Last month at an Applesque press conference, Elon Musk unveiled the Tesla Model 3 — a magnificent $35,000 car which is more than 50% cheaper than any previous Tesla. The launch was so successful that Tesla secured no less than 180,000 reservations in the first 24 hours. That’s the most successful launch in the industry’s history. Few companies actually sell that much in a year. For now, the tally has gone up to 400,000 Model 3 reservations.
A lot of car makers are definitely jealous of Elon Musk and his success, but how many would actually want to be in his shoes right now? Tesla has achieved a monumental launch, that’s for sure, but its troubles are only beginning. This year, Tesla will finish with maybe 90,000 cars manufactured. The first Model 3’s should ship at the end of 2017, as promised. This means that Tesla has to at least quadruple its manufacturing performance in a year or so.
That’s definitely a stressful margin for most of us, yet Elon Musk proved time and time again that he actually feeds on this kind of adversity. Impossible deadlines seem to work very well for him, whether at SpaceX or Tesla. Both companies were founded or taken over by Musk only ten years ago, and today they’re worth $100 billion combined. One company wants to disrupt space flight, the other transportation.
If anyone can quadruple production for an electric car in 16 months, that’s Elon Musk. It’s still worrisome, though. The company has never met a delivery deadline for its models so far because it was over-ambitious to begin with. The Model X sales are below estimates. It’s also in a heck load of debt – about $1.8 billion so far, according to the latest earnings call made by Elon Musk on Wednesday. This is how great companies end up overburning.
Some might feel surprised to hear that Tesla is in so much debt, despite cashing in on so many Model 3’s. These orders are worth $14 billion, but only $400 million have been cashed — the rest on delivery. The Kickstarter-like launch, however, brought in a lot of equity as investors flocked to buy Tesla stock. But it’s still not enough. The huge expansion plans, like the Gigafactory and forthcoming production line upgrades, have taken their toll burning hundreds of millions each quarter.
It’s a huge challenge, but Musk seems determined. To impress investors, Musk said he’s now moved his office near the production line to supervise manufacturing first hand. He also said he’s brought a sleeping bag, presumably to sleep on the factory floor. Are investors impressed by this aura of relentless work to deliver ambitious targets? Some, maybe. Personally, I was impressed by his forecast of 500,000 Model 3 delivered worldwide by 2018, which will be production ready starting July 1st 2017.
Right now, no one seems to know where Tesla is going to get more cash, nor how exactly it will deliver 500,000 cars in 2018.
Spirits must be high, but confidence seems good. At the earnings call, Musk jokingly said, “if you can make a baby in 9 months, you can make a tool too”. This comparison is pretty weird even for Musk, who seem half-robot at times.
“You can create a human baby in 9 months, you can pretty much make a tool in 9 months” – elon musk, earnings call, 2016
— Chris Ziegler (@zpower) May 4, 2016
What do you think? Will Tesla make it or will it crash and burn?
