It could only be described as a love fest when Tesla founder and CEO Elon Musk walked out onto the stage set up at the company’s Fremont, California factory on Thursday night. The cheers quickly turned into a roar of approval as Musk formally introduced the maker’s long-awaited Model 3 sedan.
The South African-born executive suggested those at the event sign up to order the new battery-electric vehicle, but they’ll have to wait in line. Even before the car was revealed, Musk declared, Tesla had already taken 115,000 orders for a vehicle that won’t reach showrooms before late 2017 — at the earliest.
“I feel confident [deliveries] will begin next year,” said the ever-confident Musk, revealing a slight hesitation. Tesla’s most recent entry, the big Model X SUV, was two years late to market, compounding the carmaker’s ongoing financial woes.
Though Tesla has been highly sought out by investors, with a stock market valuation far in excess of industry giants like Toyota and General Motors, it has only barely ever turned a profit in its 13-year history, and only then by using non-traditional accounting methods.
But the Model 3, promises CEO Musk, will change all that.
With only a few notable revisions — such as the grille-less front end and the nearly all-glass roof — the Model 3 looks like a downsized remake of the original Tesla sedan, the Model S. But the price has been downsized, as well. When it ultimately does come to market, the Model 3’s price tag is expected to start at $35,000, or half what the base Model S goes for.
The Model 3 will deliver nearly the same range, at 215 miles per charge. And, Musk told his audience, Tesla will offer larger, optional battery packs that will boost range — much as it does with the bigger sedan. Meanwhile, the Silicon Valley automaker also will offer ways to boost the base car’s performance, the slowest version of the Model 3 expected to launch from 0 to 60 in under 6 seconds.
“We at Tesla, we don’t build slow cars,” Musk said to cheers.
The debut presentation was relatively brief, at least by automotive standards, and didn’t provide many details. Musk did note that the Model 3 was designed to achieve the maximum five-star federal safety ratings and will include an array of active safety technologies — expected to include forward collision warning with emergency auto-braking, as well as Tesla’s new AutoPilot, a semi-autonomous system capable of hands-free driving on well-marked, limited-access highways.
The Model 3 will be built alongside both the Models S and X at the Fremont plant, a facility that once served a joint venture between General Motors and Toyota. Its capacity is around 500,000 vehicles annually, Musk noted, or roughly ten times as many vehicles as Tesla built in 2015. And the visionary entrepreneur has made it clear he expects to sell every Model 3 the plant is capable of producing.
For many Tesla fans, it’s Musk that is the biggest draw.
“There is nothing rational about Tesla," suggested Rebecca Lindland, an analyst with Kelley Blue Book.
It is the “emotional” draw of the brand, with people who “want to be part of … Elon Musk’s dream,” that she believes will provide Tesla with plenty of buyers.
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But not everyone is quite so confident. Efraim Levy, a widely followed analyst with S&P Global Market Intelligence, lowered his rating of Tesla to “Sell” a week ahead of the Model 3 debut, warning, “We see significant execution and valuation risk in the premium priced stock.”
Following the debut, Levy noted the initial flood of orders "raises our confidence in the success...of the vehicle," but he maintained his bearish position on Tesla stock.
One concern is that Tesla will finally face some direct competition, starting with the new Chevrolet Bolt battery-car General Motors CEO Mary Barra unveiled in January at the Consumer Electronic Show. It will cost about $30,000 — after factoring in federal tax credits — and deliver an only slightly lower 200 miles per charge.
The Bolt will reach showrooms as much as a year ahead of the Model S. And while Musk promised to more than double the number of Tesla outlets by the end of 2017, it will still have a fraction of Chevy’s showrooms — while still being locked out of a number of states that bar Tesla’s business model depending on factory-owned, rather than franchised, dealerships.
Meanwhile, Nissan is reportedly working up a second-generation version of its Leaf battery-car expected to also get about 200 miles. And a flood of other, established automakers — ranging from Ford to Volkswagen — have similar projects in the works.
The other challenge for Tesla will be ensuring that the Model 3 doesn’t run into the quality snags suffered by the Model S. While the bigger sedan won kudos for looks, features, range and performance, influential Consumer Reports magazine did an about-face last year, removing the sedan’s coveted “Recommended Buy” rating because of serious reliability issues.
That so far has had little impact on sales of the more expensive Models S and X, but Dave Sullivan, an analyst with AutoPacific, Inc., warns that mainstream buyers “won’t look past those problems.”
Maybe not, but Tesla, for now, is clocking new orders for the Model 3 fast. By Friday morning, it claimed, the advance order count was already over 130,000 and growing.
Even if Tesla holds to its schedule this time, there’ll be a roughly 18-month lag before deliveries begin, something likely to frustrate Tesla as much as those buyers. The hefty cost of developing the new battery-car has drained its coffers and pushed the company’s balance sheet deep into the red. It has to hope it can continue to sell enough of its bigger models to generate the cash it needs to keep paying its bills until the Model 3 is finally ready for sale.