Published on November 6th, 2014 | by Zachary Shahan32
Tesla Model X Delay — Good or Bad? (+ Model 3 Status, China Factory, Record Sales, Etc)
November 6th, 2014 by Zachary Shahan
The news from Tesla’s quarterly financials call last night that seems to be biggest is that the Model X is being delayed again. This seems to be the 4th time. The reason given is that Tesla is trying to make it close to perfect, and that is causing delays. It is now supposed to be hitting the market in Q3 2015, a good 2+ years after the initial launch time. Of course, delays are objectively bad, but I’m curious if CleanTechnica readers think this was a smart decision by Tesla or if the company should have shoved the Model X out the door, so I’ve stuck a poll under this article (and also threw in two other questions I’m curious to see responses about).
Regarding what’s going on with the X, Tesla Motors CEO, Chairman, and Chief Product Architect (i.e., the perfectionist at blame for the delay) Elon Musk said: “We do have the advantage with the X that we have the dual motor powertrain and the chassis — sort of the bottom end of the car — sorted out with Model S. So that takes that part of the risk out of it. But with the falcon wing doors and second row seats . . . we’re adding some very new stuff that’s really not out there, and that never has existed in a way that was useful. I’m confident the demand for the X will be very high once we’re in production. It addresses a different market segment. Some people want and SUV and some want a sedan. It’s about fifty-fifty in the market.”
And more: “Making one of something is quite easy. Making lots of something consistently that’s going last a long time is extremely hard. In fact, it’s way harder to make the machine that’s going to make the machine than to make the machine the first place. … We have Model X alphas done. The beta is being built right now. It would be quite easy for us to make a handful of production units that are scalable and homologated. That doesn’t really move the needle. What really matters is at what point can we get to scaled production of a really high-quality car. And that’s really in the third quarter. And we’ve also learned a lesson in manufacturing that sometimes you have an issue that’s one out of hundred, but unless you’re making a hundred of something, you don’t see it. You think the car is all good, but randomly one out of a hundred is wrong. But you don’t know necessarily which one out of a hundred, so you have to go look at all hundred cars. It’s really about getting the details right. If you get all the details right, it’s the difference between a diamond with a flaw and a diamond without flaw. It’s damn hard to do that, but that’s what we’re going to do.”
I thought the Model X delay would have sent Tesla (TSLA) stock diving, but jumped through the roof, climbing from about $230 to $245.
What got into investors’ heads? One can never know for sure, but the main thing was probably the fact that Tesla had a record quarter in sales and Elon Musk confirmed yet again that Tesla has far more demand than it can serve. This is really not news to anyone who follows Tesla closely, so my guess is that the bulk of people making investment decisions based on that are really not that in tune with the world of Tesla.
But, anyway, in Elon’s own words (which echo what he’s said several times before). “Demand is not our issue. Production is our issue. And being too perfectionist about future products. Those are legitimate things to be concerned about, but not demand. We have more demand than we can really address. And there are a lot of things, levers, that we could pull to increase that demand, that we’re not pulling.” Regarding those levers, Tesla could, for example, advertise… instead of leaving that too the Tesla fanatics who create wonderful videos and fake ads for the company.
Sales in Q3 2014 equaled 7,785 cars. Again, that’s a record, but it was lower than anticipated, and the full-year forecast has now been reduced from 35,000 cars to 33,000. Again, how this resulted in a stock price jump is a little unclear to me. I guess investors were just expecting some really bad news?
Monthly Tesla Sales Reports By Country?
If you report on monthly electric car sales (like I do), it’s insanely frustrating that Tesla doesn’t release country-by-country sales figures on a monthly basis. It used to be fairly easy to make projections/estimates based on quarterly figures and guidance, but with Tesla now in Europe, China, and the US (and inching into Japan and Australia), this has really become too much of a guessing game. Elon’s response: “Part of the reason why we don’t release the monthly deliveries number is just because it varies quite a lot by region, and then the media tend to read a lot of nonsense into deliveries. We’ll have, like, a thousand cars reach a country one month, and none the next month.” I understand that, but it doesn’t make things any less frustrating for me.
China Tesla Factory?
Elon stated the obvious with regards to China: it’s going to need its own factory. Shipping large, heavy, fragile consumer products worth insane amounts of money over to a huge (possibly the biggest) Tesla market only makes sense for so long. Eventually, it makes more sense to simply build a factory in China for China (and the surrounding region, I presume).
If the Model X is Delayed, What about the Model 3?
This is the biggest question on a lot of people’s minds. The Model X is great and swell and all. A whole new vehicle class, essentially, that is also electric and has falcon wing doors. Yeah, that’s special. But it’s still going to cost too much for the masses. What’s really going to blow the door off the EV revolution is an affordable, long-range electric car that has quality stamped all over it. (Aka, the Tesla Model 3.) It has always been that it’s supposed to follow the Model X. So… if the Model X is delayed till Q3 2015, what’s the deal with the Model 3? The good news is, Tesla is supremely aimed at bringing that vehicle to market as fast as possible. From the Musk man himself:
The Model X isn’t necessary to get to the Model 3, which has been the goal of the company all along. The Gigafactory is certainly needed for the Model 3, and the Gigafactory is going to take us two and a half to three years to build and get to serious production, so we’re kind of making the Model X in the meantime. But it will serve the purpose of creating great cash flow to support the Model 3, and obviously reduce the dilution and amount of capital we’ll need to raise from investors for the Model 3, because it should generate a lot of cash flow…
Obviously, the Gigafactory is very much geared toward the Model 3 pack needs. And then, for the rest of the Model 3, one easy thing to do would be to make a 20% smaller Model S. That would be easy to do, but I think we might be able to do a few more interesting things that just that.
I think all of that means that the Model 3 is still “on schedule” (as long as the Gigafactory is), and that it will be a smaller Model S but also with some bells and whistles of its own.
Not much news on the Gigafactory. They’re getting going on the project, and the first battery pack is still projected to be produced there at the end of 2016, and that price reductions should follow by 2018.
For more great quotes (there are some really funny ones), I recommend Teslamondo‘s distillation.
Here’s the shareholder letter.
Related story by Chris over at GAS2: Tesla Q3 Financials Revealed, Model X Delayed (AGAIN).
Tesla Model X delay poll:
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