While Tesla is expected to announce that the company has missed Model 3 production goals for the third quarter, the question, experts say, is whether more bad news will make that goal even harder to reach? How much longer, experts wonder, can Tesla continue to coast on the allure of promise?
“Not only does the [Model 3] miss undermine the credibility of future Model 3 targets, but it increases the near term risks,” UBS autos analyst Colin Langan wrote in a note to clients Monday. “We believe the market should not ignore fundamental challenges that persist with regards to Tesla’s Model 3 profitability, stationary storage & solar businesses, and eventual need to raise cash.”
The longer production problems persist, the more external challenges they’ll face, Langan noted.
“We see increased pressure on demand as luxury automakers launch competing products in the 2018-20,” he added.
A company spokesperson declined to comment on whether the company would fulfill a promise to deliver Model 3s to non-employee customers by the end of October.
Even so, Tesla customers — perhaps more than any other car buyers — have steeled themselves for setbacks, as their remarkable patience has already shown, according to Jessica Caldwell, the director of industry analysis with the auto research website Edmunds.com.
“People are very forgiving with Tesla compared to other automakers,” Caldwell said, noting that those expectations are more malleable, in part, because Tesla is not a traditional automaker. “The fact that these people have been waiting for 1½ years says a lot. If they wanted to, they could just go get a Chevy Bolt right now. It’s a perfectly fine electric vehicle, but it’s not a Tesla Model 3.”
Patience, however robust, is not unlimited, Caldwell cautioned.
It’s one thing to woefully undershoot production numbers in October. But if similarly dismal numbers persist into December and January, Caldwell said, that’s “a very different problem” because it suggests that the company is facing a serious struggle to correct its production issues.
“For Tesla as a company,” she added, “it could also be a big issue because they’re depending on revenue streams from that production that could seriously affect the company.”
News earlier this month that Tesla had fired “hundreds of workers” as a result of annual performance reviews have only added to speculation that the company is struggling to re-engineer itself as a mass-market automaker.
Tesla said the dismissals were unrelated to production delays and would have no effect on the vehicle’s continued rollout.
“Like all companies, Tesla conducts an annual performance review during which a manager and employee discuss the results that were achieved, as well as how those results were achieved, during the performance period,” a Tesla spokesman said at the time. “This includes both constructive feedback and recognition of top performers with additional compensation and equity awards, as well as promotions in many cases.”
“As with any company, especially one of over 33,000 employees, performance reviews also occasionally result in employee departures,” the spokesman added.
In recent months, the company has vacillated between lofty promises and calls for patience, as well as faith in their “S curve” production schedule, in which volume increases as the company fine-tunes its product — that Musk has highlighted for its pressure and difficulty. After he unveiled the Model 3 at Tesla’s Fremont, Calif., headquarters in July, the Tesla chief executive said production would increase to 20,000 vehicles per month by the end of the year.
“As the saying goes, if you’re going through hell, keep going!” Musk said at the time.
The company says that’s exactly what they’ve been doing. Tesla blamed lowly Model 3 numbers on “production bottlenecks” earlier this month and now says the company is in the early stages of its production ramp. That ramp is fully operational, the company says, and becoming increasingly automated and fine-tuned, increasing volume daily.
Investors can expect to have a clearer picture Wednesday of exactly how much that volume is increasing, analysts say.
Asked to comment on whether Model 3 reservations continue to increase, the Tesla spokesman pointed to statements made by Musk during Tesla’s most recent earnings call in August. At the time, he said, the company had amassed more than 500,000 gross reservations for the Model 3. Asked when Tesla expects to make money from the Model 3s, the spokesman again referenced Musk’s statement during the same call.
His answer: “For sure next year. 100 percent.”