Tesla Model 3 Depositors Staying Put as Wait in Line LengthensBy
Reservation holders hang tight despite production hiccups
Strength of Musk-built brand prevails through early setbacks
Brian Lawley was among the first to reserve a Tesla Model 3 after standing in a lengthy line in March 2016 to plunk down $2,000 for not one but two reservations. Almost 20 months later, he’s not going anywhere -- even though the wait just got longer.
“I just want Tesla to get the Model 3 right, even if it takes them an extra six months,” said Lawley, 53. “I view any delays as a good thing to make sure that the quality is excellent.”
Lawley isn’t alone. Even as the company led by Elon Musk struggles with manufacturing bottlenecks and pushes back production targets by at least a quarter, many reservation holders aren’t budging. Bloomberg News contacted 20 consumers who paid deposits for the Model 3 and none had canceled their orders. Regardless of the concerns raised by slower output and an uncertain future for U.S. electric-car tax credits, Nomura analyst Romit Shah predicts the affinity for Tesla Inc. products will prevail.
“We believe there is a real passion for the brand,” Shah wrote in a report to clients that reiterated a $500 price target for Tesla shares, the highest on Wall Street. “It is bigger than loyalty because much of the enthusiasm comes from people who have never owned a Tesla. The only comparable we see is the iPhone.”
After Tesla announced this month it won’t hit a production rate of 5,000 Model 3 sedans per week until March -- not December, as initially planned -- reservation holders say they were alerted their already vague delivery date would be pushed back.
Lawley, the CEO of a consulting firm, said he now expects to get his first Model 3, which will have a longer-range battery with 310 miles per charge, around January, roughly a month later than anticipated. The second car, a dual-motor version, may not arrive until the end of 2018, though Tesla’s timelines have been known to slip.
“It seems to me that people would be willing to wait since they were never given a firm date when they would take delivery in the first place,” Edmunds analyst Jessica Caldwell said in an email. “The long wait seems to be building anticipation.”
Tesla’s total deposits -- which also includes money consumers put down for Powerwall battery packs and the more expensive Model S sedan and Model X crossover -- rose 14 percent in the third quarter from the previous three-month period, even after Musk told employees at a Model 3 handover party in July that the company would be entering “production hell.”
Tesla ended up making just 260 Model 3 sedans in the third quarter, far fewer than the company’s projection of 1,500.
“Demand for Model 3 is not going to be a constraint for quite a long time,” Tesla said in its third quarter letter to shareholders. A company spokesman declined to comment.
Model 3 reservation holders didn’t know the extent of the issues at Tesla’s battery factory in Nevada and its lone auto plant in California until the company released earnings on Nov. 1. If there was any shift in reservations following the announcement of production delays, it won’t show up in the company’s financial statements until the fourth quarter.
Still, of the 20 Model 3 customers Bloomberg News surveyed, only two were even considering canceling their reservations. Neither had actually done so. Another is trying to sell his reservation because he is moving out of the country.
Fueling anxiety for some potential buyers is concern that the $7,500 federal tax credit for electric vehicles won’t still be available by the time their car is ready. Under existing law, the tax credit starts to phase out once an automaker sells 200,000 electric or plug-in hybrid vehicles in the U.S., a number Palo Alto, California-based Tesla is expected to hit next year. The credits could disappear sooner if House Republicans get their way -- they’ve proposed eliminating them as part of the tax reform efforts afoot in Washington.
“Even if 10 percent cancel because of delays and 10 percent cancel because of tax credits, Tesla has hundreds of thousands of reservations,” Ben Kallo, a Robert W. Baird analyst, said by phone. “And very few people have actually seen, much less ridden, in the car yet.”
The longer the Model 3 is delayed, the more likely that tax credits will go to Model S or Model X drivers who may not need them as much as more budget-conscious shoppers who want the bare-bones $35,000 Model 3. Tesla also is assembling more expensive iterations of the sedan first before building the base version of the car.
Current Tesla drivers like Lawley, who leases a Model S in addition to the Porsche Boxster he owns, have priority as a thank-you from Tesla for their support, pushing first-time buyers back further still.
Several would-be buyers aren’t fazed by the prospect of losing out on the credit, including David Tayar, a corporate attorney in New York who already owns a Model S. “It’s not like I would be getting a tax credit if I bought an ICE,” he said, referring to an internal combustion engine-powered vehicle.
Others said the chance of the credit was important to their decision to reserve a Model 3. Raymond Nash, for example, got up at 2:30 a.m. to be among the first in line to place a reservation at Tesla’s store in Santa Monica, California. “I wanted to be early in line to get that tax credit,” he said.
Still, Nash -- who currently owns a Nissan Leaf and works as an Uber driver -- said he likely won’t cancel his reservation even if he can’t get the tax credit.
“If it goes away, I’ll just have to adjust my budget and pay,” he said. “I’m not happy about the delays, but I’m willing to wait. We know that Tesla has made a few hundred Model 3s, so we know that it is real, and we know that more are coming.”
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