Tough Love for Tesla

The excitement and optimism of the Model 3 launch is slowly giving way to a much less inspiring reality.

A friend and reader asked me last week why I seem to hate Elon Musk and Tesla so much.  I don’t.

I respect Musk as a far-sighted visionary with an abundance of excellent ideas that have the potential to transform significant elements of our society.  Sure, when it comes to implementing those ideas, he has some challenges, but the ideas are impressive.

There is also no denying the impact of Tesla and the cars it makes – an impact many times larger than the actual number of cars produced or their penetration into US and global markets.  Under Musk’s direction, and as a result of his inspiration, they have almost singlehandedly brought battery electric vehicles into the mainstream of the auto industry, and have caused every other vehicle manufacturer, pretty much without exception, to now be scrambling to come up with their own ranges of similar vehicles.

Furthermore, at present, the Tesla trio – the Models, S, X and 3 – remain close to ‘best of breed’ in their respective market segments.

What’s not to like and what’s not to admire about any of this.  And, as I often comment, if only I could afford the $50,000+ that a Model 3 costs, or the $100,000 that a Model S/X costs, I’d be an eager owner, myself.

Moving Beyond the PR Gloss

But this is the gloss, this is the PR veneer that we are told, and which the mainstream media eagerly recycles.  What of their refusal to hold either Elon Musk or Tesla to account for their myriad of spectacularly broken promises?  How to explain the puzzlement of a company with a steady string of losses matched only by a steady string of financial targets not met (and delivery targets also not met) but with a valuation approaching that of General Motors?  The mainstream media’s careful silence on the huge shortfall between the public persona and the underlying reality demands comment and ‘equal time’ given to exposing the rest of the Tesla story.

For example, consider just one aspect of the promises of the $35,000 Tesla Model 3.  Not only is Tesla way behind on its delivery promises for the Model 3, but none of the cars delivered to date, and none of the ones expected to be delivered in the foreseeable future, will be priced at $35,000.  The lucky few who are getting the trickle of Model 3s now being shipped are people who have ordered extended range batteries, autopilot, upgraded options and finishes, and who are paying more like $50,000 rather than $35,000 (and, if fully loaded, more like $60,000).  Close on twice as much.  Future as yet unreleased performance upgrades will increase the cost of a fully loaded Model 3 still further.  The headline grabbing promise of a $35,000 high quality electric car offering 200+ miles of realistic range on a single charge remains unfulfilled (unless you choose to buy a Chevy Bolt or a Nissan Leaf).

There’s another obscured implication there as well.  Price-sensitive people who rushed to order a $35,000 battery-electric vehicle were also very much motivated by the federal $7,500 rebate that would bring the vehicle’s cost down to $27,500.  But that rebate (a tax credit) only applies to the first 200,000 vehicles sold by a manufacturer before then rapidly reducing and disappearing entirely.  With each passing month, Tesla is getting closer and closer to 200,000 total vehicle sales, and so if/when the headlined promise of a $35,000 Model 3 ever arrives, there is an increasing chance that the $7,500 rebate may have expired.

The concept of a Tesla for less than $30,000 is currently totally non-existent, and may never happen.  Where are the mainstream media stories about this?

While the mainstream media have quietly conceded the impossible to obscure reality that Model 3 deliveries are woefully behind schedule, how many articles have pointed out that, to date, the total number of delivered $35,000 Model 3 cars is zero?  The current best guess for when the bare-bones and only available in black model might start being delivered is the first quarter of 2019.

Talking about the delays, while the media have happily reported on Tesla’s latest promise to get production up to a rate of 5,000 cars a week by the end of the second quarter, how many have pointed out that Tesla’s earlier target was not to reach 5,000 vehicles a week, but rather to reach 10,000 vehicles a week.  When is Tesla saying it will reach that ultimate target – or has Tesla quietly dropped what was always a ludicrous fantasy entirely?

While we regularly get new excuses for why Tesla isn’t selling more Model S and X vehicles, why hasn’t the press reported that Tesla has now decided to accept a self-created production cap of approximately 100,000 total Model S/X cars per year (this being due to a limit on the number of batteries their so-called “Gigafactory” is capable of producing, and their decision neither to expand battery production nor to convert the cars to a more modern type of battery).

The curious contradiction of the Gigafactory’s promise – it was supposed to springboard Tesla’s ability to produce many more vehicles, at much lower cost; and the reality that apparently it is now constraining and limiting Tesla’s ability to expand production of Model S and X vehicles – where are the stories about that?

The Increasing Challenges

All those investors, who presumably have accepted Tesla’s sky-high stock valuation in the expectation that the company would grow its way to profitability – are they being told that there’ll be no further growth in the Models S and X, and that it seems the max production rate for the Model 3 is now being halved?  What should that mean to the share valuation?

And, isn’t Tesla under enormous time pressures?  Isn’t its first-mover advantage being eroded every day as mainstream vehicle manufacturers get closer and closer to deploying comparable vehicles?  Sure, many people have been willing to believe the narrative that the Detroit dinosaurs are slow and stupid to respond to the new concept of battery-powered vehicles, but are we to also believe that the Europeans, the Chinese, and the Japanese auto manufacturers are similarly inept?  An interesting outcome of the European ‘diesel-gate’ revelations is that diesel is no longer considered a viable eco-alternative in Europe, adding still more pressure to the European auto companies to develop electric alternatives.

Are we to ignore the steady stream of announced new model battery-electric vehicles from all leading auto manufacturers (and from other Tesla-like startups) and pretend they’ll have no impact on Tesla’s future?

Is it possible that Tesla is spectacularly losing its ‘race against the clock’?  Hasn’t it already, and equally spectacularly, demonstrated that its attempts to throw out the rule book that applies to auto manufacturing processes has been a total disaster.  Why has the main-stream media repeated Elon Musk’s comments about going through ‘production hell’ uncritically?  Isn’t Musk’s self-confessed utter failure at getting his production lines running smoothly something to ponder, rather than view as a strange sort of validation and excuse as an inevitable outcome of being futuristic?

The traditional auto-makers that Musk lambasts seem able to establish and operate production lines with no problems at all, for example, this Ford plant in Kentucky.  With its no-dealership model of distribution and servicing, how will Tesla scale up to selling and servicing half a million cars a year, and as it becomes increasingly and inevitably subject to the same production considerations and constraints as every other auto manufacturer, won’t its P/E ratio return to something similar to that of other auto companies?

Aren’t these all questions and concerns that need to be considered and answered?

Here are some recent articles that actually do so.  This article suggests that Tesla’s broken promises are about to start to have consequences, this article lists many of the company’s history of broken promises, and this article dissects the fluff of its investor conference call last week.

In a hopeful sign that maybe some of the mainstream media are starting to wake up to the reality, here’s an interesting page on Bloomberg that lists goals for some of Elon Musk’s headline ventures and tracks which goals are on target and which are not.  The lists are far from complete, but it is at least a start.

So, I love Musk’s vision.  Whether Hyperloop, the Boring Company, Space-X and Mars, SolarCity, or Tesla, it is all incredibly exciting and transformational.  But that love shouldn’t blind us to the reality of how his vision is being poorly implemented.

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