Few can doubt that Tesla has pulled off a remarkable marketing coup with current reported pre-orders standing at some 276,000, representing a potential order book of $11 billion if you use the expected average on the road price of $42,000. Some folk think the final order position will reach 500,000 vehicles. Jason Calacanis, never short of a provocative word or two says:
- The long tech boom is very real, with the advantages of efficiency and innovation compounding at companies like Tesla, Amazon, Uber, Facebook, Google, Microsoft and Netflix, which are designed around leveraging technology.
- Many analysts have no idea what they are talking.
- Betting against Elon Musk [CEO Tesla], which seemed to be very much in vogue two years ago, is a very, very bad idea.
Ben Thompson is positively effusive since, in his view, Tesla's success validates some of his thinking around Disruption Theory:
...an astounding 115,000 of them sent in their deposit before they even knew what the car looked like. A friend got in line to make his reservation at 6:45am and there were 123 people in front of him. This is, no matter how you measure it, a phenomenon that is nearly unprecedented; the only possible comparison is Apple and its iPhone.
I drew the same comparison but for different reasons. I also suggested that:
Thought of as a whole, the basic premise upon which a car is designed and built has not really changed in over 100 years.
In comments, Michael Koch added to the conversation with this:
I’ve owned an EV for 12 months now (i3). As exciting as any low-priced 200+ mi EV announcement is, it is not more than that: an announcement. It is basically a Tesla Kickstarter campaign.
What will the marketplace look like by the time people get their hands on a 1st gen Model 3 (let’s be realistic and say early 2018), Chevrolet -a brand that has actual experience in producing vehicles in high volume- will have released their anticipated 200+ mi “Bolt” model. It is not unfair to assume Nissan and BMW will then not be far off with renewed, 200 mi (or close) versions of their Leaf (150 mi range already today) and i3 models. Also the likes of VW (yes!) and Mitsubishi will have made progress with more offerings in the PHEV sector, which has been extremely popular over the last 2 years (especially the Outlander).
Koch makes fair points so what are the factors that could crimp Tesla's ambitions?
- Tesla has no history of delivering on time despite having a build facility capable of producing 500,000 cars a year. The young pup is teaching the automotive makers market some solid marketing tricks but what can Tesla learn from capital intensive plant operators? That is a very different world and one for which there is plenty of history. We often head scratch when we see companies with transparent success in the services field and wonder why the legacy players don't 'get it.' The same goes in reverse for Tesla. The sooner Tesla hires away the best GM/Ford/VW/Toyota...[name your favorite maker here] plant floor managers, the better. They need to learn manufacturing scale and fast if they are to come remotely close to delivering in a timeframe with which people are comfortable.
- Tesla is an almost fully vertically integrated manufacturer which means it has to manage its entire internal supply chain with little ability to put pressure on outsource component manufacturers. You can argue that doesn't matter because Tesla vehicles are much simpler with fewer parts than an ordinary ICE (Internal combustion engine) vehicle. Maybe so, but it still has to start and then ramp production.
- Tesla is 100% dependent upon the success of its battery building plant in Nevada. While Musk says the Reno, Nevada plant is ahead of schedule, it has already run into labor disputes. And we have no idea what quality issues they will run into.
- Tesla has shown itself adept as a software company but can it scale its internally developed ERP or will it need commercially available packages built for complexity? I believe it should consider packaged software to the extent that it can readily integrate to the systems Tesla uses to program its cars.
- Contrary to what many might believe, government tax breaks will almost certainly not be available - at least in the US - by the time the Model 3 hits the streets. Couple that with an inevitable cost hike and customers might think that at $42K and up, the Model 3 is too expensive. Here I think Calacanis is blowing smoke up his own ass. Toyota had already seen the unlikely success of the pig ugly Prius, fueled the 'green' conscious moneyed folk in Silicon Valley. Everyman does not have the same values.
- Tesla and its directly related businesses have won enormous amounts of federal and state aid but that won't continue forever. What amounts to an interest free loan from the public of some $276 million is a nice cushion but it won't be close to the true cost of getting those $11 billion worth of cars out the door in the next few years. So, will Tesla manage to keep cash burn under adequate control? At the end of December 2015, Tesla recorded $1.2 billion in cash on its balance sheet but over $4 billion in debt obligations.