In its first 13 years of its existence, Tesla Motors made some of the world’s biggest, best-known companies look stuffy as it charged electric cars with sex appeal, built a zealous fanbase, set records for performance and quality, and even made its cars drive themselves—all the while dodging bankruptcy and even flirting with illegality to keep up its frenetic pace.
Not bad, but this is just the beginning. CEO Elon Musk has long promised to change the world, with an affordable electric car for the masses, one that happens to drive itself—and to make a profit doing it. That’s the key to transforming Tesla from a niche player into the company Musk says it can be, one making a palpable, positive impact on people’s lives and the planet they share, while keeping shareholders happy.
And 2017 is the year Tesla has to pull it off, or lose its dominant position and risk being left behind as one more daring automotive startup that just could’t hang.
Because behind those headline goals are the challenges in turning vaporware into a physical product at scale, that stage at which so many companies fail. And Tesla has to make that transformation while fighting off increasing competition from mainstream and newer automakers, continuing to improve its autonomous technology, and avoiding negative press.
Yes, Musk—who also builds rockets, sells solar roofs, and advises Donald Trump on tech issues—seems to thrive on pressure. And hey, he has made it this far. But he also has a bad habit of letting deadlines slip and costs creep north. And that may not fly anymore.
A Model For The Masses
Musk’s plan for Tesla has long been to start by selling luxury cars (the Model S sedan and Model X SUV), then use the resulting revenue to fund the development of a car everyone can afford—the long-awaited Model 3. At a starting price of $35,000, it’s in mainstream territory. Selling millions of them is fundamental to Musk’s goal: popularizing sustainable transport and slowing climate change.
For Tesla, the problem isn’t creating a car that appeals to millions—the automaker took 400,000 pre-orders for the Model 3 within weeks after revealing a prototype. The problem is producing millions of cars, on time, up to quality standards, without losing money.
“Delivering a brand new electric vehicle built from scratch is not an easy task to accomplish,” says Raj Rajkumar, an expert in autonomous and electric vehicles at Carnegie Mellon University. Tesla has pledged it will start deliveries in late 2017, but Rajkumar says 2018 is more realistic. “They need to learn about volume production, and test new capabilities and functions.”
Meet the Model 3, Tesla’s Most Important Car
For context, Tesla threw everything at increasing production in 2016, doubling annual production to about 100,000 cars. In April, Musk said he wants to produce half a million cars a year by 2020. Then in May, he said he’d get there by 2018. It’s an aggressive promise, given the degree of difficulty here. Increasing production tenfold in the space of three years demands exquisite control of global supply chains. A delay in a single component, from a single supplier, could hobble production and profit targets.
Musk says he learned valuable lessons from the “production hell” of the Model X, the overly complicated SUV that reached market two years late. He says the design of the Model 3 is far simpler (no crazy falcon doors, for example), in a bid to smooth the road to production. But that road still involves scaling up and streamlining work at its Fremont plant, and avoiding any quality issues that tend to come with quantity increases. It also has to keep pace by building out its proprietary service centers and already overcrowded supercharging network for all those new cars.
Tesla lost the race to build the affordable, long-range EV to General Motors, but the Model 3 and the Chevy Bolt serve different purposes. The Bolt is a halo car for GM, a sign of its ability to innovate—and a tiny fraction of its total output. “GM is a large company with global scale supply chain, and established manufacturing plants, but even then the Bolt will be sold at a loss,” says Rajkumar. Even then, it might be a victory. Tesla needs the Model 3 to be a financial success, because the small sedan will be its bread and butter car, making up the large majority of its sales.
Maintaining a Lead in Self Driving
Electric cars aren’t quite enough for Musk’s outsized ambitions. In October, the CEO announced plans to make every Tesla capable of driving itself—not just on the highway, but everywhere, in all conditions.
So Tesla is already equipping all vehicles coming out of its factory with the hardware Musk believes they need to make that happen, and he has promised to send a car from Los Angeles to New York by the end of 2017. “That’s definitely doable,” says Jeffrey Miller, IEEE member and an autonomous vehicle engineer at USC. He says other companies have shown similar abilities, already, like Delphi, back in 2015. The big difference is, Delphi’s cross-country demo stuck to the highway, an easy task compared to what Musk has in mind: door-to-door in full autonomy, including dropping the passengers in Times Square, then parking itself.
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Even if Tesla pulls it off, the voyage will be more a publicity stunt than a true demonstration of ability, says Rajkumar. Don’t expect the Tesla you take home to offer the same abilities right away. Still, showing off has its uses. “Because the automated vehicle market is going to be very large in the future, Tesla needs to continue to be seen as a market leader.”
That means avoiding bad publicity as much as seeking good. “Right now Tesla has the luxury of a highly educated consumer base,” says Tim Dawkins of SBD Automotive. “They’re early adopters and tech savvy enough to be willing to participate in betas.” When Tesla starts building mass market cars, and going after typical Honda or BMW buyers, that will change. Those drivers will need to understand the limitation of their cars’ technology, to avoid accidents.
To date, Tesla has been gung-ho with releasing “beta” versions of its technology, and using owners as testers. “I don’t see Tesla’s attitude towards risks taking a backseat,” says Rajkumar. “I think the consumers are the ones who have to be cautious.”
Competition is Growing
Once Tesla satisfies its Model 3 pre-orders, it gets another problem: finding new buyers in an increasingly crowded space. Musk has built a serious fanbase, but as he seeks to expand past the eager early adopters, he’ll have to fend off old and new competitors. At the low end, there’s Chevy, which started delivering the Bolt this month.
At the high end, which Tesla has dominated for years with its Model S and Model X, companies like Faraday Future, Lucid Motors, and Fisker are all building fast, sexy, electric cars in the six-figure range. The conventional automakers are getting in on the act too. Mercedes, Audi, Porsche, VW, and Jaguar—to name a few—are building compelling electric SUVs which promise to pull buyers from the Model X.
Despite the fan fever for the Model 3, selling any electric car to the general car buying public may be difficult. Carnegie Mellon researchers have found the masses haven’t yet dropped their idea of EVs as dinky golf carts. “US consumers viewed electric vehicles as $10,000 to $20,000 dollars lower in value than gasoline,” says Jeremy Michalek, director of the university’s vehicle electrification group, one of the study’s authors. (In China, another important market for electrics, consumers tend to view electrics as having added value.)
Early adopters might put up with the reduced range and long recharging times. Busy parents or business commuters, less likely—particularly while gas is so cheap. “If gas prices were to shoot up, that could persuade people to shift,” Michalek says. That’s unlikely, and betting on the price of oil is not the soundest business strategy.
Meanwhile, another source of Tesla’s income is under threat. Musk Motors makes a bundle in the US by selling the excess credits it earns for making zero-emission vehicles, to automakers with more gas-dependent offerings. Problem is, the incoming Trump administration may well be open to relaxing EPA fuel efficiency standards, so those credits could be worth less—or worthless.
The challenges are daunting, and would keep a lesser CEO than Elon Musk up at night. He’ll likely just pull his sleeping bag back out and nap near the Model 3 production line until everything meets his standards. It’s worth remembering that Tesla is but a teenager in the auto game, and has already achieved remarkable success, built an enviable brand, and created jobs in America. Things that 100 year-old Detroit based auto companies are still working on perfecting.
Yes, 2017 is going to be critical, but to judge Tesla by its past performance, it’s has a strong chance of being a ‘make’ rather than a ‘break’ year.
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