Last week, Tesla chief technical officer JB Straubel made a presentation to the engineering students at the University of Nevada – Las Vegas. Tesla is donating $1,000,000 to the school to endow a battery research program. It will also offer internships at the nearby Tesla GigaFactory to selected UNLV students.
It is common for Tesla leaders from Elon Musk on down to slip interesting tidbits of information into their public presentations. In this instance, Straubel dropped this piece of news in at the end of his hour long presentation.
“Most of the people inside of Tesla are no longer working on the S and the X, but they’re hard at work designing and inventing all the technologies to go into the Model 3,” Straubel said. “[I]t’s a completely new platform — different technology base — and aimed at building hundreds of thousands per year instead of tens of thousands per year.”
It is no exaggeration to say that the Tesla Model 3 will make or break the company. As far back as 2006, Elon Musk was outlining his master plan for Tesla Motors. It is presented in the form of a graph at the top of this page and has three components:
- Build an expensive, low-volume car.
- Use that money to build a medium-priced, medium-volume car.
- Use that money to build a lower-priced, high volume car.
The expensive, low volume car was the Tesla Roadster. That was followed by the less expensive Tesla Model S sedan and Model X SUV. The Model 3 is intended to be the moderately priced, high volume car that will move Tesla out of the shadows and into the spotlight. Everything it has done to date — its proprietary system of SuperCharger stations, its advancements in autonomous driving technology, and its commitment to building high quality cars — were all designed to make the Model 3 possible.
Tesla fully intends to build 500,000 Model 3 cars a year. It has already upgraded its paint shop so it can handle that many cars. The key to the whole puzzle is the GigaFactory. Without that massive battery making facility, which is scheduled to commence manufacturing operations in the first half of 2016, Tesla will simply not have access to enough batteries to supply a half million new cars a year. The batteries for the Model 3 alone will exceed the total production of lithium ion batteries for automotive uses last year.
There is another factor to consider, warns Daniel Sparks of The Motley Fool. Dan is a stock analyst who follows Tesla closely. He says that timing is critical. The GigaFactory has to be up and running before the Model 3 can go on sale in significant numbers. And the Model 3 will need to be in production in order to absorb the output of the GigaFactory when it is fully operational.
That is precisely where things could go off the rails. The Model 3 is scheduled to be introduced in concept form in March of 2016 and be on the road in 2017. However, Tesla was 2 year late getting the Model S to market and more than 2 years late getting the Model X into production. If the Model 3 suffers similar delays, the whole Tesla dream could go up in smoke. Tesla’s biggest marketing advantage is being years ahead of its competitors, but powerful automakers like Mercedes, Audi, BMW, Volvo and Chevrolet are rushing to catch up. If Tesla relinquishes its lead, that could spell economic disaster for the company.
So far, Tesla has raised money for its operations by getting investors to believe in its promises about where the company will be in 2020 and beyond. Investors are a fickle lot. Some say the stock market responds to only two forces — fear and greed. Right now, greed and thoughts of the pot of gold buried at the end of Elon Musk’s rainbow have kept the stock afloat. If that greed turns to fear — if people start to think that Tesla cannot deliver on its promises — the whole Tesla dream could unravel.
Personally, I think Elon and his merry band have hit home run after home run against almost impossible odds. If Musk has one flaw, it is his tendency to overpromise and underdeliver. Do you believe in the gospel according to Musk? Why or why not? Tell us in your comments.