxury car market?
- Protect yourself from unhealthy air in wildfire zones - September 12, 2020
- 5+ million acres burned, choking smoke, Climate Change accelerated - September 12, 2020
- La Nina develops, promising longer 2020 fire and hurricane season - September 10, 2020
- California wildfires 2020, over 2 million acres burned - September 9, 2020
- Disease risk higher in highly polluted areas – COVID-19 risk greater? - April 1, 2020
- Conservative values failing USA as EPA guts fuel efficiency standards, fails with COVID-19 response - April 1, 2020
- SunSpec aims to help Veterans transition to clean energy jobs - March 31, 2020
- US Dept of Energy funding electric vehicle and battery research - March 6, 2020
- Bucharest abandons Oxygen tax, amid high pollution event, and Dacia’s first electric car - March 5, 2020
- Renault brand Dacia unveils most affordable electric car in Europe - March 4, 2020