Model 3 Gives Musk an iPhone Moment and Big Test for Factoriesby
253,000 initial orders show demand for electric-car model
Stock's rise while other car companies slump may signal change
Tesla Motors Inc.’s Model 3 unveiling was its iPhone moment: More than 250,000 orders have been placed for the car, unseen by most of the would-be buyers, including thousands who stood in long lines or camped out overnight at stores. For billionaire Chief Executive Officer Elon Musk, who has aspirations of his electric-car company becoming as big as Apple Inc., it was a ringing endorsement.
But when people camp out at an Apple store, they typically walk away with a new phone. The lines of people snaking around Tesla outlets were merely placing $1,000 deposits for a Model 3 -- a car Tesla won’t even start shipping until late 2017. Though perhaps that timing will change: Musk tweeted Saturday that the company was “focused on accelerating the ramp,” based on the blockbuster demand.
For now, the orders give Tesla an infusion of cash to ramp up manufacturing, as well as a show of enthusiasm for the company’s less-expensive car, which is intended to spread the adoption of electric vehicles and lift the youngest publicly traded U.S. automaker to profitability.
Tesla shares jumped on Friday while other automakers’ fell in the wake of disappointing U.S. new-vehicle sales in March.
The $35,000 Model 3 will have a minimum 215 miles (346 kilometers) range, and Musk said he’s “fairly confident” deliveries will begin in 2017. Tesla received more than 115,000 reservations in 24 hours, Musk said onstage at the company’s Hawthorne, California, design studio on Thursday. On Saturday, Musk tweeted that orders had reached 253,000. Some orders were placed from overseas, but Tesla is likely to exceed the maximum sales of 200,000 vehicles eligible to receive a $7,500 tax credit under U.S. Internal Revenue Service rules.
‘Really Good Car’
“We have an amazing product. I think you’ll be blown away,” Musk, 44, said Thursday. “You will not be able to buy a better car for $35,000, or even close. It’s a really good car, even with no options.”
The Model 3 is the linchpin of Tesla’s plan to reach beyond the most affluent buyers and make electric vehicles a significant part of the market. Much of the car’s platform is new, including the battery architecture and motor technology. Many of the executives who worked on the Model 3, including Chief Technology Officer JB Straubel and chief designer Franz von Holzhausen, have been part of the company’s leadership team for years.
Tesla shares closed at $237.59 on Friday, up 3.4 percent, after trading as high as $247.90, the highest intraday price in almost half a year.
“Tesla has changed the game again,” Andrea James, an analyst with Dougherty & Co., said in a note Friday in which she raised her price target to $500. “In one day, Tesla generated at least 150,000+ reservations, representing an order book of $6 billion in revenue, and generating $150 million in zero-cost capital from the $1,000 customer deposits.”
Musk suggested in 2015 that if Tesla continued to grow by 50 percent a year for 10 years, generating a 10 percent profit margin and garnering a price-to-earnings ratio of 20, it would be valued at about the same $700 billion Apple was worth then. It’s since slid to more like $600 billion.
The number of Model 3 reservations exceeded analysts’ estimates and is more than double the roughly 107,000 vehicles Tesla has sold to date. At $1,000 each, the deposits would infuse the company’s coffers with about $253 million. While the reservations are refundable, the outpouring suggests there will be plenty of demand for the company to work through once production gets under way.
“Model 3 orders at 180,000 in 24 hours,” said Musk in a tweet early on Friday. “Selling price with avg option mix prob $42K, so ~7.5B in a day. Future of electric cars looking bright!”
Tesla’s challenge will be to produce the cars quickly enough and well enough. The company aims to make 500,000 vehicles a year by 2020 and is counting on its battery factory under construction near Reno, Nevada, to further drive down costs. Tesla’s Fremont, California, factory can accommodate the assembly of 500,000 autos, said the company, which has yet to master manufacturing in high volumes.
Tesla’s “master plan,” laid out by Musk in August 2006, was to enter the auto industry at higher-end prices, then push down market as fast as possible with increasingly higher volumes. The Model 3 is the Palo Alto, California-based company’s fourth car, after the Roadster, the Model S sedan and the Model X sport utility vehicle. The Model X was unveiled in February 2012, with delays pushing back the initial deliveries to customers until September 2015.
Hardware for Tesla’s autopilot features will be standard and the four-door sedan will seat five adults. Design features include one large, continuous piece of glass for the rear roof area to enhance visibility.
Tesla said it plans to double the number of its Supercharger stations and its store count by the end of 2017. Customers in new markets including Brazil, India, and Musk’s native South Africa were among those able to place orders online Thursday.
While the Model 3’s base price still makes it a luxury model, it is not nearly the financial stretch for consumers as the $75,000-and-up Model S.
“I’ve been waiting to buy an electric car for 10 years,” Mark Dilsizian, a doctoral student at New Jersey’s Rutgers University who also runs a software startup, said on Thursday. “It’s safer, it’s greener, it’s better performing, it’s better designed.”