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Do the monster lines at Tesla stores for the Model 3 signal a sea change in automotive?

Den Howlett Profile picture for user gonzodaddy March 31, 2016
Summary:
Tesla's launch of the Model 3 sees long lines of customers. If Tesla does blow out expectations then what now for automotive?

Later today - 8.30pm PT to be precise, Elon Musk, CEO Tesla, will unveil the long promised Tesla Model 3, the all electric car he promised for 'everyman.' More interesting though is that around the world, lines started forming many hours before the virtual order site comes online. My buddy Thorsten Franz, already a Tesla owner announced that he would drive from Germany to Antwerp in Belgium, just to get his order in as early as possible. Here's what he said:

Now check this out from a few hours later:

Now check the time stamps. Elsewhere, we can see images of lines - and I mean SERIOUS lines - are forming. Check this from Dallas:

The Verge has a comprehensive selection of photos as Tweeted from various locations. The last time we saw lines like this was when the original iPhone was delivered. At the time, I thought the world had gone nuts but as it turns out, the iPhone set in motion a trend for touchscreen smartphones that, quite literally, changed an industry. Does the Tesla 3 launch foretell a similar story?

There can be little doubt that the Tesla Model S has been a Californian success phenomenon and it would be easy to write that off as a Silicon Valley inspired outlier. The fact is that Tesla has been very successful in other territories. What's more, Tesla is now delivering a respectable number of vehicles into the market. In Q4 2015 for example, it delivered 17,400 Model S's:

To put that figure into perspective, the number of Model S deliveries in Q4 of 2015 represents a 75% increase compared to the same quarter a year-ago. What’s more, Tesla completely smashed its previous delivery record (11,574 set during Q3 2015) by an incredible 50%.

Estimates for 2016 vary but some say that combined Model S and X deliveries could hit 80,000 this year. Even so, that's a drop in the ocean of cars delivered in the US. Ford for example delivered 3.073 million into wholesale in 2015. (PDF) The bigger issue for Tesla is one of scale. Right now, punters think the Model 3 will ship by the end of 2017 but if past history is an indicator then buyers will be lucky to see a shipped vehicle before 2019.

Industry watchers will be less concerned about that and more concerned with how demand is built. Right now, the Model 3 is being ordered sight unseen. That in itself represents a fundamental shift in buyer behavior for what is being billed as a car for everyman and priced at the current retail average for a US delivered car. How well it competes at that price point remains to be seen. Then there is that pesky scale problem. Despite current success in shipping, Tesla is still incurring losses and we don't really know how it stands on capacity. Tesla will need massive additional capital to ship in volume and much depends on just how successful the pre-sale launch goes. But let's assume Tesla does blow out any expectations. What does this mean for the automotive industry.

Crystal ball gazing

Thought of as a whole, the basic premise upon which a car is designed and built has not really changed in over 100 years. Yes, there have been thousands of changes and improvements but you still put gas in the back, sit in the front and set fire to a controlled explosive.

The introduction of the unexpectedly successful Toyota Prius but more so the headline grabbing Model S have changed that. I am no petrol head/gear head or car fanatic. Those days are well and truly behind me. But when I first saw a Tesla in the flesh so to speak I was blown away. It is a computer on wheels sitting atop a massive battery. That's pretty much it. The design is truly one for the 21st century geek and those I know who own one think it is the bee's knees. I get why. If I was to buy a car in the future then I can easily imagine the Tesla 3 being my only choice, despite just about every car maker has an electric car agenda.

Fast forward a few years and Tesla is wildly successful. Then the entire automotive industry, its support ecosystem, the battery industry and gas/oil production industries to name but a few, are changed. Now think about the networked economy and how Tesla's computer systems could take advantage of the as-a-Service economy and all sorts of possibilities open up.

The question comes, can we use the 'D' word for Tesla? This from Business Insider earlier on this month:

To be sure, Tesla has been a catalyst for innovation, or more accurately, the hastening of innovation--self-driving technologies and over-the-air software updates, for example, or the replacement of a lot of vehicle controls with a massive touchscreen between the front seats. Tesla is setting the pace on these fronts, beyond what it had already achieved with battery designs.

But the auto industry globally, and particularly in the US, isn't really under any disruptive pressure. What compelling reasons are there to proactively deviate from business as usual? Gas is cheap, credit is abundant, and everybody wants to buy profitable trucks and SUVs again.

I was flat out wrong when I saw the iPhone for the first time. I didn't believe it would displace the Blackberry in the enterprise market. Having seen the early lines for the Tesla 3 and even knowing the limitations that exist for Tesla, I'm not prepared to make the same dismissive assessment again. Lets see what happens once online ordering opens and people start laying down their $1,000 deposits because if Tesla does get off to a flyer then many bets are off. More to the point, the automotive industry will have to become ultra innovative in every area. I'd start by asking how I might simplify the back office and supply chain. <cough>

Bonus points - for those who want to order online - here's the current information and link 

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