The first 30 Tesla Model 3 customers will get keys to their new, lower-priced electric sedans this month, hitting a crucial deadline for the automaker.
Even as the lucky new owners spin away from the Fremont factory, the company still has much work ahead to meet demand and expectations of a new class of owners, as well as compete in the growing electric vehicle market.
“This is really their path to profitability,” said Rebecca Lindland, executive analyst for Kelley Blue Book. “It’s absolutely critical. This is how they get to the mass market.”
Tesla is known for missing deadlines and production problems, and a successful launch of the $35,000 Model 3 is seen as vital to the company’s long-term success.
Tesla Chief Executive Officer Elon Musk announced on Sunday the other week the first Model 3 would roll off the production line two weeks ahead of schedule. The new owners will receive their cars at a Tesla party on July 28. Musk tweeted that he expected the company to ramp up production from 100 in August to 20,000 a month in December.
But the Palo Alto electric vehicle maker will still fall short of Musk’s earlier estimates: He told analysts in May 2016 that he believed the factory would manufacture between 100,000 to 200,000 Model 3s in the second half of 2017.
Analysts and investors reacted with caution, even as Tesla on Monday last week announced solid vehicle deliveries for the Model S and Model X for the first half of the year. Tesla stock slid about 2.5 percent the same day, still near record highs.
The Model 3 is a smaller, less luxurious sibling to the Model S, which has a starting price of about $71,000. At half the cost, the Model 3 carries a range of 215 miles on a single charge and fits five passengers.
The company took $1,000 reservations from almost 400,000 prospective owners in the weeks following its launch last year. Musk has declined to update reservation numbers, saying the company is trying to “anti-sell” its newest offering as it gears up manufacturing.
Opportunity and risk
Karl Brauer, publisher of Kelley Blue Book, said the leap in production would mean many more cars to sell and service — both an opportunity and a risk.
“Keeping that many new buyers happy will require a fully functioning network of retail outlets and service centers,” he said.
The Model 3 also faces challenges from new competitors and the startup bugaboo of bringing production, quality and service together.
Lindland said Tesla’s customer base will shift dramatically from the wealthy, early adopters who were willing to spend $100,000 for a car with some quirks and glitches. The new consumer base is expected to be less affluent and draw heavily from BMW 300-series and other German car owners.
“This is going to be a new buyer for Tesla, and a new class of buyer, too,” she said.
Tesla has created a strong brand, she said, setting it apart from electric vehicle competitors like the Chevy Bolt and Nissan Leaf. The Bolt, a hatchback, carries a similar range and sticker price as the Model 3, but its sales have been disappointing. Nissan will update the Leaf this fall, expecting to add range to the commuter car.
Lindland said Tesla is well-prepared as legacy automakers, including Audi and BMW, are poised to offer all-electric vehicles to consumers next year.
“Tesla has a very clear statement of purpose,” she said. “It’s part of buying into a club.”
And Tesla has perhaps a half-million eager customers willing to take the risk of buying a new vehicle without a test drive and just a few glimpses of a prototype.
Fans on the Tesla Motors Club website greeted the Model 3 release news with “woohoo!” and “awesome,” and speculated on how many cars will be built this year at the company’s Fremont factory. The first customers are expected to be Tesla and SpaceX employees.
The company also announced Monday it hit targets for new car deliveries in the first half of the year. It delivered more than 22,000 vehicles last quarter, including 12,000 Model S and 10,000 Model X SUVs. Deliveries outpaced results from the second quarter of 2016, but represented a 12 percent drop from the last quarter.
Tesla delivered 76,000 vehicles last year, setting a record. It’s on pace to top that number in 2017, with 47,100 cars sent to new owners through June.
Tesla noted that second-quarter deliveries were stalled by “a severed production shortfall” of 100-kilowatt battery packs. Until early June, the company said, large battery pack production fell 40 percent below demand. The 100-kilowatt packs fuel the most expensive Tesla models.
The company is also touting improved quality on the Model X, and added “fully loaded” new Teslas to its loaner fleet. It expects to drive up Model X sales by giving consumers more opportunities to see and drive the SUV.
Despite its continued growth in sales and production, Tesla has not produced an annual profit.
But Lindbland said the auto industry needed an aggressive entrepreneur like Musk to shake it up.
“The marketplace will be crowded in a very short time,” she said. “Tesla still has a very powerful role.”
THE MERCURY NEWS/TNS