Tesla Motors is thinking to ramp its auto production after the masses have shown trust in Tesla’s cheaper EV. According to the latest figure provided by Tesla Motors Inc. (NASDAQ: TSLA) chief executive Elon Musk, the total Model 3 pre-orders stands at 325,000 as of Thursday. Mr. Musk was quick to boast these overwhelming numbers of registrations for its mass market car, announcing that the electric car maker has potentially gained over $14 billion of these orders are turned into sales.
Model 3 registrants have an option to cancel their orders and get their $1,000 deposit refund by the company. A single registrant can only order for a maximum of two cars. In a Twitter message, Mr. Musk said that only 5% of the total registrants ordered for two cars, suggesting the company has lured more people to buy their cars. Mr. Musk believes that this shows “low levels of speculation” for the vehicle.
After hitting 325,000 pre-orders for Model 3, the company said that this was “the single biggest one-week launch of any product ever.” The base version of the vehicle is priced at $35,000 but the prices can go north depending on the additional features, which the company likes to unveil periodically until the launch by the end of 2017. The car with typical option mix will have an average price of $42,000, according to Tesla blog post.Though it was expected that the company will get an amazing response from the market, EV maker is giving a chance to all people to have Tesla branded car below $70,000, a base price for Model S. The additional features in the Model 3 will make the mass market car highly standardized, matching the comfort and muscle power of top competitors, such as of Mercedes Benz C-Class, BMW 3 Series, Audi A4, and Jaguar XE. These compact executive cars cost cheaper than large SUVs, and are slowly gaining traction in the market as masses are finding cheaper cars can have impressive muscle power as well.
However, other small sedans, which Tesla will compete with, do not have a major price advantage, as purchase price of BMW 3 series and Mercedes-Benz C-Class are below $42,183. On the other hand, even if Tesla’s Model 3 after additional options costs somewhere close to $42,000, it will still be able to enjoy federal tax incentives on zero-emission vehicles. This will further lower Model 3 price, expanding the target audience. The car can speed up from 0 to 60 miles per hour (mph) within six seconds, pretty impressive for an electric car priced around $35,000.
Additional Features Options to Follow
Mr. Musk announced that the base version of Model 3 will be rear-wheel drive (RWD). However, “Even RWD will have great traction on ice due to fast torque response of Tesla drivetrain,” according to Mr. Musk’s Tweet. But the dual-motor, all-wheel drive (AWD) option will be available at a price $5,000 lower than what it costs in Model S sedan, according to The Computer World. This will make the back seat of Model 3 to fold down, and allow passengers to sleep.
Other Additional features are expected to revolve around Tesla’s high-tech auto pilot feature. At the unveil event on March 31, Mr. Musk announced that all Model 3 vehicles will support sensors and camera systems to aid autonomous driving features. The company has not yet announced any specific auto driving features yet, we can hope this can be unfolded at the “part 2” of the Model 3 unveil, which according to Mr. Musk, will take place sometime prior to the launch in 2017.
Even the car’s front end design is not finalized yet. As reported by The Computer World, in a question and answer session on Sunday, Mr, Musk hinted that the front edges and contours will be refined. It is good to see Tesla has kept front end design of all its cars different; however, a sleek Tesla logo at the nose of Model 3 will look stylish, as suggested by Tesla fans on the Internet. The company recently released the model designs of its Model 3 and Model X vehicles, sharing to its fans how the vehicle was shaped.
Big Question: How Will Tesla Deliver These Huge Pre-orders by 2017
When it comes to delivering, Tesla does not follow a strong suit in meeting deadlines. The company missed on its 2014 delivery guidance, barely met last year’s delivery guidance of over 50,000, due to production issues related to Model X crossover.
Moreover, the automaker was not able to meet last quarter’s delivery guidance of 16,000, as it reported total deliveries of 14,820 units. The shortage of deliveries was again a result of slow Model 3 production, as the company ran into supply parts constraints in the first two months of the year. A slow delivery start to the year raised several eyebrows amongst the Street analysts on the company’s execution abilities related to Model 3. Since it has been merely selling 50,000 cars annually, a rapid transition to half a million cars by the end of this decade will take a long way to go.
However, one analyst thinks that Tesla is not likely to have much trouble in meeting the mountain of Model 3 pre-orders backlog. This is because the vehicle is made with “production first” mindset, unlike that the one for Model X crossover SUV. The automaker has even learned from its mistakes made in the Model X launch, as the company tried to launch the vehicle filled with too many options, delaying the deliveries. Such mistakes will not be repeated on Model 3.
Additionally, over 60% of the Model 3 body is made of steel, the other remaining from aluminum and plastic polymer, making the production process simple and straight forward. Because of the single Complete Glass extending from wind screen to roof top, there are fewer chances of manufacturing errors, compared to a car with metallic roof. As a result, Model 3 will need three times less suppliers than Model S, making the car ready to hit roads by the fourth quarter of 2017, falling with in deadline.
Palo Alto-based automaker even clarified its delivery structure by saying “In order to be as fair as possible, there will be a different queue for each region…..Staggering deliveries in this way also allows us to provide the best possible customer experience.” This hints that every regional market may not get the Model 3 delivered at the same time, but surely we can expect the first deliveries to begin in home country. The company said: “It is not possible to ship to all regions [of the world] simultaneously because regulators in each part of the world have slightly different production requirements.”
Production Ramp Expected Soon?
In order to meet over 300,000 Model 3 pre-order and the launch deadline, Tesla definitely needs heavy expansionary decisions. The company currently has only one production plant in Fremont, which according to Mr. Musk has the capacity to produce 500,000 cars per year, as It has done previously. But if Tesla is really looking forward to make its mass market car cheaper across the globe, it needs to build few international production plants.
Earlier this week, Tesla was offered a production plant site in France. The place is currently located close to the border of Germany and France, and the site belongs to a nuclear facility which is scheduled to shut done by the end of this year. According to French Energy Minister Segolene Royal, Mr. Musk has not completely rejected the idea to open a production plant there. This could be Tesla’s first production facility in Europe, as the company progresses to become a mass market auto seller from presently a niche luxury automaker.
Similar reports were also circulated for China. In January, prior to Mr. Musk’s visit to Hong Kong; He said that he is looking forward to open local production plant in China as it is a lucrative market space to capture amid governmental support. Considering its luxury cars get a drastic price jump in China due to heavy import taxes and shipping cost, Tesla aims to make its cars affordable in China by finding a local joint venture that can help to open a local production facility. According to several media reports, the China factory is expected to open as soon as the second half of this year.
Since small low-ranged EVs are popular in China, Tesla will be able to disturb the local market by launching cheaper cars that runs over 210 electric miles on full battery charge. Local EVs from Zotye, BYD, and Kandi are often criticized for having low drive range, causing range anxiety. But if Tesla is able to restrict Model 3 cost in China through local production, it is likely to capture the world’s largest auto market. A production plant in China will also cater to delivery requirements of Asians markets for Tesla.
Tesla Motors stock closed on Friday at $250.07, down 2.77%. So far this year, the stock has jumped over 5%, mainly due to hype around Model 3. Meanwhile, S&P 500 Index has lost nearly 0.70% since the start of the year.