Tesla Model 3 woes could boost GM, others
Tesla Inc.’s Model 3 production woes could be a boon for other automakers.
When customers realize they might have to wait longer than expected to take delivery of their all-electric Model 3 sports sedan, some of the half-million people who have already put $1,000 deposits on the new Tesla might instead begin to look at similar offerings, analysts said.
At the top of that list: General Motors Co.’s all-electric Chevrolet Bolt — a Michigan-built car with a similar sticker price in the mid-$30,000 range and a similar cruising range of more than 220 miles on a single charge — that’s already in showrooms.
The Model 3 has run into production problems as the Silicon Valley automaker struggles to get the first ones off the line. Tesla was supposed to build 1,500 in the quarter ending in September. Tesla managed to build only 260, the company said last week, making its goal of 20,000 cars per month by December increasingly unlikely.
“We are deep in production hell,” Musk tweeted Friday in explaining the delays.
Traditional automakers would be punished by investors for such a miss, but Tesla stock actually gained last week.
GM and Ford Motor Co. both announced in early October plans to increase the number of electric vehicles in their line-ups over the next several years. Fiat Chrysler Automobiles NV has said it will electrify more vehicles, and Nissan Motor Co., BMW AG and others have electric vehicles launching or currently in their lineups. Those companies stand to capitalize if Musk fails to deliver on his promises.
“Other analysts and investors just don’t realize how many electric vehicles are in the pipeline that Tesla is going to have to compete with,” said David Kudla, CEO and chief investment strategist of Mainstay Capital Management LLC in Grand Blanc. “These other auto manufacturers aren’t dumb. If demand is there, they’ll come with the products to challenge Tesla and meet it.”
Tesla spokespeople on Monday sought to minimize reports of significant production problems and refuted that Model 3 bodies were being hand-built.
“We are simply working through the S-curve of production that we drew out for the world to see at our launch event in July,” a Tesla spokesperson said in an emailed statement. “There’s a reason (Elon Musk called it) production hell.”
The company said that every vehicle has hand-built and machine-built portions, but the production line is running. Musk on Sunday night posted an Instagram video of what he said was the Model 3 body line working at one-tenth of its actual speed. The video showed automated arms whirring around a car frame.
“We are still in the beginning of our production ramp, but every Model 3 is being built on the Model 3 production line (in Fremont, California), which is fully installed, powered on, producing vehicles and increasing in automation every day,” a Tesla spokesperson said in an emailed statement.
“It will take time to fine-tune the line for higher volumes, but as we have also said, there are no fundamental issues with Model 3 production or its supply chain, and we are confident in addressing the manufacturing bottleneck issues in the near-term.”
The Model 3 is the first Tesla under $40,000. The third step in Tesla’s so-called “master plan” after the premium Model S sedan and gull-winged Model X SUV, the Model 3 aims to bring the Tesla brand to the heart of the luxury market.
There will be two versions of the Model 3. A “Standard” version begins at $35,000 with 220 miles of range, and a zero-60 acceleration time of 5.6 seconds. A “Long Range” version with a larger battery starts at $44,000, with a range of 310 miles.
In comparison, the 2017 Chevy Bolt starts at $36,620 before a federal income tax credit and has a 238-mile range. It accelerated from 0-60 mph in 6.5 seconds in Car and Driver testing.
Though some analysts say the Bolt has yet to be profitable, GM sold 2,632 in September and 14,302 through the first nine months of the year.
Another possible competitor, the redesigned 2018 Nissan Leaf, is expected to have a range of about 150 miles. The company hasn’t said how much it will cost, but the current 2017 model starts at $30,680 and has a range of 107 miles. Nissan sold 1,055 Leafs in September and 10,740 nine months into the year.
Other automakers like Ford have plug-in hybrid vehicles currently on sale, though they are not considered direct competitors with Tesla’s battery-only vehicles. Ford also sells a Focus Electric, though it is not a big seller and the company does not break out sales figures.
The slow roll-out of Tesla’s Model 3 already has affected other parts of the company. Tesla on Friday announced it would push back the reveal date of its semi truck from Oct. 26 to Nov. 16 to focus on Model 3 production.
Many of Tesla’s woes could have been avoided — and the 260 Model 3s built in the quarter might not have looked so bad — had Musk not announced specific production targets, said Sam Abuelsamid, analyst with Navigant Research.
Auto companies run into production problems with new vehicles almost as a rule, he said. Those companies also build pre-production versions of new vehicles by hand sometimes. While those vehicles are not sold to the public, companies will go through a few hundred vehicles before they get the line running safely and efficiently enough to promise a delivery date.
“Look at Apple,” Abuelsamid said. “Apple never talks about any new product until they’re ready to ship it. Other automakers don’t make these claims. They don’t say I’m going to be making this many in July, this many in August. They keep that to themselves. You can’t be late if you never actually announced it.”
Tesla could bring people in to see the Model 3 production line if everything really is running OK, Kudla suggested. Traditional automakers still have an advantage over Tesla, even if the Silicon Valley automaker is favored as the hot new offering on the stock market: Those companies can make an internal combustion engine.
Both Ford and GM have said they don’t know where the automotive industry is heading, but the companies are hedging bets on electrification and autonomy with continued investment on trucks and SUVs with combustion engines. They’ll compete with Tesla in electrification eventually, but if consumer demand for electric vehicles doesn’t grow, the Detroit Three know they make a good combustion engine they can sell.
Not so with Tesla, Kudla said.
Yet, none of this has greatly affected the stock price. Tesla is still valued higher than Ford, though it’s fallen below GM. Tesla stock closed down 3.9 percent Monday to $342.94 per share. But following news of the missed production goals on Oct. 2, shares increased from $341 per share to close the week at $356 per share.
The company will be under greater scrutiny moving forward, Kudla said. The missed goals will raise questions about Tesla’s ability to function as a manufacturing company, and not just be dismissed as another Elon Musk story.
“I’ve said I don’t think he’ll meet it,” Kudla said. “I don’t think he will.”