Could The Tesla Model 3 Trigger A Revolution In The Automobile Industry?
With an initial 30-car roll-out in a grand ceremony last Friday, the long-awaited Tesla Model 3 began its entry into the mass market. Looking to replicate the success of its flagship product, the Model S, on a broader scale, Tesla has priced the cheapest model of the newly-introduced electric sedan at a competitive 35,000 dollars. Though not as flashy as the Model S, the Standard Model 3 comes packaged with a host of revolutionary features such as a stripped-down, minimalist interior, a centrally positioned 15-inch landscape monitor and a driver-facing camera. For an extra 5,000 dollars, customers can have the “Enhanced Autopilot” feature activated which enables the car to automatically perform some driving functions and, subject to regulatory restrictions, it can eventually be made fully-autonomous with a few software updates for another 3,000 dollars. All of this, combined with a fully-charged range of 220 miles, a 0-60 mph time of 5.6 seconds and a top speed of 130 mph makes it a serious competitor for other fully-electric vehicles within its price range such as the Nissan Leaf and the Chevrolet Bolt.
Tesla’s Production Woes
The hype surrounding its launch, with rapidly growing orders that have already exceeded the half million mark, presents a logistical problem for Tesla who have found themselves choking on their own success. Even if they were able to ramp up production to 10,000 cars a week as envisaged by Tesla’s ambitious CEO, Elon Musk, it would take almost a year just to fulfill existing pre-orders. Apparently, this was a problem that was predicted very early on during the Model 3’s development, and attempts were made to rectify it by designing the sedan so that it could be manufactured with as few parts a possible. But even this may not be enough to help satisfy the unrelenting cataract of new orders which, in spite of around 63,000 cancellations over the past year, have been increasing at a rate of 1,800 per day since Friday’s launch.
However, Co-Founder of Tesla, Elon Musk, remains optimistic, stating in a conference call on Wednesday:
“What people should absolutely have zero concern about, and I mean 0, is that Tesla will achieve a 10,000 unit production week by the end of next year.”
…which isn’t very surprising coming from someone who plans to send people in spaceships to Mars, 10 years from now. His confidence was even more apparent during the grand launch ceremony held outside the Tesla factory in California as he paraded the Model 3 (with typical Musk-like flair) as the car that would kick-start an automobile revolution. It is as if he believes the Model 3 will do for Tesla what the Model T did for Ford. But could the Model 3 really be a game changer for Tesla and the future of electric vehicles? Could it lead to their mass adoption just like how the Model T cemented the dominance of the automobile over 100 years ago.
Well… there is no definite answer. While electric vehicles have been around for decades, their proliferation in the wider market has been impeded by a lack of supporting infrastructure, rigid consumer sentiment, cheaper gasoline or hybrid alternatives and performance deficiencies. This is compounded by the antagonistic behaviour of existing auto-mobile manufacturers who see a lower potential for profit in a market dominated by electric vehicles. The arrival of a better electric car may not change much unless these obstacles are overcome.
Why Electric Cars Haven’t Really Taken Off?
Long charging times, in particular, have been discouraging for prospective electric car owners. Using a domestic power supply to charge an electric car such as the Nissan Leaf to full capacity can take more than 6 hours. In recent years, commercial enterprises and public authorities have invested in specialized public charging stations which enable faster charging times. As of June 2017, the US has around 16,000 of them, of which most are equipped with so-called “AC Level 2” charging outlets that still take a few hours to completely re-charge an empty battery.
However, around 2,100 of these are “DC Fast Charging Stations” which can charge a typical electric car up to 80 percent in as little as half an hour. Of course, some of these are the dreaded “AC Level 1” stations which are no better than the power outlets you can find installed in most homes. And because of the ongoing boom in the sales of chargeable electric vehicles, public charging points have become overcrowded with long queues, forcing local authorities to begin charging motorists for their use and to introduce fines for keeping their cars plugged in longer than need. A common solution to this problem is to avoid using public charging points entirely and leaving electric cars it plugged in at home overnight when they are least likely to be used, which is something 85 percent of electric car owners do. However, it still doesn’t change the fact that limited-range makes most affordable electric cars nearly useless for driving very long distances. While the Tesla Model S 100 D has an EPA-rated range of 335 miles (539 kilometers), which puts it neck and neck with most conventional automobiles, an exorbitant price of almost 100,000 dollars means that it is far out of the reach of the average motorist. The distribution of the relatively few charging stations in the US doesn’t help either. A significant proportion are located in California and some states, mostly in the Mid-West, only have a handful of them. Moreover, they are concentrated around car dealerships and major cities which makes cross country road trips a distant dream for many electric car owners.
Tesla appears to realize this and has established its own network of 250 “Supercharger” stations which have been strategically placed along key thoroughfares that criss-cross the country. Each station can provide 170 miles worth of charge in half an hour. It is hoped that this would enable Tesla enthusiasts to drive from coast to coast without any fear of being stranded hundreds of miles from the nearest charging station.
