A few weeks ago, almost immediately after the quarterly Tesla conference call, emails went out to Tesla Model 3 reservation holders telling us that delivery timelines had changed. In particular, estimated delivery times for the shorter range $35,000 Model 3 were being pushed back — for everyone. Well, Tesla didn’t explicitly say they were being pushed back for everyone, but that’s what we gathered based on simple and straightforward logic.
My potential delivery time on this option shifted from an earlier quarter (I think Q2 2018, but don’t remember for sure now) to “Late 2018.” More shocking, though, was what happened to our own Kyle Field’s options. Kyle had an earlier delivery estimate for the $35,000 Model 3 since he owned a Model S. We were expecting he’d be getting invited to finalize his order any day, based on the timeline that was in his My Tesla backend up until that email, but then his soonest possible timeframe for the $35,000 Model 3 shot back to “Late 2018” as well. He could indeed get the longer range “First Production” Model 3 immediately if he chose, but putting in an extra $9,000 for miles he didn’t feel he needed just didn’t make sense, so he’s still waiting.
But this is where I get a bit confused. Rumor is that the battery production is the big holdup on faster production. The last shareholder letter stated, “What we can say with confidence is that we are taking many actions to systematically address bottlenecks and add capacity in places like the battery module line where we have experienced constraints, and these actions should result in our production rate significantly increasing during the rest of Q1 and through Q2.” The words “we are taking” certainly made it sound like that was a work in progress and overcoming the battery production bottleneck was still a core task at hand.
It’s not the same battery, but the recent shareholder letter again referenced a production constraint on the Tesla Powerwall. “Powerwall demand for home energy storage remains exceptionally high, with orders consistently above production levels.” [Update: I’m not saying the Powerwall production is limited by the same thing as the Model 3 battery production. I’d assume it’s not, but if its simply some of the robots used in the cell packing process, perhaps it is a mutual bottleneck point.]
Now, if battery production is the limiting factor for producing and delivering cars, one would think Tesla might try to squeeze out more cars by delivering the short range $35,000 version of the Model 3 to eager early reservation holders. That would surely make a lot of people happy, and it would be great for PR since Tesla could finally say that it was delivering the $35,000 version of the car and we wouldn’t have to hear from obsessive Tesla critics that it was “never going to deliver” the affordable car it had promised. (Even for those of us who know the $35,000 Model 3 is around the corner, it’s quite irritating that this more affordable version of the car — the version for mere lay people of the middle to upper middle class — isn’t going out yet.)
I keep feeling like I might be missing something, but my hunch is just that Tesla feels a need to keep prioritizing the higher margin version of the car in order to get finances in order. Whether this is to reach smooth mass production before needing to raise money, is to have the margins on the Model 3 look alright in the next quarterly report, or is simply to follow the original plan for the order of production and is a result of the delays in production, pushing off production of the $35,000 Model 3 might just seem like the only logical thing to do.
If any of those explanations fit reality, I can understand the logic. That said, when I first saw the email from Tesla, I thought, “Shit, this is bad — very bad.” Pushing off the base, $35,000 Model 3 may just come across as a casualty of the production hiccups, but it could leave a lot of eager customers bitter. If that means some or many of them miss out on the $7,500 federal tax credit, even worse. If a core portion of Tesla’s most enthusiastic potential customers and eventual customers feel like they got shafted because they didn’t pony up $9,000 more for 90 miles of range they don’t feel a need for or can’t justify financially, I’m afraid that could be a genuine tarnish on Tesla’s currently high flying brand. The glow of Tesla comes from many things — the amazing design and performance of its products, the many levels of fun, and the underlying mission to essentially save the world — and I can’t imagine I’d spite the company for trying to make sensible financial decisions. However, expectations lead to the vast, vast majority of our problems. It is expectations that don’t end up coming true that generally make us sad, mad, and bitter. It is expectations that don’t end up coming true that make us turn from “loving” something (or someone) to turning in the other direction.
We’ll see how things turn out as far as the production ramp, base Model 3 deliveries, expectations, and Tesla’s brand evolution. For sure, there are many souls wishing for the worst in the dark shadows of greed, envy, and inflated ego. There are many that hope for the best and will accept stumbles via graceful understanding. How many are on Tesla’s side but would turn on the brand from a few false expectations and resulting disappointments? And what could Tesla do to avoid the latter?
The other problem for me with regard to the delay of the $35,000 Model 3 is that I’m concerned about how closely Tesla might be toeing the line financially. If an extra delay of the $35,000 Model 3 was seen as critical to get as much revenue as possible ASAP (via prioritization of the higher cost Model 3 and upsells to that trim), what does that means about Tesla’s sense of financial security in the coming months? A few months of delay here or there shouldn’t be a big deal if you have your eye on the long game and nothing has fundamentally changed in that regard, but “investors” can be fickle creatures.
If I’m missing something and there’s some other obvious reason for the $35,000 Tesla Model 3 to be delayed, please, drop me a clue. Again, the three potential reasons I put on the table were:
∅ Tesla feels a need to keep prioritizing the higher margin version of the car in order to reach smooth mass production before needing to raise more money.
∅ Tesla just feels a need to have the margins on the Model 3 look alright in the next quarterly report.
∅ Tesla is following the original plan for the order of production (the higher margin trim first and the other one second) and this is a basic result of the delays in production.
Update: Let’s note that the Tesla Model 3 is actually not behind schedule in the grand scheme of things … but the $35,000 Model 3 is.
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