Performance deficiencies aren’t the only obstacle fully electric vehicles have to overcome. Even with the Model 3’s 35,000 dollar base price (excluding any government incentives), it is still almost twice as expensive as the Mazda 3, an eerily similar looking sedan with a gasoline engine that shares many design features. While Tesla has succeeded in reeling in all-electric car enthusiasts and environmentally conscious drivers, it may have a difficult time justifying the Model 3’s higher price to everyday, middle-class people who may not be willing to pay that premium just to own an electric car. And the somewhat lower cost of charging one compared to filling the tank of a conventional automobile with gasoline has not been enough to convince them. Furthermore, the current slump in crude oil prices may discourage new orders for the Model 3 as cost-sensitive consumers opt for cheaper, gasoline powered alternatives.
Electric Cars’ Worst Enemy
But low gas prices aren’t the worst of Tesla’s problems, automobile manufacturers have done everything in their power to maintain the status quo. Because electric vehicles are more reliable with fewer moving parts, they tend to tend to break down less often. A market dominated by electric vehicles threatens their tried and tested “Dual Profit-Centre” business model where after-sale services constitute a significant proportion of their revenues. Unlike Tesla, which only manufactures electric vehicles, these dominant companies have a lot to gain from ensuring that conventional automobiles are not driven out of the market. While some of them do produce electric cars, they are merely secondary sources of revenue which does not warrant them being mass-produced. Consequently, they are manufactured in low volumes and sold at inflated prices in order to be profitable which prevents their widespread adoption. Even though electric motors and lithium-ion batteries are orders of magnitude less complicated than internal combustion engines, automobile manufactures justify these higher prices by stating the difficulty and expense of producing them.
They didn’t just stop there. After flooding the market with overpriced electric vehicles, many auto-makers exploited loopholes in the Zero Emissions Vehicle (ZEV) program, which compels Auto-makers to sell a certain number of electric vehicles in California and 9 states on the east coast of the US. For example, Toyota, the world’s largest automobile manufacturer, purchased ZEV “credits” from other automakers so that it, in 2015, was able to sell 400,000 gasoline-powered cars in California in spite of the fact that it had only sold 270 hydrogen fuel cell cars in the state. Additionally, many of them embarked on an aggressive campaign, bashing electric cars as expensive underperforming novelties that are far ahead of their time. Of course, all of this is not true as Tesla has repeatedly shown that an electric car that is able to perform almost as well as one that runs on gasoline which is (somewhat) accessible to the masses is very much possible with current technology.
Unfortunately for Tesla, they have been successful in prolonging the lifecycle of gasoline-powered automobiles. As a result, the image of electric cars as the realm of enthusiasts and tree huggers has become entrenched in the mind of the average consumer. Rigid tastes have made it difficult for them to achieve market penetration as the public’s familiarity with conventional automobiles and the “range anxiety” associated with electric cars has cut into their sales. As a result, a vicious cycle has formed where the small number of electric vehicles on the road has stalled the development of supporting infrastructure which itself discourages motorists from purchasing them.
But Tesla should not lose all hope. While the Model 3 remains untrodden ground, statistics seem to indicate the company is on the right track to achieve its goal becoming an auto-maker for the mass market. The Model S, which was launched five years ago, struck a chord with upper-class city-dwellers who fell head over heels in love with its stylish exterior and the quaint prospect of owning an electric car. Though it was originally considered to be somewhat of a luxury vehicle, there has been a recent shift in the demographic of Tesla owners with increasing numbers of middle-class Americans. This was possible because many Model S’s were resold in the second-hand market. What Tesla may have learned from this is that its prohibitive cost was the only factor stopping many people from purchasing the Model S. This lesson may have been the impetus for the development of the cheaper Model 3.
Could This Finally Bring Tesla Out Of “The Red”?
So there is something to vindicate Musk’s enthusiasm for the Model 3 and that is reassuring to hear if you’re one of Tesla’s investors. In every year of its existence, the company has lost money. Yes, the most valuable automobile manufacturer in the world has never made a profit. But it is hoped that the Model 3 will finally put the company “in the black”. As Tesla burns through hundreds of millions of dollars in a massive effort to scale up production to meet mounting orders, taking the measure of what is at stake is a sobering thought. A single major slip-up could send the company’s stock price hurtling downwards and leave Tesla in deep trouble. Just how deep? Well, let’s just say complete financial ruin.
On a more positive note, if Tesla really does deliver on its promises, we could witnesses a historic moment in the company’s history. Since its founding, it has lost almost 2.9 billion dollars. Even if it were to sell just enough Model 3’s to fulfill all its standing pre-orders, it would generate a massive profit that would not just cover this loss but see Tesla’s stock price shooting skywards. However, the success of the Model 3 alone is not likely to revolutionize the automobile industry (as envisioned by many) unless Tesla can somehow surmount the many obstacles that have stopped the mass adoption of so many electric vehicles before. Will they be able to turn the Model 3 into the next Model T? In the end, only time will tell.